<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO _________
0-23494
(COMMISSION FILE NO.)
BRIGHTPOINT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 35-1778566
(STATE OR OTHER JURIS- (I.R.S. EMPLOYER
DICTION OF INCORPORATION) IDENTIFICATION NO.)
6402 CORPORATE DRIVE, INDIANAPOLIS, INDIANA 46278
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (317) 297-6100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of March 27, 2000 was approximately $708,000,000. As of March
27, 2000, there were 54,352,771 shares of the registrant's Common Stock
outstanding.
Documents Incorporated by Reference:
Portions of the following documents are incorporated by reference into the parts
of this Form 10-K as indicated herein:
Proxy Statement for Annual Meeting of Stockholders to
be held on May 18, 2000 Part III
1999 Annual Report to Stockholders Parts I, II & IV
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PART I
ITEM 1. BUSINESS.
GENERAL
Brightpoint, Inc. is a leading provider of outsourced services in the
global wireless telecommunications and data industry. Our innovative services
include contract manufacturing, customized packaging, prepaid and e-commerce
solutions, inventory management, distribution and other outsourced services. Our
customers include leading network operators, e-tailers, retailers and wireless
equipment manufacturers. We handle products manufactured by such technology
companies as Nokia, Ericsson, Motorola, Samsung, Panasonic, Kyocera, Alcatel,
Siemens, Sony, Audiovox, NEC and Research In Motion. We also provide integrated
services to these manufacturers and some of the world's leading wireless network
operators along with their associated service providers, resellers, agents and
retailers. Our distribution services include purchasing, marketing, selling,
warehousing, picking, packing, shipping and delivery of wireless handsets and
accessories. Our integrated logistics services include support for prepaid
programs, inventory management, procurement, product fulfillment, programming,
contract manufacturing, telemarketing, private labeling, kitting and customized
packaging, product warranty, repair and refurbishment and end-user support
services. We are one of the largest distributors of wireless handsets and
accessories in the world, with operations centers and/or sales offices in
various countries including Australia, Brazil, China (including Hong Kong),
France, Germany, Ireland, Mexico, the Netherlands, New Zealand, the Philippines,
South Africa, Sweden, the United Arab Emirates, the United States, and
Venezuela.
We were incorporated under the laws of the State of Indiana in August
1989 under the name Wholesale Cellular USA, Inc. and reincorporated under the
laws of the State of Delaware in March 1994. In September 1995, we changed our
name to Brightpoint, Inc.
RECENT DEVELOPMENTS AND FINANCIAL OVERVIEW
Effective in the first quarter of 2000, and applied retroactively to
all periods, we have reclassified certain amounts related to our services
supporting prepaid wireless programs. 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. All amounts in this Annual Report on Form 10-K reflect the
retroactive application of the reclassification.
The table below summarizes the amount of the reduction in revenue and cost of
revenue due to the reclassification.
<TABLE>
<CAPTION>
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
-----------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
1997 $1,432 $ 4,057 $10,675 $13,369 $29,533
1998 7,989 16,761 22,163 8,433 55,346
1999 8,787 14,957 19,224 20,076 63,044
</TABLE>
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Because our revenues and results of operations for the first quarter of
1999 were significantly below that which had been anticipated, we performed a
detailed evaluation of each of our operations and the market factors affecting
those operations. Consequently, beginning in the second quarter of 1999 we
implemented a broad restructuring plan in an effort to improve our position for
long-term success by eliminating or restructuring identified non-performing
business activities and reducing costs. The restructuring plan included the
disposal of operations in the United Kingdom, Poland, Taiwan and Argentina;
termination of our investments in two joint operations in China; disposal of our
67% interest in a Hong Kong-based accessories company; and initiation of cost
reduction programs in certain areas of our business. Our execution of the
restructuring plan is substantially complete. During 1999 we recorded
non-recurring restructuring and other unusual charges of approximately $84.9
million resulting from actions taken in accordance with the restructuring plan.
The charges included the write-off of goodwill and investments related to the
eliminated or terminated operations, as well as losses on the disposals of fixed
and other assets and cash expenses of approximately $6.1 million related to
lease and employee terminations and other exit costs. These amounts are recorded
in the "Trading, restructuring and other unusual charges" line in our
Consolidated Statements of Operations. The non-recurring charges also include
the write-down of inventory (included in the "Cost of revenue" line) and
accounts receivable (included in the "Selling, general and administrative
expenses" line) to their estimated net realizable value.
Because of the significance of the restructuring plan discussed
previously, the following discussion has been delineated between results from
recurring operations and results from non-recurring operations. Non-recurring
operations are those operations that have been eliminated or terminated or will
be eliminated pursuant to the restructuring plan. Recurring operations include
all operations except those presented as non-recurring. Recurring operations
also exclude impacts of non-recurring charges recorded in 1998 and 1999, the
cumulative effect of a change in accounting principle recorded in the first
quarter of 1999 and a net investment gain recognized in the first quarter of
1998. For the year ended December 31, 1999, our revenues and net income from
recurring operations were $1.6 billion and $16.8 million, respectively,
representing an increase in revenues from recurring operations of 29% and a
decrease in net income from recurring operations of 53% when compared to 1998.
In the fourth quarter of 1999 we generated net income from recurring operations
of $10.3 million ($0.18 per diluted share) on revenue of $518 million, compared
to net income from recurring operations of $11.5 million ($0.21 per diluted
share) on revenue of $438 million for the comparable 1998 period. Our growth in
revenues for both the quarter and year ended December 31, 1999 was driven
primarily by the increase in worldwide demand for wireless handsets and
accessories. Our operating margins (income from operations as a percent of
revenue) from recurring operations decreased in both the fourth quarter and on
an annual basis during 1999 due to an increase in selling, general and
administrative expenses as a percent of revenue and, for the year, due to a
decrease in gross margins. Selling, general and administrative expenses
increased in 1999 as a result of increased levels of business activity and
increased costs of serving current and anticipated integrated logistics services
customers. Gross margins for the year decreased due to increased cost of
revenues, generally arising from the addition of infrastructure to serve new
logistics customers.
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WIRELESS TELECOMMUNICATIONS AND DATA INDUSTRY
The wireless telecommunications and data industry provides voice and
data communications utilizing various wireless terminals including traditional
cellular telephones, multi-band and digital handsets, web-enabled handsets,
interactive pagers, personal digital assistants, and other mobile computing
devices. Wireless telecommunications and data services are available to
consumers and businesses through numerous network operators who utilize analog
and digital technological standards such as AMPS, GSM, CDMA, TDMA, iDEN(R) as
well as other new developing technologies to provide voice and data
communication over regional, national and worldwide networks. Developments
within the wireless telecommunications and data industry, including industry
consolidation, expansion of e-commerce and the convergence of the
telecommunications, data and media domains, allow wireless subscribers to talk,
send text messages, browse the Internet and effect certain e-commerce
transactions using their wireless devices. Among other factors, economic
development, advances in systems technology and equipment, the proliferation of
manufacturers and network operators, the availability of prepaid wireless
telecommunications and the increasing affordability of wireless services have
increased consumer acceptance and driven increases in worldwide demand for
wireless telecommunications and data equipment and services.
In recent years, the markets for wireless telecommunications and data
equipment and services have expanded significantly. From 1998 to 1999, the
number of worldwide wireless subscribers increased by 113 million, or 36%, to
approximately 428 million. Nonetheless, at the end of 1999, wireless penetration
was estimated at only 30% of the population within the United States and was
still, on average, less than 8% of the population globally. We believe this
reflects worldwide opportunities for continued growth within the wireless
telecommunications and data industry. The number of worldwide subscribers is
expected to grow to approximately 550 million subscribers by the end of 2000,
and the percentage of handset shipments related to replacement units has
continued to grow. Additionally, the use of wireless data products including
interactive pagers, personal digital assistants and other mobile computing
devices has seen recent growth and wider consumer acceptance. The information
contained in this paragraph was obtained from a leading independent industry
research group.
Although it cannot be assured that we will grow at rates comparable to
those experienced by the industry (see Business Risk Factors discussed below),
we believe we are well positioned to take advantage of the following major
trends taking place within the wireless telecommunications and data industry:
Industry Consolidation. Merger and acquisition activities within the
network operator community have increased significantly in recent years. In
general, this consolidation is being driven by improved economies of scale, the
opportunity to expand national or global service areas and efforts to increase
revenue through additional service offerings. We believe that this trend will
continue in the near future and may lead network operators to focus more tightly
on their core business of providing wireless telecommunications and data
services, which could in-turn increase the demand for outsourced integrated
logistics services. However, these same trends will also increase the demands
placed on the providers of integrated logistics services, as they will need to
meet an increasing variety of customer requirements and provide services over
larger geographic regions. Additionally, this consolidation reduces the number
of potential contracts available to providers of integrated logistics services
and could reduce the degree to which members of the wireless
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telecommunications and data industry rely on outsourced services such as the
services that we provide.
Expanded Use of E-commerce. The ability to conduct business over the
Internet has created opportunities and challenges in many industries including
the wireless telecommunications and data industry. We believe that the continued
growth of e-commerce provides the opportunity for expanded service offerings as
well as the demand for new and innovative Internet capabilities. We also expect
both customers and suppliers will require enhanced management of these
capabilities to remain competitive. New Internet retailers (e-tailers) have
entered the marketplace and existing e-tailers have broadened their product
offerings to include wireless telecommunications and data products. The expanded
use of e-commerce is expected to provide faster and more varied methods of
delivering wireless telecommunications and data products to the marketplace. We
believe the expanded use of e-commerce has also increased demand for wireless
telecommunications and data equipment with Internet capabilities and
functionality.
New Technologies, Enhancements and Applications. First generation
cellular networks primarily used analog technologies. However, these analog
technologies presented a number of challenges for network operators and users,
including ease of fraud and cloning; capacity utilization issues; limited
battery life; and difficulty in providing enhanced features. To alleviate these
concerns, new wireless networks have increasingly been built around digital
technologies, which provide increased network capacity, more functionality,
better voice quality and greater security/privacy than analog technologies. The
conversion of subscribers from analog to digital technologies, which continues
to occur primarily in North and Latin America as well as in Japan, Korea and
China, has had a positive impact on the growth of handset demand. In addition,
the emergence of new technologies is fueling the convergence of the
telecommunications, data and media domains resulting in significant changes and
opportunities in the wireless telecommunications and data industry. As a result
of this convergence, we believe wireless subscribers will increasingly use their
wireless devices to send and receive e-mail, browse the Internet, effect
m-commerce ("mobile commerce") transactions and access other information
available on the Internet. This convergence is being powered by the development
of wireless web capabilities and new standards such as Wireless Application
Protocol (WAP), Epoc, Bluetooth and 3G (the third generation of wireless systems
currently being developed). There are also other new wireless communications
technologies and enhancements being introduced into the wireless communications
market. These include wireless local loop and satellite-based communications as
well as handset feature and network enhancements such as increased talk and
standby times, smaller and lighter form factors and multiple-band reception. All
of these developments are expected to contribute to future subscriber growth.
