<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, 2000
--------------------------------
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 (I.R.S. Employer Identification No.)
of incorporation or organization
6402 Corporate Drive, Indianapolis, Indiana 46278
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(317) 297-6100
--------------------------------------------------------------------------------
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Number of shares of common stock outstanding at November 9, 2000:
55,663,151 shares
<PAGE> 2
BRIGHTPOINT, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1
Consolidated Statements of Operations
Three and Nine Months Ended September 30, 1999 and 2000.......3
Consolidated Balance Sheets
December 31, 1999 and September 30, 2000......................4
Consolidated Statements of Cash Flows
Nine Months Ended September 30, 1999 and 2000.................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............................................23
PART II. OTHER INFORMATION
ITEM 1
Legal Proceedings.................................................24
ITEM 6
Exhibits..........................................................24
Signatures.................................................................25
<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
1999 2000 1999 2000
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Revenue $ 450,534 $ 511,130 $ 1,213,498 $ 1,437,477
Cost of revenue 415,872 470,629 1,129,704 1,313,648
----------- ----------- ----------- -----------
Gross profit 34,662 40,501 83,794 123,829
Selling, general and administrative expenses 26,070 23,692 89,197 71,313
Restructuring and other unusual charges 192 137 65,709 5,468
----------- ----------- ----------- -----------
Income (loss) from operations 8,400 16,672 (71,112) 47,048
Interest expense 3,084 2,463 10,184 8,974
Other expenses, net 105 784 249 407
----------- ----------- ----------- -----------
Income (loss) before income taxes, minority interest
and accounting change 5,211 13,425 (81,545) 37,667
Income taxes 2,413 4,581 7,416 12,942
----------- ----------- ----------- -----------
Income (loss) before minority interest and
accounting change 2,798 8,844 (88,961) 24,725
Minority interest (20) 166 (53) 295
----------- ----------- ----------- -----------
Income (loss) before accounting change 2,818 8,678 (88,908) 24,430
Cumulative effect of accounting change, net of tax -- -- (14,065) --
----------- ----------- ----------- -----------
Net income (loss) $ 2,818 $ 8,678 $ (102,973) $ 24,430
=========== =========== =========== ===========
Basic per share:
Income (loss) before accounting change $ 0.05 $ 0.16 $ (1.67) $ 0.44
Cumulative effect of accounting change, net of tax -- -- (0.26) --
----------- ----------- ----------- -----------
Net income (loss) $ 0.05 $ 0.16 $ (1.93) $ 0.44
=========== =========== =========== ===========
Diluted per share:
Income (loss) before accounting change $ 0.05 $ 0.16 $ (1.67) $ 0.43
Cumulative effect of accounting change, net of tax -- -- (0.26) --
----------- ----------- ----------- -----------
Net income (loss) $ 0.05 $ 0.16 $ (1.93) $ 0.43
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic 53,344 55,664 53,233 55,379
=========== =========== =========== ===========
Diluted 53,446 55,887 53,233 56,163
=========== =========== =========== ===========
</TABLE>
See accompanying notes.
3
<PAGE> 4
BRIGHTPOINT, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
(Unaudited)
<TABLE>
<CAPTION>
December 31, 1999 September 30, 2000
----------------- ------------------
<S> <C> <C>
ASSETS
Current assets:
Cash and cash equivalents $ 85,261 $ 140,883
Accounts receivable (less allowance for doubtful 230,792 192,738
accounts of $6,220 in 1999 and $5,973 in 2000)
Inventories 140,673 179,811
Other current assets 48,193 44,857
---------------- ----------------
Total current assets 504,919 558,289
Property and equipment 36,273 34,506
Goodwill and other intangibles 71,456 71,102
Other assets 11,210 9,958
---------------- ----------------
Total assets $ 623,858 $ 673,855
================ ================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 236,781 $ 247,304
---------------- ----------------
Total current liabilities 236,781 247,304
---------------- ----------------
Long-term debt:
Line of credit 46,022 51,947
Convertible notes 184,864 190,433
---------------- ----------------
Total long-term debt 230,886 242,380
---------------- ----------------
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; 54,654 and 55,682 issued and
outstanding in 1999 and 2000, respectively 547 557
Additional paid-in capital 204,283 213,693
Retained earnings (deficit) (30,013) (5,584)
Accumulated other comprehensive loss (18,626) (24,495)
---------------- ----------------
Total stockholders' equity 156,191 184,171
---------------- ----------------
Total liabilities and stockholders' equity $ 623,858 $ 673,855
================ ================
</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
----------------------
1999 2000
--------- ---------
<S> <C> <C>
Operating activities
Net income (loss) $(102,973) $ 24,430
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 10,913 10,841
Amortization of debt discount 5,352 5,568
Cumulative effect of accounting change, net of tax 14,065 --
Income tax benefits from exercise of stock options 1,387 3,030
Restructuring and other unusual charges 85,611 5,468
Minority interest (53) 295
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable 27,577 26,154
Inventories 11,166 (42,096)
Other operating assets (2,374) 6,363
Accounts payable and accrued expenses 10,981 21,326
--------- ---------
Net cash provided by operating activities 61,652 61,379
Investing activities
Capital expenditures (7,827) (9,224)
Purchase acquisitions, net of cash acquired (5,411) (4,604)
Decrease (increase) in funded contract financing receivables 12,351 (1,420)
Decrease (increase) in other assets 552 (592)
--------- ---------
Net cash used by investing activities (335) (15,840)
Financing activities
Net borrowings (payments) on revolving credit facility (66,353) 5,953
Proceeds from exercise of stock options and warrants 3,728 6,363
--------- ---------
Net cash provided (used) by financing activities (62,625) 12,316
Effect of exchange rate changes on cash and cash
equivalents (887) (2,233)
--------- ---------
Net increase (decrease) in cash and cash equivalents (2,195) 55,622
Cash and cash equivalents at beginning of period 49,528 85,261
--------- ---------
Cash and cash equivalents at end of period $ 47,333 $ 140,883
========= =========
</TABLE>
See accompanying notes
5
<PAGE> 6
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 2000
(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 majority-owned or controlled subsidiaries. Significant intercompany accounts
and transactions have been eliminated in consolidation. Certain amounts in the
1999 consolidated financial statements have been reclassified to conform to the
2000 presentation.
