<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: September 30, 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)
<TABLE>
<S> <C>
Delaware 35-1778566
- ------------------------------------------------------------ -----------------------------------
State or other jurisdiction of incorporation or organization (I.R.S. Employer Identification No.)
6402 Corporate Drive, Indianapolis, Indiana 46278
------------------------------------------- --------
(Address of principal executive offices) (Zip Code)
</TABLE>
(317) 297-6100
--------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. [X] Yes [ ] No
Number of shares of common stock outstanding at November 10, 1999:
53,381,760 shares
<PAGE> 2
BRIGHTPOINT, INC.
INDEX
<TABLE>
<CAPTION>
Page No.
-------
<S> <C>
PART I. FINANCIAL INFORMATION
ITEM 1
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1998 and 1999....3
Consolidated Balance Sheets
December 31, 1998 and September 30, 1999...................4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1998 and 1999..............5
Notes to Consolidated Financial Statements..........................6
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations.............15
ITEM 3
Quantitative and Qualitative Disclosures
About Market Risk.........................................26
PART II. OTHER INFORMATION
ITEM 1
Legal Proceedings..................................................27
ITEM 2
Changes in Securities..............................................27
ITEM 6
Exhibits...........................................................27
Signatures..................................................................28
</TABLE>
<PAGE> 3
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1999 1998 1999
---------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 445,772 $ 469,758 $ 1,118,918 $ 1,256,466
Cost of revenue 407,698 435,096 1,020,262 1,172,672
----------- ----------- ----------- -----------
Gross profit 38,074 34,662 98,656 83,794
Selling, general and administrative expenses 21,577 26,175 50,835 89,446
Restructuring and other charges -- 192 -- 65,709
----------- ----------- ----------- -----------
Income (loss) from operations 16,497 8,295 47,821 (71,361)
Net investment gain -- -- 572 --
Interest expense 3,110 3,084 9,549 10,184
----------- ----------- ----------- -----------
Income (loss) before income taxes, minority interest
and accounting change 13,387 5,211 38,844 (81,545)
Income taxes 4,016 2,413 11,653 7,416
----------- ----------- ----------- -----------
Income (loss) before minority interest and
accounting change 9,371 2,798 27,191 (88,961)
Minority interest (47) (20) (128) (53)
----------- ----------- ----------- -----------
Income (loss) before accounting change 9,418 2,818 27,319 (88,908)
Cumulative effect of accounting change, net of tax -- -- -- (14,065)
----------- ----------- ----------- -----------
Net income (loss) $ 9,418 $ 2,818 $ 27,319 $ (102,973)
=========== =========== =========== ===========
Basic per share:
Income (loss) before accounting change $ 0.18 $ 0.05 $ 0.53 $ (1.67)
Cumulative effect of accounting change, net of tax -- -- -- (0.26)
----------- ----------- ----------- -----------
Net income (loss) $ 0.18 $ 0.05 $ 0.53 $ (1.93)
=========== =========== =========== ===========
Diluted per share:
Income (loss) before accounting change $ 0.18 $ 0.05 $ 0.51 $ (1.67)
Cumulative effect of accounting change, net of tax -- -- -- (0.26)
----------- ----------- ----------- -----------
Net income (loss) $ 0.18 $ 0.05 $ 0.51 $ (1.93)
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic 52,232 53,344 51,811 53,233
=========== =========== =========== ===========
Diluted 53,268 53,446 53,427 53,233
=========== =========== =========== ===========
</TABLE>
See accompanying notes
3
<PAGE> 4
BRIGHTPOINT, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS)
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1999
----------------- ------------------
(Unaudited)
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 49,528 $ 47,333
Accounts receivable (less allowance for doubtful
accounts of $6,045 in 1998 and $6,385 in 1999) 278,947 222,445
Inventories 156,333 136,459
Other current assets 64,417 43,781
--------- ---------
Total current assets 549,225 450,018
Property and equipment 48,270 36,733
Goodwill and other intangibles 83,467 58,977
Other assets 33,488 9,935
--------- ---------
Total assets $ 714,450 $ 555,663
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 188,176 $ 196,654
--------- ---------
Total current liabilities 188,176 196,654
--------- ---------
Long-term debt:
Line of credit 109,020 42,667
Convertible notes 177,686 183,038
--------- ---------
Total long-term debt 286,706 225,705
--------- ---------
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 53,351 issued and
outstanding in 1998 and 1999, respectively 528 534
Additional paid-in capital 184,366 189,714
Retained earnings (deficit) 63,067 (39,906)
Accumulated other comprehensive loss (8,393) (17,038)
--------- ---------
Total stockholders' equity 239,568 133,304
--------- ---------
Total liabilities and stockholders' equity $ 714,450 $ 555,663
========= =========
</TABLE>
See accompanying notes
4
<PAGE> 5
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
<TABLE>
<CAPTION>
Nine Months Ended September 30
------------------------------
1998 1999
----------------- ------------
<S> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $ 27,319 $(102,973)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 6,864 10,913
Amortization of debt discount 3,832 5,352