Proliferation of Manufacturers. With the opportunities presented by a
rapidly expanding market for wireless telecommunications and data equipment as
well as new technologies, enhancements and applications and the penetration of
the mass consumer market, many new manufacturers are producing wireless handsets
and accessories, including certain manufacturers who have historically been
successful in providing consumer electronics to the mass consumer market. In
addition, it appears that manufacturers other than those that have historically
produced wireless handsets and accessories are also entering the market to
produce wireless data devices. This greater number of manufacturers is expected
to heighten competition and may provide consumers with lower handset prices,
broader selection, more feature-rich products and new market channels, resulting
in higher product turnover by end users. Although
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the entry of new manufacturers appears to be continuing, we believe that the
three largest manufacturers of wireless handsets, Nokia, Motorola and Ericsson
comprise approximately 54% of the total market for wireless telecommunications
equipment.
Increasing Penetration of Markets Worldwide and New Network Operators.
We expect that continuing demand for wireless services will drive increased
penetration of markets worldwide and the continued entry of new network
operators in certain markets. Economic growth, increased service availability or
the lower cost of service compared to conventional wireline telephony systems
has historically driven market penetration. In addition, certain markets
characterized by higher market penetration, have also grown, primarily as a
result of increasing deregulation, the availability of additional spectrum
frequencies, increased competition and the emergence of new wireless
technologies and applications. The emergence of these, and other, new wireless
communications technologies and services is expected to increase both the number
of wireless network operators in each market and the services provided,
including seamless roaming, increased service coverage, improved signal quality
and greater data transmission capacity. This increase in the number of network
operators, together with the increased number of resellers of wireless
communication services in certain markets, is expected to intensify competition
for new and existing subscribers, thereby reducing prices to subscribers and
driving growth in the subscriber base and the market for wireless communications
equipment.
GROWTH STRATEGY
As (i) the variety of handset models expands, (ii) telecommunications,
data, Internet and other technologies converge and evolve and (iii) distribution
migrates from the agent/dealer network to mass retailers, network operators are
switching from in-house distribution to independent distribution services in
order to reduce overall costs and to meet the increasing demands of the various
channels to market. In order to maintain their resources for marketing, sales
and customer retention, new network operators are also increasingly outsourcing
their handset distribution, fulfillment and inventory management functions (as
opposed to building distribution infrastructure). At the same time, handset and
other wireless device manufacturers are outsourcing some of their channel
management functions and utilizing integrated logistics services as a means of
simplifying and reducing the cost of their worldwide distribution systems.
Finally, vendors and network operators are targeting the growing consumer
segment through mass retail channels (including the Internet), requiring greater
levels of fulfillment services in order to address the logistical challenges of
supporting mass and Internet retailers and consumer electronics retail stores.
Our two primary strategies for building on our position as a global leader in
providing distribution and integrated logistics services to the wireless
telecommunications and data industry are as follows:
Value Chain Migration. Our Value Chain Migration strategy calls for a
hastening of the innovation and development of services offered that provide
superior solutions for the mission-critical business requirements of our
customers. We intend to continue to quickly deploy these service capabilities
throughout the organization, offering them in all appropriate regions, targeting
our marketing efforts on network operators and equipment manufacturers. We
intend to deliver our services through the market channels that best serve the
needs of our customers, including appropriate e-commerce venues. Our focus is on
developing a steadily increasing perception of value based on the expectation
that our outsource solutions will demonstrate competitively superior results.
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Supply Chain Development. Our Supply Chain Development strategy focuses
on expanding and enhancing key existing equipment manufacturer relationships. We
will attempt to seek to grow product lines, brands and technologies handled over
increasingly larger territories, extending our reach to allow us to provide
services to wireless equipment manufacturers in the markets that are critical to
their success. If appropriate, we intend to develop relationships with
additional key equipment manufacturers on the basis of customer demand, specific
technology competence and/or regional opportunity.
As evidenced by our implementation of a broad restructuring plan in
1999, we intend to pursue business opportunities in areas or markets where we
believe that these strategies can be successfully implemented. We also intend
to evaluate our operations as markets evolve to determine the continued synergy
of our business activities and relationships with our core strategies.
SERVICES
We have become one of the leading suppliers of distribution and
integrated logistics services that move wireless devices and accessories through
market channels, primarily because of our understanding of the needs within each
distribution channel and our development of the knowledge and resources
necessary to create successful solutions.
Our services are intended to provide value to wireless handset
manufacturers and network operators. Through the authorized distribution of
wireless communications products (handsets and accessories), we intend to help
manufacturers achieve their key business objectives of unit sales volume, market
share and points of sale. We target our efforts at the distribution channels
identified by the manufacturers. Our integrated logistics services are intended
to provide outsourcing solutions for the network operators' mission-critical
business requirements. These integrated logistics services are designed to
support network operators in their efforts to add new subscribers and increase
system usage.
Distribution Services. Our distribution services include the
purchasing, marketing, selling, warehousing, picking, packing, shipping and
delivery of a broad selection of wireless communications products from leading
manufacturers. We continually review and evaluate wireless communications
products in determining the mix of products purchased for resale and seek to
acquire distribution rights for products which we believe have the potential for
significant market penetration.
The products distributed by us include a variety of handsets designed
to work on substantially all operating platforms (including analog platforms,
such as AMPS, N-AMPS, TACS and NMT, and digital platforms, such as CDMA, GSM,
iDEN(R) and TDMA) and feature prominent brand names such as Nokia, Ericsson,
Motorola, Samsung, Panasonic, Kyocera, Alcatel, Siemens, Sony, Audiovox, NEC and
Research In Motion. In 1998 and 1999, approximately 83% and 76%, respectively,
of our revenue from recurring operations was derived from handset sales.
We also distribute handset accessories, such as batteries, chargers,
cases, "hands-free" kits and others. Among other things, we purchase and resell
original equipment manufacturer ("OEM") and aftermarket accessories, either
prepackaged or in bulk. Our accessory packaging services provide network
operators and retail chains with custom packaged and/or branded accessories
based on the specific requirements of that customer. Additionally, we provide
end-user accessory fulfillment and distribution pursuant to contractual
arrangements with certain network operators whereby the network operators'
subscribers can order their accessories through a
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customer service call center that we manage on behalf of the operator.
Accessories typically carry higher margins than handsets. In 1998 and 1999,
sales of accessories accounted for approximately 10% and 16%, respectively, of
our revenue from recurring operations.
Integrated Logistics Services. Our integrated logistics services
include, among others, support for prepaid programs, inventory management,
procurement, product fulfillment, programming, contract manufacturing,
telemarketing, private labeling, kitting and customized packaging, product
warranty, repair and refurbishment and end-user support services. In many of our
markets we have contracts with network operators pursuant to which we provide
our integrated logistics services. We also procure wireless handsets and
accessories for our customers using our own sources or the customers' specified
vendors and perform packaging and kitting functions for them, whereby we receive
orders, either directly from customers or from customers' end-users, via
electronic data interchange, and then make shelf ready kits using customers'
customized packaging in satisfaction of the orders.
During 1999, integrated logistics services accounted for approximately
8% of our total revenue from recurring operations as compared to approximately
7% of total revenue from recurring operations in 1998. Because the fees for such
services have higher margins than those associated with handset and accessory
sales, they represent a higher than proportionate percentage of our operating
profits.
CUSTOMERS
We provide distribution and integrated logistics services to a customer
base of more than 20,000 network operators, manufacturers, agents, resellers,
dealers and retailers. For 1998 and 1999, aggregate revenues generated from our
five largest customers accounted for approximately 14% and 11%, respectively,
and no single customer accounted for more than 10% of our total revenue.
We generally sell our products pursuant to customer purchase orders and
subject to our terms and conditions. We generally ship products on the same day
orders are received from the customer. Unless otherwise requested, substantially
all of our products are delivered by common carriers. Because orders are filled
shortly after receipt, backlog is generally not material to our business. Our
integrated logistics services are typically provided pursuant to renewable
agreements with terms between one and three years which generally may be
terminated by either party subject to a short notice period.
PURCHASING AND SUPPLIERS
We have established key relationships with leading manufacturers of
wireless telecommunications and data equipment. We generally negotiate directly
with manufacturers and suppliers in order to obtain wireless handset and
accessory inventories of popular brand name products on favorable pricing terms.
In 1999, we made purchases from more than 60 handset and accessory suppliers.
Inventory purchases are based on quality, price, service, customer demand,
product availability and brand name recognition. Certain of our suppliers
provide favorable purchasing terms to us, including price protection,
cooperative advertising and marketing allowances. Product manufacturers
typically provide limited warranties which we extend to our customers.
Our two largest sources of wireless handsets and accessories in the
aggregate accounted for approximately 75% of our product purchases in both 1998
and 1999.
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During 1998, Nokia and Ericsson accounted for approximately 55% and 20%,
respectively, of our product purchases and in 1999 they accounted for
approximately 68% and 7%, respectively, of our product purchases. None of our
other suppliers accounted for more than 10% of product purchases in 1998 or
1999. Loss of the applicable contracts with these or other suppliers or failure
by these or other suppliers to supply competitive products on a timely basis and
on favorable terms, or at all, would have a material adverse effect on our
operating margins and our ability to obtain and deliver products on a timely and
competitive basis. See "--Competition."
We maintain agreements with certain of our significant suppliers all of
which relate to specific geographic areas. We are the sole distributor of
wireless phones for each of Nokia, Ericsson, NEC, Sanyo and Samsung in the
United States and Kyocera on a global basis. Each of these six agreements is
subject to certain conditions and exceptions including the retention by the
manufacturer of certain direct accounts. Most of our other agreements with
suppliers (including our other territorial distribution agreements with Nokia
and Ericsson) are non-exclusive. Our supply agreements typically require us to
satisfy minimum purchase requirements and can be terminated on short notice by
either party. We purchase products from other manufacturers and dealers pursuant
to purchase orders placed from time to time in the ordinary course of business.
We generally place orders on a daily basis with our suppliers by facsimile.