The consolidated balance sheet at December 31, 1999 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, 2000
and the unaudited consolidated statement of cash flows for the nine months ended
September 30, 2000 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, 1999.
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 stock options, stock warrants and the Convertible
Notes described in Note 6 to the Consolidated Financial Statements.
6
<PAGE> 7
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
1. Basis of Presentation (continued)
NET INCOME (LOSS) PER SHARE (CONTINUED)
The following is a reconciliation of the numerators and denominators of the
basic and diluted net income (loss) per share computations for the three and
nine months ended September 30, 1999 and 2000 (amounts in thousands, except per
share data):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
1999 2000 1999 2000
----------- ----------- ------------- -------
<S> <C> <C> <C> <C>
Basic:
Net income (loss) $ 2,818 $ 8,678 $ (102,973) $24,430
=========== =========== ============= =======
Weighted average shares outstanding 53,344 55,664 53,233 55,379
=========== =========== ============= =======
Per share amount $ 0.05 $ 0.16 $ (1.93) $ 0.44
=========== =========== ============= =======
Diluted:
Net income (loss) $ 2,818 $ 8,678 $ (102,973) $24,430
=========== =========== ============= =======
Weighted average shares outstanding 53,344 55,664 53,233 55,379
Net effect of dilutive stock options and stock
warrants-based on the treasury stock method using
average market price 102 223 -- 784
----------- ----------- ------------- -------
Total weighted average shares outstanding 53,446 55,887 53,233 56,163
=========== =========== ============= =======
Per share amount $ 0.05 $ 0.16 $ (1.93) $ 0.43
=========== =========== ============= =======
</TABLE>
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) includes
unrealized gains or losses on derivative financial instruments and gains or
losses resulting from currency translations of foreign investments. During the
three months ended September 30, 1999, comprehensive income totaled $.5 million
and during the nine months ended September 30, 1999, comprehensive loss totaled
$111.6 million. During the three and nine months ended September 30, 2000,
comprehensive income totaled $5.9 million and $18.6 million, respectively.
7
<PAGE> 8
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September of 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No.140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (SFAS No. 140)
which replaces FASB Statement No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities (FASB No. 125). SFAS No. 140
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. This statement is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001; for recognition and reclassification
of collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000 and is to be applied
prospectively with certain exceptions. The Company records certain sales of
accounts receivable to financing organizations under FASB No. 125 as discussed
in Note 5 to the Consolidated Financial Statements. The Company believes that
the implementation of SFAS No. 140 will not have a material effect on its
financial statements.
In the third quarter of 2000, the Emerging Issues Task Force of the FASB reached
a consensus on Issue No. 00-10, Accounting for Shipping and Handling Fees and
Costs. The consensus requires, among other provisions, that shipping and
handling costs that are billed to the customer be classified as revenue
beginning in the fourth quarter of 2000, consistent with the implementation of
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101). The Company currently classifies freight costs billed to its
customers as a reduction to cost of revenue and will reclassify these amounts to
revenue in the fourth quarter of 2000. However, the Company believes that this
reclassification and the implementation of SAB 101 will not have a material
effect on its financial statements.
In March of 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion No.
25, Accounting for Stock Issued to Employees. The Interpretation provides
accounting guidance for issues related to the application of APB Opinion No. 25,
including, among other issues, the definition of an employee related to stock
option grants and the consequences of repricing stock options and making
modifications to the terms or vesting of stock options granted. The Company's
application of the provisions of this Interpretation commenced on July 1, 2000
and did not have a material effect on its financial statements.
8
<PAGE> 9
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
2. Restructuring and Other Unusual Charges
During the first quarter of 2000, the Company began the process of consolidating
four Indianapolis, Indiana locations and a location in Bensalem, Pennsylvania
into a single, new facility located near the Indianapolis International Airport
and designed specifically for the Company and its processes. The Company
recorded an unusual charge of $5.8 million ($3.5 million or $0.06 per share net
of related tax benefits) during the nine months ended September 30, 2000,
related to the consolidation for losses on the disposal of assets that will not
be used in the new facility and the estimated impact of vacating the unused
facilities, net of potential subleases. The Company's estimate of the impact of
vacating unused facilities, net of potential subleases is based on information
available at September 30, 2000, and accordingly, is subject to revision as
management continually evaluates its liabilities and alternatives with respect
to unused leased facilities.