Cumulative effect of accounting change, net of tax -- 14,065
Net investment gain (572) --
Restructuring and other charges -- 85,611
Minority interest and deferred taxes (175) (53)
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable (13,095) 27,577
Inventories (50,830) 11,166
Other current assets (8,505) (2,374)
Accounts payable and accrued expenses (2,411) 10,981
--------- ---------
Net cash provided (used) by operating activities (37,573) 60,265
INVESTING ACTIVITIES
Capital expenditures (23,907) (7,827)
Sale of marketable securities, net of transaction costs 3,263 --
Purchase acquisitions, net of cash acquired (35,894) (5,411)
Decrease in funded contract financing receivables 3,655 12,351
Decrease (increase) in other assets (11,969) 552
--------- ---------
Net cash used by investing activities (64,852) (335)
FINANCING ACTIVITIES
Net payments on revolving credit facility (43,816) (66,353)
Proceeds from issuance of convertible notes 166,088 --
Proceeds and tax benefits from exercise of stock options
warrants 15,253 5,115
--------- ---------
Net cash provided (used) by financing activities 137,525 (61,238)
Effect of exchange rate changes on cash and cash
equivalents (837) (887)
--------- ---------
Net increase (decrease) in cash and cash equivalents 34,263 (2,195)
Cash and cash equivalents at beginning of period 2,941 49,528
--------- ---------
Cash and cash equivalents at end of period $ 37,204 $ 47,333
========= =========
</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 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 and nine months ended September 30, 1999
and the unaudited consolidated statement of cash flows for the nine months
ended September 30, 1999 are not necessarily indicative of the operating results
or cash flows 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 the exercise
of outstanding stock options and stock warrants and the conversion of
convertible notes. For the three-month period ended September 30, 1999, the
Company's dilutive common share equivalents consist of shares of common stock
issuable upon exercise of outstanding stock options and stock warrants. For the
nine-month period ended September 30, 1999, none of the Company's stock options
and stock warrants were dilutive due to the Company's net loss. The convertible
notes were not dilutive for the three and nine-month periods ended September 30,
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 Comprehensive Income which is comprised of 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 (loss)."
During the three months ended September 30, 1998 and 1999, comprehensive income
(loss) totaled $9,672,000 and $546,000, respectively and during the nine months
ended September 30, 1998 and 1999 totaled $26,060,000 and ($111,617,000),
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
results of operations 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 (loss), 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 the fair value of the derivative instrument are generally offset in
the statement of operations 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 (loss). 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 (loss). The gains and losses on cash flow hedge
transactions that are reported in other comprehensive income (loss) 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 results of operations in the periods in which the
hedges are deemed to be ineffective.
7
<PAGE> 8
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. Restructuring and Other Charges
During the second quarter of 1999, the Company began implementing a broad
restructuring plan (the Restructuring Plan) in an effort to improve its
position for long-term success by eliminating or restructuring identified
non-performing business activities and improving the Company's cost structure.
The Restructuring Plan was approved by the Company's Board of Directors on June
30, 1999 and included the disposal of certain operations in the United Kingdom,
Poland, Taiwan and Argentina; termination of the Company's investments in two
joint operations in China; disposal of its 67% interest in a Hong Kong-based
accessories company; downsizing of selected operating subsidiaries and cost
reduction initiatives in its regional and corporate operations. In total, the
Restructuring Plan resulted in a reduction in headcount of approximately 350
employees. This headcount reduction occurred in most areas of the Company,
including marketing, operations and administration; however, substantially all
of the reductions occurred in the Company's foreign operating divisions.
As a result of the Restructuring Plan, the Company recorded restructuring and
other charges of approximately $85.0 million during the three months ended June
30, 1999. During the three months ended September 30, 1999, adjustments
totaling approximately $0.6 million were made to the restructuring and other
charges to adjust previous estimates to their current values and to record
additional amounts incurred in the quarter. As of September 30, 1999, these
charges were comprised of approximately $80.0 million in non-cash asset
impairments and write-offs and $5.6 million in costs that have been or will be
paid in cash. The non-cash asset impairments and write-offs for the nine months
ended September 30, 1999 (displayed below) primarily represent losses incurred
to write down certain assets of operations affected by the Restructuring Plan
to their net realizable values (either in liquidation or abandonment depending
on the provisions of the Restructuring Plan).