Purchase orders are typically filled, subject to product availability, and
shipped to our warehouses by common carrier. We believe that our relationships
with our suppliers are generally good, however, we have from time to time
experienced inadequate product supply from certain handset manufacturers. In
1999, we were unable to obtain sufficient product supplies from manufacturers in
many of the markets in which we operate. This product shortage was most dramatic
in certain of our Asian markets. Any future failure or delay by our suppliers in
supplying us with products on favorable terms would severely diminish our
ability to obtain and deliver products to our customers on a timely and
competitive basis. If we lose any of our principal suppliers, or if any supplier
imposes substantial price increases and alternative sources of supply are not
readily available, it would have a material adverse effect on our results of
operations.
SALES AND MARKETING
Our sales and marketing efforts are coordinated in each of our four
regional divisions by a president for that particular division. Because of the
service-oriented nature of our business, these executives devote a substantial
amount of their time to developing and maintaining relationships with our
customers in addition to managing the overall operations of the division. Each
division's sales and operation centers are managed by either general or country
managers who report to the president of their division and are responsible for
the daily sales and operations of their particular location. Each division has
telemarketers who specialize in or focus on telephone sales to a particular type
of customer (e.g. network operator, dealer, reseller, retailer, etc.). In
addition, we have dedicated a professional sales force to manage our network
operator relationships and to further our sales of contractual integrated
logistics services. We also market integrated logistics services through sales
directors in each of our four regional divisions and through dedicated sales
personnel. Including support personnel, we had approximately 400 employees
involved in sales and marketing at December 31, 1999, including 70 in our
Asia-Pacific division, 160 in our North America division, 120 in our Europe,
Middle East and Africa division and 50 in our Latin America division.
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We believe that product recognition by customers and consumers is an
important factor in the marketing of the products that we sell. Accordingly, we
promote ourself and certain of our product lines through advertising in trade
publications and attendance at international, national and regional trade shows,
as well as through direct mail solicitation, broadcast faxing and telemarketing
activities. Our suppliers and customers use a variety of methods to promote
their products directly to consumers, including print and media advertising.
SEASONALITY
Our operating results are influenced by a number of seasonal factors in
the different countries and markets in which we operate. These results may
fluctuate from period to period as a result of several factors, including:
o purchasing patterns of customers in different markets;
o the timing of the introduction of new products by our
suppliers and competitors;
o variations in sales by distribution channels; and
o product availability and pricing.
Consumer electronics and retail sales tend to experience increased
volumes of sales at the end of the calendar year. This and other seasonal
factors contribute to the usual increase in our sales during the fourth quarter
and our operating results may continue to fluctuate significantly in the future.
In addition, if unanticipated events occur, including delays in securing
adequate inventories of competitive products at times of peak sales or
significant decreases in sales during these periods, it could have a material
adverse effect on our operating results.
COMPETITION
We operate in highly competitive markets and believe that such
competition will intensify in the future. The markets for wireless
telecommunications and data products are characterized by intense price
competition and significant price erosion over the life of a product. We compete
principally on the basis of value (in terms of price, time and reliability),
service and product availability. We compete with numerous well-established
manufacturers and wholesale distributors of wireless equipment, including our
customers and suppliers; wireless network operators, including our customers;
logistics service providers; and export/import and trading companies. These
companies may possess substantially greater financial, marketing, personnel and
other resources than we do. In addition, manufacturers other than those that
have historically produced wireless handsets and accessories are also entering
the market to produce wireless data devices. Their entry is creating new
competitors for distribution and provision of integrated logistics services for
these new products. Certain of these competitors have the financial resources
necessary to withstand substantial price competition and implement extensive
advertising and promotional campaigns, both generally and in response to efforts
by additional competitors to enter into new markets or introduce new products.
The wireless telecommunications and data industry has,in the past,been
characterized by low barriers to entry. However, as the market requirement
shifts from pure distribution services to a mix of distribution services and
integrated logistics services and because of the effects of convergence
discussed above under the heading New Technologies, Enhancements and
Applications, entry barriers are
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expected to rise due to the increased cost of infrastructure, the expanded human
resource requirement and the advanced management and information systems
capabilities that the integrated logistics services segment of the business
mandates. Our ability to continue to compete successfully will be largely
dependent on our ability to anticipate and respond to various competitive and
other factors affecting the industry, including; new or changing outsourcing
requirements, new products which may be introduced, inconsistent or inadequate
supply of product, changes in consumer preferences, demographic trends,
international, national, regional and local economic conditions and discount
pricing strategies and promotional activities by competitors.
Competitors in our North America division include network operators and
other dedicated wireless distributors such as CellStar Corporation and American
Wireless. We also compete with logistics service providers in our North America
operations, such as United Parcel Service of America, Inc. In the Asia-Pacific
market, our primary competitors are national carriers and distributors that have
retail outlets with direct end-user access and United States and foreign-based
exporters, traders and distributors, including CellStar Corporation, Global Tech
(Holdings) Ltd. and Telepacific Pty Limited. In our Europe, Middle East and
Africa division our competitors include wireless equipment manufacturers who
sell directly to the region's network operators and retailers; network operators
themselves; and traders and other distributors, such as 20/20 Logistics Ltd.,
European Telecom plc, Avenir S.A. and Banner Twin Choice plc. In our Latin
America division we compete primarily with CellStar Corporation and various
other distributors.
The markets for wireless communications products are characterized by
rapidly changing technology and evolving industry standards, often resulting in
product obsolescence or short product life cycles. Accordingly, our success is
dependent upon our ability to anticipate technological changes in the industry
and to continually identify, obtain and successfully market new products that
satisfy evolving industry and customer requirements. The use of alternative
wireless communication technologies or the convergence of wireless communication
and computer technologies may reduce demand for existing wireless communications
products. Upon widespread commercial introduction, new wireless communications
or convergent technologies could materially change the types of products sold by
us and our suppliers and result in significant price competition. In addition,
products that reach the market outside of normal distribution channels, such as
"gray market" resales (e.g., unauthorized resales or illegal resales which may
avoid applicable duties and taxes), may also have an adverse impact on our
operations.
INFORMATION SYSTEMS
Our operations are partially dependent on the functionality,
performance and utilization of our information systems. We have implemented
multiple business applications systems throughout the world which enable us to
provide our customers and suppliers with distribution and service capabilities.
These capabilities include e-commerce solutions, electronic data interchange,
web order entry and tracking, various inventory tracking and management
capabilities and management reporting capabilities. During 1997, 1998 and 1999,
we invested approximately $11.1 million, $22.1 million and $6.1 million,
respectively, to install and enhance systems in newly acquired operations, to
continue to develop and enhance our systems to provide electronic data
interchange capabilities, to create solutions for our customers and to provide a
flexible service delivery system in support of our integrated logistics services
and intend to use additional funds to develop integrated information systems
10
<PAGE> 12
throughout our four divisions. At December 31, 1999, there were 80 employees in
our information technology departments worldwide.
EMPLOYEES
As of December 31, 1999, we had approximately 1,700 employees; 250 in
our Asia-Pacific division, 950 in our North America division, 300 in our Europe,
Middle East and Africa division and 200 in our Latin America division. Of these
employees, approximately 8 were in executive positions, 400 were engaged in
sales and marketing, 809 were in service operations and 483 were in finance and
administration (including information technology employees). None of our
employees are covered by a collective bargaining agreement. We believe that our
relations with our employees are good. See Business Risk Factors-Our labor force
experiences a high rate of personnel turnover.
BUSINESS RISK FACTORS
Various statements, discussions and analyses throughout this Form 10-K
are not based on historical fact and contain forward-looking statements. Actual
future results may differ materially. There are many factors that affect our
business, some of which are beyond our control and future trends are difficult
to predict due to a variety of known and unknown risks and uncertainties
including the factors, among others, discussed below.
We have incurred significant losses during certain quarterly periods --
Although we achieved a profit of approximately $9.9 million during the three
months ended December 31, 1999, we incurred net losses for each of the first two
quarters of 1999 and a net loss of $93.1 million for the year ended December 31,
1999. We also incurred a net loss of $7.1 million for the three months ended
December 31, 1998. The net loss for 1999 includes approximately $84.9 million of
restructuring and other unusual charges as well as the cumulative effect of an
accounting change of $14.1 million. The net loss for the three months ended
December 31, 1998 includes approximately $25.7 million of trading and other
unusual charges resulting from our decision to eliminate our trading activities.
Several business factors appear to have contributed to our losses in these
periods including an inadequate supply of products for sale through our
distribution services, our inability to replace, during 1999, revenues which had
been generated by the trading business that we exited in the fourth quarter of
1998, the impacts of the devaluation of the Brazilian Real and price competition
from trading companies in our Asia-Pacific and Latin America divisions. We may
incur additional future losses.
We have significant outstanding indebtedness, which is secured by a
large portion of our assets and which could prevent us from borrowing additional
funds, if needed -- If we violate our loan covenants, default on our obligations
or become subject to a change of control, our indebtedness could become
immediately due and payable, and the banks could foreclose on our assets. The
terms of our senior credit facility substantially prohibit us from incurring
additional indebtedness, which could limit our ability to expand our operations.
Our senior credit facility also limits or prohibits us from declaring or paying
cash dividends, making capital distributions or other payments to stockholders,
merging or consolidating with another corporation or selling all or
substantially all of our assets.
There are significant amounts of our securities which are issuable upon
exercise of outstanding convertible securities as well as under other stock
plans
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<PAGE> 13
which could affect the market price of our common stock -- The $380 million face
value of our 20-year zero-coupon, subordinated, convertible notes are
convertible at the option of the holder any time prior to maturity. These notes
are convertible at the rate of 19.109 shares of common stock per $1,000 face
value note, for an aggregate of 7,261,420 shares of common stock. Additionally,
we have reserved a significant number of shares of common stock that may be
issuable pursuant to our employee stock purchase plan, our stock option plans
and upon the exercise of currently outstanding warrants. These securities when
issued and outstanding may reduce earnings per share in periods that they are
considered dilutive under Generally Accepted Accounting Principles and, to the
extent that they are exercised and shares of common stock are issued, dilute
percentage ownership to existing stockholders which could have an adverse effect
on the market price of our common stock.
We have instituted measures to protect us against a takeover -- Certain
provisions of our by-laws, stockholders rights and option plans, certain
employment agreements and the Delaware General Corporation Law are designed to
protect us in the event of a takeover attempt. These provisions could prohibit
or delay mergers or attempted takeovers or changes in control of us and,
accordingly, may discourage attempts to acquire us.
Our future operating results will depend on our ability to continue to
increase our sales significantly -- A large percentage of our total net revenues
in recent periods has come from sales of wireless handsets, a segment of our
business that operates on a high-volume, low-margin basis. Our ability to
generate these sales is based upon our having adequate supply of products. The
gross margins that we realize on sales of wireless handsets could be reduced due
to increased competition or a growing industry emphasis on cost containment. In
addition, our operating expenses have increased significantly. We expect these
expenses to continue to increase as we expand our activities and increase our
provision of integrated logistics services. Therefore, our future profitability
will depend on our ability to increase sales to cover our additional expenses.
