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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[x] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934 for the fiscal year ended December 31, 1998
OR
[ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 for the transition period from ______ to _________
0-23494
(COMMISSION FILE NO.)
BRIGHTPOINT, INC.
(Exact name of registrant as specified in its charter)
DELAWARE 35-1778566
(State or other juris- (I.R.S. Employer
diction of incorporation) Identification No.)
6402 CORPORATE DRIVE, INDIANAPOLIS, INDIANA 46278
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (317) 297-6100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of March 25, 1999 was approximately $310,000,000. As of March
25, 1999, there were 53,276,737 shares of the registrant's Common Stock
outstanding.
Documents Incorporated by Reference:
Portions of the following documents are incorporated by reference into the
parts of this Form 10-K as indicated herein:
Proxy Statement for Annual Meeting of Stockholders
to be held on May 18, 1999......................................Part III
1998 Annual Report to Stockholders........................Parts I, II & IV
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PART I
ITEM 1. BUSINESS.
GENERAL
Brightpoint, Inc. (the "Company" or "Brightpoint") is a leading provider of
innovative services to customers within the supply chain of the global wireless
telecommunications industry. Brightpoint enhances the success of its customers
through the specialized and focused provision of efficient and effective
solutions for their mission-critical business requirements. Brightpoint handles
products manufactured by such companies as Nokia, Ericsson, Motorola, Kyocera,
Siemens, Sony and Panasonic and provides integrated services to these
manufacturers and some of the world's leading wireless network operators along
with their associated service providers, resellers, agents and retailers. The
Company's distribution services include purchasing, marketing, selling,
warehousing, picking, packing, shipping and delivery of wireless handsets and
accessories. Its integrated logistics services include, among others, support
for prepaid programs, inventory management, procurement, product fulfillment,
programming, light assembly, telemarketing, private labeling, kitting and
customized packaging, product warranty, repair and refurbishment and end-user
support services. The Company is one of the largest dedicated distributors of
wireless handsets and accessories in the world, with operations centers and/or
sales offices in Argentina, Australia, Brazil, China (including Hong Kong),
France, Germany, Ireland, Mexico, the Netherlands, New Zealand, the Philippines,
Poland, South Africa, Sweden, Taiwan, the United Arab Emirates, the United
Kingdom, the United States, Venezuela and Zimbabwe and provides its services to
a customer base of more than 20,000 network operators, manufacturers, agents,
resellers, dealers and retailers throughout the world.
For the year ended December 31, 1998, the Company's revenue and net income,
excluding the after-tax effects of certain one-time and non-recurring items
("adjusted net income"), were $1.6 billion and $39.7 million, respectively,
representing increases of 57% and 61%, respectively, when compared to revenue
and adjusted net income for the year ended December 31, 1997. The Company's
growth in revenue was driven primarily by increases in worldwide demand for
wireless handsets and accessories (including replacement and upgraded
equipment), by the Company's expansion into new geographic markets and by its
increased market share. The Company's operating margin also increased due to
an increase in gross margin which is due primarily to its higher-margin
integrated logistics services and expanded accessory sales in all four of its
operating divisions. This increase in gross margin outpaced the growth in
selling, general and administrative expenses as a percent of revenue resulting
in an increase in operating income.
The Company was incorporated under the laws of the State of Indiana in
August 1989 under the name Wholesale Cellular USA, Inc. and reincorporated under
the laws of the State of Delaware in March 1994. In September 1995, the Company
changed its name to Brightpoint, Inc. Unless the context suggests otherwise,
references herein to the "Company" or "Brightpoint" mean Brightpoint, Inc., its
predecessors and its subsidiaries.
RECENT DEVELOPMENTS
Through the end of the third quarter of 1998, the Company was engaged in
the business of trading wireless handsets. Trading involves the purchase of
wireless handsets from sources other than manufacturers or network operators
(i.e., trading companies) and the sale of those handsets to other trading
companies (i.e., purchasers other than network operators or their
representatives). The Company decided to cease its trading activities and
discontinue its trading division, which was comprised solely of this
lower-margin business, at the beginning of the fourth quarter of 1998, primarily
because: (i) those activities were not consistent with its strategy of
emphasizing relationships with wireless equipment manufacturers and network
operators, (ii) the margins earned on the trading activities were rapidly
decreasing and (iii) the Company had increasing concerns about the business
practices of many trading companies. In connection with the discontinuance, the
Company recorded a charge of approximately $17.7 million ($13.8 million net of
related tax benefits) in the fourth quarter of 1998.
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In addition to the charge related to exiting the trading business noted
above, the Company also recorded a non-recurring charge in the fourth quarter of
1998 which related to the Company's elimination of other distributors from its
supply and sales channels. Traditionally, the Company used other distributors
to reach markets in which it lacked an in-country presence. As the Company has
built or acquired its infrastructure in various markets around the world,
however, it has succeeded in decreasing its dependence on other distributors.
This deliberate shift in focus from significant sales to other distributors to
direct in-country relationships with network operators and their representatives
was substantially completed by the Company in the fourth quarter of 1998 at
which time it determined the value of certain assets related to its business
activities with these other distributors to be impaired. The impaired assets
include accounts receivable generated by the sale of products to the other
distributors and supplier credits related to the purchase of products for these
channels. Both classes of assets were determined by the Company to have lost
significant value upon termination of the related business relationships and,
thus, the Company recorded a charge of approximately $8.0 million ($6.1 million
net of related tax benefits) in connection with the write-down of these assets
to their estimated fair value.
On March 10, 1999, the Company reported that it anticipates revenue and net
income for the quarter ending March 31, 1999 and for the year ending December
31, 1999 to fall below expectations. The factors discussed below which impact
the Company's first quarter results may also impact the remaining quarters of
1999.
Beginning in late January 1999, the Company experienced difficulties in
procuring an adequate supply of products in its Asia-Pacific region,
specifically in China and Taiwan. The Company has adopted a strategy in China
of procuring its supply from manufacturers in China. This strategy resulted in
an inadequate supply of product for the first quarter of 1999. In addition,
trading companies selling product into China from other markets have continued
to create price instability, thereby lowering the Company's margins.
In both the Asia-Pacific and Latin America divisions, the Company has
tightened credit policies in response to recent economic uncertainties in those
regions. Although the Company believes that its policies are appropriate and
prudent, the Company may have lost sales to competitors offering more liberal
credit terms.
On January 13, 1999, the Brazilian government allowed the value of its
currency, the real, to float freely against other currencies. Between January
13, 1999 and March 17, 1999, the real's exchange rate declined against the U.S.
dollar by as much as 44% from the exchange rate on December 31, 1998. As nearly
all of the Company's transactions in Brazil are real-denominated, translating
the results of operations of the Company's Brazilian subsidiary into U.S.
dollars at devalued exchange rates will result in a lower contribution to
consolidated revenues and operating income. In addition, it can not be
determined at this point in time, what effect, if any, the devaluation of the
real will have on the economy of Brazil and the overall demand for the Company's
products and services.
As previously discussed, the Company discontinued its trading division in
the fourth quarter of 1998 in an effort to develop and capitalize upon stronger
relationships with wireless equipment manufacturers and network operators. While
the Company continues to believe this strategy is appropriate, the Company has
been unable to replace the trading revenue previously derived in the United
Kingdom and Germany with revenues from sales or services provided directly to
network operators.
WIRELESS COMMUNICATIONS INDUSTRY
The wireless communications industry provides voice and data communications
primarily through cellular telephone, personal communications services ("PCS"),
personal communications networks ("PCN"), satellite, enhanced specialized mobile
radio ("ESMR") and paging services. Among other factors, economic development,
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advances in systems technology and equipment, the proliferation of manufacturers
and the increased number of network operators have increased consumer acceptance
and driven increases in worldwide demand for wireless communications equipment
and services.
In recent years, the markets for wireless communications equipment and
services have expanded significantly. From 1997 to 1998, the number of worldwide
wireless subscribers increased by 75 million, or 36%, to approximately 286
million. Nonetheless, at the end of 1998, wireless penetration was estimated at
only 24% of the population within the United States and was still, on average,
less than 5% of the population globally, reflecting worldwide opportunities for
continued growth within the wireless communications industry. The number of
worldwide subscribers is expected to grow to approximately 450 million
subscribers by the end of 2000. The information contained in this paragraph was
obtained from a leading independent industry research group.
Although it cannot be assured that the Company will grow at rates
comparable to those experienced by the industry, the Company believes it is
positioned to take advantage of the following major trends taking place within
the industry:
New Network Operators. The number of network operators in many markets has
grown as a result of increasing deregulation within the wireless communications
industry, and the introduction of new technological applications such as PCS and
satellite-based communications systems. The emergence of these, and other, new
wireless communications technologies and services is expected to increase both
the number of wireless network operators in each market and the services
provided, including seamless roaming, increased service coverage, improved
signal quality and greater data transmission capacity. This increase in the
number of network operators, together with the increased number of resellers of
wireless communication services in certain markets, is expected to intensify
competition for new and existing subscribers, thereby reducing prices to
subscribers and driving growth in subscribers and the market for wireless
communications equipment.
Increasing Penetration of Markets Worldwide. The Company expects that
continuing demand for wireless services will drive increased penetration of
markets worldwide. In certain markets such growth has been driven by economic
growth, increased service availability or the lower cost of service compared to
conventional wireline telephony systems. In addition, certain markets
characterized by higher market penetration, have also grown, primarily as a
result of increasing deregulation, the availability of additional spectrum
frequencies, the allocation of new network operator licenses, increased
competition and the emergence of new wireless technologies.
New Technologies, Enhancements and Applications. First generation cellular
networks primarily used analog technologies. However, these technologies
presented a number of challenges for network operators and users, including ease
of fraud and cloning; capacity utilization issues; limited battery life; and
difficulty in providing enhanced features. To alleviate these concerns, new
wireless networks have increasingly been built around digital technologies,
which provide increased network capacity, more functionality, better voice
quality and greater security/privacy than analog technologies. The conversion of
subscribers from analog to digital technologies, which continues to occur
primarily in North and Latin America as well as in Japan, Korea and China, has
had a positive impact on the growth of handset demand. In addition, there are
new wireless communications technologies, enhancements and applications being
introduced into the wireless communications market. These include wireless local
loop and satellite-based communications as well as handset feature and network
enhancements such as e-mail, internet access, fax capabilities, increased talk
and standby times, smaller and lighter weights and multiple-band reception.
These developments are expected to contribute to future subscriber growth.
Proliferation of Manufacturers. With the opportunities presented by a
rapidly expanding market for wireless communications equipment as well as new
technologies,
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enhancements and applications and the penetration of the mass consumer market,
many new manufacturers are producing wireless handsets and accessories,
including certain manufacturers who have historically been successful in
providing consumer electronics to the mass consumer market. The greater number
of manufacturers is expected to heighten competition and may provide consumers
with lower handset prices, broader selection, more feature-rich products and new
market channels, resulting in higher product turnover by end users.
Outsourcing. As the variety of handset models expands, digital technology
evolves and distribution migrates from the agent/dealer network to mass
retailers, network operators are switching from in-house distribution to
independent distribution services in order to reduce overall costs and to meet
the increasing demands of the various channels to market. In order to maintain
their resources for marketing, sales and customer retention, new network
operators are also increasingly outsourcing their handset distribution,
fulfillment and inventory management functions (as opposed to building
distribution infrastructure). At the same time handset manufacturers are
outsourcing some of their channel management functions and utilizing integrated
logistics services as a means of simplifying and reducing the cost of their
worldwide distribution systems. Finally vendors and network operators are
targeting the growing consumer segment through mass retail channels, requiring
greater levels of fulfillment services in order to address the logistical
challenges of supporting mass retailers and consumer electronics retail stores.
GROWTH STRATEGY
The Company's two primary strategies for building on its position as a
global leader in providing distribution and integrated logistics services to the
wireless communications industry are as follows:
Value Chain Migration. The Company's Value Chain Migration strategy calls
for a hastening of the innovation and development of services offered that
provide superior solutions for the mission-critical business requirements of its
customers. The Company intends to continue to quickly deploy these service
capabilities throughout the organization, offering them in all appropriate
regions, targeting its marketing efforts on network operators and equipment
manufacturers. The Company intends to deliver its services through the market
channels that best serve the needs of its customers, including appropriate
e-commerce venues. The Company's focus is on developing a steadily increasing
perception of value based on the expectation that its outsource solutions will
demonstrate competitively superior capabilities.
Supply Chain Development. The Company's Supply Chain Development strategy
focuses on expanding the footprint of key existing equipment manufacturer
relationships. The Company will attempt to seek to grow product lines, brands
and technologies handled over increasingly larger territories, extending its
reach to allow the Company to provide services to wireless equipment
manufacturers in the markets that are critical to their success. If
appropriate, the Company intends to develop relationships with additional key
equipment manufacturers on the basis of customer demand, specific technology
competence and/or regional opportunity.
SERVICES
The Company has become one of the leading suppliers of distribution and
integrated logistics services that move wireless handsets and accessories
through market channels, primarily because of its understanding of the needs
within each distribution channel and its development of the knowledge and
resources necessary to create successful solutions.
The Company's services are intended to provide value to wireless handset
manufacturers and network operators. Through the authorized distribution of
wireless communications products (handsets and accessories), the Company intends
to help manufacturers achieve their key business objectives of unit sales
volume, market share and points of sale. The Company targets its efforts at the
distribution
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channels identified by the manufacturers. The Company's integrated logistics
services are intended to provide outsourcing solutions for the network
operators' mission-critical business requirements. These integrated logistics
services are designed to support network operators in their efforts to add new
subscribers and increase system usage.
Distribution Services. The Company's distribution services include the
purchasing, marketing, selling, warehousing, picking, packing and shipping of a
broad selection of wireless communications products from leading manufacturers.
The Company continually reviews and evaluates wireless communications products
in determining the mix of products purchased for resale and seeks to acquire
distribution rights for products which the Company believes have the potential
for significant market penetration.
The products distributed by the Company include a variety of handsets
designed to work on substantially all operating platforms (including analog
platforms, such as AMPS, N-AMPS, TACS and NMT, and digital platforms, such as
CDMA, ESMR, GSM and TDMA) and feature prominent brand names such as Nokia,
Ericsson, Motorola, Kyocera, Siemens, Sony, and Samsung. For the years ended
December 31, 1997 and 1998, approximately 88% and 82%, respectively, of the
Company's revenue was derived from handset sales.
In addition, the Company distributes handset accessories, such as
batteries, chargers, cases, "hands-free" kits and others. Among other things,
the Company purchases and resells original equipment manufacturer ("OEM") and
aftermarket accessories, either prepackaged or in bulk; those accessories
purchased in bulk are packaged by the Company according to its customers'
specifications. Accessories typically carry higher margins than handsets. For
the years ended December 31, 1997 and 1998, sales of accessories accounted for
approximately 6% and 9%, respectively, of the Company's revenue.
Integrated Logistics Services. The Company's integrated logistics services
include, among others, support for prepaid programs, inventory management,
procurement, product fulfillment, programming, light assembly, telemarketing,
private labeling, kitting and customized packaging, product warranty, repair and
refurbishment and end-user support services. In many of its markets the Company
has contracts with network operators pursuant to which the Company provides its
integrated logistics services. The Company also procures wireless handsets and
accessories for its customers using the Company's own sources or the customers'
specified vendors and performs packaging and kitting functions for them,
whereby the Company receives orders, either directly from customers or from
customers' end-users, via electronic data interchange, and then makes shelf
ready kits using customers' customized packaging in satisfaction of the orders.
For certain of its customers, the Company also finances purchases of wireless
handsets and accessories up to an agreed upon credit limit. When the Company
provides such contract financing, it assumes the financial risk but typically
not the risk of product obsolescence. When the customer consigns products to the
Company for order fulfillment, the financial risk and the risk of obsolescence
both typically remain with the customer.
During the year ended December 31, 1998, the Company generated revenue from
its integrated logistics services of approximately $146.4 million (9% of
revenue) as compared to approximately $58.3 million (6% of revenue) for the year
ended December 31, 1997. Because the fees for such services have higher margins
than those associated with handset and accessory sales, they represent a higher
than proportionate percentage of the Company's operating profits.
CUSTOMERS
The Company provides distribution and integrated logistics services to a
customer base of more than 20,000 network operators, manufacturers, agents,
resellers, dealers and retailers. For the years ended December 31, 1997 and
1998, aggregate sales of handsets and accessories to the Company's five largest
customers
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accounted for approximately 15% and 14%, respectively, and no single customer
accounted for more than 10%, of the Company's revenue.
The Company generally sells its products pursuant to customer purchase
orders. The Company generally ships products on the same day orders are received
from the customer. Unless otherwise requested, substantially all of the
Company's products are delivered by common carriers. Because orders are filled
shortly after receipt, backlog is not material to the Company's business. The
Company's integrated logistics services are typically provided pursuant to
agreements with terms between one and three years which may be renewed. These
agreements may be terminated by either party subject to a short notice period.
PURCHASING AND SUPPLIERS
The Company has established key relationships with leading manufacturers of
wireless communications equipment. The Company generally negotiates directly
with manufacturers and suppliers in order to obtain wireless handset and
accessory inventories of popular brand name products on favorable pricing terms.
In 1998, the Company purchased from more than 60 suppliers. Inventory purchases
are based on quality, price, service, customer demand, product availability and
brand name recognition. Certain of the Company's suppliers provide favorable
purchasing terms to the Company, including price protection, cooperative
advertising and marketing allowances. Product manufacturers typically provide
limited warranties which the Company extends to its customers.
The Company's two largest sources of wireless handsets and accessories in
the aggregate accounted for approximately 56% and 75% for the years ended
December 31, 1997 and 1998, respectively, of the Company's product purchases.
For the year ended December 31, 1997, the Company's two largest suppliers (Nokia
and Ericsson) each accounted for approximately 28% of the Company's product
purchases. For the year ended December 31, 1998, the Company's two largest
suppliers (Nokia and Ericsson) accounted for approximately 55% and 20%,
respectively, of the Company's product purchases. For these periods, none of the
Company's other suppliers accounted for more than 10% of product purchases. Loss
of the applicable contracts with these or other suppliers or failure by these or
other suppliers to supply competitive products on a timely basis and on
favorable terms, or at all, would have a material adverse effect on the
Company's operating margins and the Company's ability to obtain and deliver
products on a timely and competitive basis. See "--Competition."
The Company maintains agreements with certain of its significant suppliers
all of which relate to specific geographic areas. The Company is the sole
distributor of wireless phones for each of Nokia, Ericsson and Sanyo in the
United States and Samsung's sole distributor in the United States and Canada.
Each of these four agreements is subject to certain conditions and exceptions
including the retention by the manufacturer of certain direct accounts. Most of
the Company's other agreements with its suppliers (including its other
territorial distribution agreements with Nokia and Ericsson) are non-exclusive.
The Company's supply agreements typically require the Company to satisfy minimum
purchase requirements and can be terminated on short notice by either party. The
Company purchases products from other manufacturers and dealers pursuant to
purchase orders placed from time to time in the ordinary course of business.
The Company generally places orders to its suppliers by facsimile on a daily
basis. Purchase orders are typically filled, subject to product availability,
and shipped to the Company's warehouses by common carrier. The Company believes
that its relationships with its suppliers are generally good, however, the
Company has from time to time experienced inadequate product supply from certain
handset manufacturers. See the discussion of a product supply shortage during
the first quarter of 1999 in the Recent Developments section of Item 1.
SALES AND MARKETING
The Company's sales and marketing efforts are coordinated in each of its
four regional divisions by a President for that particular division. Because of
the service-oriented nature of the Company's business, these executives devote a
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substantial amount of their time to developing and maintaining relationships
with the Company's customers in addition to managing the overall operations of
the division. Each division's sales and operation centers are managed by General
Managers who report to the President of their division and are responsible for
the daily sales and operations of their particular location. Each division has
telemarketers who specialize in or focus on telephone sales to a particular type
of customer (e.g. network operator, dealer, reseller, retailer, etc.). In
addition, the Company markets its integrated logistics services through sales
directors in each of its four regional divisions and through dedicated sales
personnel. Including support personnel, the Company had approximately 375
employees involved in sales and marketing at December 31, 1998, including 90 in
its Asia-Pacific division, 90 in its North America division, 150 in its Europe,
Middle East and Africa division and 45 in its Latin America division.
The Company believes that product recognition by customers and consumers is
an important factor in the marketing of the products sold by the Company.
Accordingly, the Company promotes itself and certain of its product lines
through advertising in trade publications and attendance at international,
national and regional trade shows, as well as through direct mail solicitation,
broadcast faxing and telemarketing activities. The Company's manufacturers and
dealers use a variety of methods to promote their products directly to
consumers, including print and media advertising based on product features. In
addition, the Company has dedicated a professional sales force to further its
sales of contractual integrated logistics services.
SEASONALITY
The Company's sales are influenced by a number of seasonal factors
associated with consumer electronics and retail sales which tend to result in
increased volume in the latter part of the calendar year. The overall growth of
the Company's business has reduced the impact of such factors on the Company's
operating results. However, seasonality contributed to the increase in the
Company's sales in the fourth quarter of 1998.
COMPETITION
The Company operates in a highly competitive market and believes that such
competition will intensify in the future. The markets for wireless
communications products are characterized by intense price competition and
significant price erosion over the life of a product. The Company competes
principally on the basis of value (in terms of price, time and reliability),
service and product availability. The Company competes with numerous
well-established manufacturers and wholesale distributors of wireless equipment,
including the Company's customers and suppliers; wireless network operators,
including the Company's customers; logistics service providers; and
export/import and trading companies all who may possess substantially greater
financial, marketing, personnel and other resources than the Company. Certain of
these competitors have the financial resources necessary to withstand
substantial price competition and implement extensive advertising and
promotional campaigns, both generally and in response to efforts by additional
competitors to enter into new markets or introduce new products.
The wireless communications equipment distribution industry has, in the
past, been characterized by low barriers to entry. However, as the market
requirement shifts from pure distribution services to a mix of distribution
services and integrated logistics services, entry barriers are expected to rise
due to the increased cost of infrastructure, the expanded human resource
requirement and the advanced management and information systems capabilities
that the integrated logistics services segment of the business mandates. The
Company's ability to continue to compete successfully will be largely dependent
on its ability to anticipate and respond to various competitive and other
factors affecting the industry, including new or changing outsourcing
requirements, new products which may be introduced, inconsistent or inadequate
supply of product, changes in consumer
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preferences, demographic trends, international, national, regional and local
economic conditions (particularly recessionary conditions adversely affecting
consumer spending) and discount pricing strategies and promotional activities by
competitors.
In the Asia-Pacific wireless product distribution market, the Company's
primary competitors are national carriers that have retail outlets with direct
end-user access and United States and foreign-based exporters, traders and
distributors, including CellStar Corporation ("CellStar"), Global Tech
(Holdings) Ltd. and Telepacific Pty Limited. Competitors of the Company in its
North America division include network operators and other dedicated wireless
distributors such as CellStar and Pana Pacific, Inc. The Company also competes
with logistics service providers in its North America operations, such as United
Parcel Service of America, Inc. In the Company's Europe, Middle East and Africa
division its competitors include wireless equipment manufacturers who sell
directly to the region's network operators and retailers; network operators
themselves; and traders and other distributors, such as 20/20 Logistics Ltd.
(formerly Caudwell Communications), European Telecom plc and Banner Twin Choice
plc. In the Latin America division the Company competes primarily with CellStar
and various other distributors.
The markets for wireless communications products are characterized by
rapidly changing technology and evolving industry standards, often resulting in
product obsolescence or short product life cycles. Accordingly, the Company's
success is dependent upon its ability to anticipate technological changes in the
industry and to continually identify, obtain and successfully market new
products that satisfy evolving industry and customer requirements. The use of
alternative wireless communication technologies or the convergence of wireless
communication and computer technologies may reduce demand for existing wireless
communications products. Upon widespread commercial introduction, new wireless
communications or convergent technologies could materially change the types of
products sold by the Company and its suppliers and result in significant price
competition. In addition, products that reach the market outside of normal
distribution channels, such as "gray market" resales (e.g., unauthorized resales
or illegal resales which may avoid applicable duties and taxes), may also have
an adverse impact on the Company's operations.
Based upon the competitive factors outlined above, there can be no
assurance that the Company will be able to continue to compete successfully in
the future.
INFORMATION SYSTEMS
The Company's operations are partially dependent on the functionality,
performance and utilization of its information systems. The Company has
implemented an Informix-based information system which currently maintains
financial and management controls through the use of a centralized accounting
system and a computerized management information system for certain of its
operating units including its entire North American division. During the years
ended December 31, 1996, 1997 and 1998, the Company invested approximately $5.9
million, $11.1 million and $22.1 million, respectively, to install and enhance
systems in newly acquired operations, to continue to develop and enhance its
systems to provide electronic data interchange capabilities, to create solutions
for its customers and to provide a flexible service delivery system in support
of its integrated logistics services and intends to use additional funds to
develop integrated information systems throughout its four divisions. The
Company's information systems department has grown substantially in resources,
both through increased software and hardware and additional independent
consultants and employees. At December 31, 1998, there were 100 employees in the
Company's information systems departments.
See also the Company's discussion of the Year 2000 issue in its Management's
Discussion and Analysis of Financial Condition and Results of Operations (Item
7).
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EMPLOYEES
As of December 31, 1998, the Company had approximately 1,500 employees, 250
in its Asia-Pacific division, 700 in its North America division, 400 in its
Europe, Middle East and Africa division and 150 in its Latin America division.
