<PAGE> 1
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: March 31, 1999
-------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from: _____________________ to _____________________
Commission file number: 0-23494
--------------------
BRIGHTPOINT, INC.
------------------------------------------------------
(Exact name of registrant as specified in its charter)
Delaware 35-1778566
- ----------------------------------------------------------------------------
State or other jurisdiction of (I.R.S. Employer
incorporation or organization Identification No.)
6402 Corporate Drive, Indianapolis, Indiana 46278
- ----------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(317) 297-6100
- ----------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Number of shares of common stock outstanding at May 11, 1999:
53,295,487 shares
<PAGE> 2
BRIGHTPOINT, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
--------
PART I. FINANCIAL INFORMATION
<S> <C>
ITEM 1
Consolidated Statements of Operations
Three Months Ended March 31, 1998 and 1999....................................3
Consolidated Balance Sheets
December 31, 1998 and March 31, 1999..........................................4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 1998 and 1999....................................5
Notes to Consolidated Financial Statements.............................................6
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations................................12
ITEM 3
Quantitative and Qualitative Disclosures
About Market Risk............................................................20
PART II. OTHER INFORMATION
ITEM 2
Changes in Securities.................................................................21
ITEM 6
Exhibits and Reports on Form 8-K......................................................21
Signatures..............................................................................................22
</TABLE>
<PAGE> 3
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1999
----------- ------------
<S> <C> <C>
Revenue $ 343,333 $ 372,719
Cost of revenue 313,256 344,332
--------- ---------
Gross profit 30,077 28,387
Selling, general and administrative expenses 14,657 26,987
--------- ---------
Income from operations 15,420 1,400
Net investment gain 572 --
Interest expense 3,412 3,288
--------- ---------
Income (loss) before income taxes, minority
interest and accounting change 12,580 (1,888)
Income taxes 3,774 (643)
--------- ---------
Income (loss) before minority interest
and accounting change 8,806 (1,245)
Minority interest (37) (33)
--------- ---------
Income (loss) before accounting change 8,843 (1,212)
Cumulative effect of accounting change, net of tax -- (14,065)
--------- ---------
Net income (loss) $ 8,843 $ (15,277)
========= =========
Basic per share:
Income (loss) before accounting change $ 0.17 $ (0.02)
Cumulative effect of accounting change, net of tax -- (0.27)
--------- ---------
Net income (loss) $ 0.17 $ (0.29)
========= =========
Diluted per share:
Income (loss) before accounting change $ 0.17 $ (0.02)
Cumulative effect of accounting change, net of tax -- (0.27)
--------- ---------
Net income (loss) $ 0.17 $ (0.29)
========= =========
Weighted average common shares outstanding:
Basic 51,215 53,047
========= =========
Diluted 53,435 53,047
========= =========
</TABLE>
See accompanying notes.
3
<PAGE> 4
BRIGHTPOINT, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1999
----------------- --------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 49,528 $ 46,219
Accounts receivable (less allowance for doubtful
accounts of $6,045 in 1998 and $6,656 in 1999) 278,947 214,411
Inventories 156,333 158,940
Other current assets 64,417 57,062
--------- ---------
Total current assets 549,225 476,632
Property and equipment 48,270 45,791
Goodwill and other intangibles 83,467 88,055
Other assets 33,488 16,583
--------- ---------
Total assets $ 714,450 $ 627,061
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 188,176 $ 156,134
--------- ---------
Total current liabilities 188,176 156,134
Long-term debt 286,706 251,986
Stockholders' equity:
Preferred stock, $0.01 par value: 1,000 shares
authorized; no shares issued or outstanding -- --
Common stock, $0.01 par value: 100,000 shares
authorized; 52,821 and 53,285 issued and
outstanding in 1998 and 1999, respectively 528 533
Additional paid-in capital 184,366 189,419
Retained earnings 63,067 47,790
Accumulated other comprehensive loss (8,393) (18,801)
--------- ---------
Total stockholders' equity 239,568 218,941
--------- ---------
Total liabilities and stockholders' equity $ 714,450 $ 627,061
========= =========
</TABLE>
See accompanying notes.