We may not be able to cause our sales rates to grow substantially. Even if our
sales rates do increase, the gross margins that we receive from our sales may
not be sufficient to make our future operations profitable.
A significant percentage of our revenues are generated outside of North
America in countries with inadequate product supplies, volatile currencies or
other risks -- We purchase and sell products and services in a large number of
foreign currencies, many of which have experienced fluctuations in currency
exchange rates. On occasion, we enter into forward exchange swaps, futures or
options contracts as a means of hedging our currency transaction and balance
sheet translation exposures. However, our management has had limited prior
experience in engaging in these types of transactions. Even if done well,
hedging may not effectively limit our exposure to a decline in operating results
due to foreign currency translation. We cannot predict the effect that future
exchange rate fluctuations will have on our operating results. We also maintain
operations centers and sales offices in many other territories and countries.
The fact that our business operations are conducted in a wide variety of
countries exposes us to increased credit risks, customs duties, import quotas
and other trade restrictions, potentially greater inflationary pressures,
shipping delays, the risk of failure or material interruption of wireless
systems and services, possible wireless product supply interruption and
potentially significant increases in wireless product prices. Changes may occur
in social, political, regulatory and economic conditions or in laws and policies
governing foreign trade and investment in the territories and countries where we
currently
12
<PAGE> 14
have operations. U.S. laws and regulations relating to investment and trade in
foreign countries could also change to our detriment. Any of these factors could
have a material adverse effect on our business and operations. During 1999, and
pursuant to our restructuring plan, we terminated or eliminated several of our
foreign operations because they were not performing to acceptable levels. These
terminations resulted in significant losses to us. We may in the future, decide
to terminate certain existing foreign operations. This could result in our
incurring significant additional losses.
Our business depends on the continued tendency of wireless equipment
manufacturers and network operators to outsource aspects of their business to us
in the future -- Our business depends in large part on wireless equipment
manufacturers and network operators outsourcing some or all of their business
functions. We fulfill functions such as contract manufacturing, customized
packaging, prepaid and e-commerce solutions, inventory management, distribution
and other outsourced services for many of these manufacturers and network
operators. In the future, wireless equipment manufacturers and network operators
may elect to undertake these services internally. Additionally, industry
consolidation, competition, deregulation, technological changes or other
developments could reduce the degree to which members of the wireless
telecommunications and data industry rely on outsourced integrated logistics
services such as the services we provide. Any significant change in the market
for our outsourcing services could have a material adverse effect on our
business. Our outsourced services are generally provided under multi-year
renewable contractual arrangements. The initial service periods under certain of
our contractual arrangements are expiring or will expire in the near future. The
failure to obtain renewal of these agreements could have a material adverse
effect on our business.
We buy a significant amount of our products from a limited number of
suppliers, who may not provide us with competitive products at reasonable prices
when we need them in the future -- We purchase all of the wireless handsets and
accessories that we sell from third-party wireless communications equipment
manufacturers, dealers and network operators. We depend on these suppliers to
provide us with adequate inventories of currently popular brand name products on
a timely basis and on favorable pricing terms. Our agreements with our suppliers
are generally non-exclusive, require us to satisfy minimum purchase
requirements, can be terminated on short notice and provide for certain
territorial restrictions, as is common in our industry. We generally purchase
products pursuant to purchase orders placed from time to time in the ordinary
course of business. In the future, our suppliers may not be able or may choose
not to offer us competitive products on favorable terms without delays. In 1999,
we were unable to obtain sufficient product supplies from manufacturers in many
markets in which we operate. This product shortage was most dramatic in certain
of our Asian markets. Any future failure or delay by our suppliers in supplying
us with products on favorable terms would severely diminish our ability to
obtain and deliver products to our customers on a timely and competitive basis.
If we lose any of our principal suppliers, or if any supplier imposes
substantial price increases and alternative sources of supply are not readily
available, it would have a material adverse effect on our results of operations.
The wireless telecommunications and data industry is intensely
competitive and we may not be able to continue to compete successfully in this
industry -- We compete for sales of wireless telecommunications and data
equipment, and expect that we will continue to compete, with numerous
well-established wireless network operators,
13
<PAGE> 15
distributors and manufacturers, including our own suppliers. As a provider of
integrated logistics services, we also compete with other distributors and with
logistics services companies. Many of our competitors possess greater financial
and other resources than we do and may market similar products directly to our
customers. The wireless telecommunications and data industry has generally had
low barriers to entry. So, additional competitors may choose to enter our
industry in the future. The markets for wireless handsets and accessories are
characterized by intense price competition and significant price erosion over
the life of a product. Many of our competitors have the financial resources to
withstand substantial price competition and to implement extensive advertising
and promotional programs, both generally and in response to efforts by
additional competitors to enter into new markets or introduce new products. Our
ability to continue to compete successfully will depend largely on our ability
to maintain our current industry relationships. We may not be successful in
anticipating and responding to competitive factors affecting our industry,
including new or changing outsourcing requirements, the entry of additional
well-capitalized competitors, new products which may be introduced, changes in
consumer preferences, demographic trends, international, national, regional and
local economic conditions and competitors' discount pricing and promotion
strategies. As the cellular markets mature and as we seek to enter into new
markets and offer new products in the future, the competition that we face may
change and grow more intense.
We may not be able to manage and sustain future growth at our
historical and current rates -- In recent years we have experienced rapid
domestic and international growth. We will need to manage our expanding
operations effectively, maintain or accelerate our growth as planned and
integrate any new businesses which we may acquire into our operations
successfully in order to continue our desired growth. If we are unable to do so,
particularly in instances in which we have made significant capital investments,
it could have a material adverse effect on our operations. Our success in
sustaining continued growth will also depend on our ability to:
o secure adequate supplies of competitive products on a timely
basis and on commercially reasonable terms;
o turn our inventories and collect our accounts receivable in a
timely manner;
o develop additional, and maintain our existing, key
relationships with leading network operators and manufacturers
and dealers of wireless handsets and accessories;
o hire and retain additional qualified management, marketing and
other personnel to successfully manage our growth, including
personnel to monitor our operations, control costs and
maintain effective management, inventory and credit controls;
and
o invest significant amounts to enhance our information systems
in order to maintain our competitiveness and to develop new
logistics services.
In addition, our growth prospects could be adversely affected by a
decline in the wireless telecommunications and data industry generally or in one
of its regional divisions, either of which could result in reduction or deferral
of expenditures by prospective customers.
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<PAGE> 16
Rapid technological changes in the wireless telecommunications and data
industry could have a material adverse effect on our business -- The technology
relating to wireless telecommunications and data equipment changes rapidly, and
industry standards are constantly evolving resulting in product obsolescence or
short product life cycles. We are required to anticipate future technological
changes in our industry and to continually identify, obtain and market new
products in order to satisfy evolving industry and customer requirements.
Competitors or manufacturers of wireless equipment may market products which
have perceived or actual advantages over our products or which otherwise render
our products obsolete or less marketable. We have made and continue to make
significant capital investments in accordance with evolving industry and
customer requirements. These concentrations of capital increase our risk of loss
as a result of rapid technological changes in the wireless telecommunications
and data industry.
The use of emerging wireless communications technologies, including
Bluetooth, wireless local loop, satellite-based communications systems and other
new technologies, may reduce the demand for existing cellular and PCS products.
If other companies develop and commercialize new technologies or products in
related market segments that compete with existing cellular and PCS technology,
it could materially change the types of products that we are forced to offer or
result in significant price competition for us. Product obsolescence could
result in significantly increased inventories of our unsold products. However,
if we elect to stock our inventories in the future with any of these
technologies and products, we will run the risk that our existing customers and
consumers may not be willing, for financial or other reasons, to purchase new
equipment necessary to utilize these new technologies. In addition, the complex
hardware and software contained in new wireless handsets could contain defects
which become apparent subsequent to widespread commercial use, resulting in
product recalls and returns and leaving us with additional unsold inventory.
Our business strategy includes entering into strategic relationships
and financings, which may provide us with minimal returns or losses on our
investments -- As part of our expansion strategy, we have entered into several
strategic relationships and joint ventures with wireless equipment manufacturers
and network operators. We intend to continue to enter into similar strategic
relationships as opportunities arise. We may enter into distribution or
integrated logistics services agreements with these strategic partners and may
provide them with equity or debt financing. Our ability to achieve future
profitability through our strategic relationships will depend in part upon the
economic viability, success and motivation of the entities we select as
strategic partners and the amount of time and resources that these partners
devote to our alliances. We may receive minimal or no business from future
relationships and joint ventures, and any business we receive may not be
significant or at the level we anticipated. The future profits we receive from
these strategic relationships, if any, may not offset possible losses on our
investments or the full amount of financings that we extend upon entering into
these relationships. Any loan to or investment in a future strategic partner
will be subject to many of the same risks faced by the strategic partner in
seeking to operate and grow its businesses. We may not achieve acceptable
returns on our future investments with strategic partners within an acceptable
period or at all. As a part of our restructuring plan in 1999 we terminated two
joint operations in China resulting in significant losses on our investments in
those operations. A failure in the establishment and operation of such
relationships could have a material adverse effect on our operations.
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<PAGE> 17
We may have difficulty collecting on our accounts receivable -- In
connection with our continued expansion, we intend to offer open account terms
to additional customers, which may subject us to further credit risks,
particularly in the event that any receivables represent sales to a limited
number of customers or are concentrated in particular geographic markets. Any
delays in collecting or inability to collect our receivables could have a
material adverse effect on our business.
Our operating results frequently vary significantly and respond to
seasonal fluctuations in purchasing patterns -- Our operating results are
influenced by a number of seasonal factors in the different countries and
markets in which we operate. These results may fluctuate from period to period
as a result of several factors, including:
o purchasing patterns of customers in different markets;
o the timing of introduction of new products by our suppliers
and competitors;
o variations in sales by distribution channels; and
o product availability and pricing.
Consumer electronics and retail sales tend to experience increased
volumes of sales at the end of the calendar year. This and other seasonal
factors contribute to the usual increase in our sales during the fourth quarter
of our fiscal year. Our operating results may continue to fluctuate
significantly in the future. In addition, if unanticipated events occur,
including delays in securing adequate inventories of competitive products at
times of peak sales or significant decreases in sales during these periods, it
could have a material adverse effect on our operating results.