Of these employees, approximately 12 were in executive positions, 388 were
engaged in sales and marketing, 700 were in service operations and 400 were in
finance and administration. None of the Company's employees are covered by a
collective bargaining agreement. The Company believes that its relations with
its employees are good.
SEGMENT FINANCIAL INFORMATION
Reference is made to the information regarding revenues from external
customers, income from operations and total assets by reportable segments set
forth in the Company's 1998 Annual Report to Stockholders on page 24 under the
caption "Operating Segments", which information is incorporated herein by
reference.
ITEM 2. PROPERTIES
The Company provides its distribution and integrated logistics services
from its operations centers. The Company's headquarters and largest operations
center is located in a 182,400 square foot facility in Indianapolis, Indiana
(the "6402 Facility"). The lease term for this facility expires on December 31,
2006, the term of which may be renewed for two five-year periods. At the end of
the initial lease term, the Company has an option to purchase the leased
premises for approximately $11.5 million. Including the 6402 Facility, the
Company leases and operates 35 operations centers and/or sales office facilities
around the world for an aggregate monthly rent of approximately $470,000.
In September 1998, the Company entered into a lease agreement for a 495,000
square foot facility located in Plainfield, Indiana which is currently under
construction and is anticipated to be completed on January 1, 2000. The term of
this lease is for 20 years with an option allowing the Company to renew the
initial term for four successive renewal terms of five years each. This
facility is intended to replace the 6402 Facility, as well as other facilities
leased by the Company in Indianapolis, Indiana. In addition, the Company has
entered into an agreement to eliminate its lease obligations under the 6402
Facility lease.
The Company believes that its existing facilities are adequate for its
current requirements and that suitable additional space will be available as
needed to accommodate future expansion of its operations.
ITEM 3. LEGAL PROCEEDINGS.
The Company is from time to time, involved in certain legal proceedings in
the ordinary course of conducting its business. Management believes there are
no pending legal proceedings in which the Company is currently involved which
will have a material adverse effect on the Company's financial position.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
-9-
<PAGE> 11
PART II
With the exception of the information expressly incorporated by reference
from the Company's 1998 Annual Report to Stockholders into Parts I, II and IV of
this Form 10-K, the Company's Annual Report to Stockholders is not to be deemed
filed as part of this report.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this Item is set forth in the Company's 1998
Annual Report to Stockholders, on page 42 under the caption "Common Stock
Information," which information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is set forth in the Company's 1998
Annual Report to Stockholders, on page 1 under the caption "Financial
Highlights," which information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this Item is set forth in the Company's 1998
Annual Report to Stockholders, on pages 23, 24, 25, 27, 28, 31, 33 and 34 under
the caption "Management's Discussion and Analysis of Financial Condition and
Results of Operations," which information is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item is set forth in the Company's 1998
Annual Report to Stockholders, on page 33 under the caption "Financial Market
Risk Management," which information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is set forth in the Company's 1998
Annual Report to Stockholders, on pages 26, 29, 30, 32 and 35 through 42, which
information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
PART III
Certain information required by Part III is omitted from this report in
that the Company will file its definitive Proxy Statement for the Annual Meeting
of Stockholders for the Annual Meeting of Stockholders to be held on May 18,
1999, pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the
"Proxy Statement"), not later than 120 days after the end of the fiscal year
covered by this report, and certain information included in the Proxy Statement
is incorporated herein by reference.
-10-
<PAGE> 12
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is in the Proxy Statement under the
Section entitled "Election of Directors," which information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is set forth in the Proxy Statement
under the Section entitled "Executive Compensation" which information is
incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth in the Proxy Statement
under the Section entitled "Voting Security Ownership of Certain Beneficial
Owners and Management" which information is incorporated herein by reference.
ITEM 13. CERTAIN RELATED TRANSACTIONS.
The information required by this Item is set forth in the Proxy Statement
under the Section entitled "Certain Transactions" which information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) The following financial statements of the Company included in the
Company's 1998 Annual Report to Stockholders, are incorporated
herein by reference:
Report of Independent Auditors
Consolidated Statements of Income for the Years Ended December 31,
1996, 1997 and 1998
Consolidated Balance Sheets as of December 31, 1997 and 1998
Consolidated Statements of Stockholders' Equity for the Years Ended
December 31, 1996, 1997 and 1998
Consolidated Statements of Cash Flows for the Years Ended December 31,
1996, 1997 and 1998
Notes to Consolidated Financial Statements
(a)(2) The following financial statement schedule for the year ended
December 31, 1998 is submitted herewith:
Schedule II - Valuation and Qualifying Accounts
All other schedules are omitted because they are not applicable or the
required information is shown in the financial statements or notes
thereto.
(a)(3) Exhibits
-11-
<PAGE> 13
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Incorporation of the Company, as amended (10)
3.2 Amended and Restated By-Laws of the Company (10)
3.3 Certificate of Merger of Brightpoint, Inc. into Wholesale Cellular
USA, Inc., effective September 15, 1995 (2)
4.1 Form of Common Stock Certificate (1)
4.3 Indenture between the Company and the Chase Manhattan Bank, as
Trustee (12)
10.1 1994 Stock Option Plan (1)
10.2 1996 Stock Option Plan (8)
10.3 Non-Employee Directors Stock Option Plan (1)
10.4 Form of Employment Agreement between the Company and Robert J.
Laikin, J. Mark Howell and T. Scott Housefield (8)
10.5 Form of Amendment to Employment Agreement between the Company and
Robert J. Laikin, J. Mark Howell and T. Scott Housefield (11)
10.6 Form of Employment Agreement between the Company and its Executive
Vice Presidents (8)
10.7 Lease Agreement between the Company and WRC Properties, Inc., as
amended and Unconditional Guaranty of Lease by Century Cellular
Network, Inc. (1)
10.8 Lease Agreement between the Company and Park 100 Properties, Inc.
(2)
10.9 Lease Agreement between the Company and Industrial Affiliates,
Ltd. (2)
10.10 Lease Agreement between the Company and Airport Key Corporation,
dated November 30, 1995 (3)
10.11 Lease Agreement between the Company and Corporate Drive
Associates, LLC, dated June 6, 1995 (3)
10.12 Amendment to Lease Agreement between the Company and Corporate
Drive Associates, LLC, dated October 3, 1995 (3)
10.13 Second Amendment to Lease agreement between the Company and
Corporate Drive Associates, LLC, dated as of July 17, 1996 (10)
10.14 Lease Agreement (Building Expansion) between the Company and
Corporate Drive Associates, LLC, dated as of July 17, 1996 (10)
10.15 Lease Agreement between the Company and SCI North Carolina Limited
Partnership, dated October 21, 1997 (11)
10.16 Lease Extension Agreement between the Company and SCI North
Carolina Limited Partnership, dated January 14, 1998 (11)
10.17 Agreement and Plan of Merger, as amended on April 29, 1996, by and
among the Company, Brightpoint Acquisition, Inc., a wholly-owned
subsidiary of
-12-
<PAGE> 14
the Company, Allied Communications, Inc., Allied Communications of
Florida, Inc., Allied Communications of Georgia, Inc., Allied
Communications of Illinois, Inc., Allied Communications of Puerto
Rico, Inc., Robert Picow and Joseph Forer (5)
10.18 Stock Purchase Agreement, dated as of October 1, 1996, among the
Company, Brightpoint International Ltd., Technology Resources
International Ltd., Safkong Holdings Limited, Marriott Investment
& Trade Inc., John Maclean-Arnott and Dana Marlin (6)
10.19 Rights Agreement, dated as of February 20, 1997, between the
Company and Continental Stock Transfer Trust Company, as Rights
Agent (7)
10.20 Lease Agreement between the Company and DP Operating Partnership,
L.P., dated as of March 1, 1997 (9)
10.21 Multicurrency Credit Agreement dated as of June 24, 1997 (the
"Credit Agreement") among the Company, Brightpoint International
Ltd., the Subsidiary Borrowers from time to time party thereto,
the Guarantors from time to time party thereto, the Financial
Institutions from time to time party thereto as lenders, The First
National Bank of Chicago as administrative agent and Bank One,
Indiana, N.A. as syndication agent (10)
10.22 Form of Waiver and Amendment No. 1 to Credit Agreement dated as of
November 15, 1997 (11)
10.23 Third Amendment to Multicurrency Credit Agreement dated March 20,
1998 (13)
10.24 Lease Agreement between the Company and Madonna Management
Company, Inc., dated March 17, 1998 (13)
10.25 Lease Agreement between the Company and SCI North Carolina Limited
Partnership, dated March 20, 1998 (13)
10.26 Lease Agreement between the Company and IP Properties, A Wyoming
Limited Liability Company, dated March 31, 1998 (13)
10.27 Fourth Amendment to Multicurrency Credit Agreement dated April 16,
1998 (14)
10.28 Amended and Restated Multicurrency Credit Agreement Originally
dated June 24, 1997 and amended and restated as of May 13, 1998
(14)
10.29 Lease Expansion Agreement between the Company and SCI North
Carolina Limited Partnership dated June 9, 1998 (14)
10.30 Lease Agreement between the Company and New World Partners Joint
Venture Number Five, dated July 30, 1998 (15)
10.31 Lease Agreement between the Company and Airtech Parkway
Associates, LLC, dated September 18, 1998 (15)
10.32 Amendment of Agreement between the Company and Robert J. Laikin
dated July 16, 1998 (16)
10.33 Amendment of Agreement between the Company and J. Mark Howell
dated July 16, 1998 (16)
10.34 Amendment of Agreement between the Company and T. Scott Housefield
dated July 16, 1998 (16)
10.35 Amendment of Agreement between the Company and Phillip A. Bounsall
dated July 16, 1998 (16)
10.36 Amendment of Agreement between the Company and Steven E. Fivel
dated July 16, 1998 (16)
-13-
<PAGE> 15
10.37 Amendment No. 1 to Amended and Restated Multicurrency Credit
Agreement dated October 19, 1998 (16)
10.38 Amendment No. 2 to Amended and Restated Multicurrency Credit
Agreement dated September 30, 1998 (16)
10.39 Amendment No. 3 to Amended and Restated Multicurrency Credit
Agreement dated January 1, 1999 (16)
10.40 Amendment Number 1 to the Rights Agreement (the "Agreement") by
and between Brightpoint, Inc. (the "Company") and Continental
Stock Transfer & Trust Company, as Rights Agent, dated as of
January 4, 1999 (16)
11 Statement re: computation of per share earnings (16)
13 Specific portions of the Company's Annual Report to Stockholders
for the fiscal year ended December 31, 1998 incorporated by
reference herein (16)
21 Subsidiaries (16)
23 Consent of Ernst & Young LLP (16)
27 Financial Data Schedule (16)
99 Cautionary Statements (16)
(1) Incorporated by reference to Registration Statement (33-75148)
effective April 7, 1994.
(2) Incorporated by reference to Annual Report on Form 10-K for the
fiscal year ended December 31, 1994.
(3) Incorporated by reference to Annual Report on Form 10-K for the
fiscal year ended December 31, 1995.
(4) Incorporated by reference to Registration Statement on Form S-3
(33-97084) effective October 24, 1995.
(5) Incorporated by reference to Current Report on Form 8-K, dated
June 12, 1996.
(6) Incorporated by reference to Current Report on Form 8-K, dated
December 31, 1996.
(7) Incorporated by reference to Current Report on Form 8-K, dated
March 28, 1997.
(8) Incorporated by reference to Annual Report on Form 10-K for the
fiscal year ended December 31, 1996.
(9) Incorporated by reference to Quarterly Report on Form 10-Q for the
quarter ended March 31, 1997.
-14-
<PAGE> 16
(10) Incorporated by reference to Registration Statement on Form S-3
(333-29533) effective August 6, 1997.
(11) Incorporated by reference to Annual Report on Form 10-K for the
fiscal year ended December 31, 1997.
(12) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K dated April 1, 1998 for the event dated
March 5, 1998.
(13) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31,
1998.
(14) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1998.
(15) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended September 30,
1998.
(16) Filed herewith.
(b) Reports on Form 8-K:
The Company filed a Current Report on Form 8-K for the event
dated October 2, 1998 under Item 5 to report the elimination of
its trading division.
-15-
<PAGE> 17
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BRIGHTPOINT, INC.
Dated: March 31, 1999 /s/ Robert J. Laikin
------------------------------
By: Robert J. Laikin
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Robert J. Laikin Chairman of the Board,
- ------------------------- Chief Executive Officer and
Robert J. Laikin Director (Principal Executive Officer) March 31, 1999
/s/ J. Mark Howell President, Chief Operating Officer and
- ------------------------- Director March 31, 1999
J. Mark Howell
/s/ Phillip A. Bounsall Executive Vice President and Chief
- ------------------------- Financial Officer (Principal
Phillip A. Bounsall Financial Officer) March 31, 1999
/s/ John P. Delaney Vice President, Corporate Controller
- ------------------------- (Principal Accounting Officer) March 31, 1999
John P. Delaney
/s/ John W. Adams
- ------------------------- Director March 31, 1999
John W. Adams
/s/ Rollin M. Dick
- ------------------------- Director March 31, 1999
Rollin M. Dick
/s/ Steven B. Sands
- ------------------------- Director March 31, 1999
Steven B. Sands
/s/ Stephen H. Simon
- ------------------------- Director March 31, 1999
Stephen H. Simon
/s/ Todd H. Stuart
------------------------ Director March 31, 1999
Todd H. Stuart
/s/ Robert F. Wagner
- ------------------------- Director March 31, 1999
Robert F. Wagner
</TABLE>
<PAGE> 18
BRIGHTPOINT, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
--------------------------------------------------------------------------------
COL. A COL. B COL. C COL. D COL. E
--------------------------------------------------------------------------------
BALANCE AT CHARGED TO BALANCE AT
BEGINNING COSTS AND CHARGED TO END
DESCRIPTION OF PERIOD EXPENSES OTHER ACCOUNTS DEDUCTIONS OF PERIOD
- ---------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1998:
Deducted from asset accounts:
Allowance for doubtful accounts............ $ 3,394,000 $ 5,601,000 $ - $ 2,950,000 (1) $ 6,045,000
--------------------------------------------------------------------------------
Total...................................... $ 3,394,000 $ 5,601,000 $ - $ 2,950,000 $ 6,045,000
================================================================================
Year ended December 31, 1997:
Deducted from asset accounts:
Allowance for doubtful accounts............ $ 1,115,000 $ 3,317,000 $ - $ 1,038,000 (1) $ 3,394,000
--------------------------------------------------------------------------------
Total.................................... $ 1,115,000 $ 3,317,000 $ - $ 1,038,000 $ 3,394,000
================================================================================
Year ended December 31, 1996:
Deducted from asset accounts:
Allowance for doubtful accounts............ $ 691,000 $ 589,000 $ - $ 165,000 (1) $ 1,115,000
--------------------------------------------------------------------------------
Total.................................... $ 691,000 $ 589,000 $ - $ 165,000 $ 1,115,000
================================================================================
</TABLE>
(1) Uncollectible accounts written off.
<PAGE> 1
EXHIBIT 10.32
BRIGHTPOINT, INC.
6402 Corporate Drive
Indianapolis, Indiana 46278
July 16, 1998
Mr. Robert J. Laikin
Brightpoint, Inc.
6402 Corporate Drive
Indianapolis, Indiana 46278
RE: EMPLOYMENT AGREEMENT (THE "AGREEMENT") DATED AS OF DECEMBER
1, 1996 BETWEEN BRIGHTPOINT, INC. (THE "EMPLOYER" OR
"COMPANY") AND ROBERT J. LAIKIN (THE "EMPLOYEE")
Dear Mr. Laikin:
The purpose of this letter is to clarify and amend the Agreement
and to provide consistency in the employment terms of senior management of the
Company. All capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Agreement.
1. Section 1 is amended by (a) providing that the Effective Date
shall be as of the date of this letter and (b) amending subsection (ii) to read
"(ii) if the Company gives the Notice of Non-Renewal, or terminates this
Agreement without Cause, the term of the Employee's employment shall be for a
final five (5) year period (the "Final Renewal Term") commencing effective at
the date of the Notice of Non-Renewal unless sooner terminated pursuant to
Section 6 hereof."
2. Section 6.4.2(a): is amended by changing all references therein
from 20% to 15% and adding the following language at the end of the provision:
"; provided, however, that no Change of Control shall be deemed to
have occurred for purposes of this Agreement if such person or
entity acquires 15% or more of the voting securities of the
Employer (a) as a result of a combination of the Employer or a
wholly-owned subsidiary of Employer with another entity owned or
controlled by such persons or entity (whether
<PAGE> 2
effected by a merger, sale of assets or exchange of stock or
otherwise) (the "Combination") and (b) after completion of the
Combination and for a period of not less than twelve (12) months
thereafter (i) executive officers of the Employer (as designated
in the Employer's most recent Annual Report on Form 10-K or its
most recent Proxy Statement filed with the Securities and Exchange
Commission with respect to its Annual Meeting of Stockholders)
immediately prior to the Combination constitute not less than 50%
of the executive officers of the Employer after the Combination or
(ii) the members of the Board of Directors of Employer immediately
prior to the Combination constitute not less than 50% of the
membership of the Board of Directors of the Employer after the
Combination. For purposes of calculating the executive officers of
the Employer after the Combination, those executive officers who
are terminated by the Employer for Cause or who terminate their
employment without Good Reason shall be excluded from the
calculation entirely."
3. Sections 6.4 and 9(d) are amended as follows:
a. All references to "six months" are changed to "twelve (12)
months."
4. Section 9(d)(ii)(A) is hereby amended by amending clause (b) to
read "(b) total compensation (including the value of all perquisites, such as
health and life insurance and car allowance, etc.) received or earned by the
Employee from the Employer during the twelve months prior to the Termination
Date, multiplied by five (5), or"
5. Section 9(d)(ii)(B) is hereby amended by deleting the words
"earned or received by Employee" in the seventh line of such subparagraph and
replacing them with the words "granted to Employee by the Employer".
6. A new Section 9(d)(iv) is added, reading as follows:
"(iv) The value of the stock options described above will be
determined using a Black-Scholes valuation methodology by an
investment bank reasonably acceptable to both Company and
Employee. The fees for such valuation will be paid by the
Company."
7. A new Section 9(g) is added, reading as follows:
"(g) (A) Upon the occurrence of a Change of Control, or (B) if in
breach of this Agreement, the Employer shall terminate the
Employee's employment other than
-2-
<PAGE> 3
pursuant to Sections 6.2 or 6.3 hereof (it being understood that a
purported termination pursuant to Section 6.2 or 6.3 hereof which
is disputed and finally determined not to have been proper shall
be a termination by the Employer in breach of this Agreement), or
(C) if the Employee shall terminate his employment for Good Reason
at any time, then notwithstanding the vesting and exercisability
schedule in any stock option agreement between the Employer and
Employee, all unvested stock options granted by the Employer to
the Employee pursuant to such agreement shall immediately vest and
become exercisable."
Except as set forth herein, the Employment Agreement remains in
full force and effect. Please confirm your agreement to the foregoing by
executing the enclosed copy of this letter where indicated.
Very truly yours,
BRIGHTPOINT, INC.
By: /s/ Steven E. Fivel
-------------------------------
Name: Steven E. Fivel
Title: Executive Vice President
Date: July 16, 1998
Agreed and Accepted By:
/s/ Robert J. Laikin
- -------------------------
Robert J. Laikin
-3-
<PAGE> 1
EXHIBIT 10.33
BRIGHTPOINT, INC.
6402 Corporate Drive
Indianapolis, Indiana 46278
July 16, 1998
Mr. J. Mark Howell
Brightpoint, Inc.
6402 Corporate Drive
Indianapolis, Indiana 46278
RE: EMPLOYMENT AGREEMENT (THE "AGREEMENT") DATED AS OF DECEMBER
1, 1996 BETWEEN BRIGHTPOINT, INC. (THE "EMPLOYER" OR
"COMPANY") AND J. MARK HOWELL (THE "EMPLOYEE")
Dear Mr. Howell:
The purpose of this letter is to clarify and amend the Agreement
and to provide consistency in the employment terms of senior management of the
Company. All capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Agreement.
1. Section 1 is amended by (a) providing that the Effective Date
shall be as of the date of this letter and (b) amending subsection (ii) to read
"(ii) if the Company gives the Notice of Non-Renewal, or terminates this
Agreement without Cause, the term of the Employee's employment shall be for a
final five (5) year period (the "Final Renewal Term") commencing effective at
the date of the Notice of Non-Renewal unless sooner terminated pursuant to
Section 6 hereof."
2. Section 6.4.2(a): is amended by changing all references therein
from 20% to 15% and adding the following language at the end of the provision:
"; provided, however, that no Change of Control shall be deemed to
have occurred for purposes of this Agreement if such person or
entity acquires 15% or more of the voting securities of the
Employer (a) as a result of a combination of the Employer or a
wholly-owned subsidiary of Employer with another entity owned or
controlled by such persons or entity (whether
<PAGE> 2
effected by a merger, sale of assets or exchange of stock or
otherwise) (the "Combination") and (b) after completion of the
Combination and for a period of not less than twelve (12) months
thereafter (i) executive officers of the Employer (as designated
in the Employer's most recent Annual Report on Form 10-K or its
most recent Proxy Statement filed with the Securities and Exchange
Commission with respect to its Annual Meeting of Stockholders)
immediately prior to the Combination constitute not less than 50%
of the executive officers of the Employer after the Combination or
(ii) the members of the Board of Directors of Employer immediately
prior to the Combination constitute not less than 50% of the
membership of the Board of Directors of the Employer after the
Combination. For purposes of calculating the executive officers of
the Employer after the Combination, those executive officers who
are terminated by the Employer for Cause or who terminate their
employment without Good Reason shall be excluded from the
calculation entirely."
3. Sections 6.4 and 9(d) are amended as follows:
a. All references to "six months" are changed to "twelve (12)
months."
4. Section 9(d)(ii)(A) is hereby amended by amending clause (b) to
read "(b) total compensation (including the value of all perquisites, such as
health and life insurance and car allowance, etc.) received or earned by the
Employee from the Employer during the twelve months prior to the Termination
Date, multiplied by five (5), or"
5. Section 9(d)(ii)(B) is hereby amended by deleting the words
"earned or received by Employee" in the seventh line of such subparagraph and
replacing them with the words "granted to Employee by the Employer".
6. A new Section 9(d)(iv) is added, reading as follows:
"(iv) The value of the stock options described above will be
determined using a Black-Scholes valuation methodology by an
investment bank reasonably acceptable to both Company and
Employee. The fees for such valuation will be paid by the
Company."
7. A new Section 9(g) is added, reading as follows:
"(g) (A) Upon the occurrence of a Change of Control, or (B) if in
breach of this Agreement, the Employer shall terminate the
Employee's employment other than pursuant to Sections 6.2 or 6.3
hereof (it being
-2-
<PAGE> 3
understood that a purported termination pursuant to Section 6.2 or
6.3 hereof which is disputed and finally determined not to have
been proper shall be a termination by the Employer in breach of
this Agreement), or (C) if the Employee shall terminate his
employment for Good Reason at any time, then notwithstanding the
vesting and exercisability schedule in any stock option agreement
between the Employer and Employee, all unvested stock options
granted by the Employer to the Employee pursuant to such agreement
shall immediately vest and become exercisable."
Except as set forth herein, the Employment Agreement remains in
full force and effect. Please confirm your agreement to the foregoing by
executing the enclosed copy of this letter where indicated.
Very truly yours,
BRIGHTPOINT, INC.
By: /s/ Steven E. Fivel
-------------------------------
Name: Steven E. Fivel
Title: Executive Vice President
Date: July 16, 1998
Agreed and Accepted By:
/s/ J. Mark Howell
- -------------------------
J. Mark Howell
-3-
<PAGE> 1
EXHIBIT 10.34
BRIGHTPOINT, INC.
6402 Corporate Drive
Indianapolis, Indiana 46278
July 16, 1998
Mr. T. Scott Housefield
Brightpoint, Inc.
6402 Corporate Drive
Indianapolis, Indiana 46278
RE: EMPLOYMENT AGREEMENT (THE "AGREEMENT") DATED AS OF DECEMBER
1, 1996 BETWEEN BRIGHTPOINT, INC. (THE "EMPLOYER" OR
"COMPANY") AND T. SCOTT HOUSEFIELD (THE "EMPLOYEE")
Dear Mr. Housefield
The purpose of this letter is to clarify and amend the Agreement
and to provide consistency in the employment terms of senior management of the
Company. All capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Agreement.
1. Section 1 is amended by (a) providing that the Effective Date
shall be as of the date of this letter and (b) amending subsection (ii) to read
"(ii) if the Company gives the Notice of Non-Renewal, or terminates this
Agreement without Cause, the term of the Employee's employment shall be for a
final five (5) year period (the "Final Renewal Term") commencing effective at
the date of the Notice of Non-Renewal unless sooner terminated pursuant to
Section 6 hereof."