<TABLE>
<CAPTION>
DESCRIPTION OF CHARGE AMOUNT
--------------------- ------------
(in millions)
<S> <C>
NON-CASH CHARGES:
Impairment of goodwill and investments in joint operations $ 39.9
Impairment of accounts receivable and inventories of
exited operations or activities 15.4
Impairment of fixed assets 7.3
Impairment of income tax assets 4.5
Expected loss on disposal of operations held for sale 3.6
Write-off of cumulative foreign currency translation adjustments 1.7
Other losses and impairments resulting from activities exited 7.6
------------
Total non-cash charges 80.0
------------
CASH CHARGES:
Employee termination costs 2.8
Lease termination costs 1.3
Other exit costs 1.5
------------
Total cash charges 5.6
------------
Total restructuring and other charges $ 85.6
============
</TABLE>
8
<PAGE> 9
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
2. Restructuring and Other Charges (continued)
The aforementioned charges have been recorded within the following captions in
the Consolidated Statements of Operations for the three and nine months ended
September 30, 1999 (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Cost of revenue $ 1.2 $ 8.6
Selling, general and administrative expenses (0.8) 6.8
Restructuring and other charges 0.2 65.7
Income taxes -- 4.5
----- -----
$ 0.6 $85.6
===== =====
</TABLE>
The Company has completed a majority of the actions called for by the
Restructuring Plan as of September 30, 1999 and expects to substantially
complete all of the actions required by the Restructuring Plan prior to
December 31, 1999. The Company had restructuring reserves of approximately $3.9
million and $1.4 million at June 30, 1999 and September 30, 1999, respectively
which related to unpaid employee termination, lease termination and other exit
costs. During the three months ended September 30, 1999 the Company made cash
payments of approximately $2.5 million in settlement of previously accrued
costs and there were no other significant adjustments to these reserves. As a
result of the actions taken under the Restructuring Plan the Company had
approximately $17.6 million in assets held for disposal as of September 30,
1999 which are classified in the Consolidated Balance Sheet under the caption
"Other current assets."
3. 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 became 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 approximately
$14.1 million, 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.
9
<PAGE> 10
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
4. Acquisitions and Divestitures
During the nine months ended September 30, 1999, the Company acquired Cellular
Services S.A., a provider of integrated logistics services to the wireless
communications industry 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 the Company's Brazilian operations over
the next five years. The resulting goodwill of approximately $4.9 million is
being amortized over 30 years. In addition, the Company completed the sale of
Wavetech Network Services Limited, a subsidiary of Wavetech Limited in the
United Kingdom. The Company had previously accounted for the estimated loss on
the sale of this business as a part of the purchase price in its 1998
acquisition of Wavetech Limited. The impact of the ultimate divestiture of this
business did not result in a material adjustment to the goodwill originally
recorded.
During the nine months ended September 30, 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 398,008 unregistered shares of the
Company's common stock (valued at $5.1 million), $37.6 million in cash, the
assumption of certain liabilities and contingent consideration of up to $10.7
million in cash and $15 million in common stock based upon future operating
results of the applicable business during the two years following the
acquisition and, to the extent earned, would generally be paid soon thereafter.
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
nine months ended September 30, 1998 and 1999. Consequently, pro forma
information is not presented.
10
<PAGE> 11
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. Long-term Debt
On June 24, 1997, the Company entered into a $200 million five-year senior
secured revolving line of credit facility with Bank One, Indiana, National
Association, 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. On July
27, 1999, the Company and the Banks further amended and restated this agreement
resulting in an overall reduction in the facility to $175 million (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 plus a spread of 0 to 100 basis points 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 140 to 250
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 September 30, 1999 there was approximately $42.7 million outstanding under
the line of credit, all of which was denominated in foreign currencies, at
interest rates ranging from 5.3% to 7.7% (a weighted average rate of 6.0%).
In addition there was an aggregate of $18.3 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.
Funding under the Restated Facility is limited by an asset coverage test, which
is measured monthly. 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.
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 September 30, 1999, the
Bonds had an accreted value of $183 million.
11
<PAGE> 12
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
5. Long-term Debt (continued)
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.
6. 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.
Excluding the impact of the net investment gain and related income taxes, net
income for the nine months ended September 30, 1998 would have been $27.0
million or $0.50 per diluted share.
7. 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 September 30, 1999, the Real's exchange rate to the U.S. Dollar has
declined significantly. During the first nine months of 1999, the average
exchange rate for the Real was approximately 36% lower than the average
exchange rate in the first nine months 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
September 30, 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 $6.4 million.
Currency translation adjustments resulting from translating assets and
liabilities from the functional currency to the U.S. Dollar are included as a
component of other comprehensive loss in stockholders' equity.