Our continued growth depends on retaining our current key employees and
attracting additional qualified personnel -- Our success depends in large part
on the abilities and continued service of our executive officers and other key
employees. Although we have entered into employment agreements with several of
our officers and employees, we may not be able to retain their services. We also
have non-competition agreements with our executive officers and some of our
existing key personnel. However, courts are sometimes reluctant to enforce
non-competition agreements. The loss of executive officers or other key
personnel could have a material adverse effect on us. In addition, in order to
support our continued growth, we will be required to effectively recruit,
develop and retain additional qualified management. If we are unable to attract
and retain additional necessary personnel, it could delay or hinder our plans
for growth.
We rely to a great extent on trade secret and copyright laws and
agreements with our key employees and other third parties to protect our
proprietary rights -- Our business success is substantially dependent upon our
proprietary business methods and software applications relating to our
information systems. We currently hold one patent relating to certain of our
business methods. Concerning other business methods and software we rely on
trade secret and copyright laws to protect our proprietary knowledge. We also
regularly enter into non-disclosure agreements with our key employees and limit
access to and distribution of our trade secrets and other proprietary
information. These measures may not prove adequate to prevent misappropriation
of our technology. Our competitors could also independently develop technologies
that are substantially equivalent or superior to our technology, thereby
eliminating one of our competitive advantages. We also have offices and conduct
our
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<PAGE> 18
operations in a wide variety of countries outside the United States. The laws of
some other countries do not protect our proprietary rights to the same extent as
do laws in the United States. In addition, although we believe that our business
methods and proprietary software have been developed independently and do not
infringe upon the rights of others, third parties might assert infringement
claims against us in the future or our business methods and software may be
found to infringe upon the proprietary rights of others.
We make significant investments in the technology used in our business
and rely on this technology to function effectively without interruptions -- We
have made significant investments in sophisticated and specialized information
systems technology and have focused on the application of this technology to
provide customized integrated logistics services to wireless communications
equipment manufacturers and network operators. Our sales and marketing efforts,
a large part of which are telemarketing based, are highly dependent on computer
and telephone equipment. We anticipate that we will need to continue to invest
significant amounts to enhance our information systems in order to maintain our
competitiveness and to develop new logistics services. Our property and business
interruption insurance may not adequately compensate us for all losses that we
may incur if we lose our equipment or systems either temporarily or permanently
through a casualty or operating malfunction. In addition, a significant increase
in the costs of additional technology or telephone services that is not
recoverable through an increase in the price of our services could have a
material adverse effect on our results of operations.
Our labor force experiences a high rate of personnel turnover -- Our
distribution and integrated logistics services are labor-intensive, and we
experience high personnel turnover and can be adversely affected by shortages in
the available labor force in geographical areas where we operate. A significant
portion of our labor force is contracted through temporary agencies, and a
significant portion of our costs consist of wages to hourly workers. Growth in
our business, together with seasonal increases in net sales, requires us to
recruit and train personnel at an accelerated rate from time to time. We may not
be able to continue to hire, train and retain a significant labor force of
qualified individuals when needed, or at all. An increase in hourly costs,
employee benefit costs, employment taxes or commission rates could have a
material adverse effect on our operations. In addition, if the turnover rate
among our labor force increased further, we could be required to increase our
recruiting and training efforts and costs, and our operating efficiencies and
productivity could decrease.
We have significant future payment obligations pursuant to certain
leases and other long-term contracts -- We lease our office and
warehouse/distribution facilities as well as certain furniture and equipment
under property and personal equipment leases. Many of these leases are for terms
that exceed one year and require us to pay significant monetary charges for
early termination or breach by us of the lease terms. We cannot be certain of
our ability to adequately fund these lease commitments from our future
operations and our decision to modify, change or abandon any of our existing
facilities could have a material adverse effect on our operations.
We may become subject to suits alleging medical risks associated with
our wireless handsets -- Lawsuits or claims have been filed or made against
manufacturers of wireless handsets over the past years alleging possible medical
risks, including brain cancer, associated with the electromagnetic fields
emitted by wireless
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communications handsets. There has been only limited relevant research in this
area, and this research has not been conclusive as to what effects, if any,
exposure to electromagnetic fields emitted by wireless handsets has on human
cells. Substantially all of our revenues are derived, either directly or
indirectly, from sales of wireless handsets. We may become subject to lawsuits
filed by plaintiffs alleging various health risks from our products. If any
future studies find possible health risks associated with the use of wireless
handsets or if any damages claim against us is successful, it could have a
material adverse effect on our business. Even an unsubstantiated perception that
health risks exist could adversely affect our ability or the ability of our
customers to market wireless handsets.
The market price of our common stock may be volatile -- The market
price of our common stock has risen substantially and has fluctuated
significantly from time to time since our initial public offering in April 1994.
The trading price of our common stock could experience significant fluctuations
in the future in response to several factors, which could include actual or
anticipated variations in our quarterly operating results; the introduction of
new services, products or technologies by us, our suppliers or our competitors;
changes in other conditions or trends in the wireless telecommunications and
data industry; changes in governmental regulation; or changes in securities
analysts' estimates of our future performance or that of our competitors or our
industry in general. General market price declines or market volatility in the
prices of stocks for companies in the wireless telecommunications and data
industry or in the distribution or integrated logistics services sectors of the
wireless telecommunications and data industry could also affect the market price
of our common stock.
SEGMENT FINANCIAL INFORMATION
Reference is made to the information set forth in the Company's 1999
Annual Report to Stockholders on pages 28 and 29 under the caption "Operating
Segments", which information is incorporated herein by reference.
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ITEM 2. PROPERTIES
We provide our distribution and integrated logistics services from our
sales and operations centers located in various countries including Australia,
Brazil, China (including Hong Kong), France, Germany, Ireland, Mexico, the
Netherlands, New Zealand, the Philippines, South Africa, Sweden, the United Arab
Emirates, the United States, and Venezuela. Substantially all of these
facilities are operated under operating leases. The table below summarizes
information about our sales and operations centers by operating division.
<TABLE>
<CAPTION>
NUMBER OF AGGREGATE SQUARE APPROXIMATE
LOCATIONS(1) FOOTAGE MONTHLY RENT
------------ ---------------- ------------
<S> <C> <C> <C>
North America 4 1,096,708 $576,000
Asia-Pacific 6 117,160 94,000
Europe, Middle East and
Africa 11 128,118 111,000
Latin America 5 119,513 63,000
--------- ---------- --------
26 1,461,499 $844,000
========= ========== ========
</TABLE>
(1) Refers to geographic areas in which we maintain facilities and considers
multiple buildings located in the same area as a single geographic location.
In the first quarter of 2000, we consolidated four locations in
Indianapolis into a single, new facility designed specifically for our processes
and other requirements. This new facility is located in close proximity to the
Indianapolis International Airport. With 495,000 square feet of office and plant
space it is our largest operations center. We are attempting to sublease the
former North America headquarters and main distribution center located in
Indianapolis, Indiana ("the 6402 facility"). The lease term for this facility
expires on December 31, 2006 and current rental payments are approximately
$84,000 per month. The consolidation is expected to result in increased costs
during the first quarter of 2000 due to moving costs, the disposal of assets
that will not be used in the new facility, and the financial effects of the
potential sublease of existing facilities. The aggregate amount of these costs
is not expected to exceed $5.0 million.
We believe that our existing facilities are adequate for our current
requirements and that suitable additional space will be available as needed to
accommodate future expansion of our operations.
ITEM 3. LEGAL PROCEEDINGS.
We are from time to time, involved in certain legal proceedings in the
ordinary course of conducting our business. We believe there are no pending
legal proceedings in which we are currently involved which will have a material
adverse effect on our financial position.