4
<PAGE> 5
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1999
----------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 8,843 $ (15,277)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 1,591 3,913
Amortization of debt discount -- 1,763
Cumulative effect of accounting change, net of tax -- 14,065
Net investment gain (572) --
Minority interest and deferred taxes (86) (33)
Changes in operating assets and liabilities, net of effects from
acquisitions:
Accounts receivable 7,998 56,630
Inventories (21,009) (4,615)
Other current assets 1,252 (1,130)
Accounts payable and accrued expenses 11,462 (18,211)
--------- ---------
Net cash provided by operating activities 9,479 37,105
INVESTING ACTIVITIES
Capital expenditures (8,388) (2,644)
Sale of marketable securities, net of transaction costs 3,263 --
Purchase acquisitions, net of cash acquired (10,686) (5,001)
Decrease in funded contract financing receivables 14,191 677
Increase in other assets (8,012) (847)
--------- ---------
Net cash used by investing activities (9,632) (7,815)
FINANCING ACTIVITIES
Net payments on revolving credit facility (146,684) (36,483)
Proceeds from issuance of convertible notes 166,438 --
Proceeds and tax benefits from exercise of stock options
and warrants 13,604 4,875
--------- ---------
Net cash provided (used) by financing activities 33,358 (31,608)
Effect of exchange rate changes on cash and cash equivalents 343 (991)
--------- ---------
Net increase (decrease) in cash and cash equivalents 33,548 (3,309)
Cash and cash equivalents at beginning of period 2,941 49,528
--------- ---------
Cash and cash equivalents at end of period $ 36,489 $ 46,219
========= =========
</TABLE>
See accompanying notes.
5
<PAGE> 6
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
1. Basis of Presentation
GENERAL
The accompanying unaudited consolidated financial statements have been
prepared in accordance with generally accepted accounting principles for
interim financial information and with the instructions to Form 10-Q and
Article 10 of Regulation S-X of the Securities Exchange Act of 1934.
Accordingly, they do not include all of the information and footnotes
required by generally accepted accounting principles for complete financial
statements. The preparation of financial statements 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.
In the opinion of the Company, all adjustments (consisting of only normal
recurring accruals) considered necessary to present fairly the consolidated
financial statements have been included.
The consolidated financial statements include the accounts of the Company and
its subsidiaries. Intercompany accounts and transactions have been eliminated
in consolidation. Certain amounts in the 1998 consolidated financial
statements have been reclassified to conform to the 1999 presentation.
The consolidated balance sheet at December 31, 1998 has been derived from the
audited consolidated financial statements at that date, but does not include
all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The unaudited
consolidated statements of operations for the three months ended March 31,
1999 are not necessarily indicative of the results that may be expected for
the entire year.
For further information, reference is made to the audited consolidated
financial statements and the footnotes thereto included in the Company's
Annual Report on Form 10-K for the year ended December 31, 1998.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is based on the weighted average number of
common shares outstanding during each period, and diluted net income (loss)
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 and conversion
of subordinated convertible notes. For the quarter ended March 31, 1999, none
of the Company's stock options and stock warrants were dilutive. The
subordinated convertible notes were not dilutive for the three months ended
March 31, 1998 and 1999.
6
<PAGE> 7
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
1. Basis of Presentation (continued)
COMPREHENSIVE INCOME (LOSS)
In accordance with Statement of Financial Accounting Standards No. 130,
Reporting Comprehensive Income (SFAS No. 130), the Company is required to report
and display the components of Comprehensive Income (net income and other
comprehensive income). The statement requires unrealized gains or losses on the
Company's 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, to be included as components of "other comprehensive income." During the
first quarter of 1998 and 1999 Comprehensive Income (Loss) totaled $9,471,000
and ($25,685,000), respectively.
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 and such adoption 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 impact of ineffective hedges is recognized in current period earnings.
7
<PAGE> 8
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. Cumulative Effect of Accounting Change
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting the Costs of Start-up Activities (SOP
98-5), which requires that such costs (as broadly defined in the Statement) be
expensed as incurred. SOP 98-5 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's application of SOP 98-5 in
the first quarter of 1999 resulted in the recording of a cumulative effect of a
change in accounting principle of $14.1 million ($0.27 per share), net of the
applicable income 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
SOP 98-5 will not have a material adverse effect on the Company's financial
position, results of operations or cash flows.