2. Section 6.4.2(a): is amended by changing all references therein
from 20% to 15% and adding the following language at the end of the provision:
"; provided, however, that no Change of Control shall be deemed to
have occurred for purposes of this Agreement if such person or
entity acquires 15% or more of the voting securities of the
Employer (a) as a result of a combination of the Employer or a
wholly-owned subsidiary of Employer with another entity owned or
controlled by such persons or entity (whether effected by a
merger, sale of assets or exchange of
<PAGE> 2
stock or otherwise) (the "Combination") and (b) after completion
of the Combination and for a period of not less than twelve (12)
months thereafter (i) executive officers of the Employer (as
designated in the Employer's most recent Annual Report on Form
10-K or its most recent Proxy Statement filed with the Securities
and Exchange Commission with respect to its Annual Meeting of
Stockholders) immediately prior to the Combination constitute not
less than 50% of the executive officers of the Employer after the
Combination or (ii) the members of the Board of Directors of
Employer immediately prior to the Combination constitute not less
than 50% of the membership of the Board of Directors of the
Employer after the Combination. For purposes of calculating the
executive officers of the Employer after the Combination, those
executive officers who are terminated by the Employer for Cause or
who terminate their employment without Good Reason shall be
excluded from the calculation entirely."
3. Sections 6.4 and 9(d) are amended as follows:
a. All references to "six months" are changed to "twelve (12)
months."
4. Section 9(d)(ii)(A) is hereby amended by amending clause (b) to
read "(b) total compensation (including the value of all perquisites, such as
health and life insurance and car allowance, etc.) received or earned by the
Employee from the Employer during the twelve months prior to the Termination
Date, multiplied by five (5), or"
5. Section 9(d)(ii)(B) is hereby amended by deleting the words
"earned or received by Employee" in the seventh line of such subparagraph and
replacing them with the words "granted to Employee by the Employer".
6. A new Section 9(d)(iv) is added, reading as follows:
"(iv) The value of the stock options described above will be
determined using a Black-Scholes valuation methodology by an
investment bank reasonably acceptable to both Company and
Employee. The fees for such valuation will be paid by the
Company."
7. A new Section 9(g) is added, reading as follows:
"(g) (A) Upon the occurrence of a Change of Control, or (B) if in
breach of this Agreement, the Employer shall terminate the
Employee's employment other than pursuant to Sections 6.2 or 6.3
hereof (it being
-2-
<PAGE> 3
understood that a purported termination pursuant to Section 6.2 or
6.3 hereof which is disputed and finally determined not to have
been proper shall be a termination by the Employer in breach of
this Agreement), or (C) if the Employee shall terminate his
employment for Good Reason at any time, then notwithstanding the
vesting and exercisability schedule in any stock option agreement
between the Employer and Employee, all unvested stock options
granted by the Employer to the Employee pursuant to such agreement
shall immediately vest and become exercisable."
Except as set forth herein, the Employment Agreement remains in
full force and effect. Please confirm your agreement to the foregoing by
executing the enclosed copy of this letter where indicated.
Very truly yours,
BRIGHTPOINT, INC.
By: /s/ Steven E. Fivel
-------------------------------
Name: Steven E. Fivel
Title: Executive Vice President
Date: July 16, 1998
Agreed and Accepted By:
/s/ T. Scott Housefield
- -------------------------
T. Scott Housefield
-3-
<PAGE> 1
EXHIBIT 10.35
BRIGHTPOINT, INC.
6402 Corporate Drive
Indianapolis, Indiana 46278
July 16, 1998
Mr. Phillip A. Bounsall
Brightpoint, Inc.
6402 Corporate Drive
Indianapolis, Indiana 46278
RE: EMPLOYMENT AGREEMENT DATED AS OF JANUARY 1, 1997 BETWEEN
BRIGHTPOINT, INC. (THE "EMPLOYER" OR "COMPANY") AND PHILLIP
A. BOUNSALL (THE "EMPLOYEE")
Dear Mr. Bounsall:
The purpose of this letter is to clarify and amend the Agreement
and to provide consistency in the employment terms of senior management of the
Company. All capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Agreement.
1. Section 1 is hereby amended to provide that the Effective
Date (as such term is defined in such agreement) shall be the date of this
amendment letter.
2. Section 6.4.2(a) is amended by adding the following
language at the end of the provision:
"; provided, however, that no Change of Control shall be deemed
to have occurred for purposes of this Agreement if such person or
entity acquires 15% or more of the voting securities of the
Employer (a) as a result of a combination of the Employer or a
wholly-owned subsidiary of Employer with another entity owned or
controlled by such persons or entity (whether effected by a
merger, sale of assets or exchange of stock or otherwise) (the
"Combination") and (b) after completion of the Combination and
for a period of not less than twelve (12) months thereafter (i)
executive officers of the Employer (as designated in the
Employer's most recent Annual Report on Form 10-K or its most
recent Proxy Statement filed with the Securities and Exchange
Commission with respect to its Annual Meeting of Stockholders)
immediately prior to
<PAGE> 2
the Combination constitute not less than 50% of the executive officers
of the Employer after the Combination or (ii) the members of the Board
of Directors of Employer immediately prior to the Combination
constitute not less than 50% of the membership of the Board of
Directors of the Employer after the Combination. For purposes of
calculating the executive officers of the Employer after the
Combination, those executive officers who are terminated by the
Employer for Cause or who terminate their employment without Good
Reason shall be excluded from the calculation entirely."
3. Section 9(d)(ii) is hereby amended by deleting subsection
(A) in its entirety and replacing it with the following subsections:
(A) if the Employee, without Good Reason, terminates his
employment at any time within twelve months after a Change of Control, or if,
prior to and not as a result of a Change of Control, the Employee's employment
is terminated either by the Employee for Good Reason or by the Employer other
than pursuant to Sections 6.2 or 6.3 hereof, a lump sum amount equal to the
highest of (a) $450,000 or (b) total compensation (including the value of all
perquisites, such as health and life insurance and car allowance, etc.) received
or earned by the Employee from the Employer during the twelve months prior to
the Termination Date, multiplied by three (3), or
(B) if after or as a result of a Change of Control, the
Employee's employment is terminated either by the Employee for Good Reason or by
the Employer other than pursuant to Sections 6.2 or 6.3 hereof, a lump sum
amount equal to three (3) times the total compensation received or earned
(including the value of all perquisites, such as health and life insurance and
car allowance, etc.) and the value of all stock options granted to the Employee
by the Employer during the twelve (12) months prior to such Date of Termination
(in case of either (ii)(A) or (ii)(B), "Severance Pay"), and "
4. A new Section 9(d)(iv) is added, reading as follows:
"(iv) The value of the stock options described above will be determined
using a Black-Scholes valuation methodology by an investment bank
reasonably acceptable to both Company and Employee. The fees for such
valuation will be paid by the Company".
5. A new Section 9(h) is added, reading as follows:
"(h) (A) Upon the occurrence of a Change of Control, (B) if in breach
of this Agreement, the Employer shall terminate the Employee's
employment other than pursuant
-2-
<PAGE> 3
to Sections 6.2 or 6.3 hereof (it being understood that a purported
termination pursuant to Section 6.2 or 6.3 hereof which is disputed and
finally determined not to have been proper shall be a termination by
the Employer in breach of this Agreement), or (C) if the Employee shall
terminate his employment for Good Reason at any time, then
notwithstanding the vesting and exercisability schedule in any stock
option agreement between Employer and Employee, all unvested stock
options granted by the Employer to the Employee pursuant to such
agreement shall immediately vest and become exercisable."
Except as set forth herein, the Employment Agreement remains in full
force and effect. Please confirm your agreement to the foregoing by executing
the enclosed copy of this letter where indicated.
Very truly yours,
BRIGHTPOINT, INC.
By: /s/ Steven E. Fivel
-------------------------------
Name: Steven E. Fivel
Title: Executive Vice President
Date: July 16, 1998
Agreed and Accepted By:
/s/ Phillip A. Bounsall
- ------------------------
Phillip A. Bounsall
-3-
<PAGE> 1
EXHIBIT 10.36
BRIGHTPOINT, INC.
6402 Corporate Drive
Indianapolis, Indiana 46278
July 16, 1998
Mr. Steven E. Fivel
Brightpoint, Inc.
6402 Corporate Drive
Indianapolis, Indiana 46278
RE: EMPLOYMENT AGREEMENT DATED AS OF JANUARY 6, 1997 BETWEEN
BRIGHTPOINT, INC. (THE "EMPLOYER" OR "COMPANY") AND STEVEN E.
FIVEL (THE "EMPLOYEE")
Dear Mr. Fivel:
The purpose of this letter is to clarify and amend the Agreement
and to provide consistency in the employment terms of senior management of the
Company. All capitalized terms used herein and not otherwise defined shall have
the meanings ascribed to them in the Agreement.
1. Section 1 is hereby amended to provide that the Effective
Date (as such term is defined in such agreement) shall be the date of this
amendment letter.
2. Section 6.4.2(a) is amended by adding the following
language at the end of the provision:
"; provided, however, that no Change of Control shall be deemed to
have occurred for purposes of this Agreement if such person or
entity acquires 15% or more of the voting securities of the
Employer (a) as a result of a combination of the Employer or a
wholly-owned subsidiary of Employer with another entity owned or
controlled by such persons or entity (whether effected by a
merger, sale of assets or exchange of stock or otherwise) (the
"Combination") and (b) after completion of the Combination and for
a period of not less than twelve (12) months thereafter (i)
executive officers of the Employer (as designated in the
Employer's most recent Annual Report on Form 10-K or its most
recent Proxy Statement filed with the Securities and Exchange
Commission with respect to its Annual Meeting of Stockholders)
immediately prior to
<PAGE> 2
the Combination constitute not less than 50% of the executive
officers of the Employer after the Combination or (ii) the members
of the Board of Directors of Employer immediately prior to the
Combination constitute not less than 50% of the membership of the
Board of Directors of the Employer after the Combination. For
purposes of calculating the executive officers of the Employer
after the Combination, those executive officers who are terminated
by the Employer for Cause or who terminate their employment
without Good Reason shall be excluded from the calculation
entirely."
3. Section 9(d)(ii) is hereby amended by deleting subsection
(A) in its entirety and replacing it with the following subsections:
(A) if the Employee, without Good Reason, terminates his
employment at any time within twelve months after a Change of Control, or if,
prior to and not as a result of a Change of Control, the Employee's employment
is terminated either by the Employee for Good Reason or by the Employer other
than pursuant to Sections 6.2 or 6.3 hereof, a lump sum amount equal to the
highest of (a) $450,000 or (b) total compensation (including the value of all
perquisites, such as health and life insurance and car allowance, etc.) received
or earned by the Employee from the Employer during the twelve months prior to
the Termination Date, multiplied by three (3), or
(B) if after or as a result of a Change of Control, the
Employee's employment is terminated either by the Employee for Good Reason or by
the Employer other than pursuant to Sections 6.2 or 6.3 hereof, a lump sum
amount equal to three (3) times the total compensation received or earned
(including the value of all perquisites, such as health and life insurance and
car allowance, etc.) and the value of all stock options granted to the Employee
by the Employer during the twelve (12) months prior to such Date of Termination
(in case of either (ii)(A) or (ii)(B), "Severance Pay"), and "
4. A new Section 9(d)(iv) is added, reading as follows:
"(iv) The value of the stock options described above will be
determined using a Black-Scholes valuation methodology by an
investment bank reasonably acceptable to both Company and
Employee. The fees for such valuation will be paid by the
Company".
5. A new Section 9(h) is added, reading as follows:
"(h) (A) Upon the occurrence of a Change of Control,
-2-
<PAGE> 3
(B) if in breach of this Agreement, the Employer shall
terminate the Employee's employment other than pursuant to
Sections 6.2 or 6.3 hereof (it being understood that a
purported termination pursuant to Section 6.2 or 6.3 hereof
which is disputed and finally determined not to have been
proper shall be a termination by the Employer in breach of
this Agreement), or (C) if the Employee shall terminate his
employment for Good Reason at any time, then notwithstanding
the vesting and exercisability schedule in any stock option
agreement between Employer and Employee, all unvested stock
options granted by the Employer to the Employee pursuant to
such agreement shall immediately vest and become
exercisable."
Except as set forth herein, the Employment Agreement remains
in full force and effect. Please confirm your agreement to the foregoing by
executing the enclosed copy of this letter where indicated.
Very truly yours,
BRIGHTPOINT, INC.
By: /s/ J. Mark Howell
-----------------------------
Name: J. Mark Howell
Title: President
Date: July 16, 1998
Agreed and Accepted By:
/s/ Steven E. Fivel
- ------------------------
Steven E. Fivel
-3-
<PAGE> 1
EXHIBIT 10.37
EXECUTION COPY
AMENDMENT NO. 1
TO
AMENDED AND RESTATED
MULTICURRENCY CREDIT AGREEMENT
DATED AS OF MAY 13, 1998
THIS AMENDMENT NO. 1 TO AMENDED AND RESTATED MULTICURRENCY CREDIT
AGREEMENT ("Amendment") is made as of October 19, 1998 by and among BRIGHTPOINT,
INC., BRIGHTPOINT INTERNATIONAL LTD. (collectively, the "Borrowers"), the
guarantors from time to time party thereto (the "Guarantors"), the financial
institutions listed on the signature pages hereof as lenders (the "Lenders"),
BANK ONE, INDIANA, NATIONAL ASSOCIATION, in its individual capacity as a Lender
and as syndication agent (the "Syndication Agent"), and NBD BANK, N.A., in its
individual capacity as a Lender and as administrative agent (the "Administrative
Agent"; and together with the Syndication Agent, the "Agents") on behalf of the
Lenders under that certain Amended and Restated Multicurrency Credit Agreement
dated as of May 13, 1998 by and among the Borrowers, the Guarantors, the Lenders
and the Agents (as amended, modified or restated, the "Credit Agreement").
Defined terms used herein and not otherwise defined herein shall have the
meaning given to them in the Credit Agreement.
WITNESSETH
WHEREAS, the Borrowers, the Guarantors, the Lenders and the Agents are
parties to the Credit Agreement;
WHEREAS, the Borrowers have requested that the Lenders amend the Credit
Agreement in certain respects; and
WHEREAS, the Lenders and the Agents are willing to amend the Credit
Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Borrowers, the Guarantors, the Lenders and the Agents have agreed to the
following amendments to the Credit Agreement.
1. Amendments to Credit Agreement. Effective as of October 19, 1998 and
subject to the satisfaction of the conditions precedent set forth in Section 2
below, the Credit Agreement is hereby amended as follows:
<PAGE> 2
1.1. Section 1.1 of the Credit Agreement is hereby amended to delete
the defined terms "Aggregate Commitment," "Alternate Currency Availability,"
"Alternate Currency Commitment," "Alternate Currency Lender" and "Maximum
Alternate Currency Amount" therefrom in their entirety and to substitute the
following therefor:
"AGGREGATE COMMITMENT" means, at any time, the sum of the Revolving
Loan Commitments plus the Alternate Currency Commitments, as adjusted from
time to time pursuant to the terms hereof. The initial Aggregate Commitment
is Two Hundred Thirty Million and 00/100 Dollars ($230,000,000); which
amount shall be automatically increased by the addition of one or more
Alternate Currency Lenders pursuant to the terms of Section 2.3(k), provided
in no event shall such amount exceed the sum of the Aggregate Revolving Loan
Commitment plus the Maximum Aggregate Alternate Currency Commitment.
"ALTERNATE CURRENCY AVAILABILITY" means, at any particular time, the
amount by which the aggregate of the Alternate Currency Commitments of the
Alternate Currency Lenders exceeds the Alternate Currency Obligations.
"ALTERNATE CURRENCY COMMITMENT(S)" means, with respect to each
Alternate Currency Lender, the obligation of the Alternate Currency Lender
to make Alternate Currency Loans or issue Alternate Currency Letters of
Credit under Section 2.3 and to purchase Revolving Loans and participations
in Letters of Credit under Section 2.4 not exceeding (a) for each such
Alternate Currency Lender the amount reflected for such Alternate Currency
Lender in Exhibit D hereto as its Alternate Currency Commitment and (b) for
all of the Alternate Currency Lenders, the Dollar Amount of the Maximum
Aggregate Alternate Currency Amount, as such amount may be modified from
time to time pursuant to the terms of this Agreement. Notwithstanding
anything in the Agreement to the contrary, references in the Agreement to
"the Alternate Currency Commitment" shall instead be to the applicable
Alternate Currency Commitment of the applicable Alternate Currency Lender or
the Alternate Currency Commitments of all of the Alternate Currency Lenders,
as appropriate, notwithstanding the singular use of the term herein.
"ALTERNATE CURRENCY LENDER(S)" means (i) ABN AMRO Bank N.V., (ii)
BankBoston, N.A., (iii) any additional Alternate Currency Lender party to
this Agreement pursuant to the terms of Section 2.3(k), and, (iv) after any
Conversion Date, any Lender who has purchased Alternate Currency Credits
under Section 2.4(f). If any agency or Affiliate of any of the Alternate
Currency Lenders shall be a party to an Alternate Currency Addendum, such
agency or Affiliate shall, to the extent of any commitment extended and any
Alternate Currency Loans made or Alternate Currency Letters of Credit issued
by it, have all the rights of an Alternate Currency Lender hereunder;
provided, however, that the named Alternate Currency Lender shall to the
exclusion of such agency or Affiliate, continue to have all the voting and
consensual rights vested in it by the terms hereof. Notwithstanding anything
in the Agreement to the contrary, references in
<PAGE> 3
the Agreement to "the Alternate Currency Lender" shall instead be to each of
the applicable Alternate Currency Lender or applicable Alternate Currency
Lenders, as appropriate, notwithstanding the singular use of the term
herein.
"MAXIMUM AGGREGATE ALTERNATE CURRENCY AMOUNT" means Thirty-Five Million
and 00/100 Dollars ($35,000,000).
1.2. Section 1.1 of the Credit Agreement is further amended to add the
following definition in the applicable alphabetical location:
"GLOBAL TRADING BUSINESS" means the business of the Borrower and/or its
Subsidiaries of buying products from sources other than manufacturers or
network operators and selling to customers other than network operators,
their dealers or their other representatives.
1.3. Section 2.3(b) of the Credit Agreement is hereby amended to delete
the terms thereof in their entirety and to substitute the following therefor:
(b) Alternate Currency Loans/Alternate Currency Letters of
Credit; Procedures. Upon the satisfaction of the conditions precedent set
forth in Sections 4.1, 4.2 and 4.3 hereof and set forth in the applicable
Alternate Currency Documents, from and including the later of the date of
this Agreement and the date of execution of the applicable Alternate
Currency Addendum and prior to the Termination Date (unless an earlier
Termination Date shall be specified in the applicable Alternate Currency
Documents), the Alternate Currency Lender agrees on the terms and conditions
set forth in this Agreement and in the applicable Alternate Currency
Documents, to make Alternate Currency Loans to or to issue one or more
Alternate Currency Letters of Credit for the account of any Subsidiary
Borrower identified in an Alternate Currency Addendum to which such
Alternate Currency Lender is a party from time to time in the applicable
Alternate Currency, such Alternate Currency Credit in an amount not to
exceed the lesser of (i) the Alternate Currency Commitment of such Alternate
Currency Lender minus the aggregate Dollar Amount of all of such Alternate
Currency Lender's outstanding Alternate Currency Obligations at such time
and (ii) the Alternate Currency Availability at such time. Procedures for
making Alternate Currency Credits, with respect to any Subsidiary Borrower,
shall be established pursuant to the Alternate Currency Documents applicable
to such Subsidiary Borrower and the applicable Alternate Currency. Subject
to the terms of this Agreement and the applicable Alternate Currency
Documents, the Subsidiary Borrowers may borrow, repay and reborrow at any
time prior to the Termination Date. On the Termination Date, the outstanding
principal balance of the Alternate Currency Credits shall be paid in full by
the applicable Subsidiary Borrower and prior to the Termination Date
prepayments of the Alternate Currency Credits shall be made by the
applicable Subsidiary Borrower if and to the extent required in Section
2.3(h). It shall be the obligation of all Alternate Currency Lenders to
monitor all Alternate Currency Loans made by each of the Alternate Currency
Lenders so as to ensure compliance with the
<PAGE> 4
various provisions of this Agreement pursuant to which maximum amounts are
established for the Alternate Currency Loans, including, without limitation,
the provisions set forth in Section 2.3(d).
1.4. Section 2.3 of the Agreement is amended to add the following at
the end thereof:
(k) Additional Alternate Currency Lenders. Brightpoint may, upon 15
Business Days' prior written notice to the Administrative Agent and with the
prior written consent of the Administrative Agent, add to the Alternate
Currency Lenders one or more additional Lenders who have agreed to make
Alternate Currency Credit available to one or more of the Borrower's
Subsidiaries. Any such Lender shall execute and deliver to the
Administrative Agent, an addendum to Exhibit D (a "COMMITMENT Addendum"), in
form and substance reasonably acceptable to the Administrative Agent,
evidencing (i) the agreement of such Lender to become an Alternate Currency
Lender, (ii) such Alternate Currency Lender's applicable notice address and
(iii) the Alternate Currency Commitment of such Lender; provided in no event
shall the aggregate of the Alternate Currency Commitments of all of the
Alternate Currency Lenders exceed the Maximum Aggregate Alternate Currency
Amount at such time. Upon the execution and delivery to the Administrative
Agent of such Commitment Addendum and subject to the Administrative Agent's
consent: (1) the new Alternate Currency Lender shall be deemed automatically
to have become a party hereto as an Alternate Currency Lender, (2) the terms
of Exhibit D shall be automatically amended to reflect such Alternate
Currency Lender's Alternate Currency Commitment, (3) such Alternate Currency
Lender agrees, as evidenced by its execution of such Commitment Addendum,
that it shall, for all purposes, be an Alternate Currency Lender party to
this Agreement and any other Loan Documents and shall have all the rights
and obligations of an Alternate Currency Lender hereunder and thereunder and
(4) the Aggregate Commitment shall be automatically increased by the amount
the Alternate Currency Commitment of such Alternate Currency Lender. The
Administrative Agent shall promptly provide a copy of the Commitment
Addendum to each of the Lenders.
1.5. Section 6.4 (D)(1) of the Credit Agreement is amended to delete
the last sentence thereof in its entirety and to substitute the following
therefor:
The Leverage Ratio shall be calculated, in each case, determined as of the
last day of each fiscal quarter based upon (A) for Indebtedness (including
Permitted Subordinated Indebtedness) and Capitalized Lease Obligations,
Indebtedness and Capitalized Lease Obligations as of the last day of each
such fiscal quarter; and (B) for EBITDA, the actual amount for the
two-quarter period ending on such day multiplied by two (2); provided,
however,(i) there shall be excluded from the calculation of EBITDA, the
EBITDA attributable to the Borrower and its Subsidiaries' discontinued
Global Trading Business; and (ii) for the fiscal quarters ending December
31, 1998 and March 31, 1999, the Borrower shall be permitted to add back to
EBITDA the lesser of (a) $20,000,000 and (b) the one-
<PAGE> 5
time charge taken by the Borrower in the quarter ending December 31, 1998
relating to the discontinuation or elimination of the Borrower and its
Subsidiaries' Global Trading Business.
1.6 Section 6.4 (D)(2) of the Credit Agreement is amended to delete
the last sentence thereof in its entirety and to substitute the following
therefor:
The Senior Debt Ratio shall be calculated, in each case, determined as of
the last day of each fiscal quarter based upon (A) for Indebtedness and
Capitalized Lease Obligations, Indebtedness (other than the Permitted
Subordinated Indebtedness) and Capitalized Lease Obligations as of the last
day of each such fiscal quarter; and (B) for EBITDA, the actual amount for
the two-quarter period ending on such day multiplied by two (2); provided,
however,(i) there shall be excluded from the calculation of EBITDA, the
EBITDA attributable to the Borrower and its Subsidiaries' discontinued
Global Trading Business; and (ii) for the fiscal quarters ending December
31, 1998 and March 31, 1999, the Borrower shall be permitted to add back to
EBITDA the lesser of (a) $20,000,000 and (b) the one-time charge taken by
the Borrower in the quarter ending December 31, 1998 relating to the
discontinuation or elimination of the Borrower and its Subsidiaries' Global
Trading Business.
1.7. Exhibit D to the Credit Agreement is hereby amended to delete the
terms thereof in their entirety and to substitute the Exhibit D attached hereto
therefor.
2. Conditions of Effectiveness. This Amendment shall become effective and
be deemed effective as of October 19, 1998, if, and only if, the Administrative
Agent shall have received each of the following:
(a) duly executed originals of this Amendment from the Borrowers, the
Guarantors, BankBoston, N.A. and the Required Lenders; and
(b) such other documents, instruments and agreements as the
Administrative Agent may reasonably request.
3. Representations and Warranties of the Borrowers. The Borrowers hereby
represent and warrant as follows:
(a) This Amendment and the Credit Agreement as previously executed and
as amended hereby, constitute legal, valid and binding obligations of the
Borrowers and are enforceable against the Borrowers in accordance with their
terms.
(b) Upon the effectiveness of this Amendment, the Borrowers hereby
reaffirm all covenants, representations and warranties made in the Credit
Agreement and other Loan Documents, to the extent the same are not amended
hereby, and agree that all such covenants, representations and warranties shall
be deemed to have been remade as of the effective date of this Amendment.
<PAGE> 6
4. Reference to the Effect on the Credit Agreement.
(a) Upon the effectiveness of Section 1 hereof, on and after the date
hereof, each reference in the Credit Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import shall mean and be a reference to the
Credit Agreement, as amended previously and as amended hereby.
(b) Except as specifically amended and waived above, the Credit
Agreement and all other documents, instruments and agreements executed and/or
delivered in connection therewith shall remain in full force and effect, and are
hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Administrative Agent or any of the Lenders, nor
constitute a waiver of any provision of the Credit Agreement or any other
documents, instruments and agreements executed and/or delivered in connection
therewith.