12
<PAGE> 13
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. 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 (loss) from operations including allocated corporate
selling, general and administrative expenses. As discussed in Note 2 to the
Consolidated Financial Statements, the Company's Restructuring Plan resulted in
significant charges, which materially affected certain operating segments. A
summary of the Company's operations by segment with and without the
restructuring charges is presented below (in thousands):
<TABLE>
<CAPTION>
1998 1999
------------------------------ ----------------------------------------------------
REVENUES FROM REVENUES FROM
EXTERNAL INCOME FROM EXTERNAL INCOME (LOSS) INCOME (LOSS)
CUSTOMERS OPERATIONS CUSTOMERS FROM OPERATIONS FROM OPERATIONS
--------------- -------------- --------------- ----------------- ------------------
(including (excluding
restructuring restructuring
costs) costs)
<S> <C> <C> <C> <C> <C>
THREE MONTHS ENDED
SEPTEMBER 30:
Asia-Pacific $ 144,978 $ 6,155 $ 115,092 $ 3,951 $ 3,510
North America 112,698 3,710 191,904 3,778 3,778
Europe, Middle East and Africa 129,955 3,472 97,335 490 1,535
Latin America 58,141 3,160 65,427 76 131
----------- ----------- ----------- ----------- -----------
$ 445,772 $ 16,497 $ 469,758 $ 8,295 $ 8,954
=========== =========== =========== =========== ===========
NINE MONTHS ENDED
SEPTEMBER 30:
Asia-Pacific $ 382,029 $ 16,071 $ 316,622 $ (35,736) $ 29
North America 278,521 12,045 513,135 12,448 12,448
Europe, Middle East and Africa 331,888 11,785 254,382 (45,283) (3,402)
Latin America 126,480 7,920 172,327 (2,790) 698
----------- ----------- ----------- ----------- -----------
$ 1,118,918 $ 47,821 $ 1,256,466 $ (71,361) $ 9,773
=========== =========== =========== =========== ===========
</TABLE>
13
<PAGE> 14
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(UNAUDITED)
8. Operating Segments (continued)
<TABLE>
<CAPTION>
DECEMBER 31, SEPTEMBER 30,
TOTAL SEGMENT ASSETS: 1998 1999
------------ -------------
<S> <C> <C>
Asia-Pacific $161,449 $ 90,697
North America 247,687 294,574
Europe, Middle East and Africa 197,386 97,543
Latin America 107,928 72,849
-------- --------
$714,450 $555,663
======== ========
</TABLE>
14
<PAGE> 15
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.
During the second and third quarters of 1999 the Company implemented a broad
restructuring plan (the Restructuring Plan) in an effort to improve its
position for long-term success by eliminating or restructuring identified
non-performing business activities and improving the Company's cost structure.
The Restructuring Plan included the disposal of certain operations in the
United Kingdom, Poland, Taiwan and Argentina; termination of the Company's
investments in two joint operations in China; disposal of its 67% interest in a
Hong Kong-based accessories company; downsizing of selected operating
subsidiaries and cost reduction initiatives in its regional and corporate
operations. In total, the Restructuring Plan resulted in a reduction in
headcount of approximately 350 employees. This headcount reduction occurred in
most areas of the Company, including marketing, operations and administration;
however, substantially all of the reductions occurred in the Company's foreign
operating divisions.
As a result of the Restructuring Plan, the Company recorded restructuring and
other charges of approximately $85.0 million during the three months ended June
30, 1999. During the three months ended September 30, 1999, adjustments
totaling approximately $0.6 million were made to these charges to adjust
previous estimates to their current values and to record additional amounts
incurred during the quarter. As of September 30, 1999 these restructuring and
other charges were comprised of approximately $80.0 million in non-cash asset
impairments and write-offs and $5.6 million in employee termination, lease
termination and other exit costs that have been or will be paid in cash. The
non-cash asset impairments and write-offs primarily represent losses incurred
to write down certain assets of operations affected by the Restructuring Plan
to their net realizable values. These assets include goodwill, investments in
joint operations, accounts receivable, inventories, fixed assets, and other
assets that relate to activities or operations being eliminated, downsized or
terminated.
The Company has completed a majority of the actions called for by the
Restructuring Plan as of September 30, 1999 and expects to complete
substantially all of the actions required by the Restructuring Plan prior to
December 31, 1999. The Company had restructuring reserves of approximately $3.9
million and $1.4 million at June 30, 1999 and September 30, 1999, respectively,
which related to unpaid employee termination, lease termination and other exit
costs. During the three months ended September 30, 1999 the Company made cash
payments of approximately $2.5 million in settlement of previously accrued costs
and there were no other significant adjustments to these reserves.
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)
OVERVIEW AND RECENT DEVELOPMENTS (CONTINUED)
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 is
shown net of applicable taxes.
During the first quarter of 1999, the Company acquired all of the common shares
of Cellular Services S.A., a provider of integrated logistics services to the
wireless communications industry 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.
As previously noted in the Company's Annual Report on Form 10-K for the year
ended December 31, 1998, the Company will be relocating its North American
operations located in Indianapolis from four existing leased facilities to a
newly constructed 495,000 square foot leased facility located in Plainfield,
Indiana in early 2000. The Company had entered into an agreement whereby it
would settle the remaining lease payments and eliminate any further lease
obligation related to its primary Indianapolis location. This agreement was
subsequently terminated by the Company and the lessor. Consequently, the Company
is evaluating alternative uses for its existing facilities through the end of
the related lease commitments. The financial impact of this facility
consolidation is not reasonably estimable at this time.
RESULTS OF OPERATIONS
Because of the significance of the Restructuring Plan discussed above, results
of operations have been delineated between results from recurring operations
and results from non-recurring operations. Additionally, the impacts of (i) the
non-recurring charges recorded in the second and third quarters of 1999, (ii)
the cumulative effect of a change in accounting principle recorded in the first
quarter of 1999 and (iii) a net investment gain recognized in the first quarter
of 1998 are treated as "Non-recurring Charges and Other Items" and not
considered a part of recurring or non-recurring operations for the purposes of
this discussion.