3. Acquisitions
During the first quarter of 1999 the Company acquired Cellular Services S.A.
located in Brazil. This transaction was accounted for as a purchase and
accordingly the consolidated financial statements include the operating results
of this business from the effective date of acquisition. The purchase price
consisted of $3.8 million in cash, the assumption of certain liabilities and
contingent consideration of up to $20.5 million in cash based upon the future
operating results of this business over the next five years. The resulting
goodwill of approximately $4.5 million is being amortized over 30 years.
During the three months ended March 31, 1998, the Company made four acquisitions
of businesses separately located in (i) Brazil; (ii) the United Kingdom; (iii)
the Netherlands, Germany and Poland; and (iv) the United States. 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 acquisition. The aggregate purchase price for these businesses
consisted of 190,285 unregistered shares of the Company's common stock (valued
at $2.6 million), $28.9 million in cash, the assumption of certain liabilities
and contingent consideration of up to $6.3 million in cash and $15.0 million in
common stock based upon future operating results of the applicable business
during the two years following the acquisition. The resulting goodwill of $32.2
million from these acquisitions is being amortized over 30 years. In addition,
the Company made purchase acquisitions during the last nine months of 1998 of
businesses located in, Poland, Taiwan, France, Mexico and New Zealand which
resulted in goodwill of $13.5 million. The consolidated financial statements
include the operating results of each acquired business from its effective date
of acquisition.
The impact of the Company's acquisitions was not material in relation to the
Company's results of operations for the year ended December 31, 1998 and the
three months ended March 31, 1998 and 1999. Consequently, pro forma information
is not presented.
8
<PAGE> 9
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. 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 March 31, 1999, the Bonds
had an accreted value of $179 million.
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 issue 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 accrued 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 60 to 137.5 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 March 31, 1999 there was approximately $72.5 million
outstanding, of which $42.5 million was denominated in foreign currencies, at
interest rates ranging from 4.1% to 6.0% (a weighted average rate of 5.2%) and
an aggregate of $22.0 million in letters of credit issued.
9
<PAGE> 10
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. Long-term debt (continued)
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.
5. Net Investment Gain
During the first quarter of 1998, the Company realized a gain on the sale of a
marketable equity security, representing income of a non-recurring nature. The
net gain after related transaction costs was approximately $0.6 million in 1998.
Excluding the impact of the net investment gain and related income taxes, net
income for the first quarter of 1998 would have been $8.5 million or $0.16 per
share.
6. Foreign Currency Devaluation
On January 13, 1999, the Brazilian government allowed the value of its currency,
the Real, to float freely against other currencies. Between that date and March
31, 1999, the Real's exchange rate to the U.S. dollar has declined
significantly. During the first quarter of 1999, the average exchange rate for
the Real was approximately 35% lower than the average exchange rate in the first
quarter of 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 resulted in a
lower contribution to consolidated revenues and operating income. Based on the
Real exchange rate to the U.S. dollar on March 31, 1999, the Company's currency
translation of the foreign investment in its Brazilian subsidiary from the Real
(functional currency) to the U.S. dollar resulted in a devaluation of
approximately $5.5 million. Currency devaluation 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.
10
<PAGE> 11
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
7. Operating Segments
The Company operates in markets worldwide and has four reportable segments as
defined by Statement of Financial Accounting Standards No. 131, Disclosures
about Segments of an Enterprise and Related Information (SFAS No. 131). 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 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.
The Company evaluates the performance of and allocates resources to these
segments based on income from operations.
A summary of the Company's operations by segment is presented below (in
thousands):
<TABLE>
<CAPTION>
REVENUES FROM INCOME (LOSS)
EXTERNAL CUSTOMERS FROM OPERATIONS
------------------ ---------------
<S> <C> <C>
THREE MONTHS ENDED MARCH 31, 1998:
Asia-Pacific $129,718 $ 6,068
North America 73,555 2,806
Europe, Middle East and Africa 106,259 4,616
Latin America 33,801 1,930
-------- --------
$343,333 $ 15,420
======== ========
THREE MONTHS ENDED MARCH 31, 1999:
Asia-Pacific $101,254 $ (2,038)
North America 157,020 4,991
Europe, Middle East and Africa 72,481 (2,184)
Latin America 41,964 631
-------- --------
$372,719 $ 1,400
======== ========
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31, MARCH 31,
TOTAL SEGMENT ASSETS: 1998 1999
----------- ---------
<S> <C> <C>
Asia-Pacific $161,449 $142,102
North America 247,687 236,188
Europe, Middle East and Africa 197,386 166,186
Latin America 107,928 82,585
-------- --------
$714,450 $627,061
======== ========
</TABLE>
11
<PAGE> 12
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
OVERVIEW AND RECENT DEVELOPMENTS
This discussion and analysis should be read in conjunction with the accompanying
consolidated financial statements and related notes. Certain statements made in
this report may contain forward-looking statements. For a description of risks
and uncertainties relating to such forward-looking statements, see Exhibit 99
and the Company's Annual Report on Form 10-K for the year ended December 31,
1998.