5. Costs and Expenses. The Borrowers agree to pay all reasonable costs,
fees and out-of-pocket expenses (including attorneys' fees and expenses charged
to the Administrative Agent) incurred by the Administrative Agent in connection
with the preparation, arrangement, execution and enforcement of this Amendment.
6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAW PROVISIONS)
OF THE STATE OF ILLINOIS.
7. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
8. Counterparts. This Amendment may be executed by one or more of the
parties to the Amendment on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A facsimile signature page hereto sent to the Administrative Agent
or the Administrative Agent's counsel shall be effective as a counterpart
signature provided each party executing such a facsimile counterpart agrees to
deliver originals to the Administrative Agent thereof.
9. No Strict Construction. The parties hereto have participated jointly in
the negotiation and drafting of this Amendment, the Credit Agreement and the
other Loan Documents. In the event an ambiguity or question of intent or
interpretation arises, this Amendment, the Credit Agreement and the other Loan
Documents shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Amendment, the Credit
Agreement or any of the other Loan Documents.
<PAGE> 7
10. Reaffirmation of Guaranties and other Loan Documents. Each of the
Guarantors, without in any way establishing a course of dealing, as evidenced by
its signature below, hereby consents to the execution and delivery of this
Amendment by the parties hereto, (ii) agrees that this Amendment shall not limit
or diminish the obligations of such Guarantor under the Credit Agreement or any
other Loan Documents, (iii) reaffirms its obligations under the Credit Agreement
and other Loan Documents, and (iv) agrees that such obligations remain in full
force and effect and is hereby ratified and confirmed.
<PAGE> 8
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first above written. Signature Page Brightpoint, Inc. Amendment to
Credit Agreement
BRIGHTPOINT, INC.
as a Borrower and Guarantor
By: /s/ Phillip A. Bounsall
-------------------------
Name: Phillip A. Bounsall
Title: Executive Vice President and Chief
Financial Officer
BRIGHTPOINT INTERNATIONAL LTD.
as a Borrower and Guarantor
By: /s/ Phillip A. Bounsall
-------------------------
Name: Phillip A. Bounsall
Title: Executive Vice President and Chief
Financial Officer
NBD BANK, N.A.
as the Administrative Agent, a Lender and the Swing
Line Lender
By: /s/ Jeffrey C. Kuehr
----------------------
Name: Jeffrey C. Kuehr
Title: Vice President
BANK ONE, INDIANA, NATIONAL
ASSOCIATION
as the Syndication Agent, an Issuing Lender and as a
Lender
By: /s/ Steven J. Krakoski
------------------------
Name: Steven J. Krakoski
Title: Vice President
<PAGE> 9
ABN AMRO BANK N.V.
as an Alternate Currency Lender
By: /s/ Joann L. Holman
----------------------
Name: Joann L. Holman
Title: Vice President
By: /s/ Bernard J. McGuigan
-------------------------
Name: Bernard J. McGuigan
Title: Group Vice President and Director
BANK BOSTON, N.A.
as a Lender and an Alternate Currency Lender
By: /s/ Janet Twomey
------------------
Name: Janet Twomey
Title: Vice President
CORESTATES BANK, N.A.
as a Lender
By: /s/ Jerald C. Goodwin
-----------------------
Name: Jerald C. Goodwin
Title: Duly Authorized Signatory
SUNTRUST BANK OF CENTRAL FLORIDA,
NATIONAL ASSOCIATION
as a Lender
By: /s/ Michael I. Smith
----------------------
Name: Michael I. Smith
Title: Assistant Vice President
THE BANK OF NOVA SCOTIA
as a Lender
By: /s/ F.C.H. Ashby
------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
<PAGE> 10
CREDIT LYONNAIS CHICAGO BRANCH
as a Lender
By: /s/ Lee E. Greve
------------------
Name: Lee E. Greve
Title: First Vice President
THE BANK OF TOKYO-MITSUBISHI, LTD.
CHICAGO BRANCH
as a Lender
By: /s/ Hajime Watanabe
---------------------
Name: Hajime Watanabe
Title: Deputy General Manager
THE FUJI BANK, LIMITED
as a Lender
By: /s/ Tetsuo Kamatsu
--------------------
Name: Tetsuo Kamatsu
Title: Joint General Manager
<PAGE> 11
EXHIBIT D
TO
AMENDED AND RESTATED MULTICURRENCY CREDIT AGREEMENT
Commitments
<TABLE>
<CAPTION>
- ------------------------------- ----------------------------- ----------------------------- ------------------------------
Revolving Loan Alternate Currency
Commitment Loan Commitment Total Commitment
Lender (in millions) (in millions) (in millions)
- ------------------------------- ----------------------------- ----------------------------- ------------------------------
<S> <C> <C> <C>
First Chicago-Admin Agt. $30 -- $30
- ------------------------------- ----------------------------- ----------------------------- ------------------------------
Bank One - Synd. Agt $30 -- $30
- ------------------------------- ----------------------------- ----------------------------- ------------------------------
Corestates $22 -- $22
- ------------------------------- ----------------------------- ----------------------------- ------------------------------
Sun Trust Bank $22 -- $22
- ------------------------------- ----------------------------- ----------------------------- ------------------------------
Bank of Nova Scotia $22 -- $22
- ------------------------------- ----------------------------- ----------------------------- ------------------------------
Bank of Tokyo-Mitsubishi $22 -- $22
- ------------------------------- ----------------------------- ----------------------------- ------------------------------
Credit Lyonnais $22 -- $22
- ------------------------------- ----------------------------- ----------------------------- ------------------------------
Bank of Boston $15 $5 $20
- ------------------------------- ----------------------------- ----------------------------- ------------------------------
Fuji Bank $15 -- $15
- ------------------------------- ----------------------------- ----------------------------- ------------------------------
ABN AMRO Bank -- $25 $25
- ------------------------------- ----------------------------- ----------------------------- ------------------------------
Totals $200 $30(1) $230(2)
- ------------------------------- ----------------------------- ----------------------------- ------------------------------
</TABLE>
- -----------------------------
(1)Note that pursuant to the terms of Section 2.3(k) additional Alternate
Currency Lenders may be added increasing this amount to the Maximum
Aggregate Alternate Currency Amount.
(2)Note that pursuant to the terms of the definition of Aggregate Commitment and
Section 2.3(k), this number may increase in the event of a new Alternate
Currency Commitment.
<PAGE> 1
EXHIBIT 10.38
AMENDMENT NO. 2
TO
AMENDED AND RESTATED
MULTICURRENCY CREDIT AGREEMENT
DATED AS OF MAY 13, 1998
THIS AMENDMENT NO. 2 TO AMENDED AND RESTATED MULTICURRENCY CREDIT
AGREEMENT ("Amendment") is made as of September 30, 1998 by and among
BRIGHTPOINT, INC., BRIGHTPOINT INTERNATIONAL LTD. (collectively, the
"Borrowers"), the guarantors from time to time party thereto (the "Guarantors"),
the financial institutions listed on the signature pages hereof as lenders (the
"Lenders"), BANK ONE, INDIANA, NATIONAL ASSOCIATION, in its individual capacity
as a Lender and as syndication agent (the "Syndication Agent"), and NBD BANK,
N.A., in its individual capacity as a Lender and as administrative agent (the
"Administrative Agent"; and together with the Syndication Agent, the "Agents")
on behalf of the Lenders under that certain Amended and Restated Multicurrency
Credit Agreement dated as of May 13, 1998 by and among the Borrowers, the
Guarantors, the Lenders and the Agents, as amended by Amendment No. 1 thereto
dated as of October 19, 1998 (as amended, modified or restated, the "Credit
Agreement"). Defined terms used herein and not otherwise defined herein shall
have the meaning given to them in the Credit Agreement.
WITNESSETH
WHEREAS, the Borrowers, the Guarantors, the Lenders and the Agents are
parties to the Credit Agreement;
WHEREAS, the Borrowers have requested that the Lenders amend the Credit
Agreement in certain respects; and
WHEREAS, the Lenders and the Agents are willing to amend the Credit
Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Borrowers, the Guarantors, the Lenders and the Agents have agreed to the
following amendment to the Credit Agreement.
1. Amendment to Credit Agreement. Effective as of September 30, 1998 and
subject to the satisfaction of the conditions precedent set forth in Section 2
below, Section 6.4(F) the Credit Agreement is hereby amended to delete the
figure "$25,000,000" in clause (a) thereof and to substitute the figure
"$31,000,000" therefor.
<PAGE> 2
2. Conditions of Effectiveness. This Amendment shall become effective and
be deemed effective as of September 30, 1998, if, and only if, the
Administrative Agent shall have received each of the following:
(a) duly executed originals of this Amendment from the Borrowers, the
Guarantors and the Required Lenders; and
(b) such other documents, instruments and agreements as the
Administrative Agent may reasonably request.
3. Representations and Warranties of the Borrowers. The Borrowers hereby
represent and warrant as follows:
(a) This Amendment and the Credit Agreement as previously executed and
as amended hereby, constitute legal, valid and binding obligations of the
Borrowers and are enforceable against the Borrowers in accordance with their
terms.
(b) Upon the effectiveness of this Amendment, (i) no Default or
Unmatured Default has occurred and is continuing and (ii) the Borrowers hereby
reaffirm all covenants, representations and warranties made in the Credit
Agreement and other Loan Documents, to the extent the same are not amended
hereby, and agree that all such covenants, representations and warranties shall
be deemed to have been remade as of the effective date of this Amendment.
4. Reference to the Effect on the Credit Agreement.
(a) Upon the effectiveness of Section 1 hereof, on and after the date
hereof, each reference in the Credit Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import shall mean and be a reference to the
Credit Agreement, as amended previously and as amended hereby.
(b) Except as specifically amended and waived above, the Credit
Agreement and all other documents, instruments and agreements executed and/or
delivered in connection therewith shall remain in full force and effect, and are
hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Administrative Agent or any of the Lenders, nor
constitute a waiver of any provision of the Credit Agreement or any other
documents, instruments and agreements executed and/or delivered in connection
therewith.
5. Costs and Expenses. The Borrowers agree to pay all reasonable costs,
fees and out-of-pocket expenses (including attorneys' fees and expenses charged
to the
<PAGE> 3
Administrative Agent) incurred by the Administrative Agent in connection with
the preparation, arrangement, execution and enforcement of this Amendment.
6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAW PROVISIONS)
OF THE STATE OF ILLINOIS.
7. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
8. Counterparts. This Amendment may be executed by one or more of the
parties to the Amendment on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A facsimile signature page hereto sent to the Administrative Agent
or the Administrative Agent's counsel shall be effective as a counterpart
signature provided each party executing such a facsimile counterpart agrees to
deliver originals to the Administrative Agent thereof.
9. No Strict Construction. The parties hereto have participated jointly in
the negotiation and drafting of this Amendment, the Credit Agreement and the
other Loan Documents. In the event an ambiguity or question of intent or
interpretation arises, this Amendment, the Credit Agreement and the other Loan
Documents shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Amendment, the Credit
Agreement or any of the other Loan Documents.
10. Reaffirmation of Guaranties and other Loan Documents. Each of the
Guarantors, without in any way establishing a course of dealing, as evidenced by
its signature below, hereby consents to the execution and delivery of this
Amendment by the parties hereto, (ii) agrees that this Amendment shall not limit
or diminish the obligations of such Guarantor under the Credit Agreement or any
other Loan Documents, (iii) reaffirms its obligations under the Credit Agreement
and other Loan Documents, and (iv) agrees that such obligations remain in full
force and effect and is hereby ratified and confirmed.
<PAGE> 4
IN WITNESS WHEREOF, this Amendment has been duly executed as Signature
Page Brightpoint, Inc. Amendment to Credit Agreement of the day and year first
above written.
BRIGHTPOINT, INC.
as a Borrower and Guarantor
By: /s/ Steven E. Fivel
-------------------
Name: Steven E. Fivel
Title: Executive Vice President
BRIGHTPOINT INTERNATIONAL LTD.
as a Borrower and Guarantor
By: /s/ Steven E. Fivel
--------------------
Name: Steven E. Fivel
Title: Executive Vice President
NBD BANK, N.A.
as the Administrative Agent, a Lender and the Swing
Line Lender
By: /s/ Scott A. Dvornik
---------------------
Name: Scott A. Dvornik
Title: Vice President
BANK ONE, INDIANA, NATIONAL
ASSOCIATION
as the Syndication Agent, an Issuing Lender and as a
Lender
By: /s/ William D. Herrick
-----------------------
Name: William D. Herrick
Title: Senior Vice President
<PAGE> 5
ABN AMRO BANK N.V.
as an Alternate Currency Lender
By: /s/ Mary L. Honda
------------------
Name: Mary L. Honda
Title: Vice President
By: /s/ Joann L. Holman
--------------------
Name: Joann L. Holman
Title: Vice President
BANK BOSTON, N.A.
as a Lender and an Alternate Currency Lender
By: /s/ Janet Twomey
-----------------
Name: Janet Twomey
Title: Vice President
FIRST UNION NATIONAL BANK
as a Lender
By: /s/ Thomas M. Harper
---------------------
Name: Thomas M. Harper
Title: Vice President
SUNTRUST BANK OF CENTRAL FLORIDA,
NATIONAL ASSOCIATION
as a Lender
By: /s/ Christopher A. Black
-------------------------
Name: Christopher A. Black
Title: First Vice President
THE BANK OF NOVA SCOTIA
as a Lender
By: /s/ F.C.H. Ashby
-----------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
<PAGE> 6
CREDIT LYONNAIS CHICAGO BRANCH
as a Lender
By: /s/ Peter Kelly
-----------------
Name: Peter Kelly
Title: Vice President
THE BANK OF TOKYO-MITSUBISHI, LTD.
CHICAGO BRANCH
as a Lender
By: /s/ Hajime Watanabe
---------------------
Name: Hajime Watanabe
Title: Deputy General Manager
THE FUJI BANK, LIMITED
as a Lender
By: /s/ Peter L. Chinnici
-----------------------
Name: Peter L. Chinnici
Title: Joint General Manager
<PAGE> 1
EXHIBIT 10.39
EXECUTION COPY
AMENDMENT NO. 3
TO
AMENDED AND RESTATED
MULTICURRENCY CREDIT AGREEMENT
DATED AS OF MAY 13, 1998
THIS AMENDMENT NO. 3 TO AMENDED AND RESTATED MULTICURRENCY CREDIT
AGREEMENT ("Amendment") is made as of January 1, 1999 by and among BRIGHTPOINT,
INC., BRIGHTPOINT INTERNATIONAL LTD. (collectively, the "Borrowers"), the
guarantors from time to time party thereto (the "Guarantors"), the financial
institutions listed on the signature pages hereof as lenders (the "Lenders"),
BANK ONE, INDIANA, NATIONAL ASSOCIATION, in its individual capacity as a Lender
and as syndication agent (the "Syndication Agent"), and NBD BANK, N.A., in its
individual capacity as a Lender and as administrative agent (the "Administrative
Agent"; and together with the Syndication Agent, the "Agents") on behalf of the
Lenders under that certain Amended and Restated Multicurrency Credit Agreement
dated as of May 13, 1998 by and among the Borrowers, the Guarantors, the Lenders
and the Agents, as amended by Amendment No. 1 thereto dated as of October 19,
1998 and Amendment No. 2 thereto dated as of September 30, 1998 (as amended,
modified or restated, the "Credit Agreement"). Defined terms used herein and not
otherwise defined herein shall have the meaning given to them in the Credit
Agreement.
WITNESSETH
WHEREAS, the Borrowers, the Guarantors, the Lenders and the Agents are
parties to the Credit Agreement;
WHEREAS, the Borrowers have requested that the Lenders amend the Credit
Agreement in certain respects; and
WHEREAS, the Lenders and the Agents are willing to amend the Credit
Agreement on the terms and conditions set forth herein;
NOW, THEREFORE, in consideration of the premises set forth above, the
terms and conditions contained herein, and other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
Borrowers, the Guarantors, the Lenders and the Agents have agreed to the
following amendment to the Credit Agreement.
1. Amendment to Credit Agreement. Effective as of the date hereof
(provided the amendments set forth in Sections 1.1, 1.4, 1.5 and 1.6 below shall
be effective as of March 25, 1999), and subject to the satisfaction of the
conditions precedent set forth in Section 2 below, the Credit Agreement is
hereby amended as follows:
<PAGE> 2
1.1 SECTION 1.1 OF THE CREDIT AGREEMENT IS AMENDED TO ADD THE FOLLOWING
DEFINITION IN THE APPLICABLE ALPHABETICAL LOCATION:
"LEVERAGE RATIO" means the ratio of (i) the sum of (a) Indebtedness of
Brightpoint and its consolidated Subsidiaries for borrowed money and (b)
Capitalized Lease Obligations to (ii) EBITDA. The Leverage Ratio shall be
calculated, in each case, determined as of the last day of each fiscal
quarter based upon (A) for Indebtedness (including Permitted Subordinated
Indebtedness) and Capitalized Lease Obligations, Indebtedness and
Capitalized Lease Obligations as of the last day of each such fiscal
quarter; and (B) for EBITDA, the actual amount for the preceding fiscal
two-quarter period ending on such day multiplied by two (2); provided,
however,(i) there shall be excluded from the calculation of EBITDA, the
EBITDA attributable to the Borrower and its Subsidiaries' discontinued
Global Trading Business; and (ii) for the fiscal quarters ending December
31, 1998 and March 31, 1999, the Borrower shall be permitted to add back to
EBITDA the $17,750,000 one-time charge taken by the Borrower in the quarter
ending December 31, 1998 relating to the discontinuation or elimination of
the Borrower and its Subsidiaries' Global Trading Business.
1.2 SECTION 1.1 OF THE CREDIT AGREEMENT IS FURTHER AMENDED TO ADD AT THE
END OF THE DEFINITION OF "GUARANTORS" THEREIN THE PHRASE "TO THE EXTENT NOT
PROHIBITED BY APPLICABLE LAW".
1.3 SECTION 2.3(f) OF THE CREDIT AGREEMENT IS AMENDED TO ADD AT THE
BEGINNING OF CLAUSE (2) THEREOF THE PHRASE "TO THE EXTENT NOT PROHIBITED BY
APPLICABLE LAW,".
1.4 SECTION 2.8(b)(i) OF THE CREDIT AGREEMENT IS AMENDED TO DELETE THE
TABLE CONTAINED THEREIN IN ITS ENTIRETY AND TO SUBSTITUTE THE FOLLOWING
THEREFOR:
<TABLE>
<CAPTION>
-------------- ---------------- ----------------- ------------- ---------------
Level I Level II Level III Level IV Level V
-------------- ---------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Leverage Ratio > 4.00 to < 4.00 to < 3.00 to 1.00 < 2.00 to < 1.00 to 1.00
- - -
1.00 1.00 and and 1.00 and
> 3.00 to 1.00 > 2.00 to 1.00 > 1.00 to
1.00
----------------------- -------------- ---------------- ----------------- ------------- ---------------
Applicable
Facility 0.25% 0.20% 0.15% 0.125% 0.10%
Fee
----------------------- -------------- ---------------- ----------------- ------------- ---------------
Applicable
Fixed 1.375% 1.175% 0.975% 0.75% 0.65%
Rate Margin
----------------------- -------------- ---------------- ----------------- ------------- ---------------
Applicable
----------------------- -------------- ---------------- ----------------- ------------- ---------------
</TABLE>
2
<PAGE> 3
<TABLE>
<CAPTION>
-------------- ---------------- ----------------- ------------- ---------------
Level I Level II Level III Level IV Level V
----------------------- -------------- ---------------- ----------------- ------------- ---------------
<S> <C> <C> <C> <C> <C>
Floating Rate 0% 0% 0% 0% 0%
Margin
----------------------- -------------- ---------------- ----------------- ------------- ---------------
Applicable
Letter of 1.375% 1.175% .975% 0.75% 0.65%
Credit Fee
----------------------- -------------- ---------------- ----------------- ------------- ---------------
</TABLE>
1.5 SECTION 2.8(b)(i) OF THE CREDIT AGREEMENT IS FURTHER AMENDED TO DELETE
THE DEFINITION OF LEVERAGE RATIO CONTAINED IMMEDIATELY FOLLOWING THE TABLE
THEREIN IN ITS ENTIRETY.
1.6 SECTION 2.8(b)(ii)(A) OF THE CREDIT AGREEMENT IS AMENDED TO DELETE THE
PHRASE "(CALCULATED AS PROVIDED IN SECTION 6.4(D))" IN THE FIRST SENTENCE
THEREOF IN ITS ENTIRETY AND TO SUBSTITUTE THE PHRASE "(CALCULATED AS SET FORTH
IN THE DEFINITION THEREOF)" IN PLACE THEREOF.
1.7 SECTION 6.4(A) OF THE CREDIT AGREEMENT IS AMENDED TO ADD THE FOLLOWING
DEFINITIONS THERETO IN THE APPLICABLE ALPHABETICAL LOCATIONS:
"ACCOUNTING ADJUSTMENT" means the amount recorded by the Borrower in
the first fiscal quarter of 1999 as a cumulative adjustment for a change in
accounting principle resulting from the required adoption of American
Institute of Certified Public Accountants Statement of Position 98-5,
Reporting the Costs of Start-up Activities, which requires the write-off of
unamortized pre-operating and organizational costs that were previously
capitalized, which amount, net of tax and after earnings from continuing
operations shall not exceed $15,000,000.
"DISTRIBUTOR CHARGE" means the amount recorded by the Borrower in the
fiscal quarter ending December 31, 1998 as a result of impairment in the
value of assets resulting from the Borrower's prior business dealings with
other distributors in an amount not to exceed $8,000,000.
1.8 SECTION 6.4 (B) OF THE CREDIT AGREEMENT IS AMENDED TO DELETE THE TERMS
THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
(B) Fixed Charge Coverage Ratio. Brightpoint shall maintain a ratio
("FIXED CHARGE COVERAGE RATIO") of:
(i) the sum of the amounts of Net Income, plus (b) charges against
income for foreign income taxes or U.S. income taxes to the extent
deducted in computing Net Income, plus (c) Interest Expense to the
extent deducted in computing Net Income plus (d) Rentals to the extent
deducted in computing Net Income plus (e) for the quarters ending March
31, 1999 through December 31, 1999, the lesser of (i) $15,000,000 and
(ii) the amount of the one-time Accounting Adjustment taken
3
<PAGE> 4
by the Borrower in the quarter ending March 31, 1999, plus (f) for the
quarters ending December 31, 1998 through September 30, 1999, the
$17,750,000 one-time charge taken by the Borrower in the quarter ending
December 31, 1998 relating to the discontinuation or elimination of the
Borrower and its Subsidiaries' Global Trading Business and plus (g) for
the quarters ending December 31, 1998 through September 30, 1999, the
lesser of (i) $8,000,000 and (ii) the amount of the one-time
Distributor Charge taken by the Borrower in the quarter ending December
31, 1998 to
(ii) the sum of the amounts of (a) Interest Expense to the extent
deducted in computing Net Income, plus (b) Rentals to the extent
deducted in computing Net Income, plus (c) scheduled amortization of
the principal portion of all Indebtedness of Brightpoint and its
Subsidiaries
during such period of at least 3.25 to 1.00 as of the end of each fiscal
quarter. In each case the Fixed Charge Coverage Ratio shall be determined as
of the last day of each fiscal quarter for the four-quarter period ending on
such day.
1.9 SECTION 6.4(D) OF THE CREDIT AGREEMENT IS AMENDED TO DELETE THE TERMS
THEREOF IN THEIR ENTIRETY AND TO SUBSTITUTE THE FOLLOWING THEREFOR:
(D) Maximum Adjusted Leverage and Senior Debt Ratios.
(1) Brightpoint shall not permit the ratio ("ADJUSTED LEVERAGE RATIO")
of (i) the sum of (a) Indebtedness of Brightpoint and its consolidated
Subsidiaries for borrowed money and (b) Capitalized Lease Obligations to
(ii) EBITDA to be greater than 5.00 to 1.00 at the end of each fiscal
quarter ending on or after January 1, 1999. The Adjusted Leverage Ratio
shall be calculated as set forth in clause (3) below.
(2) Brightpoint shall not permit the ratio ("SENIOR DEBT RATIO") of
(i) the sum of (a) Indebtedness other than the Permitted Subordinated
Indebtedness of Brightpoint and its consolidated Subsidiaries for borrowed
money and (b) Capitalized Lease Obligations to (ii) EBITDA to be greater
than 3.00 to 1.00 at the end of each fiscal quarter ending on or after
January 1, 1999. The Senior Debt Ratio shall be calculated as set forth in
clause (3) below.