Beginning in the second quarter of 1999, the Company implemented a broad
restructuring plan (the Plan) in an effort to improve its position for long-term
success by eliminating or restructuring identified non-performing business
activities and reducing costs. The 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; and cost reduction
initiatives in selected operating subsidiaries and its regional and corporate
operations. As of October of 2000, the Company's execution of the Plan was
substantially completed. As a result of actions taken in accordance with the
Plan, the Company recorded during the second quarter of 1999 restructuring and
other unusual charges of approximately $85.0 million. The aforementioned charges
and related adjustments 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 unusual charges 0.2 65.7
Income taxes - 4.5
------------------ ------------------
$ 0.6 $ 85.6
================== ==================
</TABLE>
Adjustments to these charges subsequent to the initial estimates were not
significant in the aggregate. As a result of the actions discussed above, the
Company had approximately $2.7 million in facility consolidation reserves and no
significant restructuring reserves at September 30, 2000. Assets held for
disposal at September 30, 2000, were not significant.
9
<PAGE> 10
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(Unaudited)
3. Cumulative Effect of Accounting Change
The Company recorded in the first quarter of 1999, a cumulative effect
adjustment of $14.1 million net of applicable taxes ($0.26 per diluted share)
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, upon adoption, required the write-off of the unamortized
portion of certain capitalized costs. These costs were previously capitalized in
accordance with generally accepted accounting principles then in effect.
4. Acquisitions and Divestitures
During the second quarter of 2000, the Company made cash payments of contingent
consideration totaling $4.6 million related to purchase acquisitions completed
prior to 1999. These payments resulted in additional goodwill being recorded in
the second quarter of 2000 that is being amortized over the remaining
amortization periods of the related acquisitions.
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 remaining contingent consideration of up to $20.5 million based
upon the future operating results of the Company's Brazilian operations over the
five years following the acquisition. Goodwill of approximately $4.9 million
resulted from this acquisition. In addition, during 1999, the Company sold
WAVETech Network Services Limited, a subsidiary of WAVETech Limited in the
United Kingdom, and pursuant to its restructuring plan, terminated or disposed
of certain operations in Argentina, China, Poland, Taiwan and the United
Kingdom.
The impact of the 1999 acquisition was not material in relation to the Company's
consolidated results of operations. Consequently, pro forma information is not
presented.
5. Accounts Receivable Transfers
During the nine months ended September 30, 2000, the Company entered into
certain transactions with respect to a portion of its accounts receivables with
financing organizations in certain of its markets in order to reduce the credit
and collection risk associated with those accounts receivable and to reduce the
amount of working capital required to fund such receivables. These transactions
have been treated as sales pursuant to the provisions of FASB Statement No. 125,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities. Net funds received from the sales of accounts receivable during
the nine months ended September 30, 2000 totaled $93.0 million (6% of revenues).
Fees, in the form of discounts, incurred in connection with these sales totaled
$1.6 million and were recorded as losses on the sale of assets which are
included as a component of "Other expenses, net" in the Consolidated Statements
of Operations.
10
<PAGE> 11
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(Unaudited)
6. Long-term Debt
On July 27, 1999, the Company amended and restated its five-year senior secured
revolving line of credit facility (the Facility) with Bank One, Indiana,
National Association, as agent for a group of banks (collectively, the Banks).
The Facility, which subject to various restrictions allows for borrowings of up
to $175 million, 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, 2000, there was approximately $47.1 million outstanding under
the Facility, all of which was denominated in foreign currencies, at interest
rates ranging from 5.8% to 8.2% (a weighted average rate of 6.8%). In addition,
there was an aggregate of $36.0 million in letters of credit issued.
All of the Company's assets located in the United States and between 65% and
100% of the capital stock of certain of the Company's subsidiaries are pledged
to the Banks as collateral for the Facility, and the Company is substantially
prohibited from incurring additional indebtedness. Funding under the Facility is
limited by an asset coverage test, which is measured monthly. As of September
30, 2000, available funding under the Facility was approximately $31.8 million.
In addition to certain net worth and other financial covenants, the Company's
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. Through October 2000 the Company and the Banks
have entered into three amendments to the Facility which modified certain
financial covenants and Facility limitations to reflect the Company's improved
financial performance and to better address its financing objectives.
In December 1999, Brightpoint International Trading (Guangzhou) Co., Ltd. (an
indirect subsidiary of Brightpoint, Inc.) entered into a $4.8 million one-year
secured loan with China Construction Bank Guangzhou Economic Technological
Development District Branch. The loan matures in December 2000, bears interest
of 6.1% and is denominated in China's local currency, the Renminbi. The loan is
supported by a stand-by letter of credit of $5.1 million which was issued under
the Facility. In addition, upon maturity the Company intends to renew this loan
with the lender or replace it with funding from the Facility. The loan prohibits
the borrower from making various changes in its ownership structure.
11
<PAGE> 12
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(Unaudited)
6. Long-term Debt (continued)
On March 11, 1998, the Company completed the issuance of zero-coupon,
subordinated, convertible notes due in the year 2018 (the Convertible Notes)
with an aggregate face value of $380 million ($1,000 per Convertible Note) and a
yield to maturity of 4.00%. The Convertible Notes are subordinated to all
existing and future senior indebtedness of the Company and all other
liabilities, including trade payables, of the Company's subsidiaries. The
Convertible Notes resulted in gross proceeds to the Company of approximately
$172 million (issue price of $452.89 per Convertible Note) 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, 2000, the
Convertible Notes had an accreted value of $190 million.