As a result of the Restructuring Plan, the Company has eliminated, or is in the
process of eliminating, certain operations in Argentina, Poland, Taiwan and the
United Kingdom and has terminated its two joint operations in China (these
joint operations were replaced by new joint operations beginning in the third
quarter of 1999). Recurring operations include all operations except those that
have been eliminated or terminated and non-recurring operations are those
operations that have been terminated or will be terminated pursuant to the
Restructuring Plan.
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)
RESULTS OF OPERATIONS (CONTINUED)
RECURRING OPERATIONS
Revenue
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
----------------------------------- ----------------------------------
1998 1999 Change 1998 1999 Change
--------- --------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 339,085 $ 459,600 36% $ 863,146 $ 1,144,042 33%
--------- --------- -------- --------- ----------- --------
</TABLE>
Revenue from recurring operations in the quarter ended September 30, 1999
increased 36%, compared to revenue generated by recurring operations in the
third quarter of 1998. For the nine months ended September 30, 1999, revenue
from recurring operations increased 33% from the same period in the prior year.
The increase was primarily due to continued strong demand for the Company's
services and for wireless handsets and accessories worldwide.
Revenue from Recurring Operations by Division:
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
--------------------------------------------------- ---------------------------------------------------
1998 1999 1998 1999
------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Asia-Pacific $ 103,819 31% $ 109,474 24% $ 310,469 36% $ 230,552 20%
Europe, Middle
East and Africa 64,427 19% 92,795 20% 147,675 17% 228,028 20%
North America 112,698 33% 191,904 42% 278,521 32% 513,135 45%
Latin America 58,141 17% 65,427 14% 126,481 15% 172,327 15%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
Total $ 339,085 100% $ 459,600 100% $ 863,146 100% $1,144,042 100%
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
For the three and nine months ended September 30, 1999 the Company experienced
revenue growth from recurring operations in its North America, Latin America
and Europe, Middle East and Africa divisions primarily resulting from strong
worldwide demand for the Company's products and services. Revenue in the
Asia-Pacific division increased slightly for the three months ended September
30, 1999 when compared to the third quarter of 1998, however its revenue for
the nine months ended September 30, 1999 declined when compared to the same
period of the prior year because much of the China market was being served out
of the Company's Hong Kong operation (classified as recurring) for most of
1998, whereas from January through June of 1999, the China market was being
served from the Company's joint operations in China (classified as
non-recurring due to the termination of these operations). As stated
previously, the Company commenced new joint operations in China during the
third quarter which have been included in recurring operations and which
replace those operations that were terminated pursuant to the Restructuring
Plan.
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)
RECURRING OPERATIONS (CONTINUED)
Revenue from Recurring Operations by Service Line:
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
--------------------------------------------------- ---------------------------------------------------
1998 1999 1998 1999
------------------------ ------------------------ ------------------------ ------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Wireless handset sales $ 267,506 79% $ 342,897 75% $ 688,172 80% $ 844,301 74%
Wireless accessory sales 30,382 9% 66,068 14% 77,295 9% 170,544 15%
Integrated logistics
services 41,197 12% 50,635 11% 97,679 11% 129,197 11%
---------- ---------- ---------- ---------- ---------- ---------- ---------- ----------
$ 339,085 100% $ 459,600 100% $ 863,146 100% $1,144,042 100%
========== ========== ========== ========== ========== ========== ========== ==========
</TABLE>
Revenue from recurring operations for the three and nine months ended September
30, 1999 as compared to the same period in 1998 includes a greater proportion
of revenues from wireless accessories sales and integrated logistics services
as the Company continues to develop and grow its service offerings and acquire
new customers in these areas.
Gross Profit
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
----------------------------------- ----------------------------------
1998 1999 Change 1998 1999 Change
--------- --------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Gross profit $ 30,107 $ 34,437 14% $ 81,896 $ 90,197 10%
Gross margin 8.9% 7.5% 9.5% 7.9%
</TABLE>
Gross profit from recurring operations for the three and nine months ended
September 30, 1999 increased over the same period in 1998 due to the increases
in revenue, however, gross margins were lower due to continued pressure on
handset margins and increased costs of revenue across all service lines (in
total and as a percent of revenue). For integrated logistics services this
increase in cost of revenue is due, in part, to the addition of infrastructure
to serve logistics customers who have recently engaged the Company. While many
of the costs associated with these contracts are being incurred, the revenue
streams are not yet fully developed. In addition, the proportion of services
provided which relate to prepaid programs has grown in relation to other
integrated logistics services. Services related to prepaid programs generally
produce lower gross margins than other integrated logistic services.
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)
RECURRING OPERATIONS (CONTINUED)
Selling, General and Administrative Expenses
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
----------------------------------- ----------------------------------
1998 1999 Change 1998 1999 Change
--------- --------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Selling, general and
administrative expenses $ 16,183 $ 25,465 57% $ 40,014 $ 70,076 75%
As a percent of revenue 4.8% 5.5% 4.6% 6.1%
</TABLE>
Selling, general and administrative expenses related to recurring operations
for the three and nine months ended September 30, 1999 as compared to the same
periods in the prior year reflect the increased cost of serving current and
anticipated integrated logistics services customers and the increased levels of
business activity. In addition, bad debt expense was greater than in prior
quarters due, in part, to the general economic climate in Brazil and the
devaluation of the Real.