(3) The Adjusted Leverage Ratio and Senior Debt Ratio shall be
calculated, in each case, determined as of the last day of each fiscal
quarter based upon (A) for Indebtedness (including Permitted Subordinated
Indebtedness for the Adjusted Leverage Ratio and excluding Permitted
Subordinated Indebtedness for the Senior Debt Ratio) and Capitalized Lease
Obligations, Indebtedness and Capitalized Lease Obligations as of the last
day of each such fiscal quarter; and (B) for EBITDA, the amount for the
four-quarter period ending on such day (2); provided, however,(i) there
shall be excluded from the calculation of EBITDA, the EBITDA attributable to
the Borrower and its Subsidiaries' discontinued Global Trading Business;
(ii) for the fiscal quarters ending
4
<PAGE> 5
December 31, 1998 through the quarter ending September 30, 1999, the
Borrower shall be permitted to add back to EBITDA the $17,750,000 one-time
charge taken by the Borrower in the fiscal quarter ending December 31, 1998
relating to the discontinuation or elimination of the Borrower and its
Subsidiaries' Global Trading Business; (iii) for the fiscal quarters ending
December 31, 1998 through the fiscal quarter ending September 30, 1999, the
Borrower shall be permitted to add back to EBITDA an amount equal to the
lesser of (a) $8,000,000 and (b) the amount of the one-time Distributor
Charge taken by the Borrower in the fiscal quarter ending December 31, 1998;
and (iv) for the fiscal quarters ending March 31, 1999 through December 31,
1999, the Borrower shall be permitted to add back to EBITDA the lesser of
(a) $15,000,000 and (b) the amount of the one-time Accounting Adjustment
taken by the Borrower in the fiscal quarter ending March 31, 1999.
1.10 EXHIBIT A TO THE CREDIT AGREEMENT IS AMENDED TO ADD IN THE LAST
SENTENCE OF SECTION 2 THEREOF AFTER THE PHRASE "A SUBSIDIARY BORROWER AND" THE
PHRASE ", TO THE EXTENT NOT PROHIBITED BY APPLICABLE LAW,".
2. Conditions of Effectiveness. This Amendment shall become effective and
be deemed effective as of January 1, 1999 or March 25, 1999, as applicable, if,
and only if, the Administrative Agent shall have received each of the following:
(a) duly executed originals of this Amendment from the Borrowers, the
Guarantors and the Required Lenders;
(b) the Borrower shall have paid to the Administrative Agent, for the
account of each Lender which has executed this Amendment on or prior to 5:00
p.m. (Indianapolis time) on March 25, 1999, an amendment fee equal to 0.075%
of each such Lenders' Revolving Loan Commitment; and
(c) such other documents, instruments and agreements as the
Administrative Agent may reasonably request.
3. Representations and Warranties of the Borrowers. The Borrowers hereby
represent and warrant as follows:
(a) This Amendment and the Credit Agreement as previously executed and
as amended hereby, constitute legal, valid and binding obligations of the
Borrowers and are enforceable against the Borrowers in accordance with their
terms.
(b) Upon the effectiveness of this Amendment, (i) no Default or
Unmatured Default has occurred and is continuing and (ii) the Borrowers hereby
reaffirm all covenants, representations and warranties made in the Credit
Agreement and other Loan Documents, to the extent the same are not amended
hereby, and agree that all such covenants, representations and warranties shall
be deemed to have been remade as of the effective date of this Amendment.
5
<PAGE> 6
4. Reference to the Effect on the Credit Agreement.
(a ) Upon the effectiveness of Section 1 hereof, on and after the date
hereof, each reference in the Credit Agreement to "this Agreement," "hereunder,"
"hereof," "herein" or words of like import shall mean and be a reference to the
Credit Agreement, as amended previously and as amended hereby.
(b) Except as specifically amended and waived above, the Credit
Agreement and all other documents, instruments and agreements executed and/or
delivered in connection therewith shall remain in full force and effect, and are
hereby ratified and confirmed.
(c) The execution, delivery and effectiveness of this Amendment shall
not, except as expressly provided herein, operate as a waiver of any right,
power or remedy of the Administrative Agent or any of the Lenders, nor
constitute a waiver of any provision of the Credit Agreement or any other
documents, instruments and agreements executed and/or delivered in connection
therewith.
5. Costs and Expenses. The Borrowers agree to pay all reasonable costs,
fees and out-of-pocket expenses (including attorneys' fees and expenses charged
to the Administrative Agent) incurred by the Administrative Agent in connection
with the preparation, arrangement, execution and enforcement of this Amendment.
6. GOVERNING LAW. THIS AMENDMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE INTERNAL LAWS (AS OPPOSED TO THE CONFLICT OF LAW PROVISIONS)
OF THE STATE OF ILLINOIS.
7. Headings. Section headings in this Amendment are included herein for
convenience of reference only and shall not constitute a part of this Amendment
for any other purpose.
8. Counterparts. This Amendment may be executed by one or more of the
parties to the Amendment on any number of separate counterparts and all of said
counterparts taken together shall be deemed to constitute one and the same
instrument. A facsimile signature page hereto sent to the Administrative Agent
or the Administrative Agent's counsel shall be effective as a counterpart
signature provided each party executing such a facsimile counterpart agrees to
deliver originals to the Administrative Agent thereof.
9. No Strict Construction. The parties hereto have participated jointly in
the negotiation and drafting of this Amendment, the Credit Agreement and the
other Loan Documents. In the event an ambiguity or question of intent or
interpretation arises, this Amendment, the Credit Agreement and the other Loan
Documents shall be construed as if drafted jointly by the parties hereto and no
presumption or burden of proof shall arise favoring or disfavoring any party by
virtue of the authorship of any provisions of this Amendment, the Credit
Agreement or any of the other Loan Documents.
6
<PAGE> 7
10. Reaffirmation of Guaranties and other Loan Documents. Each of the
Guarantors, without in any way establishing a course of dealing, as evidenced by
its signature below, hereby consents to the execution and delivery of this
Amendment by the parties hereto, (ii) agrees that this Amendment shall not limit
or diminish the obligations of such Guarantor under the Credit Agreement or any
other Loan Documents, (iii) reaffirms its obligations under the Credit Agreement
and other Loan Documents, and (iv) agrees that such obligations remain in full
force and effect and is hereby ratified and confirmed.
7
<PAGE> 8
IN WITNESS WHEREOF, this Amendment has been duly executed as of the day
and year first above written.
BRIGHTPOINT, INC.
as a Borrower and Guarantor
By: /s/ Steven E. Fivel
---------------------
Name: Steven E. Fivel
Title: Executive Vice President
BRIGHTPOINT INTERNATIONAL LTD.
as a Borrower and Guarantor
By: /s/ Steven E. Fivel
---------------------
Name: Steven E. Fivel
Title: Executive Vice President
NBD BANK, N.A.
as the Administrative Agent, a Lender and the Swing Line
Lender
By: /s/ Steven P. Clemens
-----------------------
Name: Steven P. Clemens
Title: Vice President
BANK ONE, INDIANA, NATIONAL ASSOCIATION
as the Syndication Agent, an Issuing Lender and as a
Lender
By: /s/ William D. Herrick
------------------------
Name: William D. Herrick
Title: Senior Vice President
<PAGE> 9
ABN AMRO BANK N.V.
as an Alternate Currency Lender
By: /s/ Wesley P. Pascavis
------------------------
Name: Wesley P. Pascavis
Title: Group Vice President and Managing Director
By: /s/ Joann L. Holman
---------------------
Name: Joann L. Holman
Title: Vice President
BANK BOSTON, N.A.
as a Lender and an Alternate Currency Lender
By: /s/ Janet R. Twomey
------------------------
Name: Janet R. Twomey
Title: Vice President
FIRST UNION NATIONAL BANK
as a Lender
By: /s/ Thomas M. Harper
----------------------
Name: Thomas M. Harper
Title: Vice President
SUNTRUST BANK OF CENTRAL FLORIDA,
NATIONAL ASSOCIATION
as a Lender
By: /s/ Christopher A. Black
--------------------------
Name: Christopher A. Black
Title: Director
THE BANK OF NOVA SCOTIA
as a Lender
By: /s/ F.C.H. Ashby
------------------
Name: F.C.H. Ashby
Title: Senior Manager Loan Operations
<PAGE> 10
CREDIT LYONNAIS CHICAGO BRANCH
as a Lender
By: /s/ Peter D. Kelly
------------------------
Name: Peter D. Kelly
Title: Vice President
THE BANK OF TOKYO-MITSUBISHI, LTD.
CHICAGO BRANCH
as a Lender
By: /s/ Hiashi Miyashiro
----------------------
Name: Hiashi Miyashiro
Title: Deputy General Manager
THE FUJI BANK, LIMITED
as a Lender
By:
------------------------
Name:
Title:
NATIONAL CITY BANK OF INDIANA
as a Lender
By: /s/ Michael Rechin
------------------------
Name: Michael Rechin
Title: Executive Vice President
10
<PAGE> 1
EXHIBIT 10.40
AMENDMENT NUMBER 1 TO THE RIGHTS AGREEMENT (THE "AGREEMENT") BY AND
BETWEEN BRIGHTPOINT, INC. (THE "COMPANY") AND CONTINENTAL STOCK
TRANSFER & TRUST COMPANY, AS RIGHTS AGENT, DATED AS OF FEBRUARY
20, 1997
In connection with the Company's appointment of American Stock Transfer
& Trust Company as the successor rights agent as of the date hereof, and
pursuant to Section 27 of the Agreement, the Company hereby amends the Agreement
by deleting the fifth sentence of Section 21 of the Agreement and replacing it
with the following language:
"Any successor Rights Agent, whether appointed by the Company or by
such a court, shall be a corporation organized and doing business under the laws
of any state of the United States, which is authorized under such laws to
exercise corporate trust or stock transfer powers and is subject to supervision
or examination by federal or state authority and which has at the time of its
appointment as Rights Agent a combined capital and surplus of at least $10
million."
Dated as of January 4, 1999
BRIGHTPOINT, INC.
By /s/ Steven E. Fivel
-------------------
Title: Executive Vice President
and General Counsel
AMERICAN STOCK TRANSFER &
TRUST COMPANY, as Successor
Rights Agent
By /s/ Herbert J. Lemmer
---------------------
Title: Vice President
<PAGE> 1
EXHIBIT 11
BRIGHTPOINT, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(In thousands, except per share amounts)
Year Ended December 31
-----------------------------------
1996 1997 1998
------- ------- -------
Basic:
Average shares outstanding 40,743 46,630 52,818
======= ======= =======
Historical income before income taxes
and one-time merger expenses $22,873 $36,927 $31,237
Deduct income taxes, pro forma
for 1996 8,493 11,065 11,212
Deduct minority interest in
subsidiaries' earnings 1,758 352 (151)
------- ------- -------
Net income, pro forma for 1996 $12,622 $25,510 $20,176
======= ======= =======
Per share amount $ 0.31 $ 0.55 $ 0.38
======= ======= =======
Diluted:
Average shares outstanding 40,743 46,630 52,818
Net effect of dilutive stock
options and warrants
issued after April 7, 1994 -
based on the treasury stock
method using average
market price 1,536 1,831 665
------- ------- -------
Total 42,279 48,461 53,483
======= ======= =======
Historical income before income taxes
and one-time merger expenses $22,873 $36,927 $31,237
Deduct income taxes, pro forma
for 1996 8,493 11,065 11,212
Deduct minority interest in
subsidiaries' earnings 1,758 352 (151)
------- ------- -------
Net income, pro forma for 1996 $12,622 $25,510 $20,176
======= ======= =======
Per share amount $ 0.30 $ 0.53 $ 0.38
======= ======= =======
<PAGE> 1
EXHIBIT 13
SELECTED PAGES FROM BRIGHTPOINT INC'S
1998 ANNUAL REPORT TO STOCKHOLDERS WHICH HAVE
BEEN INCORPORATED IN THIS FILING.
<PAGE> 2
[GRAPH]
[DESCRIPTION]
Five year bar graph of revenue. (Amounts in thousands)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Revenue $309,227 $419,149 $589,718 $1,035,649 $1,628,622
[CAPTION]
Brightpoint's revenue, derived from the provision of distribution and logistics
services, has grown at a compounded annual rate of 60%.
BRIGHTPOINT, INC.
Brightpoint is a leading provider of innovative services to customers within the
supply chain of the global wireless telecommunications industry. The Company's
innovative services include product distribution, inventory management,
fulfillment, marketing support programs, accessory programs, support of prepaid
programs and repair and refurbishment services.
Brightpoint enhances the success of its customers through the specialized and
focused provision of efficient and effective solutions for their
mission-critical business requirements. The Company serves its customers
throughout the world from 35 sales and operations centers located in 20
countries.
Brightpoint handles products manufactured by leading technology companies such
as Nokia, Ericsson, Motorola, Kyocera, Siemens, Sony and Panasonic. Brightpoint
provides integrated services to these manufacturers and the world's premier
wireless network operators along with their associated service providers,
resellers, agents and retail sales channels.
Brightpoint is headquartered in Indianapolis, Indiana, USA. Its common stock is
listed on the NASDAQ Stock Market(R) under the symbol CELL.
<TABLE>
<CAPTION>
FINANCIAL HIGHLIGHTS (Amounts in thousands, except per share data)
- ---------------------------------------------------------------------------------------------------
Year Ended December 31
---------------------------------------------------------------
1994 1995 1996 1997 1998
---------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Revenue $ 309,227 $ 419,149 $ 589,718 $1,035,649 $1,628,622
Gross profit 18,764 28,199 45,840 85,171 141,234
Income from operations 7,669 13,386 24,991 41,862 43,137
Net income 5,882 8,165 11,037 25,510 20,176
Net income per share:
Basic $ 0.21 $ 0.25 $ 0.27 $ 0.55 $ 0.38
Diluted $ 0.21 $ 0.24 $ 0.26 $ 0.53 $ 0.38
As adjusted: (1)
Net income $ 4,555 $ 7,307 $ 12,622 $ 24,661 $ 39,725
Net income per share (diluted) $ 0.16 $ 0.21 $ 0.30 $ 0.51 $ 0.74
<CAPTION>
December 31
--------------------------------------------------------------
1994 1995 1996 1997 1998
--------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Working capital $ 20,960 $ 62,219 $ 143,481 $ 281,320 $ 361,077
Total assets 82,845 119,787 299,045 456,702 714,450
Long-term obligations 1,346 602 79,894 146,963 286,706
Total liabilities 62,562 54,930 203,125 257,154 474,854
Stockholders' equity 20,283 64,857 94,982 199,291 239,568
</TABLE>
(1) Excluding the after-tax effect of the following items: (i) one-time merger
expenses of $2,061 in 1996; (ii) non-recurring net investment gains of $849 and
$343 in 1997 and 1998, respectively; and (iii) one-time trading and other
charges of $19,892 in 1998; and including pro forma income taxes had the Company
been subject to federal income tax for the years 1994 through 1996. See Notes to
Consolidated Financial Statements.
1
<PAGE> 3
FINANCIAL INFORMATION
CONSOLIDATED FINANCIAL STATEMENTS AND MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
22 REPORT OF INDEPENDENT AUDITORS
22 MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
23 OVERVIEW
24 OPERATING SEGMENTS
25 FUTURE OPERATING RESULTS
26 CONSOLIDATED STATEMENTS OF INCOME AND ANALYSIS
29 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
30 CONSOLIDATED BALANCE SHEETS AND ANALYSIS
32 CONSOLIDATED STATEMENTS OF CASH FLOW AND ANALYSIS
33 FINANCIAL MARKET RISK MANAGEMENT
34 YEAR 2000 UPDATE
35 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
42 COMMON STOCK INFORMATION
21
<PAGE> 4
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Brightpoint, Inc.
We have audited the accompanying consolidated balance sheets of Brightpoint,
Inc. as of December 31, 1998 and 1997, and the related consolidated statements
of income, stockholders' equity and cash flows for each of the three years in
the period ended December 31, 1998, appearing on pages 26, 29, 30, 32 and 35
through 42. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Brightpoint, Inc.
at December 31, 1998 and 1997, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1998, in conformity with generally accepted accounting principles.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
January 26, 1999
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Brightpoint, Inc. is responsible for the preparation and
integrity of the Company's consolidated financial statements and all related
information appearing in this Annual Report. The Company maintains accounting
and internal control systems which are intended to provide reasonable assurances
that assets are safeguarded against loss from unauthorized use or disposition,
that transactions are executed in accordance with management's authorization and
that accounting records are reliable for preparing financial statements in
accordance with generally accepted accounting principles.
The financial statements for each of the years covered in this Annual Report
have been audited by independent auditors who have provided an independent
assessment as to the fairness of the financial statements.
The Board of Directors has appointed an Audit Committee whose members are not
employees of the Company. The Audit Committee meets with management and the
independent auditors to review the results of their work and satisfy itself that
their responsibilities are being properly discharged. The independent auditors
have full and free access to the Audit Committee and have discussions with the
Audit Committee regarding appropriate matters, with and without management
present.
<TABLE>
<S> <C> <C> <C>
/s/ Robert J. Laikin /s/ J. Mark Howell /s/ Phillip A. Bounsall /s/ John P. Delaney
Robert J. Laikin J. Mark Howell Phillip A. Bounsall John P. Delaney
Chairman of the Board and President and Executive Vice President and Vice President and
Chief Executive Officer Chief Operating Officer Chief Financial Officer Corporate Controller
</TABLE>
22
<PAGE> 5
OVERVIEW
The discussion and analysis contained in the following pages should be read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto. All currency amounts stated within this Annual Report refer to
U.S. dollars and are stated in thousands (except per share data) unless
otherwise indicated.
MERGERS AND ACQUISITIONS
Effective June 7, 1996, the Company merged with Allied Communications in a
pooling-of-interests transaction. Consistent with pooling-of-interests
accounting treatment, financial information presented for all periods reflects
the combined financial condition and results of operations of the Company and
Allied Communications. In addition to the merger with Allied Communications,
following are the acquisitions that the Company has made and accounted for as
purchases:
1996
- - Formed Brightpoint International Ltd. (a joint venture of which the Company
initially owned 50%) in August 1996 and acquired the remaining 50% of
Brightpoint International Ltd. in November 1996;
- - Acquired Hatadicorp Pty Ltd. to form Brightpoint Australia Pty Limited in
October 1996.
1997
- - Acquired the remaining 20% minority interests of its consolidated
subsidiaries, Brightpoint China Limited, Brightpoint (UK) Limited and
Brightpoint Australia Pty Limited, during the period of February through
April 1997;
- - Acquired the business and certain net assets of the following wireless
products distributors:
- Telnic AB - located in Sweden;
- Legend International (Asia) Limited - located in Hong Kong;
- Cellular Trading 3, CA and an affiliated company - located in
Venezuela.
1998
- - Acquired the business and either all of the equity interests or certain net
assets of:
- Matel-Tecnologia de Teleinformatica S.A.-Matec - a wireless
products distributor in Brazil;
- WAVETech Limited - a wireless products distributor in the
United Kingdom;
- Wireless Fulfillment Services, LLC - a provider of wireless accessory
end-user fulfillment services for North American network operators;
- Axess Communications Benelux B.V. - a provider of accessory
distribution services for the wireless communications industry
with operations in the Netherlands, Germany and Poland;
- Cell Direct Limited - a wireless products distributor in
New Zealand;
- Function Communications Co., Ltd. - a wireless products
distributor in Taiwan;
- Euro-Phone Sp. Z o.o. - a wireless products distributor in Poland;
- Communicaciones ASBE, S.A. de C.V. - a wireless products
distributor in Mexico;
- Eurocom Systems S.A. - a provider of distribution and integrated
logistics services to the wireless communications industry in France.
TRADING AND OTHER CHARGES
Trading Charges
Through the end of the third quarter of 1998, the Company had been engaged in
the business of trading wireless handsets. Trading involves the purchase of
wireless handsets from sources other than manufacturers or network operators
(i.e., trading companies) and the sale of those handsets to purchasers other
than network operators or their representatives (also trading companies). At the
beginning of the fourth quarter of 1998 the Company decided to cease its trading
activities primarily because: (i) those activities were not consistent with its
strategy of emphasizing relationships with wireless equipment manufacturers and
network operators, (ii) because the margins earned on the trading activities
were rapidly decreasing and (iii) the Company had increasing concerns about the
business practices of many trading companies.
In connection with the discontinuance, the Company recorded a charge of
approximately $17.7 million ($13.8 million net of related tax benefits) in the
fourth quarter of 1998. This charge included approximately $3.0 million for
employee termination costs and other costs related to the discontinuation of the
trading division. Additionally, certain assets that related to the trading
division were determined by the Company to be impaired and, accordingly, were
written down to their estimated fair value resulting in a charge of
approximately $14.7 million. These assets included accounts receivable generated
from sales to trading companies, inventory prepayments to trading companies and
inventories purchased from trading companies. The impairment of these assets is
a result of actions necessary to discontinue the trading division and certain
activities carried out by individuals and third party trading companies in 1998
that were inconsistent with the best interests of the Company.
Other Charges
The Company had traditionally used other distributors to reach markets in which
the Company did not have in-country presences. As the Company has built its
infrastructure in various markets around the world, it has gradually decreased
its dependence on other distributors. This strategic shift from significant
sales to other distributors to direct relationships with network operators and
their representatives was substantially completed in the fourth quarter of 1998.
Due to this shift in focus, the value of certain assets related to business
activities with the other distributors was determined by the Company to be
impaired. The impaired assets include accounts receivable generated by the sale
of products to the other distributors and supplier credits related to the
purchase of products for these channels. Both classes of assets were determined
by the Company to have lost significant value upon termination of the related
business relationships and, accordingly, these assets were written down to their
estimated fair value resulting in a charge of approximately $8.0 million ($6.1
million net of related tax benefits) in the fourth quarter of 1998.
23
<PAGE> 6
NET INVESTMENT GAINS
During the first quarter of both 1997 and 1998, the Company realized
net gains on the sale of marketable equity securities, representing income of a
nonrecurring nature. These net investment gains were $1.4 million ($0.8 million
after-tax) and $0.6 million ($0.3 million after-tax) in 1997 and 1998,
respectively.
OPERATING SEGMENTS
The Company operates in markets worldwide and has four reportable segments as
defined by Statement of Financial Accounting Standards No. 131 (SFAS No. 131),
Disclosures about Segments of an Enterprise and Related Information. These
reportable segments represent the Company's four divisions: Asia-Pacific; North
America; Europe, Middle East and Africa; and Latin America. These divisions all
generate revenues and profit from sales of wireless handsets and related
accessories and from fees generated from the provision of integrated logistics
services. However, the divisions are managed separately because they operate in
different regions of the world.
[GRAPH]
[DESCRIPTION]
Pie chart of 1998 revenue by division (as a percentage of total revenue).
North America 29%
Latin America 12%
Asia-Pacific 27%
Europe, Middle East and Africa 32%
[Caption]
Revenue in each of the Company's divisions increased in 1998 compared to 1997
and signaled a continued increase in its share of the global wireless handset
market.
The Company evaluates the performance of and allocates resources to these
segments based on income from operations. The accounting policies of these
reportable segments are the same as those described in Note 1 - Significant
Accounting Policies.
A summary of the Company's operations by segment is presented below (in
thousands):
<TABLE>
<CAPTION>
Revenues Income Total Allocated Allocated Trading
from External from Segment Interest Income and other
Customers Operations(1) Assets Expense(2) Taxes (2) Charges
----------------------------------------------------------------------------------------
1996
<S> <C> <C> <C> <C> <C> <C>
Asia-Pacific $ 127,629 $ 5,655 $ 54,958 $ 520 $ 1,658 $ -
North America 287,377 11,261 126,003 1,398 3,302 -
Europe,
Middle East
and Africa 76,292 3,750 44,451 143 1,100 -
Latin America 98,420 4,325 73,633 57 1,268 -
----------------------------------------------------------------------------------------
$ 589,718 $24,991 $299,045 $ 2,118 $ 7,328 $ -
========================================================================================
1997
Asia-Pacific $ 434,344 $18,405 $136,323 $ 1,639 $ 5,030 $ -
North America 267,941 12,537 154,925 2,653 3,082 -
Europe,
Middle East
and Africa 249,440 6,773 107,158 2,009 1,429 -
Latin America 83,924 4,147 58,296 66 1,524 -
----------------------------------------------------------------------------------------
$1,035,649 $41,862 $456,702 $ 6,367 $11,065 $ -
========================================================================================
1998
Asia-Pacific $ 524,091 $ 2,958 $161,449 $ 3,347 $ 3,241 $15,148
North America 469,964 22,625 247,687 4,995 3,078 -
Europe,
Middle East
and Africa 435,505 8,098 197,386 2,484 2,798 8,597
Latin America 199,062 9,456 107,928 1,646 2,095 2,004
----------------------------------------------------------------------------------------
$1,628,622 $43,137 $714,450 $12,472 $11,212 $25,749
========================================================================================
</TABLE>
(1) Includes $25.7 million of trading and other charges in 1998.
(2) These items are allocated using various methods and are not necessarily
indicative of the actual net interest expense and income taxes for the
applicable divisions.
SFAS No. 131 also requires the following enterprise-wide disclosures if they are
not provided in the Company's disclosures about its operating segments (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
------------------------------------
<S> <C> <C> <C>
External revenue by service line:
Wireless handset sales $ 520,762 $ 918,123 $1,336,368
Wireless accessory sales 65,559 59,265 145,852
Integrated logistics services 3,397 58,261 146,402
------------------------------------
$ 589,718 $1,035,649 $1,628,622
====================================
Long-lived assets:
Asia-Pacific $ 9,841 $ 23,836 $ 40,824
North America 15,435 25,557 38,571
Europe, Middle East
and Africa 6,762 14,152 73,836
Latin America 295 1,646 11,994
------------------------------------
$ 32,333 $ 65,191 $ 165,225
====================================
</TABLE>
24
<PAGE> 7
FUTURE OPERATING RESULTS
Various statements, discussions and analyses throughout this Annual Report,
including the following discussion, are not based on historical fact and contain
forward-looking statements. Actual future results may differ materially. Future
trends for revenue and profitability are difficult to predict due to a variety
of risks and uncertainties, including, among others, (i) business conditions and
growth in the Company's markets, including currency, economic and political
risks in markets in which the Company operates; (ii) availability and prices of
wireless products; (iii) absorption, through revenue growth, of the increasing
operating costs that the Company has incurred and continues to incur in
connection with its expansion activities and provision of integrated logistics
services; (iv) successful consummation and integration of acquisitions; (v)
continued success of strategic relationships with wireless equipment
manufacturers, network operators and other providers of wireless communications
logistics services; (vi) ability to meet the intense industry competition; (vii)
continued access to increasing amounts of capital; (viii) the highly dynamic
nature of the industry in which the Company participates; (ix) uncertainties
relating to the Company's Year 2000 compliance efforts and the failure of key
suppliers and customers to be Year 2000 compliant; and (x) risk of failure or
material interruption of wireless systems and services.