Each Convertible Note 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 Convertible Note or cash equal to the
market value of such shares. On or after March 11, 2003, the Convertible Notes
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
Convertible Note may be redeemed at the option of the holder on March 11, 2003,
2008 or 2013. The purchase price for each Convertible Note 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 October 30, 2000, the Company announced that its Board of Directors had
approved a plan under which the Company intends to repurchase up to 130,000 of
the Convertible Notes that have an accreted value at September 30, 2000 of
approximately $65 million. The Company and the Banks amended the Facility on
October 27, 2000 to allow the Company to execute such repurchases and to modify
its leverage ratio upon completion of the repurchases. As of November 13, 2000,
the Company has repurchased 85,500 of the Convertible Notes, with an aggregate
accreted value of approximately $43 million. The Company realized a gain on
these repurchases of approximately $15 million which will be recorded as an
extraordinary gain on the extinguishment of debt and presented net of
applicable income taxes in the Consolidated Statements of Operations for the
fourth quarter of 2000.
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: North America;
Asia-Pacific; Europe, Middle East and Africa; and Latin America. These divisions
all generate revenues from sales of wireless handsets, accessory programs and
fees generated from the provision of integrated logistics services. However, the
divisions are operated and managed separately because of the geographic
locations in which they operate.
12
<PAGE> 13
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
7. Operating Segments (continued)
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 incurred restructuring and other
unusual charges, which materially affected certain operating segments. A summary
of the Company's operations by segment with and without the restructuring and
other unusual charges is presented below (in thousands):
<TABLE>
<CAPTION>
1999 2000
------------------------------------------ ------------------------------------------
Revenues Revenues
from Income Income from Income Income (Loss)
External (Loss) from (Loss) from External (Loss) from from
Customers Operations Operations (1) Customers Operations Operations (1)
----------- ----------- -------------- ----------- ----------- --------------
<S> <C> <C> <C> <C> <C> <C>
Three months ended
September 30:
North America $ 191,904 $ 3,788 $ 3,788 $ 191,924 $ 8,795 $ 8,870
Asia-Pacific 110,027 3,946 3,505 153,713 5,883 5,814
Europe, Middle East
and Africa 83,182 582 1,627 104,659 3,114 3,245
Latin America 65,421 84 139 60,834 (1,120) (1,120)
----------- ----------- ----------- ----------- ----------- -----------
$ 450,534 $ 8,400 $ 9,059 $ 511,130 $ 16,672 $ 16,809
=========== =========== =========== =========== =========== ===========
Nine months ended
September 30:
North America $ 513,135 $ 12,472 $ 12,472 $ 508,046 $ 24,110 $ 29,886
Asia-Pacific 306,762 (35,784) (18) 420,562 16,411 14,963
Europe, Middle East
and Africa 221,280 (45,029) (3,148) 307,068 8,095 9,235
Latin America 172,321 (2,771) 717 201,801 (1,568) (1,568)
----------- ----------- ----------- ----------- ----------- -----------
$ 1,213,498 $ (71,112) $ 10,023 $ 1,437,477 $ 47,048 $ 52,516
=========== =========== =========== =========== =========== ===========
</TABLE>
<TABLE>
<CAPTION>
December 31, September 30,
Total Segment Assets: 1999 2000
---------- ----------
<S> <C> <C>
North America (2) $ 334,912 $ 432,681
Asia-Pacific 104,311 75,106
Europe, Middle East and Africa 103,705 67,576
Latin America 80,930 98,492
---------- ----------
$ 623,858 $ 673,855
========== ==========
</TABLE>
(1) Excludes restructuring and other unusual charges - see Note 2.
(2) Includes assets of the Company's corporate operations.
13
<PAGE> 14
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SEPTEMBER 30, 2000
(UNAUDITED)
8. Contingencies
Various lawsuits, claims and proceedings have been or may be asserted against
the Company in the normal course of business. While the ultimate liability
pursuant to these actions cannot currently be determined, the Company believes
the legal proceedings in which it is currently involved will not have a material
adverse effect on its financial position.
The Company and certain of its executive officers, two of whom are also
directors, were named as defendants in four actions filed in June and July 1999,
in the United States District Court for the Southern District of Indiana. These
actions were subsequently consolidated by the court into a single action. The
action asserts claims under Sections 10(b) and 20(a) of the Securities Exchange
Act of 1934, and Rule 10b-5 of the Exchange Act, based on allegations that false
and misleading statements were rendered and/or statements were omitted
concerning the Company's then current and future financial condition and
business prospects. The action involves a purported class of purchasers of the
Company's stock during the period October 2, 1998 through March 10, 1999. The
Company and the individual defendants intend to vigorously defend the action.
The Company and the individual defendants have filed a motion to dismiss the
action and such motion is currently pending before the court. Discovery has not
yet commenced. The outcome of any litigation is uncertain and it is possible
that an unfavorable decision could have a material adverse effect on the
Company's financial position, results of operations or cash flows.
14
<PAGE> 15
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
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 to
this report and the Company's Annual Report on Form 10-K for the year ended
December 31, 1999.
On October 30, 2000, the Company announced that its Board of Directors had
approved a plan under which the Company intends to repurchase up to 130,000 of
the Convertible Notes that have an accreted value at September 30, 2000 of
approximately $65 million. The Company and the Banks amended the Facility on
October 27, 2000 to allow the Company to execute such repurchases and to modify
its leverage ratio upon completion of the repurchases. As of November 13, 2000,
the Company has repurchased 85,500 of the Convertible Notes, with an aggregate
accreted value of approximately $43 million. The Company realized a gain on
these repurchases of approximately $15 million which will be recorded as an
extraordinary gain on the extinguishment of debt and presented net of
applicable income taxes in the Consolidated Statements of Operations for the
fourth quarter of 2000.