Revenue for the first quarter of 1999 increased 9% to $372.7 million as compared
to $343.3 million for the first quarter of 1998. Results of operations
(excluding the cumulative effect of a change in accounting principle discussed
below) in the first quarter of 1999 reflect a net loss of $1.2 million ($0.02
per diluted share) compared to net income in the first quarter of 1998 of $8.8
million ($0.17 per diluted share).
The Company's revenues and results of operations for the first quarter of 1999
were below that which had been anticipated due to inadequate supply of desired
product for sale through the Company's distribution services, specifically in
the China and Taiwan markets; devaluation of the Brazilian currency, the Real;
an inability to replace revenues (specifically in the United Kingdom and
Germany) generated from the trading business which the Company exited in the
fourth quarter of 1998 and price competition from trading companies in the
Company's Asia-Pacific and Latin America divisions. Although the Company has
taken, and continues to take, steps to address the impact of these developments,
the Company expects these issues to impact the remaining quarters of 1999.
The Company recorded in the first quarter of 1999 a cumulative effect adjustment
for a change in accounting principle. The change in accounting principle
resulted 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 the unamortized portion of the
Company's previously-capitalized organization, start-up, pre-operating and
integrated logistics services contract implementation costs. These costs were
incurred primarily as a part of the Company's in-country expansion and long-term
contract activity from 1996 through 1998 and were previously capitalized in
accordance with generally accepted accounting principles then in effect. The
adjustment for the write-off of these amounts of $14.1 million ($0.27 per
diluted share) is shown net of applicable taxes.
Also during the first quarter of 1999, the Company acquired all of the common
shares of Cellular Services S.A. located in Brazil. This transaction was
accounted for as a purchase and accordingly, the consolidated financial
statements include the operating results of this business from the effective
date of acquisition.
12
<PAGE> 13
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS
REVENUE
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1999 Change
- -------------------------------------------------------
<S> <C> <C> <C>
Revenue $ 343,333 $ 372,719 9%
- -------------------------------------------------------
</TABLE>
Revenue for the three months ended March 31, 1999 increased 9% over the same
period in 1998. Although demand for the Company's services and for wireless
handsets and accessories remains strong in all of the regions in which the
Company operates, certain factors during the quarter, discussed in the following
paragraphs, caused revenue to be approximately 25% below that which was
initially expected.
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1999
-----------------------------------------------
<S> <C> <C> <C> <C>
Revenue by division:
Asia-Pacific $129,718 38% $101,254 27%
Europe, Middle East and Africa 106,259 31% 72,481 20%
North America 73,555 21% 157,020 42%
Latin America 33,801 10% 41,964 11%
-----------------------------------------------
$343,333 100% $372,719 100%
-----------------------------------------------
</TABLE>
The Asia-Pacific division reported lower than anticipated revenue due to the
inability to procure adequate supply of product for sale through the Company's
distribution services, specifically in the China and Taiwan markets. In
addition, the Company lost sales to competitors that were willing to offer lower
prices and more liberal credit terms than the Company believed to be prudent.
In its Europe, Middle East and Africa division, the Company exited the trading
business in the fourth quarter of 1998 as part of its strategy to develop
stronger relationships with wireless equipment manufacturers. While the Company
continues to believe this strategy is appropriate, the Company has currently
been unable to replace the trading revenue previously derived in the United
Kingdom and Germany with revenues from product sales or logistics services
provided directly to network operators in those regions.