On March 10, 1999, the Company reported that it anticipates revenue and net
income for the quarter ending March 31, 1999 and for the year ending December
31, 1999 to fall below expectations. The factors discussed below which impact
the Company's first quarter results may also impact the remaining quarters of
1999.
Beginning in late January 1999, the Company experienced difficulties
in procuring an adequate supply of products in its Asia-Pacific region,
specifically in China and Taiwan. The Company has adopted a strategy in China of
procuring its supply from manufacturers in China. This strategy resulted in an
inadequate supply of product for the first quarter of 1999.
In addition, trading companies selling product into China from other
markets have continued to create price instability, thereby lowering the
Company's margins.
In both the Asia-Pacific and Latin America divisions, the Company has tightened
credit policies in response to recent economic uncertainties in those regions.
Although the Company believes that its policies are appropriate and prudent, the
Company may have lost sales to competitors offering more liberal credit terms.
On January 13, 1999, the Brazilian government allowed the value of its currency,
the real, to float freely against other currencies. Between January 13, 1999 and
March 17, 1999, the real's exchange rate declined against the U.S. dollar by as
much as 44% from the exchange rate on December 31, 1998. As nearly all of the
Company's transactions in Brazil are real-denominated, translating the results
of operations of the Company's Brazilian subsidiary into U.S. dollars at
devalued exchange rates will result in a lower contribution to consolidated
revenues and operating income. In addition, it can not be determined at this
point in time, what effect, if any, the devaluation of the real will have on the
economy of Brazil and the overall demand for the Company's products and
services.
As previously discussed, the Company discontinued its trading division
in the fourth quarter of 1998 in an effort to develop and capitalize upon
stronger relationships with wireless equipment manufacturers and network
operators. While the Company continues to believe this strategy is appropriate,
the Company has been unable to replace the trading revenue previously derived in
the United Kingdom and Germany with revenues from sales or services provided
directly to network operators.
Because of the aforementioned uncertainties affecting the Company's future
operating results, past performance should not be considered to be a reliable
indicator of future financial performance, and investors should not use
historical trends to anticipate future results or trends.
25
<PAGE> 8
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Year ended December 31
1996 1997 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 589,718 $ 1,035,649 $ 1,628,622
Cost of revenue 543,878 950,478 1,487,388
- ------------------------------------------------------------------------------------------
Gross profit 45,840 85,171 141,234
Selling, general and administrative expenses 20,849 43,309 72,348
Trading and other charges -- -- 25,749
- ------------------------------------------------------------------------------------------
Income from operations 24,991 41,862 43,137
Merger expenses 2,750 -- --
Net investment gain -- 1,432 572
Interest expense, net 2,118 6,367 12,472
- ------------------------------------------------------------------------------------------
Income before income taxes and minority interest 20,123 36,927 31,237
Income taxes 7,328 11,065 11,212
- ------------------------------------------------------------------------------------------
Income before minority interest 12,795 25,862 20,025
Minority interest 1,758 352 (151)
- ------------------------------------------------------------------------------------------
Net income $ 11,037 $ 25,510 $ 20,176
==========================================================================================
Net income per share (pro forma for 1996):
Basic $ 0.31 $ 0.55 $ 0.38
==========================================================================================
Diluted $ 0.30 $ 0.53 $ 0.38
==========================================================================================
Weighted average common shares outstanding:
Basic 40,743 46,630 52,818
==========================================================================================
Diluted 42,279 48,461 53,483
==========================================================================================
</TABLE>
See accompanying notes.
26
<PAGE> 9
ANALYSIS OF THE CONSOLIDATED STATEMENTS OF INCOME
REVENUE
The Company's revenues are comprised of sales of wireless handsets and related
accessories and fees generated from integrated logistics services. The sale of
wireless handsets and related accessories and the resulting gross profit
reflects the compensation earned by the Company for its distribution services,
which services include purchasing, marketing, selling, warehousing, picking,
packing and shipping. Fees earned from integrated logistics services are earned
as these services are performed. Such services include, among others, support
for prepaid programs, inventory management, procurement, product fulfillment,
programming, light assembly, telemarketing, private labeling, kitting and
customized packaging, product warranty, repair and refurbishment, and end-user
support services.
<TABLE>
<CAPTION>
1996 1997 1998
-----------------------------------------
<S> <C> <C> <C>
Consolidated revenue by service line:
Wireless handset sales 88% 88% 82%
Wireless accessory sales 11% 6% 9%
Integrated logistics services 1% 6% 9%
</TABLE>
Consolidated revenue for 1998 increased by 57% to approximately $1.6 billion
from $1.0 billion in the prior year reflecting the continued strong worldwide
demand for the Company's distribution and integrated logistics services. The
increased demand for wireless products resulted from, among other things,
increasing numbers of wireless subscribers in many markets worldwide and by
increasing demand for replacement or upgraded equipment. The Company believes
that it continued to increase its share of the global wireless handset market
during 1998. The 1998 increase in revenue was primarily attributable to a 79%
increase in wireless handsets sold, offset by a 19% decrease in the Company's
average selling price per wireless handset, as well as a 151% increase in
revenues from integrated logistics services and a 146% increase in sales of
wireless accessories.
<TABLE>
<CAPTION>
1996 1997 1998
-------------------------------
<S> <C> <C> <C>
Revenue by division:
Asia-Pacific 21% 42% 32%
North America 49% 26% 29%
Europe, Middle East and Africa 13% 24% 27%
Latin America 17% 8% 12%
</TABLE>
The Company operates in various markets worldwide and business activities are
managed in four divisions: Asia-Pacific; North America; Europe, Middle East and
Africa; and Latin America. Within the Asia-Pacific division, the Company
maintains operations in the People's Republic of China (including the Special
Administrative Region of Hong Kong), Taiwan, Australia, New Zealand and the
Philippines. Revenue in the Asia-Pacific division grew by approximately 21% in
1998 compared to 1997 with most of the growth attributable to the Company's
in-country expansion into Taiwan and China.
The Company's North America operations are conducted primarily within the United
States. Revenue in this region grew 75% from 1997 to 1998. In the North American
division, units handled (wireless handsets sold through distribution services or
fulfilled through integrated logistics services) by the Company increased 104%
in 1998 compared to 1997 due primarily to increases in both its integrated
logistics and distribution service lines. These increases reflect growth in the
provision of services to network operators and their agents, including mass
retailers.
The Company's Europe, Middle East and Africa division has operations in the
United Kingdom, South Africa, Sweden, Ireland, Germany, the Netherlands, France,
Poland, the United Arab Emirates and Zimbabwe. The Latin America division of the
Company has operations in Miami, Brazil, Mexico, Venezuela and Argentina.
Revenue within the Europe, Middle East and Africa and Latin America divisions
grew by 75% and 137%, respectively, in 1998 compared to 1997 resulting from the
successful migration to in-country presences in many of the major markets within
each region.
Consolidated revenue increased by 76% to $1.0 billion in 1997 from $590 million
in 1996. The increase was due primarily to the increased worldwide demand for
wireless products and the Company's penetration through both internal growth and
acquisitions within the Asia-Pacific and Europe, Middle East and Africa regions.
In 1997, the Company's wireless handset volume and average selling price
increased by 87% and 7%, respectively, compared to 1996. Traditionally, the
average selling price of the Company's wireless handsets has declined over time.
However, the increase in 1997 average selling price was the result of
significant sales growth in markets within the Company's Europe, Middle East and
Africa and Asia-Pacific regions where sales were concentrated in higher-priced
digital handsets.
GROSS PROFIT
<TABLE>
<CAPTION>
1996 1997 Change 1998 Change
- -------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Gross profit $45,840 $85,171 86% $141,234 66%
Gross margin 7.77% 8.22% 8.67%
- -------------------------------------------------------------------------
</TABLE>
Gross profit in 1998 increased by 66% from the prior year to approximately
$141.2 million, and gross profit in 1997 increased by 86% from 1996 to
approximately $85.2 million. These increases are due to increases in revenue as
well as increasing gross margins. The increases in gross margins are due
primarily to the continuing execution of the Company's strategy to provide
higher-margin integrated logistics services and expanded accessory sales in all
four of the Company's divisions. Although fees for integrated logistics services
represent a relatively small percentage of revenue (6% and 9% for 1997 and 1998,
respectively), their impact on the Company's gross profit is much greater. In
addition, the Company has increased its in-country presence in many markets
around the world, thereby eliminating its dependence on sales to other
distributors and trading companies. Such sales have traditionally generated
lower gross margins than sales made to network operators or their
representatives.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
1996 1997 Change 1998 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Selling, general and
administrative
expenses $20,849 $43,309 108% $72,348 67%
As a percent
of revenue 3.54% 4.18% 4.44%
- --------------------------------------------------------------------------------
</TABLE>
27
<PAGE> 10
[GRAPH]
[DESCRIPTION]
Five year bar chart of net income (as adjusted). (Amounts in thousands)
1994 1995 1996 1997 1998
------ ------ ------- ------- -------
Net income (as adjusted) $4,555 $7,307 $12,622 $24,661 $39,725
[Caption]
Growth in net income (as adjusted) of 83% compounded annually has outpaced sales
growth during the last five years.
The 1998 increase in selling, general and administrative expenses of 67%, to
approximately $72.3 million, is due primarily to the Company's increased
business activities, and includes the impact of additional managerial and
capital resources in all of the Company's operating divisions. These resources
are necessary to support the increasing demand and the significant growth
experienced and forecasted for both distribution and integrated logistics
services. The increase is also due to depreciation and amortization expenses
resulting from investments associated with information systems, leasehold
improvements and acquisitions, as well as increased rent expense due to expanded
facilities, an increase in the allowance for doubtful accounts and growth in
various marketing costs including travel, promotions and commissions. Various
acquisitions also resulted in incremental integration costs being incurred in
1998 that are not expected to recur in 1999 as the new operations have been
fully integrated.
The 1997 increase in selling, general and administrative expenses of 108%, to
approximately $43.3 million was due primarily to the increased level of business
activity generated by the Company. Expanded operations as well as increasing
demand for the Company's integrated logistics services were supported by
extensive increases in managerial and capital resources, which resulted in
increased compensation, depreciation and amortization expenses as well as, rent
expense and travel costs. In addition, selling, general and administrative
expenses increased due to an increase in the allowance for doubtful accounts.
INCOME FROM OPERATIONS
<TABLE>
<CAPTION>
1996 1997 Change 1998 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Income from
operations
(as adjusted) $24,991 $41,862 68% $68,886 65%
Operating margin 4.24% 4.04% 4.23%
- --------------------------------------------------------------------------------
</TABLE>
In 1998, income from operations (excluding the trading and other charges)
increased by 65% to approximately $68.9 million, and the operating margin
(income from operations as a percent of revenue) increased from 4.04% in 1997 to
4.23% in 1998. The increase in operating margin is due to the increase in gross
margin, partially offset by the increase in selling, general and administrative
expenses as a percent of revenue.
The 1997 increase in income from operations was due to the increase in revenue,
while the 1997 decrease in operating margin is a result of an increase in
selling, general and administrative expenses as a percent of revenue which was
partially offset by the increase in gross margin.
<TABLE>
<CAPTION>
Net Income
1996 1997 Change 1998 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Net income
(as adjusted) (1), (2) $12,622 $24,661 95% $39,725 61%
As a percent of
revenue 2.14% 2.38% 2.44%
Net income per share
(as adjusted) (1), (2)
- - basic $0.31 $0.53 71% $0.75 42%
- - diluted $0.30 $0.51 70% $0.74 45%
Weighted average
shares outstanding
- - basic 40,743 46,630 14% 52,818 13%
- - diluted 42,279 48,461 15% 53,483 10%
- --------------------------------------------------------------------------------
</TABLE>
(1) Prior to the merger between Brightpoint, Inc. and Allied Communications,
Allied Communications had elected to be treated as a Subchapter S
corporation and was therefore, not subject to federal and state income
taxes. Net income and net income per share (as adjusted) for 1996 reflect a
pro forma provision for income taxes on the income not previously taxed.
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 1996. Net income and net income per share (as
adjusted) for 1996 exclude the effect of this one-time charge.
(2) Net income and net income per share (as adjusted) for 1997 and 1998 exclude
the after-tax impact of the trading and other charges of $19.9 million (in
1998) and the net investment gains (in 1997 and 1998). See Overview on page
23.
- --------------------------------------------------------------------------------
Net income (as adjusted) in 1998 increased by 61%, to $39.7 million, compared to
$24.7 million in 1997. This increase is due to an increase in income from
operations (as adjusted) partially offset by an increase in interest expense
relating to additional debt obtained to fund working capital requirements. The
1998 increase in weighted average shares outstanding is due primarily to shares
issued in connection with acquisitions and the impact of stock options and
warrants.
Net income (as adjusted) in 1997 increased by 95% compared to 1996, to $24.7
million. This resulted from an increase in income from operations and a decrease
in the effective income tax rate from 37% in 1996 (pro forma) to 30% in 1997,
partially offset by an increase in interest expense relating to additional bank
debt obtained for working capital purposes.
[GRAPH]
[DESCRIPTION]
Five year bar chart of net income per share (as adjusted).
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Net income per share (as adjusted) $0.16 $0.21 $0.30 $0.51 $0.74
[Caption]
Net income per share (as adjusted), on a diluted basis, has grown at a five year
compounded annual rate of 49%.
28
<PAGE> 11
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
(Amounts in thousands)
<TABLE>
<CAPTION>
- -----------------------------------------------------------------------------------------------------------------------------------
Accumulated
Additional Other Total
Common Paid-in Comprehensive Retained Stockholders' Comprehensive
Stock Capital Income (Loss) Earnings Equity Income
- -----------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1996 $ 398 $ 50,711 $ -- $ 13,748 $ 64,857
Net income -- -- -- 11,037 11,037 $ 11,037
Other comprehensive income:
Currency translation of foreign investments -- -- 97 -- 97 97
Unrealized gain on marketable securities,
net of income taxes of $2,640 -- -- 3,929 -- 3,929 3,929
S corporation dividends and earnings -- 7,115 -- (7,404) (289)
Exercise of stock options and warrants
and related income tax benefit 20 7,231 -- -- 7,251
Purchase acquisitions 15 8,085 -- -- 8,100
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1996 433 73,142 4,026 17,381 94,982 $ 15,063
=============
Net income -- -- -- 25,510 25,510 $ 25,510
Other comprehensive loss:
Currency translation of foreign investments -- -- (4,514) -- (4,514) (4,514)
Unrealized loss on marketable securities,
net of tax benefit of $49 -- -- (74) -- (74) (74)
Reclassification of marketable securities
gains, net of income taxes -- _ (3,929) -- (3,929) (3,929)
Exercise of stock options and warrants
and related income tax benefit 11 6,969 -- -- 6,980
Purchase acquisitions 6 5,447 -- -- 5,453
Issuance of common stock, net of costs 54 74,829 -- -- 74,883
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 504 160,387 (4,491) 42,891 199,291 $ 16,993
=============
Net income -- -- -- 20,176 20,176 $ 20,176
Other comprehensive income (loss):
Currency translation of foreign
investments -- -- (3,214) -- (3,214) (3,214)
Unrealized loss on derivatives, net of
tax benefit -- -- (762) -- (762) (762)
Reclassification of marketable securities
losses, net of tax benefit -- -- 74 -- 74 74
Exercise of stock options and warrants
and related income tax benefit 19 16,803 -- -- 16,822
Purchase acquisitions 5 7,176 -- -- 7,181
- -----------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 $ 528 $ 184,366 $ (8,393) $ 63,067 $ 239,568 $ 16,274
===================================================================================================================================
</TABLE>
See accompanying notes.
29
<PAGE> 12
BRIGHTPOINT, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
December 31
1997 1998
- ------------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 2,941 $ 49,528
Accounts receivable (less allowance for doubtful accounts
of $3,394 in 1997 and $6,045 in 1998) 212,946 278,947
Contract financing receivables 49,470 18,059
Inventories 95,716 156,333
Other current assets 30,438 46,358
- ------------------------------------------------------------------------------------------------------------------------
Total current assets 391,511 549,225
Property and equipment 23,420 48,270
Goodwill and other intangibles 31,161 83,467
Other assets 10,610 33,488
- ------------------------------------------------------------------------------------------------------------------------
Total assets $ 456,702 714,450
========================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 110,191 $ 188,148
- ------------------------------------------------------------------------------------------------------------------------
Total current liabilities 110,191 188,148
Long-term debt 146,963 286,706
Minority interest 257 28
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; 50,396 and 52,821 issued and
outstanding in 1997 and 1998, respectively 504 528
Additional paid-in capital 160,387 184,366
Retained earnings 42,891 63,067
Accumulated other comprehensive loss (4,491) (8,393)
- ------------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 199,291 239,568
- ------------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 456,702 $ 714,450
========================================================================================================================
</TABLE>
See accompanying notes.
30
<PAGE> 13
ANALYSIS OF THE CONSOLIDATED BALANCE SHEETS
<TABLE>
<CAPTION>
1996 1997 1998
----------------------------------
<S> <C> <C> <C>
Cash, cash equivalents
and marketable securities $ 32,255 $ 6,419 $ 49,528
Working capital $ 143,481 $ 281,320 $ 361,077
Current ratio 2.16:1 3.55:1 2.92:1
Average days revenue
in accounts receivable 48 44 44
Average inventory turnover 8 10 10
- --------------------------------------------------------------------------------
</TABLE>
The increase in working capital in 1998 compared to 1997 is primarily comprised
of an increase in cash, accounts receivable, inventories and other current
assets partially offset by a decrease in contract financing receivables and an
increase in accounts payable.
The increase in cash is primarily due to the establishment in 1998 of a
centralized treasury management function which pools cash resources from and
provides timely funding to most of the Company's subsidiaries within its Europe,
Middle East and Africa and Asia-Pacific divisions. Pending use in operations,
these funds are pooled and efficiently invested in highly-liquid, short-term
investments. The increases in accounts receivable and inventory in 1998 are
primarily attributable to the Company's growth in revenues. The increase in
other current assets is due to general business activities as well as a higher
proportion of activity in markets that require the billing and collection of
value-added taxes, the uncollected portion of which is reflected in other
current assets. The 1998 increase in accounts payable is primarily due to the
increase in inventory on hand at the end of 1998 compared to inventory on hand
at the end of 1997.
At December 31, 1998, the Company's allowance for doubtful accounts was $6.0
million (an increase of $2.6 million from 1997) which the Company believes is
currently adequate for the size and nature of its receivables at that date. Bad
debt expense as a percent of revenues was less than 1.0% for 1996, 1997 and
1998. Nevertheless, the Company's accounts receivable and contract financing
receivables (see Note 5 - Contract Financing Receivables) are concentrated with
network operators, agent dealers and mass retailers and delays in collection or
the uncollectibility of accounts receivable or contract financing receivables
could have an adverse effect on the Company's liquidity and working capital
position. In connection with its expanded operations, the Company has offered
open account terms to an increasing number of customers, which subjects the
Company to additional credit risk, particularly in foreign markets. The Company
seeks to minimize losses on credit sales by closely monitoring its customers'
credit worthiness and by obtaining, where available, security on open account
sales to certain customers.
The increase in working capital in 1997 compared to 1996 was primarily
attributable to an increase in accounts receivable and contract financing
receivables and a decrease in accounts payable partially offset by a decrease in
inventory.
The increase in property and equipment from $23.4 million in 1997 to $48.3
million in 1998 is due primarily to infrastructure needs associated with the
continued expansion of the Company's existing operations and the demands placed
on the Company for its rapidly growing integrated logistics services business.
In addition, property and equipment acquired in conjunction with the 1998
acquisitions contributed to the increase. The increase in goodwill and other
intangibles in 1998 relates to the 1998 acquisitions as well as payments of
contingent purchase consideration on certain acquisitions made in 1997. The 1998
increase in other assets relates to costs incurred in conjunction with the
issuance and modification of the Company's debt instruments as well as costs
incurred in connection with the Company's acquisitions and expansion into
various markets during the year.
Certain costs incurred related to expansion activities, classified in Other
assets, will be written off in the first quarter of 1999 due to a change in
accounting principle. This change in accounting principle results from the
required adoption of American Institute of Certified Public Accountants
Statement of Position 98-5, Reporting the Costs of Start-up Activities, which
requires that start-up costs (as broadly defined in the Statement) be expensed
as incurred. The initial application of this Statement must be reported as the
cumulative effect of a change in accounting principle and will result in the
write-off of the unamortized portion of capitalized organization, start-up,
pre-operating and integrated logistics services contract implementation
costs that were previously capitalized in accordance with generally accepted
accounting principles then in effect. The adjustment in the first quarter of
1999 for the write-off of these amounts, which will be shown net of tax and
after earnings from continuing operations, is expected to range from $14 million
($0.26 per share) to $15 million ($0.28 per share).
On March 11, 1998, the Company completed the sale of zero-coupon, subordinated,
convertible notes (the Bonds) with an aggregate principal amount at maturity of
$380 million ($1,000 face value per Bond). The Bonds are due in the year 2018,
have a yield to maturity of 4.00% and are convertible into the Company's common
stock at a rate of 19.109 shares per Bond. The placement of the Bonds resulted
in gross proceeds to the Company of approximately $172 million. The proceeds
were used to reduce borrowings under the Company's revolving credit facility and
to invest in highly-liquid, short-term investments pending use in operations. At
December 31,1998, the Bonds had an accreted value of $177.2 million.
The Company funds short-term working capital needs with a $230
million five-year senior secured revolving line of credit facility (Credit
Facility). At December 31, 1998, there was approximately $109.5 million
outstanding under the Credit Facility at a weighted average interest rate of
5.8% and an aggregate of $13.0 million in letters of credit issued.
Many of the Company's assets are pledged to the Banks as collateral, and the
Company is substantially prohibited from incurring additional indebtedness,
either of which terms could limit the Company's ability to implement its
expansion plans. The Company is also subject to certain covenants as more fully
described in Note 7 - Long-term Debt.
The increase in stockholders' equity from 1997 to 1998 of $40.3 million resulted
from 1998 net income of $20.2 million, funds generated from the exercise of
stock options of $16.8 million, the value of common stock issued in connection
with acquisitions of $7.2 million partially offset by a decrease in other
comprehensive income of $3.9 million.
31
<PAGE> 14
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1996 1997 1998
- -------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating activities
Net income $ 11,037 $ 25,510 $ 20,176
Adjustments to reconcile net income to net cash used by operating activities:
Depreciation and amortization 1,069 4,019 11,342
Amortization of debt discount - - 5,587
Merger expenses 2,750 - -
Trading and other charges - - 25,749
Net investment gain - (1,432) (572)
Minority interest and deferred taxes 2,040 (2,386) 3,680
Changes in operating assets and
liabilities, net of effects from acquisitions:
Accounts receivable (43,989) (101,069) (77,639)
Inventories (45,771) 16,403 (64,010)
Other current assets (5,180) (17,654) (3,308)
Accounts payable and accrued expenses 46,519 (52,571) 71,868
- -------------------------------------------------------------------------------------------------------------------------
Net cash used by operating activities (31,525) (129,180) (7,127)
Investing activities
Capital expenditures (5,965) (18,141) (30,120)
Sales (purchases) of marketable securities, net of transaction costs (11,431) 15,050 3,263
Purchase acquisitions, net of cash acquired (5,560) (5,496) (48,978)
Decrease (increase) in funded contract financing receivables - (18,975) 6,619
Increase in other assets (7,678) (4,052) (21,974)
- -------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (30,634) (31,614) (91,190)
Financing activities
Net proceeds (payments) on revolving credit facility 71,740 68,598 (37,713)
Net proceeds from stock offering - 74,883 -
Net proceeds from issuance of convertible notes - - 166,088
Proceeds and tax benefits from exercise of stock options and warrants 7,251 6,980 16,822
Merger expenses and related items (3,007) - -
- -------------------------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 75,984 150,461 145,197
Effect of exchange rate changes on cash and cash equivalents (296) (981) (293)
- -------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents 13,529 (11,314) 46,587
Cash and cash equivalents at beginning of year 726 14,255 2,941
- -------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $ 14,255 $ 2,941 $ 49,528
=========================================================================================================================
</TABLE>
See accompanying notes.