Effective in the first quarter of 2000 and applied retroactively to all periods,
the Company has reclassified certain amounts related to its services supporting
prepaid wireless telecommunications. The reclassification, which reduces revenue
and costs of revenue by the same amount, has no impact on gross profit, selling,
general and administrative expenses, operating income, net income or earnings
per share. The amount of this reclassification was $19.2 million and $43.0
million for the three and nine months ended September 30, 1999, respectively. In
addition, beginning in the third quarter of 2000 and applied retroactively to
all periods presented, the Company classifies i) net foreign currency exchange
gains and losses and ii) net gains and losses on the sale of assets in a
separate line item entitled "Other expenses, net" in the Consolidated Statements
of Operations. The individual amounts reclassified were not significant.
During the first quarter of 2000, the Company began the process of consolidating
four Indianapolis, Indiana locations and a location in Bensalem, Pennsylvania
into a single, new facility located near the Indianapolis International Airport
and designed specifically for the Company and its processes. The Company
recorded an unusual charge related to the consolidation for losses on the
disposal of assets that will not be used in the new facility and the estimated
impact of vacating the unused facilities, net of potential subleases. The
aggregate amount of the charge recorded during the nine months ended September
30, 2000, was $5.8 million ($3.5 million after applicable taxes) or $0.06 per
diluted share. The Company's estimate of the impact of vacating unused
facilities, net of potential subleases is based on information available at
September 30, 2000, and accordingly, is subject to revision as management
continually evaluates its liabilities and alternatives with respect to unused
leased facilities.
Beginning in the second quarter of 1999 the Company implemented a broad
restructuring plan (the Plan) in an effort to improve its position for long-term
success by eliminating or restructuring identified non-performing business
activities and reducing costs. The 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; and cost reduction
initiatives in selected operating subsidiaries and its regional and corporate
operations. As of October of 2000, the Company's execution of the Plan was
substantially completed. As a result of actions taken in accordance with the
Plan the Company recorded during the second quarter of 1999, restructuring and
other unusual charges of approximately $85.0 million.
15
<PAGE> 16
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OVERVIEW AND RECENT DEVELOPMENTS (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 unusual charges 0.2 65.7
Income taxes - 4.5
-------------------- --------------------
$ 0.6 $ 85.6
==================== ====================
</TABLE>
Adjustments to these charges subsequent to the initial estimates have not been
significant in the aggregate.
The Company recorded in the first quarter of 1999, a cumulative effect
adjustment of $14.1 million net of applicable taxes ($0.26 per diluted share)
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, upon adoption, required the write-off of the unamortized
portion of certain capitalized costs. These costs were previously capitalized in
accordance with generally accepted accounting principles then in effect.
RESULTS OF OPERATIONS
Due to the significance of the Plan announced by the Company on June 30, 1999,
results of operations have been delineated between results from recurring
operations and results from non-recurring operations. Results of recurring
operations for the three and nine months ended September 30, 1999, exclude
certain operations in Argentina, Poland, Hong Kong, Taiwan, the United Kingdom
and two former joint operations in China (these joint operations were replaced
by new joint operations beginning in the third quarter of 1999) that were
terminated or eliminated pursuant to the Plan. Because the Company's execution
of the Plan has been substantially completed, there are no non-recurring
operations in 2000. Recurring operations also exclude the impacts of the
non-recurring charges related to the facility consolidation in 2000, the
cumulative effect of a change in accounting principle in 1999 and non-recurring
charges related to the Plan in 1999 and 2000, all of which have been discussed
above.
16
<PAGE> 17
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RECURRING OPERATIONS
Revenue
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
-----------------------------------------------------------------------------------
(in thousands) 1999 2000 Change 1999 2000 Change
-----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Revenue $440,376 $511,130 16% $1,101,074 $1,437,477 31%
-----------------------------------------------------------------------------------------------------
</TABLE>
Revenue from recurring operations in the quarter ended September 30, 2000,
increased 16%, compared to revenue generated by recurring operations in the
third quarter of 1999. For the nine months ended September 30, 2000, revenue
from recurring operations increased 31% from the same period in the prior year.
Units handled for the three and nine months ended September 30, 2000, increased
33% and 42%, respectively, from the same periods in the prior year.
Revenue from Recurring Operations by Division (in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
---------------------------------------- ----------------------------------------
1999 2000 1999 2000
---------------------------------------- ----------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
North America $ 191,904 43% $ 191,924 38% $ 513,135 47% $ 508,046 35%
Asia-Pacific 104,409 24% 153,713 30% 220,692 20% 420,562 29%
Europe, Middle East
and Africa 78,642 18% 104,659 20% 194,926 18% 307,068 22%
Latin America 65,421 15% 60,834 12% 172,321 15% 201,801 14%
---------------------------------------- ----------------------------------------
Total $ 440,376 100% $ 511,130 100% $1,101,074 100% $1,437,477 100%
======================================== ========================================
</TABLE>
Units handled in the North America division grew by 27%, when comparing the
third quarter of 2000 to the same period in 1999, while revenue in this division
was approximately the same as the third quarter of 1999. These changes resulted
primarily from the continued execution of the Company's strategy of focusing on
integrated logistics services, which generated lower revenue dollars per
handset, but contributed higher gross and operating margins. In this division,
61% of the units handled were processed as integrated logistics services units,
an increase from units attributable to integrated logistics services of 54% in
the third quarter of 1999. Additionally, revenue from accessory programs
decreased due primarily to a reduction in the number of programs performed for
network operator customers which have not yet been fully replaced by new
programs.