Income from Operations
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
----------------------------------- ----------------------------------
1998 1999 Change 1998 1999 Change
--------- --------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Income from operations $ 13,924 $ 8,972 (36%) $ 41,882 $ 20,121 (52%)
As a percent of revenue 4.1% 2.0% 4.9% 1.8%
</TABLE>
The decrease in income from operations and operating margin (income from
operations, as a percent of revenue) from recurring operations for the three
and nine months ended September 30, 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, both of
which are discussed above.
Net Income from Recurring Operations
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
----------------------------------- ----------------------------------
1998 1999 Change 1998 1999 Change
--------- --------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 8,229 $ 3,619 (56%) $ 24,383 $ 6,483 (73%)
Net income per share (diluted) $ 0.15 $ 0.07 (53%) $ 0.46 $ 0.12 (74%)
Weighted average shares outstanding
(diluted) 53,268 53,446 53,427 53,681
</TABLE>
The decrease in net income from recurring operations for the three and nine
months ended September 30, 1999 as compared to the same periods in 1998
resulted primarily from the factors discussed above in the analyses of revenue,
gross profit and selling, general and administrative expenses.
19
<PAGE> 20
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)
NON-RECURRING OPERATIONS
Revenue
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
----------------------------------- ----------------------------------
1998 1999 Change 1998 1999 Change
--------- --------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Revenue $ 106,687 $ 10,158 (90%) $ 255,772 $ 112,424 (56%)
</TABLE>
Revenue from non-recurring operations decreased for the three and nine months
ended September 30, 1999 as compared to the same periods in the prior year
primarily as a result of the activities completed pursuant to the Restructuring
Plan and the discontinuation of the Company's trading activities in the fourth
quarter of 1998.
Gross Profit
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
----------------------------------- ----------------------------------
1998 1999 Change 1998 1999 Change
--------- --------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Gross profit $ 7,967 $ 1,448 (82%) $ 16,760 $ 2,218 (87%)
Gross margin 7.5% 14.3% 6.6% 2.0%
</TABLE>
Gross profit from non-recurring operations for the three and nine months ended
September 30, 1999 decreased over the same period in 1998 due primarily to the
decrease in revenues discussed above. Gross margins from non-recurring
operations in the third quarter of 1999 were abnormally high due to the
liquidation of inventory at prices above previously-estimated net realizable
values.
Selling, General and Administrative Expenses
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
----------------------------------- ----------------------------------
1998 1999 Change 1998 1999 Change
--------- --------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Selling, general and
administrative expenses $ 5,394 $ 1,466 (73%) $ 10,821 $ 12,565 16%
</TABLE>
Selling, general and administrative expenses incurred in non-recurring
operations decreased for the three months ended September 30, 1999 as compared
to the same period in the prior year primarily as a result of the activities
completed pursuant to the Restructuring Plan. Selling, general and
administrative expenses incurred in non-recurring operations increased for the
nine months ended September 30, 1999 as compared to the same period in the
prior year reflecting the increased cost of serving anticipated integrated
logistics services customers and building infrastructure for growth.
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
NON-RECURRING OPERATIONS (CONTINUED)
Net Income (Loss) from Non-Recurring Operations
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
----------------------------------- ----------------------------------
1998 1999 Change 1998 1999 Change
--------- --------- -------- --------- ----------- --------
<S> <C> <C> <C> <C> <C> <C>
Net income (loss) $ 1,189 $ (142) (112%) $ 2,593 $ (9,759) (476%)
Net income (loss) per
share (diluted) $ 0.02 $ 0.00 (100%) $ 0.05 $ (0.18) (460%)
Weighted average shares
outstanding (diluted) 53,268 53,344 53,427 53,233
</TABLE>
The net losses generated by non-recurring operations for the three and nine
months ended September 30, 1999 were due to declining revenues, as well as
increases in selling, general and administrative costs as a percent of sales.
NON-RECURRING CHARGES AND OTHER ITEMS
In the first quarter of 1998, the Company realized a net gain on the sale of
marketable equity securities, representing income of a non-recurring nature of
$572,000 ($343,000 after applicable taxes).
As discussed above the Company recorded in the first quarter of 1999 a
cumulative effect adjustment for a change in accounting principle. The
adjustment of $14.1 million ($0.26 per diluted share) is shown net of
applicable taxes.