32
<PAGE> 15
ANALYSIS OF THE CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
1996 1997 1998
-------------------------------------
<S> <C> <C> <C>
Cash used by
operating activities $(31,525) $(129,180) $ (7,127)
Cash used by
investing activities $(30,634) $ (31,614) $(91,190)
Cash provided by
financing activities $ 75,984 $ 150,461 $145,197
Cash operating profit (EBITDA) $ 26,060 $ 45,881 $ 80,228
</TABLE>
The Company's primary cash requirements have been to fund increases
in accounts receivable, inventories and capital assets associated with the
Company's growth as well as to fund acquisitions. The Company has historically
satisfied its working capital and expansion requirements principally through
cash operating profit (income from operations (as adjusted) plus depreciation
and amortization expense), vendor financing, bank borrowings, proceeds and tax
benefits received from the exercise of stock options and the issuance of debt
and equity securities.
[GRAPH]
[DESCRIPTION]
Five year bar chart of working capital. (Amounts in thousands)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Working capital $20,960 $62,219 $143,481 $281,320 $361,077
[Caption]
Working capital management resulted in a decrease in the Company's current ratio
to 2.92:1 in 1998 from 3.55:1 in 1997.
The net cash used by operating activities in 1997 and 1998 was primarily
attributable to increases in working capital (discussed in the analysis of the
Consolidated Balance Sheets), excluding changes in contract financing
receivables which represent investing activities, partially offset by the net
income earned during each of those years.
The net cash used by investing activities in 1998 was primarily attributable to
capital expenditures and the cost to fund acquisitions, net of the cash
acquired. The cash used by investing activities in 1997 was primarily
attributable to capital expenditures and the increase in contract financing
receivables, partially offset by the sale of the Company's investment in certain
marketable securities.
The net cash provided by financing activities in 1998 was primarily due to $166
million generated from the issuance of the Bonds and $17 million of proceeds and
tax benefits generated from the exercise of stock options partially offset by
$38 million of net principal reductions on the Company's line of credit. The net
cash provided by financing activities in 1997 was primarily due to $75 million
generated from a public equity offering, $69 million of additional borrowings on
the Company's multicurrency credit agreement and $7 million of proceeds and tax
benefits from the exercise of stock options.
In 1997 and 1998, cash operating profit increased by 76% and 75%, respectively,
from prior years. This increase is primarily due to the increase in operating
income (as adjusted) as well as the substantial increase in depreciation and
amortization expense during these years.
Through 1998 the Company generated a five-year compounded annual growth rate in
revenue and net income (as adjusted) in excess of 60% and 80%, respectively. In
order to fund the working capital necessary for this level of growth, the
Company successfully generated over $500 million of capital using an appropriate
combination of both debt and equity instruments during this five year period.
The Company believes that to maintain significant growth in the future, it could
be necessary to raise additional capital while maintaining appropriate leverage
ratios.
[GRAPH]
[DESCRIPTION]
Five year bar chart of capital. (Amounts in thousands)
1994 1995 1996 1997 1998
---- ---- ---- ---- ----
Capital $21,629 $64,857 $174,546 $346,254 $526,274
[Caption]
The Company's capital has grown to over $500 million at the end of 1998.
FINANCIAL MARKET RISK MANAGEMENT
The Company is exposed to financial market risks, including changes in interest
rates and foreign currency exchange rates. To mitigate foreign currency exchange
rate risks, the Company utilizes derivative financial instruments under a risk
management program approved by the Company's Board of Directors. The Company
does not use derivative instruments for speculative or trading purposes.
A substantial majority of the Company's revenue and expenses are transacted in
markets worldwide and are denominated in currencies other than the U.S. dollar.
Accordingly, the Company's future results could be adversely affected by a
variety of factors, including changes in a specific country's political,
economic or regulatory conditions and trade protection measures.
The Company's foreign currency risk management program is designed to reduce but
not eliminate unanticipated fluctuations in earnings, cash flows, and the value
of foreign investments caused by volatility in currency exchange rates by
hedging, where believed to be cost-effective, significant exposures with foreign
currency exchange contracts, options and foreign currency borrowings. The
Company's hedging programs reduce, but do not eliminate, the impact of foreign
exchange rate movements. An adverse change (defined as a 10% strengthening of
the U.S. dollar) in all exchange rates would result in a decline in income
before taxes (as adjusted) of approximately $2.1 million for the year ended
December 31, 1998. The same adverse change in exchange rates would result in a
$7.0 million increase in the fair value of the Company's cash flow and net
investment hedges open at December 31, 1998. The majority of this fair value
increase would offset currency devaluations from translating the Company's
foreign investments from functional currencies to the U.S. dollar. The Company's
sensitivity analysis of foreign exchange rate movements does not factor in a
potential change in revenue levels or local currency prices. Actual results may
differ materially.
The Company is exposed to changes in interest rates on its variable interest
rate revolving line of credit. A 10% increase in short-term borrowing rates
during 1998 would have resulted in a nominal increase in interest expense.
33
<PAGE> 16
YEAR 2000 UPDATE
OVERVIEW AND BACKGROUND
The Company has implemented a project (the Project) to address the
Year 2000 readiness of its information technology as well as non-information
technology systems (e.g., telephones, alarm systems, copy machines, elevators,
etc.) which have embedded technology (collectively referred to as Systems).
Additionally, the Project includes the assessment of the Year 2000 readiness of
the Company's significant suppliers and customers.
STATUS OF THE PROJECT
The Project is divided into four separate phases - Planning and Awareness,
Inventory, Assessment, and Remediation.
The Planning and Awareness phase began in June 1998 and has been
completed. This phase included: (i) development and approval of the Project
charter, (ii) formation of a Project management team to carry out the Project
charter, (iii) identification and assessment of overall Project risks and (iv)
development of a Project budget.
The Inventory phase began in August 1998 and has been completed. This phase
included: (i) identification of significant Systems to be assessed and (ii)
identification of all significant suppliers and customers.
The Assessment phase began in September 1998 and is substantially complete as of
March 1999. This phase involves: (i) contacting vendors of significant Systems
to assess the Year 2000 readiness of those Systems, (ii) testing of the
assertions made by the vendors of significant Systems', (iii) contacting
significant suppliers and customers in order to understand their state of Year
2000 readiness, (iv) assessment of assertions made by significant suppliers and
customers, (v) determination of the extent to which remediation will be required
to ensure Year 2000 readiness and (vi) development of contingency plans to the
extent considered necessary. Although the Company's assessment identified
certain systems that were not currently Year 2000 compliant, these systems have
entered the remediation phase.
The Remediation phase began concurrently with the Assessment phase. Systems
identified during the Assessment phase as not Year 2000 compliant immediately
enter the Remediation phase. The Remediation phase is projected to be completed
by mid 1999 and is currently on schedule. The activities that will be undertaken
during this phase include: (i) repairing, replacing or reprogramming all
significant Systems that are not Year 2000 compliant; (ii) validation and
testing of remediated Systems; and (iii) establishment and completion of action
plans to address any Year 2000 issues with significant customers or suppliers.
To date, none of the Company's other information technology projects or
initiatives have been delayed or materially affected due to the implementation
of the Project.
COSTS
The Company has and will utilize primarily internal resources to carry out the
Project. Costs incurred to ensure the Company's Systems are Year 2000 compliant
have not been and are not expected to be material to the Company's results of
operations, financial position or cash flows. The Project's costs are expensed
as incurred.
RISKS AND CONTINGENCIES
The Company believes that the Project will meet its Year 2000 objectives in a
timely manner. However, the Company has not yet completed all necessary phases
of its Year 2000 initiative. The ability of suppliers and customers with which
the Company interacts to timely convert their systems to be Year 2000 compliant
is somewhat uncertain and not directly under the control of the Company. The
Company conducts operations in various markets worldwide which may not be Year
2000 compliant because of many factors, including, but not limited to, lack of
resources and lack of attention to the Year 2000 issue. Disruptions in the
economy generally resulting from Year 2000 issues could also have an adverse
affect on the Company's operations. Such failures could materially and adversely
affect the Company's results of operations, liquidity and financial position.
The Company is dependent on wireless equipment manufacturers for supply of
wireless handsets and accessories. Additionally, demand for the Company's
products by the Company's customers is dependent on the ability of network
operators to provide wireless network services to the end-users of those
products. Failure in the products and/or systems of the wireless equipment
manufacturers or network operators, including those resulting from a lack of
Year 2000 compliance, could have a material adverse effect on the Company.
The Company has substantially completed its initial contingency plans. These
contingency plans will be continually updated as the Project progresses and new
information becomes available regarding the remediation of systems that are not
Year 2000 compliant. However, the Company's contingency plans have not yet been
tested to ensure that they will provide adequate safeguards for Systems that are
ultimately not Year 2000 compliant. The Company intends to continue evaluating
its contingency plans until Project completion.
The Project's estimated percentage of completion, estimated completion dates for
the various phases, and estimated costs are dependent upon management's
assumptions of certain future events, such as compliance efforts, the
availability of personnel trained in this area, and the ability to locate and
correct all relevant computer codes in all significant Systems. There can be no
assurance that third parties on which the Company relies will succeed in their
Year 2000 compliance efforts or that failure by a third party would not have a
material adverse effect on the Company's results of operations or financial
condition.
34
<PAGE> 17
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SIGNIFICANT ACCOUNTING POLICIES
Principles of Consolidation
The consolidated financial statements include the accounts of the Company and
its majority-owned subsidiaries. Significant intercompany accounts and
transactions have been eliminated in consolidation. Certain amounts in the 1996
and 1997 consolidated financial statements have been reclassified to conform to
the 1998 presentation.
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 were 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 reflect the consolidated balance sheets and consolidated
results of operations of both entities as if the merger had been in effect for
all periods presented.
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.
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes.
Actual results are likely to differ from those estimates, but management does
not believe such differences will materially affect the Company's financial
position or results of operations.
REVENUE RECOGNITION
Revenue is recognized when wireless communications equipment is sold and shipped
or when the Company's integrated logistics services have been rendered to
customers.
CASH AND CASH EQUIVALENTS
All highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.
CONCENTRATIONS OF RISK
Financial instruments that potentially expose the Company to concentrations of
credit risk consist primarily of trade accounts receivable and contract
financing receivables. Trade accounts receivable are generated from product
sales and services provided to network operators, agents, resellers, dealers and
retailers in the wireless communications industry and are dispersed throughout
the world, including Asia and the Pacific Rim, North America, Europe, the Middle
East, Africa and Latin America. Contract financing receivables are generated
through financing transactions with network operators and their agents located
in the North American wireless communications market. No customer accounted for
more than 10% of the Company's 1996, 1997 or 1998 revenue. The Company performs
ongoing credit evaluations of its customers and provides credit in the normal
course of business to a large number of its customers. However, consistent with
industry practice, the Company generally requires no collateral from its
customers to secure trade accounts receivable. Contract financing receivables
are partially secured by product located at the Company's facilities (See Note 5
- - Contract Financing Receivables).
The Company is dependent on third-party equipment manufacturers, distributors
and dealers for all of its supply of wireless communications equipment. In 1996,
1997 and 1998, products sourced from the Company's three largest suppliers
accounted for approximately 51%, 65% and 79% of product purchases, respectively.
The Company is dependent on the ability of its suppliers to provide products on
a timely basis and on favorable pricing terms. The loss of certain principal
suppliers or a significant reduction in product availability from principal
suppliers could have a material adverse effect on the Company. The Company
believes that its relationships with its suppliers are satisfactory, however,
the Company has periodically experienced inadequate supply from certain handset
manufacturers.
INVENTORIES
Inventories consist of wireless handsets and accessories and are stated at the
lower of cost (first-in, first-out method) or market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts at December 31, 1997 and 1998, of cash and cash
equivalents, trade accounts receivable, contract financing receivables,
marketable securities, other current assets, accounts payable and accrued
expenses, and the Company's revolving credit facility approximate their fair
values. See Note 7 - Long-term Debt for disclosure of the fair value of the
Company's subordinated convertible notes.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
three to fifteen years. Leasehold improvements are stated at cost and
depreciated over the lease term of the associated property. Maintenance and
repairs are charged to expense as incurred.
GOODWILL
Purchase price in excess of the fair value of net assets of businesses acquired
is recorded as goodwill and is amortized on a straight-line basis over 30 years.
Amortization charged to operations was $0.1 million, $0.8 million and $2.7
million in 1996, 1997 and 1998, respectively. Goodwill as reflected in the
Consolidated Balance Sheets is presented net of accumulated amortization of $0.9
million and $3.2 million at December 31, 1997 and 1998, respectively. The
Company continually reviews the valuation of goodwill for impairment.
35
<PAGE> 18
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
FOREIGN CURRENCY TRANSLATION
The functional currency for most of the Company's foreign subsidiaries is the
respective local currency. Gains and losses resulting from translation of
foreign currency amounts to the functional currency are included in income.
Currency translation of assets and liabilities (foreign investments) from the
functional currency to the U.S. dollar are included as a component of other
comprehensive income (loss) in stockholders' equity.
INCOME TAXES
The Company accounts for income taxes under the asset and liability approach
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequence of events that have been recognized in the
Company's financial statements or income tax returns. Income taxes are
recognized during the year in which the underlying transactions are reflected in
the Consolidated Statements of Income. Deferred taxes are provided for temporary
differences between amounts of assets and liabilities as recorded for financial
reporting purposes and such amounts as measured by tax laws.
Prior to June 7, 1996, the stockholders of Allied Communications had elected
treatment under Subchapter S of the Internal Revenue Code to include the income
of the companies in their own income for tax purposes. Concurrent with the
merger with Allied Communications on June 7, 1996, Allied Communications'
election under Subchapter S was terminated. Accordingly, Allied Communications
was not subject to federal and state income taxes until that date. The pro forma
income tax amounts, presented in Note 2 - Mergers and Acquisitions, include an
estimate of the income taxes that Allied Communications would have incurred had
they been tax-paying entities for 1996.
NET INCOME PER SHARE
Basic net income per share is based on the weighted average number of common
shares outstanding during each period, and diluted net income per share is based
on the weighted average number of common shares and dilutive common share
equivalents outstanding during each period. The Company's common share
equivalents consist of shares of common stock issuable upon exercise of
outstanding stock options and stock warrants. The subordinated, convertible
notes (see Note 7 - Long-term Debt) issued in the first quarter of 1998,
although common share equivalents, were not dilutive for the year ended December
31, 1998, and, therefore, are not included as dilutive common share equivalents.
See also Note 9 - Stockholders' Equity.
STOCK OPTIONS
The Company uses the intrinsic value method to account for stock options. Under
this method, no compensation expense has been recognized for stock options
granted to employees.
COMPREHENSIVE INCOME
On January 1, 1998, the Company adopted Statement of Financial Accounting
Standards No. 130, Reporting Comprehensive Income (SFAS No. 130) which
established new rules for the reporting and display of comprehensive income and
its components (net income and other comprehensive income). Adoption of this
Statement had no impact on the Company's net income or stockholders' equity. The
statement requires unrealized gains or losses on available-for-sale securities,
unrealized gains or losses on derivative financial instruments, and currency
translations of foreign investments, which prior to adoption were reported
separately in stockholders' equity, as applicable, to be included as components
of "other comprehensive income." The Company has modified the presentation of
its Consolidated Statements of Stockholders' Equity and Consolidated Balance
Sheets to conform to the reporting requirements of SFAS No. 130.
DERIVATIVE FINANCIAL INSTRUMENTS
In June 1998, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 133, Accounting for Derivative Instruments
and Hedging Activities (SFAS No. 133). On July 1, 1998, the Company adopted SFAS
No. 133. Adoption of this Statement did not have a material impact on the
Company's net income or stockholders' equity.
SFAS No. 133 requires that all derivative instruments be recorded on the balance
sheet at fair value. On the date derivative contracts are entered into, the
Company designates the derivative as either (i) a hedge of the fair value of a
recognized asset or liability or of an unrecognized firm commitment (fair value
hedge), (ii) a hedge of a forecasted transaction or of the variability of cash
flows to be received or paid related to a recognized asset or liability (cash
flow hedge) or (iii) a hedge of a net investment in a foreign operation (net
investment hedge).
Changes in the fair value of derivatives are recorded each period in current
earnings or other comprehensive income, depending on whether a derivative is
designated as part of a hedge transaction and, if it is, depending on the type
of hedge transaction. For fair value hedge transactions, changes in fair value
of the derivative instrument are generally offset in the income statement by
changes in the fair value of the item being hedged. For cash-flow hedge
transactions, changes in the fair value of the derivative instrument are
reported in other comprehensive income. For net investment hedge transactions,
changes in the fair value are recorded as a component of the foreign currency
translation account which is also included in other comprehensive income. The
gains and losses on cash flow hedge transactions that are reported in other
comprehensive income are reclassified to earnings in the periods in which
earnings are impacted by the variability of the cash flows of the hedged item.
The ineffective portions of all hedges are recognized in current period
earnings.
OPERATING SEGMENTS
The Company's operations are divided into four separately managed segments. See
additional information on Operating Segments on page 24.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT
In April 1998, the American Institute of Certified Public Accountants
issued Statement of Position 98-5, Reporting the Costs of Start-up Activities,
which requires that such costs (as broadly defined in the Statement) be expensed
as incurred. The Statement is effective for years beginning after December 15,
1998, and the initial application must be reported as the cumulative effect of a
change in accounting principle. The Company expects that its initial application
of this Statement in the first quarter of 1999 will result in the recording of a
cumulative effect of a change in accounting principle that will range from $14.0
million ($0.26 per share) to $15.0 million ($0.28 per share), net of the
applicable income
36
<PAGE> 19
tax benefit. This charge represents the unamortized portion of previously-
capitalized organization, start-up, pre-operating and integrated logistics
services contract implementation costs primarily incurred as a part of the
Company's in-country expansion activities and long-term contract activity from
1996 through 1998. The Company believes that the on-going application of this
Statement will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
2. MERGER AND ACQUISITIONS
YEAR ENDED DECEMBER 31, 1996
In June 1996, the Company completed a merger with Allied Communications through
the exchange of 7.6 million shares of newly-issued Company common stock in
exchange for all of the outstanding shares of Allied Communications' common
stock. The merger was structured as a tax-free reorganization and was accounted
for using the pooling-of-interests method of accounting. In connection with the
merger, the Company recorded a nonrecurring charge of $2.8 million ($2.1 million
net of tax) for transaction costs, including investment banking, legal, and
accounting fees, and for other estimated costs associated with the merger. Prior
to the combination, revenue for the three months ended March 31, 1996, was $87.7
million and $25.3 million for Brightpoint, Inc. and Allied Communications,
respectively, and net income was $2.0 million and $0.5 million for Brightpoint,
Inc. and Allied Communications, respectively.
Pro forma net income per share as reflected in the Consolidated Statements of
Income for 1996 is derived from the following pro forma data:
<TABLE>
<S> <C>
Pro forma data (unaudited):
Historical income before income taxes and
one-time merger expenses $ 22,873
Pro forma income taxes 8,493
Minority interest in subsidiaries' earnings 1,758
----------------
Pro forma net income $ 12,622
================
</TABLE>
In August 1996, the Company completed the formation of Brightpoint International
Ltd., a joint venture with Technology Resources International Limited. The
Company maintained effective controlling interest in Brightpoint International
Ltd., and, therefore, the operations were consolidated for financial reporting
purposes. The Company owned 50% of Brightpoint International Ltd. until November
1996, when the Company acquired the remaining 50% of the subsidiary. The
combination was accounted for using the purchase method. The purchase price for
the remaining equity interest consisted of 1.5 million unregistered shares of
the Company's common stock, valued at $8.1 million, and $5.0 million of cash.
The resulting goodwill of $12.6 million is being amortized over 30 years.
In October 1996, Brightpoint International Ltd. acquired the business and
operations of Hatadicorp Pty Ltd. (Hatadi) based in Sydney, Australia. The
newly formed Brightpoint Australia Pty Limited was owned 80% by Brightpoint
International Ltd. and 20% by Hatadi. The combination was accounted for using
the purchase method and the operations of Brightpoint Australia Pty Limited are
consolidated for financial reporting purposes. The purchase price of $2.8
million was allocated principally to goodwill.
YEAR ENDED DECEMBER 31, 1997
During 1997, the Company acquired the operations and certain net assets of three
businesses (separately located in Sweden, Hong Kong and Venezuela) and the
remaining minority interests of three majority-owned subsidiaries (Brightpoint
China Limited, Brightpoint (UK) Limited and Brightpoint Australia Pty Limited).
Each of these transactions was accounted for as a purchase, and, accordingly,
the consolidated financial statements include the operating results of each
business or minority interest from the date of acquisition. The aggregate
purchase prices consisted of 625,834 unregistered shares of the Company's common
stock, valued at $5.5 million; $6.6 million in cash; the assumption of certain
liabilities; and contingent consideration based on the operating results of the
applicable operating units. As of December 31, 1998, all contingent
consideration amounts related to these acquisitions have been settled and paid
in full. Goodwill of $17.5 million resulted from these acquisitions.
YEAR ENDED DECEMBER 31, 1998
During 1998, the Company made acquisitions of businesses located in Brazil, the
United Kingdom, the Netherlands, Germany, Poland, the United States, Taiwan,
France, Mexico and New Zealand. Each of these transactions was accounted for as
a purchase, and, accordingly, the consolidated financial statements include the
operating results of each business from the effective date of its acquisition.
The aggregate purchase price for these businesses consisted of 357,074
unregistered shares of the Company's common stock valued at $4.9 million, $37.6
million in cash, the assumption of certain liabilities, and contingent
consideration of up to $11.7 million in cash and $16.0 million in common stock
based upon future operating results of the applicable business over the next two
years. Goodwill of $45.7 million resulted from these acquisitions.
The impact of these acquisitions was not material in relation to the Company's
consolidated results of operations. Consequently, pro forma information is not
presented.
3. TRADING AND OTHER CHARGES
The Company recorded non-recurring charges totaling approximately $17.7 million
($13.8 million net of related tax benefits) in the fourth quarter of 1998
related to the elimination of its trading division. The Company decided to cease
its trading activities primarily (i) because those activities were not
consistent with its strategy of emphasizing relationships with wireless
equipment manufacturers and network operators, (ii) because the margins earned
on the trading activities were rapidly decreasing, and (iii) because of
increasing concerns the Company had about the business practices of many trading
companies.
The trading charges consisted of the following (in thousands):
<TABLE>
<S> <C>
Impairment of trading accounts receivable $ 9,652
Impairment of inventory prepayments and
trading-related inventory losses 5,117
Losses upon liquidation of trading inventories 1,484
Legal and professional fees 894
Employee termination costs 602
------------
$ 17,749
============
</TABLE>
37
<PAGE> 20
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The impairment in receivables resulted from the Company actions necessary to
discontinue the trading division and its emphasis on its in-country presence in
the regions in which those customers operate. The development of in-country
resources and the elimination of the Company's trading activities severely
harmed the businesses of many of the Company's trading customers, thereby
impairing amounts due from those customers. The impairment of inventory
prepayments and trading related inventory losses is primarily the result of
certain inappropriate business activities carried out by individuals and
third-party trading companies in 1998 that were inconsistent with the best
interests of the Company. These losses are net of $11.9 million of pending
insurance recoveries. The losses on subsequent disposal of trading inventories
were incurred upon liquidation of on-hand quantities earmarked specifically for
trading activities. The legal and professional fees include legal advice related
to employee terminations as well as investigation costs into the aforementioned
inappropriate activities. The termination costs were incurred to terminate all
trading division employees. As of December 31, 1998, the Company had no
significant remaining accruals related to the above costs.
In addition to the charges related to exiting the trading business noted above,
the Company also recorded other non-recurring charges in the fourth quarter of
1998 totaling $8.0 million ($6.1 million net of related tax benefits) which were
the result of impairments in the value of assets resulting from the Company's
elimination of other distributors from the Company's supply and sales channels.
The assets determined to be impaired include accounts receivable generated by
sales to other distributors and supplier credits related to the purchase of
products for these channels. Both classes of assets were determined by the
Company to have lost significant value upon termination of the related business
relationships as the Company deliberately shifted its focus from significant
sales to other distributors to direct in-country relationships with network
operators and their representatives.
4. INVESTMENTS
During the first quarter of 1997, the Company realized a gain on the sale of a
marketable equity security. The gain, net of transaction costs, was
approximately $8.3 million. In addition, on March 31, 1997, the issuer of a
convertible debt security in which the Company had an investment, filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. Accordingly, the
Company recognized $6.9 million of realized losses on this investment and two
smaller equity investments, which did not qualify as marketable securities.
These transactions resulted in a net investment gain of $1.4 million ($0.8
million net of tax).
At December 31, 1997, the Company had one investment in a marketable equity
security which was classified as available for sale. This investment had a
cost of $3.6 million and was reported at its fair value of $3.5 million with the
gross unrealized loss of $0.1 million classified as a component of other
comprehensive loss in stockholders' equity, net of the associated income taxes.
During the first quarter of 1998, the Company realized a gain on the sale of
this marketable equity security. The net gain after related transaction costs
was approximately $0.6 million ($0.3 million net of tax).
At December 31, 1998, the Company had no investments in marketable equity
securities.
5. CONTRACT FINANCING RECEIVABLES
The Company offers financing of inventory and receivables to certain network
operator customers and their agents under contractual arrangements. The amount
financed pursuant to these arrangements is recorded as a current asset under the
caption "Contract financing receivables." The Company has commitments under
these contracts to provide inventory financing for these customers pursuant to
various limitations defined in the applicable service agreements.
At December 31, 1997 and 1998, contract financing receivables of $49.5 million
($30.5 million of which was unfunded) and $18.0 million ($5.7 million of which
was unfunded) were secured by $19.9 million and $15.8 million, respectively, of
wireless products located at the Company's facilities.
The Company's contract financing activities are provided to network operators
and their authorized dealer agents located throughout the United States.