Units handled grew by 75% in the Asia-Pacific division, compared to recurring
operations for the third quarter of 1999, demonstrating the successful
implementation of the Plan. In October 1999, the Company announced the formation
of new joint operations in China. The joint operations have developed new
supplier and customer relationships, resulting in an increase in unit volume. In
addition, unit volumes in Australia and the Philippines have shown growth
compared to the prior year third quarter.
17
<PAGE> 18
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RECURRING OPERATIONS (CONTINUED)
Growth in units handled in the Europe, Middle East and Africa division resulted
from demand for the Company's products and services in those markets. Units
handled grew by 65% and 72%, compared to recurring operations for the third
quarter and nine months ended September 30, 1999, respectively.
Growth in units handled in the Latin America division reflected the general
oversupply of wireless handsets in those markets experienced in the second and
third quarters of 2000. Units handled in the Latin America division grew by 14%,
compared to recurring operations for both the third quarter and nine months
ended September 30, 1999, respectively.
Revenue from Recurring Operations by Service Line (in thousands):
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
------------------------------------------- ------------------------------------------------
1999 2000 1999 2000
------------------------------------------- ------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Sales of wireless handsets $ 342,897 78% $ 414,465 81% $ 844,299 77% $ 1,132,564 79%
Accessory programs 66,068 15% 53,209 10% 170,544 15% 164,475 11%
Integrated logistics services 31,411 7% 43,456 9% 86,231 8% 140,438 10%
------------------------------------------- ------------------------------------------------
$ 440,376 100% $ 511,130 100% $ 1,101,074 100% $ 1,437,477 100%
=========================================== ================================================
</TABLE>
Revenue from recurring operations for the three and nine months ended September
30, 2000, as compared to the same periods in 1999 increased 16% and 31% due
primarily to increases of 21% and 34%, respectively, in revenue from wireless
handset sales for those same periods. Revenue from integrated logistics services
for the three and nine months ended September 30, 2000, as compared to the same
periods in 1999 increased 38% and 63%, respectively, resulting from the
continued execution of the Company's strategy of focusing on this higher-margin
line of business. Revenue generated from accessory programs decreased 19% and 4%
in the third quarter and nine months ended September 30, 2000, respectively,
when compared to the same periods for 1999 primarily due to a reduction in the
number of programs performed for network operator customers which have not yet
been fully replaced by new programs.
Gross Profit
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
------------------------------------------ -----------------------------------------
(in thousands) 1999 2000 Change 1999 2000 Change
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Gross profit $ 34,437 $ 40,501 18% $ 90,197 $ 123,829 37%
Gross margin 7.8% 7.9% 8.2% 8.6%
------------------------------------------------------------------------------------------------------------
</TABLE>
Gross profit from recurring operations for the three and nine months ended
September 30, 2000, increased 18% and 37%, respectively, over the same periods
in 1999 resulting in gross margins of 7.9% and 8.6% for the three and nine
months ended September 30, 2000, as compared to gross margins of 7.8% and 8.2%
for the comparable prior periods. Gross margins increased due to changes in the
mix of revenue by service line coupled with improved margins realized on
integrated logistics services, which were created through
18
<PAGE> 19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RECURRING OPERATIONS (CONTINUED)
the Company's leveraging of fixed costs related to providing those services.
This leverage was partially offset by lower margins on the sales of handsets due
to the oversupply of product in various markets, especially in the Latin America
division. This oversupply in various markets was the primary reason for the
decline in gross margins from 9.2% in the second quarter of 2000.
Selling, General and Administrative Expenses
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
---------------------------------------------------------------------------------------
(in thousands) 1999 2000 Change 1999 2000 Change
----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Selling, general and
administrative expenses $ 25,386 $ 23,692 (7%) $ 69,984 $ 71,313 2%
As a percent of revenue 5.8% 4.6% 6.4% 5.0%
----------------------------------------------------------------------------------------------------------------------
</TABLE>
Selling, general and administrative expenses incurred in recurring operations
during the third quarter of 2000 were $23.7 million (4.6% of revenue), a
decrease from expenses of $25.4 million (5.8% of revenue) in the third quarter
of 1999. Selling, general and administrative expenses for the nine months ended
September 30, 2000 were 5.0% of revenue, a decrease from 6.4% of revenue from
recurring operations for the same period in the prior year. These improvements
were due to the execution of cost management programs.
Income from Recurring Operations
<TABLE>
<CAPTION>
Three Months Ended September 30 Nine Months Ended September 30
-----------------------------------------------------------------------------------------
(in thousands) 1999 2000 Change 1999 2000 Change
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Income from operations $ 9,051 $ 16,809 86% $ 20,213 $ 52,516 160%
As a percent of revenue 2.1% 3.3% 1.8% 3.7%
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The increases in income from operations and operating margins (income from
operations as a percent of revenue) resulted primarily from the growth in
revenues, the increase in gross margins and the decrease in selling, general and
administrative expenses as a percent of revenue.