We and certain of our 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
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Rule 10b-5 of the Exchange Act, based on allegations that false and misleading
statements were rendered and/or statements were omitted concerning our then
current and future financial condition and business prospects. The action
involves a purported class of purchasers of our stock during the period October
2, 1998 through March 10, 1999. We and the individual defendants intend to
vigorously defend these actions. The outcome of any litigation is uncertain and
it is possible that an unfavorable decision could have a material adverse effect
on our financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
With the exception of the information expressly incorporated by
reference from the Company's 1999 Annual Report to Stockholders into Parts I, II
and IV of this Form 10-K, the Company's Annual Report to Stockholders is not to
be deemed filed as part of this report.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this Item is set forth in the Company's
1999 Annual Report to Stockholders, on page 49 under the caption "Common Stock
Information," which information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is set forth in the Company's
1999 Annual Report to Stockholders, on page 49 under the caption "Selected
Financial Data," which information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this Item is set forth in the Company's
1999 Annual Report to Stockholders, on pages 27, 28, 29, 31, 32, 33, 35, 37 and
39, which information is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item is set forth in the Company's
1999 Annual Report to Stockholders, on page 39 under the caption "Financial
Market Risk Management," which information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is set forth in the Company's 1999 Annual
Report to Stockholders, on pages 26, 30, 34, 36, 38 and 40 through 48, which
information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
Certain information required by Part III is omitted from this report in
that the Company will file its definitive Proxy Statement for the Annual Meeting
of Stockholders for the Annual Meeting of Stockholders to be held on May 18,
2000, pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the
"Proxy Statement"), not later than 120 days after the end of the fiscal year
covered by this report, and certain information included in the Proxy Statement
is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is in the Proxy Statement under
the Section entitled "Election of Directors," which information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is set forth in the Proxy
Statement under the Section entitled "Executive Compensation" which information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth in the Proxy
Statement under the Section entitled "Voting Security Ownership of Certain
Beneficial Owners and Management" which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is set forth in the Proxy
Statement under the Section entitled "Certain Transactions" which information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) The following financial statements of the Company included in
the Company's 1999 Annual Report to Stockholders, are
incorporated herein by reference:
Report of Independent Auditors
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999
Consolidated Balance Sheets as of December 31, 1998 and 1999
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1997, 1998 and 1999
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999
Notes to Consolidated Financial Statements
(a)(2) The following financial statement schedule for the year ended
December 31, 1999 is submitted herewith:
Report of Independent Auditors on Financial Statement Schedule
For the three years ended December 31, 1999:
Schedule II - Valuation and Qualifying Accounts
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<PAGE> 23
All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
(a)(3) Exhibits
<TABLE>
<CAPTION>
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
<S> <C>
3.1 Certificate of Incorporation of the Company, as amended (10)
3.2 Amended and Restated By-Laws of the Company (10)
3.3 Certificate of Merger of Brightpoint, Inc. into Wholesale
Cellular USA, Inc., effective September 15, 1995 (2)
4.1 Form of Common Stock Certificate (1)
4.3 Indenture between the Company and the Chase Manhattan Bank, as
Trustee (12)
10.1 1994 Stock Option Plan (19), as amended*
10.2 1996 Stock Option Plan (19), as amended*
10.3 Non-Employee Directors Stock Option Plan (1)
10.4 Employee Stock Purchase Plan (17)
10.5 Amended and Restated Agreement between the Company and Robert
J. Laikin dated July 1, 1999 (17)*
10.6 Amended and Restated Agreement between the Company and J. Mark
Howell dated July 1, 1999 (17)*
10.7 Amended and Restated Agreement between the Company and Phillip
A. Bounsall dated July 1, 1999 (17)*
10.8 Amended and Restated Agreement between the Company and Steven
E. Fivel dated July 1, 1999 (17)*
10.9 Lease Agreement between the Company and WRC Properties, Inc.,
as amended and Unconditional Guaranty of Lease by Century
Cellular Network, Inc. (1)
10.10 Lease Agreement between the Company and Park 100 Properties,
Inc. (2)
10.11 Lease Agreement between the Company and Industrial Affiliates,
Ltd. (2)
10.12 Lease Agreement between the Company and Airport Key
Corporation, dated November 30, 1995 (3)
10.13 Lease Agreement between the Company and Corporate Drive
Associates, LLC, dated June 6, 1995 (3)
10.14 Amendment to Lease Agreement between the Company and Corporate
Drive Associates, LLC, dated October 3, 1995 (3)
10.15 Second Amendment to Lease agreement between the Company and
Corporate Drive Associates, LLC, dated as of July 17, 1996
(10)
10.16 Lease Agreement (Building Expansion) between the Company and
Corporate Drive Associates, LLC, dated as of July 17, 1996
(10)
</TABLE>
22
<PAGE> 24
<TABLE>
<S> <C>
10.17 Lease Agreement between the Company and SCI North Carolina
Limited Partnership, dated October 21, 1997 (11)
10.18 Lease Extension Agreement between the Company and SCI North
Carolina Limited Partnership, dated January 14, 1998 (11)
10.19 Agreement and Plan of Merger, as amended on April 29, 1996, by
and among the Company, Brightpoint Acquisition, Inc., a
wholly-owned subsidiary of the Company, Allied Communications,
Inc., Allied Communications of Florida, Inc., Allied
Communications of Georgia, Inc., Allied Communications of
Illinois, Inc., Allied Communications of Puerto Rico, Inc.,
Robert Picow and Joseph Forer (5)
10.20 Stock Purchase Agreement, dated as of October 1, 1996, among
the Company, Brightpoint International Ltd., Technology
Resources International Ltd., Safkong Holdings Limited,
Marriott Investment & Trade Inc., John Maclean-Arnott and Dana
Marlin (6)
10.21 Rights Agreement, dated as of February 20, 1997, between the
Company and Continental Stock Transfer Trust Company, as
Rights Agent (7)
10.22 Lease Agreement between the Company and DP Operating
Partnership, L.P., dated as of March 1, 1997 (9)
10.23 Multicurrency Credit Agreement dated as of June 24, 1997 (the
"Credit Agreement") among the Company, Brightpoint
International Ltd., the Subsidiary Borrowers from time to time
party thereto, the Guarantors from time to time party thereto,
the Financial Institutions from time to time party thereto as
lenders, The First National Bank of Chicago as administrative
agent and Bank One, Indiana, N.A. as syndication agent (10)
10.24 Form of Waiver and Amendment No. 1 to Credit Agreement dated
as of November 15, 1997 (11)
10.25 Third Amendment to Multicurrency Credit Agreement dated March
20, 1998 (13)
10.26 Lease Agreement between the Company and Madonna Management
Company, Inc., dated March 17, 1998 (13)
10.27 Lease Agreement between the Company and SCI North Carolina
Limited Partnership, dated March 20, 1998 (13)
10.28 Lease Agreement between the Company and IP Properties, A
Wyoming Limited Liability Company, dated March 31, 1998 (13)
10.29 Fourth Amendment to Multicurrency Credit Agreement dated April
16, 1998 (14)
10.30 Amended and Restated Multicurrency Credit Agreement originally
dated June 24, 1997 and amended and restated as of May 13,
1998 (14)
10.31 Lease Expansion Agreement between the Company and SCI North
Carolina Limited Partnership dated June 9, 1998 (14)
10.32 Lease Agreement between the Company and New World Partners
Joint Venture Number Five, dated July 30, 1998 (15)
10.33 Lease Agreement between the Company and Airtech Parkway
Associates, LLC, dated September 18, 1998 (15)
10.34 Form of Indemnification Agreement of others (20)
</TABLE>
23
<PAGE> 25
<TABLE>
<S> <C>
10.35 Amendment No. 1 to Amended and Restated Multicurrency Credit
Agreement dated October 19, 1998 (16)
10.36 Amendment No. 2 to Amended and Restated Multicurrency Credit
Agreement dated September 30, 1998 (16)
10.37 Amendment No. 3 to Amended and Restated Multicurrency Credit
Agreement dated January 1, 1999 (16)
10.38 Fourth Amendment to Multicurrency Agreement dated May 13, 1998
(17)
10.39 Second Amended and Restated Multicurrency Credit Agreement
dated May 13, 1998 and amended and restated as of July 27,
1999 (18)
10.40 Amendment Number 1 to the Rights Agreement (the "Agreement")
by and between Brightpoint, Inc. (the "Company") and
Continental Stock Transfer & Trust Company, as Rights Agent,
dated as of January 4, 1999 (17)
11 Statement re: computation of per share earnings (20)
13 Specific portions of the Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1998
incorporated by reference herein (20)
21 Subsidiaries (20)
23 Consent of Ernst & Young LLP (21)
27 Financial Data Schedule (20)
99 Cautionary Statements (20)
</TABLE>
(1) Incorporated by reference to the exhibit filed with the Company's
Registration Statement (33-75148) effective April 7, 1994.
(2) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
(3) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
(4) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-3 (33-97084) effective October 24,
1995.
(5) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K, dated June 12, 1996.
(6) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K, dated December 31, 1996.
(7) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K, dated March 28, 1997.
(8) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
(9) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
(10) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-3 (333-29533) effective August 6,
1997.
(11) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
24
<PAGE> 26
(12) Incorporated by reference to the exhibit filed with the
exhibit filed with the Company's Current Report on Form 8-K
dated April 1, 1998 for the event dated March 5, 1998.
(13) Incorporated by reference to the exhibit filed with the
exhibit filed with the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
(14) Incorporated by reference to the exhibit filed with the
exhibit filed with the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998.
(15) Incorporated by reference to the exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
(16) Incorporated by reference to the exhibit filed with the
Company's Form 10-K for the fiscal year ended December 31,
1998.
(17) Incorporated by reference to Appendix A filed with the
Company's Proxy Statement dated April 15, 2000 relating to its
Annual Stockholders meeting held May 18, 2000.
(18) Incorporated by reference to the exhibit filed with the
Company's Quarterly report on Form 10-Q for the quarter ended
June 30, 1999.
(19) Incorporated by reference to the exhibit filed with the
Company's Registration Statement on Form S-8 (33-97084) dated
September 27, 1999.
(20) Filed herewith.
(21) Filed as page F-1 of this report.
* Denotes management compensation plan or arrangement.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed in the quarter ended
December 31, 1999.
25
<PAGE> 27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BRIGHTPOINT, INC.
Dated: March 29, 2000 /s/ Robert J. Laikin
---------------------------------------
By: Robert J. Laikin
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
- --------- ----- ----
<S> <C> <C>
/s/ Robert J. Laikin Chairman of the Board,
- ----------------------- Chief Executive Officer and
Robert J. Laikin Director (Principal Executive Officer) March 29, 2000
/s/ J. Mark Howell President, Chief Operating Officer and
- -----------------------
J. Mark Howell Director March 29, 2000
/s/ Phillip A. Bounsall Executive Vice President and Chief
- -----------------------
Phillip A. Bounsall Financial Officer (Principal
Financial Officer) March 29, 2000
/s/ John P. Delaney Vice President and Chief Accounting
- ----------------------- Officer (Principal Accounting Officer) March 29, 2000
John P. Delaney
/s/ John W. Adams Director March 29, 2000
- -----------------------
John W. Adams
/s/ Rollin M. Dick Director March 29, 2000
- -----------------------
Rollin M. Dick
Director
- -----------------------
Steven B. Sands
/s/ Stephen H. Simon Director March 29, 2000
- -----------------------
Stephen H. Simon
/s/ Todd H. Stuart Director March 29, 2000
- -----------------------
Todd H. Stuart
/s/ Robert F. Wagner Director March 29, 2000
- -----------------------
Robert F. Wagner
</TABLE>
<PAGE> 28
BRIGHTPOINT, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULE
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Report of Independent Auditors on Financial Statement Schedule F-1
Consent of Ernst & Young LLP F-1
Financial Statement Schedule for the years 1999, 1998 and 1997:
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS F-2
</TABLE>
<PAGE> 29
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Brightpoint, Inc.
We have audited the consolidated financial statements of Brightpoint, Inc. as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999, and have issued our report thereon dated January 24, 2000.
Our audits also included the financial statement schedule listed in Item 14(a)
of this Form 10-K. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
January 24, 2000
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-87863) pertaining to the Brightpoint, Inc. 1994 Stock Option Plan,
as amended, the 1996 Brightpoint, Inc. Stock Option Plan, as amended, the
Brightpoint, Inc. Non-employee Director Stock Option Plan, and the Brightpoint,
Inc. Employee Stock Purchase Plan, in the Registration Statement (Form S-8 No.