Decisions to grant credit under these arrangements are at the discretion of the
Company and are made within guidelines established by the network operators, and
are subject to the Company's normal credit granting and ongoing credit
evaluation process.
6. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows (in thousands):
<TABLE>
<CAPTION>
December 31
- ----------------------------------------------------------------
1997 1998
- ----------------------------------------------------------------
<S> <C> <C>
Furniture and equipment $ 6,982 $ 14,485
Information systems equipment
and software 16,965 39,080
Leasehold improvements 4,007 7,373
- ----------------------------------------------------------------
27,954 60,938
Less accumulated depreciation 4,534 12,668
- ----------------------------------------------------------------
$ 23,420 $ 48,270
=========================
</TABLE>
Depreciation expense charged to operations was $1.0 million, $3.2 million and
$8.6 million in 1996, 1997 and 1998, respectively.
7. LONG-TERM DEBT
On March 11, 1998, the Company completed the issuance of zero-coupon,
subordinated, convertible notes due in the year 2018 (the Bonds) with an
aggregate face value of $380 million ($1,000 per Bond) and a yield to maturity
of 4.00%. The Bonds are subordinated to all existing and future senior
indebtedness (as defined in the indenture pursuant to which the Bonds were
issued) of the Company and all other liabilities, including trade payables, of
the Company's subsidiaries. The Bonds resulted in gross proceeds to the Company
of approximately $172 million (issue price of $452.89 per Bond) and require no
periodic cash payments of interest. The proceeds were used to reduce borrowings
under the Company's revolving credit facility and to invest in highly-liquid,
short-term investments pending use in operations. At December 31, 1998, the
Bonds had a carrying value of $177 million and an estimated fair market value of
approximately $140 million (approximately $99 million at March 17, 1999) based
on their quoted market price.
38
<PAGE> 21
Each Bond is convertible at the option of the holder any time prior to maturity.
Upon conversion, the Company, at its option, will deliver to the holder 19.109
shares of common stock per Bond or cash equal to the market value of such
shares. On or after March 11, 2003, the Bonds may be redeemed at any time by the
Company for cash equal to the issuance price plus accrued original discount
through the date of redemption. In addition, each Bond may be redeemed at the
option of the holder on March 11, 2003, 2008 or 2013. The purchase price for
each Bond at these redemption dates is approximately $552, $673 and $820,
respectively, which is equal to the issue price plus amortized original discount
through the date of redemption. The Company may elect at its option to pay for
such redemption in cash or common stock, or any combination thereof equaling the
purchase price.
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, NA, as agent for a group of banks (collectively,
the Banks). On May 13, 1998, the Company and the Banks amended and restated this
agreement resulting in a $230 million facility with substantially the same terms
(Restated Facility). The Restated Facility matures in June 2002 and generally
bears interest, at the Company's option, at (i) the greater of the agent bank's
corporate base rate and the Federal Funds effective rate plus 0.50% or (ii) the
rate at which deposits in United States dollars or Eurocurrencies are offered by
the agent bank 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 is domiciled. At December 31, 1998, there was approximately $109.5
million outstanding, of which $32.5 million was denominated in foreign
currencies, at interest rates ranging from 4.6% to 6.1% (a weighted average rate
of 5.8%) and an aggregate of $13.0 million in letters of credit issued.
All of the Company's assets located in the United States and 65% of the capital
stock of certain of the Company's subsidiaries domiciled outside of the United
States are pledged to the Banks as collateral for the Restated Facility, and the
Company is substantially prohibited from incurring additional indebtedness. In
addition to certain net worth and other financial covenants, the Company's
Restated Facility limits or prohibits the Company, subject to certain
exceptions, from declaring or paying cash dividends, making capital
distributions or other payments to stockholders, merging or consolidating with
another corporation, or selling portions of its assets.
At December 31, 1996, 1997 and 1998, the Company was in compliance with the
covenants in its credit agreements. Interest payments for 1996, 1997 and 1998
were approximately $1.6 million, $6.1 million and $5.7 million, respectively.
8. INCOME TAXES
For financial reporting purposes, income before income taxes and minority
interest, by tax jurisdiction, is comprised of the following (in thousands):
<TABLE>
<CAPTION>
Year ended December 31
-----------------------------------
1996 1997 1998
-----------------------------------
<S> <C> <C> <C>
United States $ 13,706 $ 11,130 $ 11,613
Foreign 6,417 25,797 19,624
-----------------------------------
$ 20,123 $ 36,927 $ 31,237
===================================
</TABLE>
The reconciliation for 1996, 1997 and 1998 of income tax expense computed at the
U.S. federal statutory tax rate to the Company's effective income tax rate is as
follows:
<TABLE>
<CAPTION>
1996 1997 1998
--------------------------
<S> <C> <C> <C>
Tax at U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes,
net of U.S. federal benefit 3.7 1.5 2.1
Allied Communications'
Subchapter S earnings (2.5) - -
Non-deductible merger expenses 1.7 - -
Foreign sales corporation and
foreign rates (1.5) (5.9) (3.0)
Other - (0.6) 1.8
--------------------------
36.4% 30.0% 35.9%
==========================
</TABLE>
The Company's effective tax rate for 1998, excluding the effect of the trading
and other charges, would have been 30.0% based on income before taxes and
minority interest (excluding trading and other charges) of $57.0 million.
Significant components of the provision for income taxes are as follows (in
thousands):
<TABLE>
<CAPTION>
1996 1997 1998
---------------------------
<S> <C> <C> <C>
Current:
Federal $ 4,340 $ 5,050 $ 608
State 1,035 1,308 314
Foreign 2,184 7,445 6,459
---------------------------
7,559 13,803 7,381
Deferred:
Federal (203) (2,262) 3,313
State (28) (476) 704
Foreign - - (186)
---------------------------
(231) (2,738) 3,831
---------------------------
$ 7,328 $ 11,065 $11,212
===========================
</TABLE>
39
<PAGE> 22
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Components of the Company's deferred taxes are as follows
(in thousands):
<TABLE>
<CAPTION>
December 31
------------------------
1997 1998
------------------------
<S> <C> <C>
Deferred tax assets:
Current:
Capitalization of inventory costs $ 370 $ 450
Allowance for doubtful accounts 830 1,154
Accrued liabilities and other 1,030 816
Noncurrent:
Other long-term investments 2,032 2,103
Net operating losses and other
carryforwards - 2,960
------------------------
4,262 7,483
Deferred tax liabilities:
Noncurrent:
Depreciation (830) (878)
Other assets - (7,054)
------------------------
(830) (7,932)
------------------------
$ 3,432 $ (449)
========================
</TABLE>
Income tax payments were $6.2 million in each of 1996 and 1997 and $5.9 million
in 1998.
At December 31, 1998 the Company had foreign net operating loss carryforwards of
$17.9 million, of which approximately $13.0 million have no expiration date. The
remaining foreign net operating loss carryforwards expire through the year 2004.
Undistributed earnings of the Company's foreign operations were approximately
$25.3 million at December 31, 1998. Those earnings are considered to be
indefinitely reinvested and accordingly, no provision for U.S. federal or state
income taxes or foreign withholding taxes has been made. Upon distribution of
those earnings, the Company would be subject to U.S. income taxes (subject to a
reduction for foreign tax credits) and withholding taxes payable to the various
foreign countries. Determination of the amount of unrecognized deferred U.S.
income tax liability is not practicable; however, unrecognized foreign tax
credit carryovers would be available to reduce some portion of the U.S. tax
liability.
9. STOCKHOLDERS' EQUITY
All references in the financial statements related to share amounts, per share
amounts, average shares outstanding and information concerning stock option
plans have been adjusted retroactively to reflect stock splits.
In connection with the Allied Communications merger completed in June 1996,
Allied Communications' Subchapter S election was terminated. Accordingly, the
undistributed retained earnings generated while Allied Communications were
Subchapter S corporations were transferred to additional paid-in capital.
In February 1997, the Company adopted a Stockholders' Rights Agreement commonly
known as a "poison pill," which provides that in the event an individual or
entity becomes a beneficial holder of 15% or more of the shares of the Company's
capital stock, other stockholders of the Company shall have the right to
purchase shares of the Company's (or in some cases, the acquiror's) common stock
at 50% of its then market value.
In August 1997, the Company consummated a public offering of 5.4 million shares
of common stock by the Company and an additional 4.6 million 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 from the offering of approximately $75 million (net of estimated
expenses) were used to reduce the borrowings outstanding on its bank credit
facility.
The Company has authorized 1.0 million shares of preferred stock which remain
unissued. The Board of Directors has not yet determined the preferences,
qualifications, relative voting or other rights of the authorized shares of
preferred stock.
STOCK OPTION PLANS
The Company has three fixed stock option plans, which reserve shares of common
stock for issuance to executives, key employees, directors and others.
The Company maintains the 1994 Stock Option Plan whereby employees of the
Company and others are eligible to be granted incentive stock options or
non-qualified stock options. Under this plan there are 8.2 million Common Shares
reserved for issuance of which 5.4 million and 4.9 million were authorized but
unissued at December 31, 1997 and 1998, respectively. In October 1996, the
Company adopted the 1996 Stock Option Plan whereby employees of the Company and
others are eligible to be granted non-qualified stock options. Under this plan
there are 3.8 million Common Shares reserved for issuance of which 3.7 million
and 2.4 million were authorized but unissued at December 31, 1997 and 1998,
respectively. For both Plans, a committee of the Board of Directors determines
the time or times at which the options will be granted, selects the employees or
others to whom options will be granted and determines the number of shares
covered by each option, purchase price, time of exercise (not to exceed ten
years from the date of the grant) and other terms.
The Company also maintains the Non-Employee Directors Stock Option Plan whereby
non-employee directors are eligible to be granted non-qualified stock options.
Under this plan there are 937,500 Common Shares reserved for issuance of which
759,375 and 744,375 were authorized but unissued at December 31, 1997 and 1998,
respectively. Options to purchase 10,000 shares of common stock are granted to
each newly elected non-employee director and, on the first day of each year,
each individual elected and continuing as a non-employee director receives an
option to purchase 4,000 shares of common stock.
40
<PAGE> 23
The exercise price of stock options granted may not be less than the
fair market value of a share of common stock on the date of the grant. Options
become exercisable in periods ranging from one to three years. Information
regarding these option plans for 1996 through 1998 is as follows:
<TABLE>
<CAPTION>
1996 1997 1998
-------------------------------------------------------------------------------------------
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
-------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 2,476,356 $ 2.95 5,098,624 $5.13 7,063,586 $ 8.36
Options granted 3,375,500 6.18 3,336,500 11.85 2,893,500 12.40
Options exercised (688,388) 2.39 (1,092,788) 3.47 (1,855,568) 6.46
Options canceled (64,844) 5.65 (278,750) 10.23 (1,416,170) 12.57
-------------------------------------------------------------------------------------------
Options outstanding,
end of year 5,098,624 $ 5.13 7,063,586 $ 8.36 6,685,348 $ 9.87
===========================================================================================
Option price range
at end of year $1.33 -$9.60 $1.33 -$16.94 $1.33 -$17.50
Option price range
for exercised
shares $1.33 -$4.45 $ 1.33 -$7.33 $1.33 -$11.20
Options available for
grant at year end 1,854,056 2,830,793 1,353,462
Weighted average
fair value of options
granted during
the year $ 2.12 $ 4.28 $ 4.96
</TABLE>
The following table summarizes information about the fixed price stock options
outstanding at December 31, 1998.
<TABLE>
<CAPTION>
Weighted Exercisable
Number Average -------------------------------
Outstanding at Remaining Weighted Number Outstanding Weighted
Range of December 31, Contractual Average at December 31, Average
Exercise Prices 1998 Life Exercise Price 1998 Exercise Price
- ------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
$ 1.33 - $ 6.23 2,183,512 2 years $ 5.47 1,444,294 $ 5.14
$ 7.33 - $11.20 1,871,170 4 years $ 8.46 186,829 $ 9.64
$12.25 - $14.38 1,956,666 4 years $13.47 345,336 $13.02
$14.88 - $17.50 674,000 4 years $16.00 171,047 $15.41
</TABLE>
Disclosure of pro forma information regarding net income and earnings per share
is required by SFAS No. 123 as if the Company has accounted for its employee
stock options granted subsequent to December 31, 1994, under the fair value
method as defined by that Statement. The fair value for options granted by the
Company was estimated at the date of grant using a Black-Scholes option pricing
model with the following weighted-average assumptions for 1996, 1997 and 1998:
<TABLE>
<CAPTION>
1996 1997 1998
---------------------------------
<S> <C> <C> <C>
Risk-free interest rate 5.50% 5.25% 5.33%
Dividend yield 0.00% 0.00% 0.00%
Volatility factor of the expected
market price of the
Company's common stock .51 .51 .67
Expected life of the options (years) 1.99 2.33 2.42
</TABLE>
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
and stock warrants, discussed below, are amortized to expense over the related
vesting period. Because compensation expense is recognized over the vesting
period, the initial impact on pro forma net income for 1996 and 1997 may not be
representative of compensation expense in future years (including 1998), when
the effect of amortization of multiple awards would be reflected in pro forma
net income. The Company's pro forma information giving effect to the estimated
compensation expense related to stock options and warrants is as follows (in
thousands, except per share data):
<TABLE>
<CAPTION>
1996 1997 1998
-----------------------------------
<S> <C> <C> <C>
Pro forma net income $ 11,638 $ 21,044 $ 12,362
Pro forma net income
per share (diluted) $ 0.28 $ 0.44 $ 0.23
</TABLE>
STOCK WARRANTS
In connection with its acquisition in Venezuela, the Company issued to a
principal of the seller (Holder), who became and remains an employee of a
subsidiary of the Company, warrants to purchase up to 200,000 shares of common
stock at $15.44 per share. These warrants become exercisable over a three-year
period commencing in 1998. However, the ability of the Holder to exercise the
warrants is contingent upon the financial performance of the Company's operating
subsidiary, Brightpoint de Venezuela, C.A. To date none of the warrants have
become exercisable and they expire on October 21, 2002.
10. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into derivative contracts to hedge the exposures of foreign
currency denominated assets and liabilities, forecasted future cash flows and
net investments in foreign operations. The fair value of the Company's foreign
currency forward contracts by currency and hedge designation recorded as
liabilities was as follows at December 31, 1998 (in thousands):
<TABLE>
<CAPTION>
Hedge Designation
------------------------------
Cash Flow Net Investment
------------------------------
<S> <C> <C>
Hong Kong dollar $ 514 $ 453
All others - 121
------------------------------
$ 514 $ 574
==============================
</TABLE>
From July 1, 1998 (the date of adoption of SFAS No. 133) through December 31,
1998, gains and losses recognized in earnings on cash flow hedges and the gains
and losses from net investments hedges included as a component of other
comprehensive income in stockholders' equity have not been significant. All
forward contracts open at December 31, 1998 expire prior to December 31, 1999.
41
<PAGE> 24
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
11. LEASE ARRANGEMENTS
The Company leases its office and warehouse/distribution space as well as
certain furniture and equipment under operating leases.
Total rent expense for all operating leases was $1.5 million, $3.3 million and
$7.1 million for 1996, 1997 and 1998, respectively.
The aggregate future minimum payments on the above leases are as follows (in
thousands):
<TABLE>
<CAPTION>
Year ending December 31
--------------------------
<S> <C>
1999 $ 8,878
2000 7,420
2001 6,124
2002 5,241
2003 5,138
Thereafter 5,600
------------
$ 38,401
============
</TABLE>
12. EMPLOYEE BENEFIT PLAN
On January 1, 1996, the Company adopted an employee savings plan which permits
employees based in the United States with at least four months of service to
make contributions by salary reduction pursuant to section 401(k) of the
Internal Revenue Code. The Company matches 25% of employee contributions, up to
6% of each employee's salary, in Company common stock. In connection with the
required match, the Company's contribution to the Plan was $56,400; $55,400; and
$103,911 in 1996, 1997 and 1998, respectively.
13. FOREIGN CURRENCY DEVALUATION (UNAUDITED)
On January 13, 1999, the Brazilian government allowed the value of its currency,
the real, to float freely against other currencies. Between January 13, 1999 and
March 17, 1999, the real's exchange rate to the U.S. dollar has declined as much
as 44% from the exchange rate on December 31, 1998. As nearly all the Company's
transactions in Brazil are real-denominated, translating the results of
operations of the Company's Brazilian subsidiary into U.S. dollars at devalued
exchange rates will result in a lower contribution to consolidated revenues and
operating income. Based on the real exchange rate to the U.S. dollar on March
17, 1999, the Company's currency translation of the foreign investment in its
Brazilian subsidiary from the real (functional currency) to the U.S. dollar
would result in a devaluation of approximately $6 million. Currency devaluations
resulting from translating assets and liabilities from the functional currency
to the U.S. dollar are included as a component of other comprehensive income
(loss) in stockholders' equity.
14. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations are as follows (in thousands, except per
share data):
<TABLE>
<CAPTION>
1997 First Second Third Fourth
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 199,169 $ 220,027 $ 243,210 $ 373,243
Gross profit 16,002 18,014 20,634 30,521
Net income 5,416 4,867 5,928 9,299
Net income per share:
Basic 0.12 0.11 0.12 0.18
Diluted 0.12 0.10 0.12 0.18
</TABLE>
<TABLE>
<CAPTION>
1998 First Second Third Fourth
- ----------------------------------------------------------------
<S> <C> <C> <C> <C>
Revenue $ 343,333 $ 329,813 $ 445,772 $ 509,704
Gross profit 30,077 30,505 38,074 42,578
Net income (loss) (1) 8,843 9,058 9,418 (7,143)
Net income (loss)
per share:(1)
Basic 0.17 0.17 0.18 (0.14)
Diluted 0.17 0.17 0.18 (0.14)
</TABLE>
(1) Includes $19.9 million (net of tax benefits) of trading and other charges in
the fourth quarter of 1998.
COMMON STOCK INFORMATION (UNAUDITED)
The Company's Common Stock is listed on the NASDAQ Stock Market(R) under the
symbol CELL. The following tables set forth, for the periods indicated, the high
and low sale price for the Common Stock as reported by the NASDAQ Stock
Market(R).
<TABLE>
<CAPTION>
1997 High Low
- -------------------------------------------------------------
<S> <C> <C>
First Quarter $ 12.50 $ 8.13
Second Quarter 17.44 8.00
Third Quarter 23.38 13.88
Fourth Quarter 24.25 11.50
<CAPTION>
1998 High Low
- -------------------------------------------------------------
<S> <C> <C>
First Quarter $ 21.50 $ 14.00
Second Quarter 21.63 11.88
Third Quarter 17.75 7.25
Fourth Quarter 16.06 5.00
</TABLE>
At March 25, 1999, there were approximately 438 stockholders of record.
The Company has not paid cash dividends on its Common Stock other than S
corporation distributions made to its stockholders prior to the Company's
initial public offering in April 1994 and S corporation distributions made to
the stockholders of Allied Communications relating to periods prior to the
Allied Communications merger. The Board of Directors intends to continue a
policy of retaining earnings to finance the Company's anticipated growth and
development of its business and does not expect to declare or pay any cash
dividends in the foreseeable future.
The Company has declared the following stock splits which were effected in
the form of stock dividends:
<TABLE>
<CAPTION>
Declaration date Dividend payment date Split ratio
- ----------------------------------------------------------------
<S> <C> <C>
August 31, 1995 September 20, 1995 5 for 4
November 12, 1996 December 17, 1996 3 for 2
January 28, 1997 March 3, 1997 5 for 4
October 22, 1997 November 21, 1997 2 for 1
</TABLE>
42
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
Subsidiaries (1) Subsidiary Jurisdiction
Brightpoint Latin America Holdings, Inc. Indiana
Brightpoint de Argentina S.A. Argentina
Brightpoint de Venezuela, C.A. Venezuela
Brightpoint do Brasil Ltda. Brazil
Brightpoint International Ltd Delaware
Brightpoint EMA Limited United Kingdom
Brightpoint (UK) Limited United Kingdom
Brightpoint (South Africa)
(Proprietary) Limited South Africa
Brightpoint Sweden AB Sweden
Brightpoint Middle East FZE U.A.E.
Brightpoint (Ireland) Limited Ireland
Brightpoint Philippines, Inc. Philippines
Brightpoint Australasia Pty. Limited Australia
Brightpoint International
(Asia Pacific) Pte. Ltd. Singapore
R.P.S. Industries Company Limited Hong Kong
Brightpoint Australia Pty Ltd Australia
Brightpoint China Limited Hong Kong
Brightpoint FSC, Inc. Barbados
Brightpoint Global Access, Inc. Indiana
Brightpoint Holdings Belgium Belgium
Brightpoint India Private Limited India
Eurocom Systems, S.A. France
Brightpoint North America, Inc. Indiana
Brightpoint JBA, LLC Indiana
Wireless Fulfillment Services LLC California
Brightpoint International Holdings B.V. Netherlands
Brightpoint de Mexico, S.A. de C.V. Mexico
Servicios Brightpoint de Mexico, S.A. de C.V. Mexico
Brightpoint Solutions de Mexico, S.A. de C.V. Mexico
Brightpoint Holdings B.V. Netherlands
Brightpoint France (SARL) France
Brightpoint Germany GmbH Germany
Axess Communications Benelux B.V. Netherlands
Brightpoint Polska Sp. z o. o. Poland
Brightpoint Netherlands Holdings B.V. Netherlands
Brightpoint International Trading
(Shanghai) Co. Ltd. Shanghai
Brightpoint New Zealand Limited New Zealand
Mondial Link Telecommunications GmbH Germany
Axess Communications Sp. z o. o. Poland
WAVETech Limited United Kingdom
WAVETech Network Services Limited United Kingdom
UK Finco Limited Partnership United Kingdom
Winning Land Company Limited British Virgin Islands
Brightpoint Taiwan Limited British Virgin Islands
Brightpoint Zimbabwe (Private) Limited Zimbabwe
(1) Each of the named subsidiaries is not necessarily a "significant subsidiary"
as defined in Rule 1-02 (w) of Regulation S-X, and Brightpoint has several
additional subsidiaries not named above. The unnamed subsidiaries, considered in
the aggregate as a single subsidiary, would not constitute a "significant
subsidiary" at the end of the year covered by this report.
<PAGE> 1
EXHIBIT 23
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in this Annual Report (Form 10-K)
of Brightpoint, Inc. of our report dated January 26, 1999, included in the 1998
Annual Report to Stockholders of Brightpoint, Inc.
Our audit also included the financial statement schedule of Brightpoint, Inc.
listed in Item 14(a). This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
We also consent to the incorporation by reference in the Registration
Statements (Form S-8 No. 33-90986, 333-3535, and 333-36823) pertaining to the
Brightpoint, Inc. 1994 Stock Option Plan and Nonemployee Director Stock Option
Plan, in the Registration Statement (Form S-8 No. 333-36829) pertaining to the
Brightpoint, Inc. 1996 Stock Option Plan, in the Registration Statement (Form
S-8 No. 333-2242) pertaining to the Brightpoint, Inc. 401(k) Plan, in the
Registration Statement (Form S-3 No. 33-91112) pertaining to certain options
and warrants of Brightpoint, Inc., in the Registration Statement (Form S-3 No.
333-3569) pertaining to certain warrants of Brightpoint, Inc., and in the
Registration Statements (Form S-3 No. 333-15663, 333-29533,333-07892,
333-37587, 333-55945 and 333-58863) pertaining to certain common stock of
Brightpoint, Inc. of our report dated January 26, 1999 with respect to the
consolidated financial statements incorporated herein by reference, and our
report included in the preceding paragraph with respect to the financial
statement schedule included in this Annual Report (Form 10-K) of Brightpoint,
Inc.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
March 29, 1999
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S ANNUAL REPORT ON
FORM 10-K OF WHICH THIS SCHEDULE IS AN EXHIBIT THERETO AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> DEC-31-1998
<CASH> 49,528
<SECURITIES> 0
<RECEIVABLES> 303,051
<ALLOWANCES> 6,045
<INVENTORY> 156,333
<CURRENT-ASSETS> 549,225
<PP&E> 60,938
<DEPRECIATION> 12,668
<TOTAL-ASSETS> 714,450
<CURRENT-LIABILITIES> 188,148
<BONDS> 286,706
0
0
<COMMON> 528
<OTHER-SE> 239,040
<TOTAL-LIABILITY-AND-EQUITY> 714,450
<SALES> 1,628,622
<TOTAL-REVENUES> 1,628,622
<CGS> 1,487,388
<TOTAL-COSTS> 1,487,388
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 12,472
<INCOME-PRETAX> 31,237
<INCOME-TAX> 11,212
<INCOME-CONTINUING> 20,176
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 20,176
<EPS-PRIMARY> .38
<EPS-DILUTED> .38
</TABLE>
<PAGE> 1
EXHIBIT 99
CAUTIONARY STATEMENTS
Certain statements in this Form 10-K 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
manufacturers and suppliers, network operators and other providers of wireless
communications logistics services; uncertainties relating to business and
economic conditions in markets in which the Company operates; uncertainties
relating to government and regulatory policies and other political risks;
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; the Company's continued ability, through sales growth, to absorb the
increasing costs incurred and to be incurred in connection with its expansion
activities and provision of integrated logistics services; uncertainties
inherent in international operations; foreign currency fluctuations; and
failure of the Company or critical third parties with which the Company does
business to be Year 2000 compliant. 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 of the
statement was made.
23