Net Income from Recurring Operations
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30 September 30
----------------------------------------------------------------------------------
(in thousands) 1999 2000 Change 1999 2000 Change
---------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net income $ 3,619 $ 8,785 143% $ 6,483 $ 27,588 326%
Net income per share (diluted) $ 0.07 $ 0.16 129% $ 0.12 $ 0.49 308%
Weighted average shares outstanding
(diluted) 53,446 55,887 53,681 56,163
---------------------------------------------------------------------------------------------------------------------------
</TABLE>
The increase in net income from recurring operations for the three and nine
months ended September 30, 2000, as compared to the same periods in 1999,
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)
NON-RECURRING OPERATIONS
Non-recurring operations in 1999 included certain operations in Argentina,
Poland, Taiwan and the United Kingdom and two joint operations in China, all of
which have been terminated or eliminated. In 2000, no non-recurring operations
existed as the Plan had been substantially completed. For the third quarter of
1999, non-recurring operations generated revenue of $10.2 million, no operating
income and a net loss of $0.1 million. For the nine months ended September 30,
1999, non-recurring operations generated revenue of $112.4 million, operating
and net losses of $10.3 million and $9.8 million, respectively, and a net loss
per diluted share of $0.18.
Latin America Outlook
The Company's Latin America division has continued to underperform when compared
to the Company's other divisions, caused primarily by the operating results
experienced in certain of the Company's Latin America operations. Based on the
current environment and the relatively small size of the Company's operations in
those markets, the Company currently expects the negative impact of the
Company's operations in those markets to limit profitability in its Latin
America division for at least the fourth quarter of 2000.
LIQUIDITY AND CAPITAL RESOURCES
(in thousands) December 31, 1999 September 30, 2000
------------------------------------------------------------------------------
Cash and cash equivalents $ 85,261 $ 140,883
Working capital $ 268,138 $ 310,985
Current ratio 2.13 : 1 2.26 : 1
------------------------------------------------------------------------------
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 increase in working capital of $42.8 million during the
nine months ended September 30, 2000, was primarily the result of an increase in
inventories and cash and cash equivalents partially offset by a decrease in
accounts receivable and an increase in accounts payable and accrued expenses.
The Company believes that cash flow from operations, vendor financing and
available borrowing capacity under its revolving line of credit facility will be
sufficient to continue funding its short-term capital requirements, however,
significant expansion of operations in the future may require the Company to
raise additional equity and/or debt capital.
Net cash provided by operating activities was $61.4 million for the nine months
ended September 30, 2000, as compared to $61.6 million in the comparable prior
period. The slight decrease in cash provided by operating activities was
primarily the result of an increase in inventories which was offset by higher
earnings for the period.
As of September 30, 2000, days sales outstanding in accounts receivable was
approximately 33 days, compared to days sales outstanding of approximately 40
days at September 30, 1999. This reduction is attributable to the successful
acceleration of the Company's accounts receivable collection cycle, as well as
sales or financing transactions, in certain markets, of accounts receivable with
financing organizations (see Note 5 to the Consolidated Financial Statements).
These transactions have been treated as sales pursuant to the provisions of
Statement of Financial Accounting Standards No. 125, Accounting for Transfers
and
20
<PAGE> 21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Servicing of Financial Assets and Extinguishments of Liabilities. Net funds
received from the sale of accounts receivable during the nine months ended
September 30, 2000 totaled $93.0 million (6% of revenue). During the third
quarter of 2000, annualized inventory turns were 10 times, compared to 13 times
during the third quarter of 1999 and inventory balances were approximately $26
million lower than inventories at June 30, 2000. Average days costs in accounts
payable were 38 days for the third quarter of 2000, compared to 33 days for the
third quarter of 1999. These changes combined to create a decrease in cash
conversion cycle days to 32 days in the third quarter of 2000, from 35 days in
the same period of 1999. Cash conversion cycle days also decreased from 35 days
in the second quarter of 2000 due primarily to lower inventory levels in the
third quarter.
Net cash used by investing activities for the nine months ended September 30,
2000, was $15.8 million as compared to $0.3 million in the comparable prior
period. The change between periods is primarily comprised of a reduction in cash
provided by the Company's contract financing activities and a slight increase in
capital expenditures. Net cash provided by financing activities for the nine
months ended September 30, 2000, was $12.3 million compared to cash used by
financing activities of $62.6 million for the comparable prior period. This
change was primarily the result of payments on the Company's revolving credit
facility made in 1999.
The Company's long-term debt at September 30, 2000, includes the Company's
zero-coupon, subordinated, convertible notes (the Convertible Notes) which have
an aggregate principal amount at maturity of $380.0 million ($1,000 face value
per Convertible Note). The Convertible Notes 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 Convertible Note. The accreted value of the
Convertible Notes was approximately $190 million at September 30, 2000. The
remainder of the Company's long-term debt is comprised of borrowings or
permitted indebtedness under its senior secured revolving line of credit
facility (the Facility) which has been periodically modified. The Facility
provides the Company, based upon a borrowing base calculation, with a maximum
borrowing capacity of up to $175 million. Interest rates on U.S. Dollar
borrowings under the Facility, excluding fees, range from 140 basis points to
250 basis points above LIBOR, depending on certain leverage ratios. On October
30, 2000, the Company announced that its Board of Directors had approved a plan
under which the Company intends to repurchase up to 130,000 of the Convertible
Notes that have an accreted value at September 30, 2000 of approximately $65
million. The Company and the Banks amended the Facility on October 27, 2000 to
allow the Company to execute such repurchases and to modify its leverage ratio
upon completion of the repurchases. As of November 13, 2000, the Company has
repurchased 85,500 of the Convertible Notes, with an aggregate accreted value of
approximately $43 million. The Company realized a gain on these repurchases of
approximately $15 million which will be recorded as an extraordinary gain on the
extinguishment of debt and presented net of applicable income taxes in the
Consolidated Statements of Operations for the fourth quarter of 2000. See Note 6
to the Consolidated Financial Statements.