333-2242) pertaining to the Brightpoint, Inc. 401(k) Plan, in the Registration
Statement (Form S-3 No. 33-91112) pertaining to certain options and warrants of
Brightpoint, Inc., in the Registration Statement (Form S-3 No. 333-3569)
pertaining to certain warrants of Brightpoint, Inc., and in the Registration
Statements (Form S-3 No. 333-15663, 333-29533, 333-07892, 333-37587, 333-55945,
and 333-58863) pertaining to certain common stock of Brightpoint, Inc. of our
report dated January 24, 2000 with respect to the consolidated financial
statements incorporated by reference and our report dated January 24, 2000 with
respect to the financial statement schedule included in this Annual Report (Form
10-K) of Brightpoint, Inc.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
March 27, 2000
F-1
<PAGE> 30
BRIGHTPOINT, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
<TABLE>
<CAPTION>
Col. A Col. B Col. C Col. D Col. E
---------- ----------- ---------- ----------- ----------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expenses (1) Accounts Deductions of Period
----------- ---------- ----------- ---------- ----------- ----------
<S> <C> <C> <C> <C> <C>
Year ended December 31, 1999:
Deducted from asset
accounts:
Allowance for
doubtful accounts $6,045,000 $10,906,000 $ -- $10,731,000(2) $6,220,000
---------- ----------- ---------- ----------- ----------
Total $6,045,000 $10,906,000 $ -- $10,731,000 $6,220,000
========== =========== ========== =========== ==========
Year ended December 31, 1998:
Deducted from asset
accounts:
Allowance for
doubtful accounts $3,394,000 $ 5,601,000 $ -- $ 2,950,000(2) $6,045,000
---------- ----------- ---------- ----------- ----------
Total $3,394,000 $ 5,601,000 $ -- $ 2,950,000 $6,045,000
========== =========== ========== =========== ==========
Year ended December 31, 1997:
Deducted from asset
accounts:
Allowance for
doubtful accounts $1,115,000 $ 3,317,000 $ -- $ 1,038,000(2) $3,394,000
---------- ----------- ---------- ----------- ----------
Total $1,115,000 $ 3,317,000 $ -- $ 1,038,000 $3,394,000
========== =========== ========== =========== ==========
</TABLE>
(1) Does not include impairments of accounts receivable recognized in connection
with the Company's trading, restructuring and other unusual charges. See notes
to Consolidated Financial Statements.
(2) Uncollectible accounts written off.
F-2
<PAGE> 1
EXHIBIT 10.34
INDEMNIFICATION AGREEMENT
This Indemnification Agreement ("Agreement") is made as of October 27, 1999, by
and between Brightpoint, Inc., a Delaware corporation (the "Company"), and
___________________ ("Indemnitee").
RECITALS
The Company and Indemnitee recognize the increasing difficulty in obtaining
directors' and officers' liability insurance, the increases in the cost of such
insurance and the general reductions in the coverage of such insurance.
The Company and Indemnitee further recognize the substantial increase in
corporate litigation in general, subjecting officers and directors to expensive
litigation risks at the same time as the availability and coverage of liability
insurance has been severely limited. Indemnitee does not regard the current
protection available as adequate under the present circumstances, and Indemnitee
and other officers and directors of the Company may not be willing to continue
to serve as officers and directors without additional protection.
The Company desires to attract and retain the services of highly qualified
individuals, such as Indemnitee, to serve as officers and directors of the
Company and to indemnify its officers and directors so as to provide them with
the maximum protection permitted by law.
AGREEMENT
In consideration of the mutual promises made in this Agreement, and for other
good and valuable consideration, receipt of which is hereby acknowledged, the
Company and Indemnitee hereby agree as follows:
1. INDEMNIFICATION.
(a) GENERAL AGREEMENT. The Company shall indemnify Indemnitee if Indemnitee is
or was a party to or witness or other participant in, or is threatened to
be made a party to or witness or other participant to any threatened,
pending or completed action, suit or proceeding, whether civil, criminal,
administrative or investigative (including an action by or in the right of
the Company) by reason of the fact that Indemnitee is or was a director,
officer, employee or agent of the Company, or any subsidiary of the
Company, by reason of any action or inaction on the part of Indemnitee
while an officer or director or by reason of the fact that Indemnitee is or
was serving at the request of the Company as a director, officer, employee
or agent of another corporation, partnership, joint venture, trust or other
enterprise, against expenses (including attorneys' fees and costs),
judgments, fines, any interest, assessments, and other charges and amounts
paid in settlement (if such settlement is approved in advance by the
Company, which approval shall not be unreasonably withheld) actually and
reasonably incurred by Indemnitee in connection with such action, suit or
proceeding if Indemnitee acted in good faith and in a manner Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal
<PAGE> 2
action or proceeding, had no reasonable cause to believe Indemnitee's
conduct was unlawful. The termination of any action, suit or proceeding by
judgment, order, settlement, conviction, or upon a plea of nolo contendere
or its equivalent, shall not, of itself, create a presumption that
Indemnitee did not act in good faith and in a manner which Indemnitee
reasonably believed to be in or not opposed to the best interests of the
Company, and, with respect to any criminal action or proceeding, had
reasonable cause to believe that Indemnitee's conduct was unlawful.
(b) MANDATORY PAYMENT OF EXPENSES. To the extent that Indemnitee has been
successful on the merits or otherwise in defense of any action, suit or
proceeding referred to in Subsection (a) of this Section 1 or the defense
of any claim, issue or matter therein, Indemnitee shall be indemnified
against expenses (including reasonable attorneys' fees) actually and
reasonably incurred by Indemnitee in connection therewith.
2. NO EMPLOYMENT RIGHTS. Nothing contained in this Agreement is intended to
create in Indemnitee any right to continued employment.
3. EXPENSES; INDEMNIFICATION PROCEDURE.
(a) ADVANCEMENT OF EXPENSES. Subject to the terms and conditions of this
Agreement, the Company shall advance all expenses incurred by Indemnitee in
connection with the investigation, defense, settlement or appeal of any
civil or criminal action, suit or proceeding referenced in Section 1(a)
hereof (including amounts actually paid in settlement of any such action,
suit or proceeding). Indemnitee hereby undertakes to repay such amounts
advanced only if, and to the extent that, it shall ultimately be determined
that Indemnitee is not entitled to be indemnified by the Company as
authorized hereby. Any advances made hereunder shall be paid by the Company
to Indemnitee within twenty (20) days following delivery of a written
request therefor by Indemnitee to the Company.
(b) NOTICE/COOPERATION BY INDEMNITEE. Indemnitee shall, as a condition
precedent to his or her right to be indemnified under this Agreement, give
the Company notice in writing as soon as practicable of any claim made
against Indemnitee for which indemnification will or could be sought under
this Agreement. Notice to the Company shall be directed to the Chief
Executive Officer of the Company at the address shown on the signature page
of this Agreement (or such other address as the Company shall designate in
writing to Indemnitee). Notice shall be deemed received three (3) business
days after the date postmarked if sent by domestic certified or registered
mail, properly addressed, otherwise notice shall be deemed received when
such notice shall actually be received by the Company. In addition,
Indemnitee shall give the Company such information and cooperation as it
may reasonably require and as shall be within Indemnitee's power.
(c) PROCEDURE. Any indemnification and advances provided for in Section 1 shall
be made no later than forty-five (45) days after receipt of the written
request of Indemnitee. If a claim under this Agreement, under any statute,
or under any provision of the Company's Certificate of Incorporation or
Bylaws providing for indemnification, is not paid in full by the Company
within forty-five (45) days after a written request for payment thereof has
first been received
2
<PAGE> 3
by the Company, Indemnitee may, but need not, at any time thereafter bring
an action against the Company to recover the unpaid amount of the claim
and, subject to Section 13 of this Agreement, Indemnitee shall also be
entitled to be paid for the expenses (including attorneys' fees and
interest, at the Bank One, Indiana, National Association, prime rate in
effect on the date of Indemnitee's written request, on the unpaid amount of
the claim) of bringing such action. It shall be a defense to any such
action (other than an action brought to enforce a claim for expenses
incurred in connection with any action, suit or proceeding in advance of
its final disposition) that Indemnitee has not met the standards of conduct
which make it permissible under applicable law for the Company to indemnify
Indemnitee for the amount claimed. Indemnitee shall be entitled to receive
interim payments of expenses pursuant to Subsection 3(a) unless and until
such defense may be finally adjudicated by court order or judgment from
which no further right of appeal exists. It is the parties' intention that
if the Company contests Indemnitee's right to indemnification, the question
of Indemnitee's right to indemnification shall be for the court to decide,
and neither the failure of the Company (including its Board of Directors,
any committee or subgroup of the Board of Directors, independent legal
counsel, or its stockholders) to have made a determination that
indemnification of Indemnitee is proper in the circumstances because
Indemnitee has met the applicable standard of conduct required by
applicable law, nor an actual determination by the Company (including its
Board of Directors, any committee or subgroup of the Board of Directors,
independent legal counsel, or its stockholders) that Indemnitee has not met
such applicable standard of conduct, shall create a presumption that
Indemnitee has or has not met the applicable standard of conduct.
(d) NOTICE TO INSURERS. If, at the time of the receipt of a notice of a claim
pursuant to Section 3(b) hereof, the Company has director and officer
liability insurance in effect, the Company shall give prompt notice of the
commencement of such proceeding to the insurers in accordance with the
procedures set forth in the respective policies. The Company shall
thereafter take all necessary or desirable action to cause such insurers to
pay, on behalf of the Indemnitee, all amounts payable as a result of such
proceeding in accordance with the terms of such policies.
(e) SELECTION OF COUNSEL. In the event the Company shall be obligated under
Section 3(a) hereof to pay the expenses of any proceeding against
Indemnitee, the Company, if appropriate, shall be entitled to assume the
defense of such proceeding, with counsel approved by Indemnitee, upon the
delivery to Indemnitee of written notice of its election so to do. After
delivery of such notice, approval of such counsel by Indemnitee and the
retention of such counsel by the Company, the Company will not be liable to
Indemnitee under this Agreement for any fees of counsel subsequently
incurred by Indemnitee with respect to the same proceeding, provided that
(i) Indemnitee shall have the right to employ his or her counsel in any
such proceeding at Indemnitee's expense; and (ii) if (A) the employment of
counsel by Indemnitee has been previously authorized by the Company, (B)
Indemnitee shall have reasonably concluded that there may be a conflict of
interest between the Company and Indemnitee in the conduct of any such
defense, or (C) the Company shall not, in fact, have employed counsel to
assume the defense of such proceeding, then the fees and expenses of
Indemnitee's counsel shall be at the expense of the Company.