As also discussed above, the Company recorded non-recurring charges in the
second quarter of 1999 of approximately $85.0 million resulting from actions
taken in accordance with the Restructuring Plan. During the third quarter of
1999, adjustments totaling $0.6 million were recorded as additional
non-recurring charges to adjust previous estimates to their current values and
to record additional amounts incurred in the quarter. The aforementioned
charges (see Note 2 to the Consolidated Financial Statements) have been
classified within the Consolidated Statements of Operations for the three and
nine months ended September 30, 1999 as follows (in millions):
<TABLE>
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1999 SEPTEMBER 30, 1999
------------------ ------------------
<S> <C> <C>
Cost of revenue $ 1.2 $ 8.6
Selling, general and administrative expenses (0.8) 6.8
Restructuring and other charges 0.2 65.7
Income taxes -- 4.5
------ ------
$ 0.6 $ 85.6
====== ======
</TABLE>
21
<PAGE> 22
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
<TABLE>
<CAPTION>
December 31, 1998 September 30, 1999
----------------- ------------------
<S> <C> <C>
Cash and cash equivalents $ 49,528 $ 47,333
Working capital $ 361,049 $ 253,364
Current ratio 2.92 : 1 2.29 : 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 and
debt securities. The decrease in working capital of $107.7 million during the
nine months ended September 30, 1999 was primarily the result of a decrease in
accounts receivable and inventories, as well as an increase in accounts
payable.
Net cash provided by operating activities was $60.3 million for the nine months
ended September 30, 1999 as compared to cash used by operating activities of
$37.6 million in the comparable prior period. The increase in net cash provided
by operating activities was primarily attributable to a decrease in accounts
receivable and inventories, as well as, an increase in accounts payable
partially offset by a reduction in the Company's earnings for the period. Net
cash used by investing activities for the nine months ended September 30, 1999
was $0.3 million as compared to $64.9 million in the comparable prior period.
The change between periods is primarily comprised of a reduction in the amounts
of cash expended for acquisition activities, capital expenditures and other
long-term investments, as well as an increase in funds provided by the
Company's contract financing activity during the nine months ended September
30, 1999. The net cash used by financing activities for the nine months ended
September 30, 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 nine months ended September
30, 1998 was primarily due to the issuance of the Bonds discussed below and
proceeds from the exercise of stock options.
On July 27, 1999, the Company closed on the Restated Facility with its senior
lenders. The Restated Facility provides the Company, based upon a
newly-instituted borrowing base calculation, with a maximum borrowing capacity
of up to $175 million, a reduction from the prior maximum of $230 million.
Interest rates under the Restated Facility, excluding fees, range from 140
basis points to 250 basis points above LIBOR, depending on certain leverage
ratios which is approximately 112.5 basis points higher than the interest rates
under the previous facility. See Note 5 to the Consolidated Financial
Statements.
22
<PAGE> 23
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 (as defined in the Bond's indenture) 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 during this five year period over $500 million of capital
through the end of 1998 using a combination of both debt and equity
instruments. The Company believes that to maintain 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.
23
<PAGE> 24
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 has been completed. This phase
includes certain procedures with respect to existing Systems and with respect
to the Year 2000 readiness of significant suppliers and customers. With respect
to existing Systems, this phase is complete and included: (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) determination of the extent to which remediation will be
required to ensure Year 2000 readiness and (iv) development of contingency
plans to the extent considered necessary. With respect to significant suppliers
and customers, this phase is complete and includes contacting significant
suppliers and customers, either directly or through the use of a questionnaire
and follow-up correspondence in order to understand their state of Year 2000
readiness and assessment of assertions made by these significant suppliers and
customers. The Company's assessment identified certain systems that were not
currently Year 2000 compliant and these systems entered the remediation phase.
The procedures performed during the Assessment phase are continuing to be
performed with respect to new Systems. In addition, the Company will continue
to monitor the Year 2000 compliance status of its significant suppliers and
customers.
The Remediation phase began concurrently with the Assessment phase and has been
completed with respect to items identified as non-compliant in the Assessment
phase. The activities undertaken during this phase included: (i) repairing,
replacing or reprogramming all significant Systems that were 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 that came to our attention.
To date, none of the Company's other information technology projects or
initiatives have been significantly delayed or materially affected due to the
implementation of the Project.
COSTS
The Company utilized primarily internal resources to carry out the Project.
Costs incurred to complete the Project were expensed in the period incurred and
were not material to the Company's results of operations, financial position or
cash flows in the period.
RISKS AND CONTINGENCIES
The Company believes that the Project met its Year 2000 objectives in a timely
manner and has developed contingency plans as a result of this Project.
However, notwithstanding work performed in the Assessment phase, the ability of
suppliers and customers with which the Company interacts to timely convert
their systems to be Year 2000 compliant is uncertain and outside of the control
of the Company. The Company conducts operations in various countries 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, including, but not limited to, the
disruption or failure of the infrastructure, 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.
24
<PAGE> 25
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's contingency plans will be continually updated as new information
becomes available regarding the progress of vendors, suppliers and customers on
their Year 2000 projects. The Company intends to continue evaluating its
contingency plans to ensure completeness and effectiveness. 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.
25
<PAGE> 26
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 nine months 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 September 30, 1999.
A 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 had a
material negative impact on the Company's results of operations for the nine
months ended September 30, 1999. The same adverse change in exchange rates
would result in a $3.65 million increase in the fair value of the Company's
cash flow and net investment hedges open at September 30, 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.