The Company's North America division continued to generate significant revenue
growth as demand for the Company's services and products remained strong. The
Company's strategy of developing enhanced relationships with wireless equipment
manufacturers and providing highly-valued logistics services to network
operators is the most fully deployed in the North America division.
13
<PAGE> 14
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS (CONTINUED)
Although revenue in the Latin America division increased 24% as compared to the
first quarter of 1998, it was negatively impacted by the devaluation of Brazil's
currency, the Real, in January of 1999. During the first quarter of 1999, the
average exchange rate for the Real was approximately 35% lower than the average
exchange rate in the first quarter of 1998. The Company also lost sales in the
division to competitors that were willing to offer lower prices and more liberal
credit terms than the Company believed to be prudent.
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1999
------------------------------------------------------------------
Revenue by service line:
<S> <C> <C> <C> <C>
Wireless handset sales $ 295,858 86% $ 278,574 75%
Wireless accessories sales 26,058 8% 50,026 13%
Integrated logistics services 21,417 6% 44,119 12%
------------------------------------------------------------------
$ 343,333 100% $ 372,719 100%
------------------------------------------------------------------
</TABLE>
Revenue for the three months ended March 31, 1999 as compared to the same period
in 1998 includes a greater proportion of revenues from integrated logistics
services and wireless accessories sales as the Company continues to develop and
grow its service offerings and acquire new customers in these areas.
Additionally, the issues discussed above in the Asia-Pacific, Latin America and
Europe, Middle East and Africa divisions negatively impacted the expected
wireless handset sales in those regions.
GROSS PROFIT
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1999 Change
- -----------------------------------------------------------------------------
<S> <C> <C> <C>
Gross profit $ 30,077 $ 28,387 (6%)
Gross margin 8.8% 7.6%
- -----------------------------------------------------------------------------
</TABLE>
Gross profit for the first quarter of 1999 decreased over the same period in
1998 due to decreased overall gross margin. Gross margins for the Company's
integrated logistics services and accessory sales continue to be within the
historical range for each of these service lines. However, the gross margin
generated during the first quarter of 1999 from handset sales was approximately
200 basis points below the historical gross margin for this product line. The
gross margin on handset sales was lower as the Company experienced unusual price
pressures primarily in markets with higher concentrations of trading companies
and related activities such as China and the United Kingdom.
14
<PAGE> 15
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS (CONTINUED)
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1999 Change
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Selling, general and
administrative expenses $ 14,657 $ 26,987 84%
As a percent of revenue 4.3% 7.2%
- --------------------------------------------------------------------------------
</TABLE>
Selling, general and administrative expenses increased over the same period in
1998 due to the increase in revenue and the increased cost of serving current
and anticipated integrated logistics services customers. Increasing personnel
costs was the largest contributor to the increase in selling, general and
administrative costs. Personnel costs increased due to a 64% increase in
headcount from approximately 1,050 employees in the first quarter of 1998 to
approximately 1,725 employees in the first quarter of 1999.
INCOME FROM OPERATIONS
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1999 Change
- ------------------------------ -------------------- ----------------- ---------
<S> <C> <C> <C>
Income from operations $ 15,420 $ 1,400 (91%)
As a percent of revenue 4.5% 0.4%
- ------------------------------ -------------------- ----------------- ----------
</TABLE>
The decrease in income from operations and operating margin (income from
operations, as a percent of revenue) for the three months ended March 31, 1999
compared to the same period in 1998 resulted primarily from the decrease in
gross margin and from the increase in selling, general and administrative
expenses as a percent of revenue.
INCOME (LOSS) BEFORE ACCOUNTING CHANGE
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1999 Change
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income (loss) before
accounting change $ 8,843 $ (1,212) (114%)
Income (loss) before accounting change
as a percent of revenue 2.6% (0.3%)
Income (loss) before accounting change
per share (diluted) $ 0.17 $ (0.02) (112%)
Weighted average shares outstanding
(diluted) 53,435 53,047
- ------------------------------------------------------------------------------------------
</TABLE>
15
<PAGE> 16
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
RESULTS OF OPERATIONS (CONTINUED)
INCOME (LOSS) BEFORE ACCOUNTING CHANGE (CONTINUED)
Income (loss) before accounting change for the first quarter of 1999 reflects a
loss of $1.2 million compared to income of $8.8 million in the first quarter of
1998. This change was due primarily to the factors discussed above in the
analyses of revenue, gross margins and selling, general and administrative
expenses. Net loss before accounting change per diluted share was $0.02 for the
first quarter of 1999 compared to net income per diluted share $0.17 for the
same period a year ago.