All of the Company's assets located in the United States and between 65% and
100% of the capital stock of certain of the Company's subsidiaries are pledged
to the Banks as collateral for the Facility, and the Company is substantially
prohibited from incurring additional indebtedness, either of which terms could
limit the Company's ability to implement its expansion plans. The Company is
also subject to certain covenants as more fully described in Note 6 to the
Consolidated Financial Statements.
21
<PAGE> 22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September of 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No.140, Accounting for Transfers and
Servicing of Financial Assets and Extinguishments of Liabilities (SFAS No. 140)
which replaces FASB Statement No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities (FASB No. 125). SFAS No. 140
provides accounting and reporting standards for transfers and servicing of
financial assets and extinguishments of liabilities. This statement is effective
for transfers and servicing of financial assets and extinguishments of
liabilities occurring after March 31, 2001; for recognition and reclassification
of collateral and for disclosures relating to securitization transactions and
collateral for fiscal years ending after December 15, 2000 and is to be applied
prospectively with certain exceptions. The Company records certain sales of
accounts receivable to financing organizations under FASB No. 125 as discussed
in Note 5 to the Consolidated Financial Statements. The Company believes that
the implementation of SFAS No. 140 will not have a material effect on its
financial statements.
In the third quarter of 2000, the Emerging Issues Task Force of the FASB reached
a consensus on Issue No. 00-10, Accounting for Shipping and Handling Fees and
Costs. The consensus requires, among other provisions, that shipping and
handling costs that are billed to the customer be classified as revenue
beginning in the fourth quarter of 2000, consistent with the implementation of
Staff Accounting Bulletin No. 101, Revenue Recognition in Financial Statements
(SAB 101). The Company currently classifies freight costs billed to its
customers as a reduction to cost of revenue and will reclassify these amounts to
revenue in the fourth quarter of 2000. However, the Company believes that this
reclassification and the implementation of SAB 101 will not have a material
effect on its financial statements.
In March of 2000, the FASB issued Interpretation No. 44, Accounting for Certain
Transactions Involving Stock Compensation, an interpretation of APB Opinion No.
25, Accounting for Stock Issued to Employees. The Interpretation provides
accounting guidance for issues related to the application of APB Opinion No. 25,
including, among other issues, the definition of an employee related to stock
option grants and the consequences of repricing stock options and making
modifications to the terms or vesting of stock options granted. The Company's
application of the provisions of this Interpretation commenced on July 1, 2000
and did not have a material effect on its financial statements.
22
<PAGE> 23
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 has utilized 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 lines of credit. A 10% increase in short-term borrowing rates
during the quarter ended September 30, 2000, would have resulted in only 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, 2000.
A substantial portion of the Company's revenue and expenses are transacted in
markets outside of the United States 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 have resulted in a decrease in
results of operations of approximately $2.8 million and $4.0 million for the
three and nine months ended September 30, 2000, respectively. The same adverse
change in exchange rates would have resulted in a $3.6 million increase in the
fair value of the Company's cash flow and net investment hedges open at
September 30, 2000. 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 volumes
or local currency prices of its products sold or services provided. Actual
results may differ materially from those discussed above.
23
<PAGE> 24
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is from time to time, involved in certain legal proceedings in the
ordinary course of conducting its business. While the ultimate liability
pursuant to these actions cannot currently be determined, the Company believes
the legal proceedings in which it is currently involved will not have a material
adverse effect on its financial position.
The Company and certain of its executive officers, two of whom are also
directors, were named as defendants in four actions filed in June and July 1999,
in the United States District Court for the Southern District of Indiana. These
actions were subsequently consolidated by the Court into a single action. The
action asserts claims under Sections 10 (b) and 20 (a) of the Securities
Exchange Act of 1934, and Rule 10b-5 of the Exchange Act, based on allegations
that false and misleading statements were rendered and/or statements were
omitted concerning the Company's then current and future financial condition and
business prospects. The action involves a purported class of purchasers of the
Company's stock during the period October 2, 1998 through March 10, 1999. The
Company and the individual defendants intend to vigorously defend these actions.
The Company and the individual defendants have filed a motion to dismiss the
action and such motion is currently pending before the court. Discovery has not
yet commenced. The outcome of any litigation is uncertain and it is possible
that an unfavorable decision could have a material adverse effect on the
Company's financial position, results of operations or cash flows.
Item 6. Exhibits
(a) Exhibits
The list of exhibits is hereby incorporated by reference to the
Exhibit Index on page 26 of this report.
(b) Reports on Form 8-K
None
24
<PAGE> 25
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Brightpoint, Inc.
(Registrant)
Date November 13, 2000 /s/ Phillip A. Bounsall
------------------------ ------------------------------
Phillip A. Bounsall
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
25
<PAGE> 26
Exhibit Index
-------------
Exhibit No. Description
----------- -----------
10.1 Amendment No. 3 to Second Amended and Restated
Multicurrency Credit Agreement made as of October 27, 2000
27 Financial Data Schedule for the Nine Months Ended
September 30, 2000
99 Cautionary Statements
26