26
<PAGE> 27
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Brightpoint and four executive officers, two of which are also directors of the
Company, have been named as defendants in four actions filed in June and July
1999, in the United States District Court for the Southern District of Indiana
entitled Sakhrani et al. v. Brightpoint, Inc., et al., Cause No. IP
99-0870-C-H/G; Clark et al. v. Brightpoint, Inc., et al., Cause No. IP
99-0943-C-H/G; Sendermair et al. v. Brightpoint, Inc., et al., Cause No. IP
99-1138-C-H/G; and, Desrosiers, et al. v. Brightpoint, Inc., et al., Cause No.
IP 99-1157-C-H/G. These actions purport to assert claims under sections 10 (b)
and 20 (a) of the Securities Exchange Act of 1934, and Rule 10b-5, based on
allegations that false and misleading statements were rendered and/or
statements were omitted concerning the current and future financial condition
and business prospects of the Company. The cases involve a purported class of
purchasers of Brightpoint stock during the period October 2, 1998 through March
10, 1999. The Company and the individual defendants intend to vigorously defend
these actions. The actions are at an early stage; defendants' responses are not
yet due and motions to consolidate the cases are pending.
Item 2. Changes in Securities
During the quarter ended September 30, 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>
September 8, 1999 Wireless Fulfillment Services LLC 15,960 $ 61,492
</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
(a) Exhibits
The list of exhibits is hereby incorporated by reference to the
Exhibit Index on page 29 of this report.
(b) Reports on Form 8-K
None
27
<PAGE> 28
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)
<TABLE>
<S> <C>
Date November 12, 1999 /s/ Phillip A. Bounsall
-------------------------------- ---------------------------------------
Phillip A. Bounsall
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer)
Date November 12, 1999 /s/ John P. Delaney
-------------------------------- ---------------------------------------
John P. Delaney
Vice President, Chief Accounting Officer
(Principal Accounting Officer)
</TABLE>
28
<PAGE> 29
EXHIBIT INDEX
<TABLE>
<CAPTION>
Exhibit No. Description
- ---------- -----------
<S> <C>
(11) Statement Re: Computation of Earnings Per Share
(27) Financial Data Schedule for the Nine Months ended September 30, 1999
(99) Cautionary Statements
</TABLE>
29
<PAGE> 1
Exhibit (11) Statement Re: Computation of Earnings Per Share
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1998 1999 1998 1999
---------- ----------- ---------- ---------
<S> <C> <C> <C> <C>
Basic:
Weighted average shares outstanding 52,232 53,344 51,811 53,233
--------- --------- --------- ---------
Income (loss) before income taxes, minority
interest and accounting change $ 13,387 $ 5,211 $ 38,844 $ (81,545)
Deduct income taxes 4,016 2,413 11,653 7,416
Add minority interest (47) (20) (128) (53)
Deduct cumulative effect of accounting change,
net of tax -- -- -- 14,065
--------- --------- --------- ---------
Net income (loss) $ 9,418 $ 2,818 $ 27,319 $(102,973)
========= ========= ========= =========
Per share amount $ 0.18 $ 0.05 $ 0.53 $ (1.93)
========= ========= ========= =========
Diluted:
Weighted average shares outstanding 52,232 53,344 51,811 53,233
Net effect of dilutive stock options and warrants-
based on the treasury stock method using
average market price 1,036 102 1,616 --
--------- --------- --------- ---------
Total weighted average shares outstanding 53,268 53,446 53,427 53,233
========= ========= ========= =========
Income (loss) before income taxes, minority
interest and accounting change $ 13,387 $ 5,211 $ 38,844 $ (81,545)
Deduct income taxes 4,016 2,413 11,653 7,416
Add minority interest (47) (20) (128) (53)
Deduct cumulative effect of accounting change,
net of tax -- -- -- 14,065
--------- --------- --------- ---------
Net income (loss) $ 9,418 $ 2,818 $ 27,319 $(102,973)
========= ========= ========= =========
Per share amount $ 0.18 $ 0.05 $ 0.51 $ (1.93)
========= ========= ========= =========
</TABLE>
30
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE FORM
10-Q FOR THE QUARTER ENDED SEPTEMBER 30, 1999 AND IS QUALIFIED IN ITS ENTIRETY
BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> SEP-30-1999
<CASH> 47,333
<SECURITIES> 0
<RECEIVABLES> 228,830
<ALLOWANCES> 6,385
<INVENTORY> 136,459
<CURRENT-ASSETS> 450,018
<PP&E> 36,733
<DEPRECIATION> 0
<TOTAL-ASSETS> 555,663
<CURRENT-LIABILITIES> 196,654
<BONDS> 225,705
534
0
<COMMON> 0
<OTHER-SE> 132,770
<TOTAL-LIABILITY-AND-EQUITY> 555,663
<SALES> 1,256,466
<TOTAL-REVENUES> 1,256,466
<CGS> 1,172,672
<TOTAL-COSTS> 1,172,672
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 10,184
<INCOME-PRETAX> (81,545)
<INCOME-TAX> 7,416
<INCOME-CONTINUING> (88,908)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (14,065)
<NET-INCOME> (102,973)
<EPS-BASIC> (1.93)
<EPS-DILUTED> (1.93)
</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.