For the quarter ended March 31, 1999 none of the Company's common share
equivalents were dilutive due to the Company's net loss. Consequently, weighted
average shares outstanding reflects a decrease because of the exclusion of
common stock equivalents for the current period.
LIQUIDITY AND CAPITAL RESOURCES
<TABLE>
<CAPTION>
December 31, 1998 March 31, 1999
- --------------------------------------------------------------------------
<S> <C> <C>
Cash and cash equivalents $ 49,528 $ 46,219
Working capital $ 361,049 $ 320,498
Current ratio 2.92 : 1 3.05 : 1
- --------------------------------------------------------------------------
</TABLE>
Historically, the Company's primary cash requirements have been to fund
increased levels of accounts receivable and inventories. The Company has
satisfied its working capital requirements principally through cash flow from
operations, vendor financing, bank borrowings and the issuance of equity
securities. The decrease in working capital was primarily the result of a
decrease in accounts receivable partially offset by a decrease in accounts
payable.
Net cash provided by operating activities was $37.1 million for the three months
ended March 31, 1999 as compared to $9.5 million in the comparable prior period.
The increase in net cash provided by operating activities was primarily
attributable to a decrease in accounts receivable, offset by a decrease in
accounts payable and a reduction in the Company's earnings for the period. Net
cash used by investing activities for the three months ended March 31, 1999 was
$7.8 million as compared to $9.6 million in the comparable prior period. Cash
used by investing activities during the three months ended March 31, 1998 and
1999 was primarily attributable to capital expenditures relating to the purchase
of information systems and software and acquisitions completed in the period,
partially offset by the Company's contract financing activity and, in 1998,
proceeds from the sale of marketable securities. The net cash used by financing
activities for the three months ended March 31, 1999 was primarily the result of
payments on the Company's line of credit partially offset by proceeds from the
exercise of stock options. The net cash provided by financing activities for the
three months ended March 31, 1998 was primarily due to the issuance of the Bonds
discussed below and proceeds from the exercise of stock options.
16
<PAGE> 17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
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
$380.0 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.
The Bonds are subordinated to all existing and future Senior Indebtedness of the
Company and all other liabilities, including trade payables, of the Company's
subsidiaries.
Through 1998 the Company generated a 5-year compounded annual growth rate in
revenue and net income in excess of 60% and 80% respectively. In order to fund
the working capital necessary for this level of growth, the Company successfully
raised over $500 million of capital through the end of 1998 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.
YEAR 2000 UPDATE
OVERVIEW AND BACKGROUND
The Company has implemented its Year 2000 readiness project (the Project) to
address 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.
17
<PAGE> 18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR 2000 UPDATE (CONTINUED)
The Assessment phase began in September 1998 and is complete for existing
Systems as of April 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. The Company's assessment
identified certain systems that were not currently Year 2000 compliant and 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 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 continue to 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 the Remediation phase
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.
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
YEAR 2000 UPDATE (CONTINUED)
RISKS AND CONTINGENCIES (CONTINUED)
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.
19
<PAGE> 20
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL MARKET RISK MANAGEMENT
The Company is exposed to financial market risks, including changes in interest
rates and foreign currency exchange rates. To mitigate interest rate risks, the
Company utilizes interest rate swaps to convert certain portions of its variable
rate debt to fixed interest 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.
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 the first quarter of 1999 would have resulted in a nominal increase in
interest expense as well as a nominal increase in the fair value of the
Company's interest rate swaps at March 31, 1999.
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 not have negatively impacted the
Company's results of operations for the three months ended March 31, 1999. The
same adverse change in exchange rates would result in a $4.5 million increase in
the fair value of the Company's cash flow and net investment hedges open at
March 31, 1999. 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 of its products sold or services provided. Actual
results may differ materially from those discussed above.
20
<PAGE> 21
PART II. OTHER INFORMATION
Item 2. Changes in Securities
During the quarter ended March 31, 1999, the Company issued to the respective
sellers, unregistered shares of the Company's common stock as follows in
connection with the payment of contingent consideration for prior acquisition
activities:
<TABLE>
<CAPTION>
DATE ENTITY ACQUIRED SHARES ISSUED VALUE
- ---------------------- --------------------------------------------------- ---------------------- ---------------------
<S> <C> <C> <C>
March 11, 1999 Communicaciones ASBE, S.A. de C.V. 40,934 $ 184,203
</TABLE>
The foregoing securities issuances were made in reliance on the exemptions from
registration provided by Section 4(2) (issuances not involving a public
offering) of the Securities Act of 1933, as amended. No underwriter fees or
commissions were paid by the Company in connection with such issuances.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
The list of exhibits is hereby incorporated by reference to the
Exhibit Index on page 23 of this report.
(b) Reports on Form 8-K
On March 25, 1999 the Company filed a Form 8-K with the Securities
and Exchange Commission reporting under Item 5 - Other Events that
the Company anticipated its revenue and net income for the quarter
ending March 31, 1999 and the year ending December 31, 1999 will fall
below expectations.
21
<PAGE> 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Brightpoint, Inc.
-------------------------------
(Registrant)
Date May 17, 1999 /s/ Phillip A. Bounsall
------------------------- -------------------------------
Phillip A. Bounsall
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
Date May 17, 1999 /s/ John P. Delaney
------------------------- -------------------------------
John P. Delaney
Vice President, Corporate
Controller (Principal
Accounting Officer)
22
<PAGE> 23
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
(11) Statement Re: Computation of Earnings Per Share
(27) Financial Data Schedule for the Three Months ended
March 31, 1999
(99) Cautionary Statements
23
<PAGE> 1
Exhibit (11) Statement Re: Computation of Earnings Per Share
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended March 31
1998 1999
----------- -------------
<S> <C> <C>
Basic:
Weighted average shares outstanding 51,215 53,047
======== ========
Income (loss) before income taxes, minority
interest and accounting change $ 12,580 $ (1,888)
Deduct (add) income taxes 3,774 (643)
Add minority interest (37) (33)
Deduct cumulative effect of accounting change,
net of tax -- 14,065
-------- --------
Net income (loss) $ 8,843 $(15,277)
======== ========
Per share amount $ 0.17 $ (0.29)
======== ========
Diluted:
Weighted average shares outstanding 51,215 53,047
Net effect of dilutive stock options and
warrants - based on the treasury stock method
using average market price 2,220 --
-------- --------
Total weighted average shares outstanding 53,435 53,047
======== ========
Income (loss) before income taxes, minority
interest and accounting change $ 12,580 $ (1,888)
Deduct (add) income taxes 3,774 (643)
Add minority interest (37) (33)
Deduct cumulative effect of accounting change,
net of tax -- 14,065
-------- --------
Net income (loss) $ 8,843 $(15,277)
======== ========
Per share amount $ 0.17 $ (0.29)
======== ========
</TABLE>
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE QUARTER ENDED MARCH 31, 1999 AND IS QUALIFIED IN ITS ENTIRETY BY
REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> MAR-31-1999
<CASH> 46,219
<SECURITIES> 0
<RECEIVABLES> 221,067
<ALLOWANCES> 6,656
<INVENTORY> 158,940
<CURRENT-ASSETS> 476,632
<PP&E> 45,791
<DEPRECIATION> 0
<TOTAL-ASSETS> 627,061
<CURRENT-LIABILITIES> 156,134
<BONDS> 251,986
533
0
<COMMON> 0
<OTHER-SE> 218,408
<TOTAL-LIABILITY-AND-EQUITY> 627,061
<SALES> 372,719
<TOTAL-REVENUES> 372,719
<CGS> 344,332
<TOTAL-COSTS> 344,332
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 3,288
<INCOME-PRETAX> (1,888)
<INCOME-TAX> (643)
<INCOME-CONTINUING> (1,212)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (14,065)
<NET-INCOME> (15,277)
<EPS-PRIMARY> (.29)
<EPS-DILUTED> (.29)
</TABLE>
<PAGE> 1
EXHIBIT 99
CAUTIONARY STATEMENTS
Certain statements in this Form 10-Q and in the documents incorporated by
reference herein constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: the ability to hire and retain key personnel;
successful completion and integration of future acquisitions; relationships with
and dependence on third-party wireless communications equipment 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.