3
<PAGE> 4
(f) (i) For purposes of this Agreement, a "Change of Control" shall be deemed
to occur, unless previously consented to in writing by the Employee, upon
(a) individuals who, as of the date hereof, constitute the Board of
Directors of the Employer (the "Incumbent Board") ceasing for any reason to
constitute at least a majority of the Board of Directors of the Employer
(the "Board"); provided, however, that any individual becoming a director
subsequent to the date hereof whose election, or nomination for election by
the Employer's shareholders, was approved by a vote of at least a majority
of the directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but excluding,
for this purpose, any such individual whose initial assumption of office
occurs in connection with a Combination, as defined below, or as a result
of either an actual or threatened election contest (as such terms are used
in Rule 14a-11 of Regulation 14A promulgated under the Securities Exchange
Act of 1934, as amended (the "Exchange Act")) or other actual or threatened
solicitation of proxies or consents by or on behalf of a person other than
the Board; (b) the acquisition of beneficial ownership (as determined
pursuant to Rule 13d-3 promulgated under the Exchange Act) of 15% or more
of the voting securities of the Employer by any person, entity or group
(within the meaning of Section 13(d)(3) or 14(d)(2) of the Exchange Act)
not affiliated with the Employee or the Employer; provided, however, that
no Change of Control shall be deemed to have occurred for purposes of this
Agreement if such person, entity or group acquires beneficial ownership of
15% or more of the voting securities of the Employer (i) as a result of a
combination of the Employer or a wholly-owned subsidiary of the Employer
with such person, entity or group or another entity owned or controlled by
such person, entity or group (whether effected by a merger, consolidation,
sale of assets or exchange of stock or otherwise) (a "Combination") and
(ii) (x) executive officers of the Employer (as designated by the Board for
purposes of Section 16 of the Exchange Act) immediately prior to the
Combination constitute not less than 50% of the executive officers of the
Employer for a period of not less than six (6) months after the Combination
(for purposes of calculating the executive officers of the Employer after
the Combination, those executive officers who are terminated by the
Employer for Cause or who terminate their employment without Good Reason
shall be excluded from the calculation entirely), and (y) the members of
the Incumbent Board immediately prior to the Combination constitute not
less than 50% of the membership of the Board after the Combination and (z)
after the Combination, more than 35% of the voting securities of the
Employer is then beneficially owned, directly or indirectly, by all or
substantially all of the individuals and entities who were the beneficial
owners of the outstanding voting securities of the Employer immediately
prior to the Combination, it being understood that while the existence of a
Change in Control pursuant to this Section 6.4.2(b) may not be
ascertainable for six (6) months after the Combination, if it is ultimately
determined that such Combination constituted a Change in Control, the date
of the Change of Control shall be the effective date of the Combination;
(c) the commencement of a proxy contest against the management for the
election of a majority of the Board of the Employer if the group conducting
the proxy contest owns, has or gains the power to vote at least 15% of the
voting securities of the Employer; (d) the consummation of a
reorganization, merger or consolidation, or the sale, transfer or
conveyance of all or substantially all of the assets of the Employer to any
person or entity not affiliated with the Employee or the Employer unless,
following such reorganization, merger, consolidation, sale, transfer or
conveyance, the conditions set forth in clause (b)(ii) above are
4
<PAGE> 5
present; or (e) the complete liquidation or dissolution of the Employer.
(ii) With respect to all matters arising after a Change in Control (other
than a Change in Control approved by a majority of the directors on the
Board who were directors immediately prior to such Change in Control)
concerning the rights of Indemnitee to indemnity payments and advancement
of expenses under this Agreement, the Company shall seek legal advice only
from independent counsel selected by Indemnitee and approved by the Company
(which approval shall not be unreasonably withheld) (the "Independent
Counsel"), and who has not otherwise performed services for the Company or
the Indemnitee (other than in connection with indemnification matters)
within the last five years. The Independent Counsel shall not include any
person who, under the applicable standards of professional conduct then
prevailing, would have a conflict of interest in representing either the
Company or Indemnitee in an action to determine Indemnitee's rights under
this Agreement. Such counsel, among other things, shall render its written
opinion to the Company and Indemnitee as to whether and to what extent the
Indemnitee should be permitted to be indemnified under applicable law. The
Company agrees to pay the reasonable fees of the Independent Counsel and to
indemnify fully such counsel against any and all expenses (including
attorneys' fees), claims, liabilities, loss, and damages arising out of or
relating to this Agreement or the engagement of Independent Counsel
pursuant hereto.
(g) ESTABLISHMENT OF TRUST. In the event of a Change in Control (other than a
Change in Control approved by a majority of the directors on the Board who
were directors immediately prior to such Change in Control) the Company
shall, upon written request by Indemnitee, create a trust for the benefit
of the Indemnitee and from time to time upon written request of Indemnitee
shall fund the trust in an amount sufficient to satisfy any and all
expenses reasonably anticipated at the time of each such request to be
incurred in connection with investigating, preparing for, participating in,
and/or defending any proceeding relating to any indemnifiable event covered
herein. The amount or amounts to be deposited in the trust pursuant to the
foregoing funding obligation shall be determined by the Independent
Counsel. The terms of the trust shall provide that (i) the trust shall not
be revoked or the principal thereof invaded without the written consent of
the Indemnitee, (ii) the trustee shall advance, within ten business days of
a request by the Indemnitee, any and all expenses to the Indemnitee (and
the Indemnitee hereby agrees to reimburse the trust under the same
circumstances for which the Indemnitee would be required to reimburse the
Company under Section 3(a) of this Agreement), (iii) the trust shall
continue to be funded by the Company in accordance with the funding
obligation set forth above, (iv) the trustee shall promptly pay to the
Indemnitee all amounts for which the Indemnitee shall be entitled to
indemnification pursuant to this Agreement or otherwise, and (v) all
unexpended funds in the trust shall revert to the Company upon a final
determination by the Independent Counsel or a court of competent
jurisdiction, as the case may be, that the Indemnitee has been fully
indemnified under the terms of this Agreement. The trustee shall be chosen
by the Indemnitee. Nothing in this Section 3(g) shall relieve the Company
of any of its obligations under this Agreement. All income earned on the
assets held in the trust shall be reported as income by the Company for
federal, state, local, and foreign tax purposes. The Company shall pay all
costs of establishing and maintaining the trust and shall indemnify the
trustee against any and all expenses (including attorneys' fees), claims,
liabilities, loss, and damages arising out of or relating to this Agreement
or the establishment and maintenance of the trust.
5
<PAGE> 6
4. ADDITIONAL INDEMNIFICATION RIGHTS; NONEXCLUSIVITY.
(a) SCOPE. Notwithstanding any other provision of this Agreement, the Company
hereby agrees to indemnify the Indemnitee to the fullest extent permitted
by law, notwithstanding that such indemnification is not specifically
authorized by the other provisions of this Agreement, the Company's
Certificate of Incorporation, the Company's Bylaws or by statute. In the
event of any change in any applicable law, statute or rule which narrows
the right of a Delaware corporation to indemnify a member of its board of
directors or an officer, such changes, to the extent not otherwise required
by such law, statute or rule to be applied to this Agreement shall have no
effect on this Agreement or the parties' rights and obligations hereunder.
(b) NONEXCLUSIVITY. The indemnification provided by this Agreement shall not be
deemed exclusive of any rights to which Indemnitee may be entitled under
the Company's Certificate of Incorporation, its Bylaws, any agreement, any
vote of stockholders or disinterested members of the Company's Board of
Directors, the General Corporation Law of the State of Delaware, or
otherwise, both as to action in Indemnitee's official capacity and as to
action in another capacity while holding such office. The indemnification
provided under this Agreement shall continue as to Indemnitee for any
action taken or not taken while serving in an indemnified capacity even
though he or she may have ceased to serve in such capacity at the time of
any action, suit or other covered proceeding.
5. PARTIAL INDEMNIFICATION. If Indemnitee is entitled under any provision of
this Agreement to indemnification by the Company for some or a portion of
the expenses, judgments, fines or penalties actually or reasonably incurred
by him or her in the investigation, defense, appeal or settlement of any
civil or criminal action, suit or proceeding, but not, however, for the
total amount thereof, the Company shall nevertheless indemnify Indemnitee
for the portion of such expenses, judgments, fines or penalties to which
Indemnitee is entitled.
6. MUTUAL ACKNOWLEDGMENT. Both the Company and Indemnitee acknowledge that in
certain instances, Federal law or applicable public policy may prohibit the
Company from indemnifying its directors and officers under this Agreement
or otherwise. Indemnitee understands and acknowledges that the Company has
undertaken or may be required in the future to undertake with the
Securities and Exchange Commission to submit the question of
indemnification to a court in certain circumstances for a determination of
the Company's right under public policy to indemnify Indemnitee.
7. OFFICER AND DIRECTOR LIABILITY INSURANCE. The Company shall, from time to
time, make the good faith determination whether or not it is practicable
for the Company to obtain and maintain a policy or policies of insurance
with reputable insurance companies providing the officers and directors of
the Company with coverage for losses from wrongful acts, or to ensure the
Company's performance of its indemnification obligations under this
Agreement. Among other considerations, the Company will weigh the costs of
obtaining such insurance coverage against the protection afforded by such
coverage. Notwithstanding the foregoing, the Company shall have no
obligation to obtain or maintain such insurance if
6
<PAGE> 7
the Company determines in good faith that such insurance is not necessary
or is not reasonably available, if the premium costs for such insurance are
disproportionate to the amount of coverage provided, if the coverage
provided by such insurance is limited by exclusions so as to provide an
insufficient benefit, or if Indemnitee is covered by similar insurance
maintained by a subsidiary or parent of the Company. However, the Company's
decision whether or not to adopt and maintain such insurance shall not
affect in any way its obligations to indemnify its officers and directors
under this Agreement or otherwise. In all policies of director and officer
liability insurance, Indemnitee shall be named as an insured in such a
manner as to provide Indemnitee the same rights and benefits as are
accorded to the most favorably insured of the Company's directors, if
Indemnitee is a director; or of the Company's officers, if Indemnitee is
not a director of the Company, but is an officer; or of the Company's key
employees, if Indemnitee is not an officer or director, but is a key
employee.
8. SEVERABILITY. Nothing in this Agreement is intended to require or shall be
construed as requiring the Company to do or fail to do any act in violation
of applicable law. The Company's inability, pursuant to court order, to
perform its obligations under this Agreement shall not constitute a breach
of this Agreement. The provisions of this Agreement shall be severable as
provided in this Section 8. If this Agreement or any portion hereof shall
be invalidated on any ground by any court of competent jurisdiction, then
the Company shall nevertheless indemnify Indemnitee to the full extent
permitted by any applicable portion of this Agreement that shall not have
been invalidated, and the balance of this Agreement not so invalidated
shall be enforceable in accordance with its terms.
9. EXCEPTIONS. Any other provision herein to the contrary notwithstanding, the
Company shall not be obligated pursuant to the terms of this Agreement:
(a) CLAIMS INITIATED BY INDEMNITEE. To indemnify or advance expenses to
Indemnitee with respect to proceedings or claims initiated or brought
voluntarily by Indemnitee and not by way of defense, except with respect to
proceedings brought to establish or enforce a right to indemnification
under this Agreement or any other statute or law or otherwise as required
under Section 145 of the Delaware General Corporation Law, but such
indemnification or advancement of expenses may be provided by the Company
in specific cases if the Board of Directors has approved the initiation or
bringing of such suit.
(b) LACK OF GOOD FAITH. To indemnify Indemnitee for any expenses incurred by
the Indemnitee with respect to any proceeding instituted by Indemnitee to
enforce or interpret this Agreement, if a court of competent jurisdiction
determines that each of the material assertions made by the Indemnitee in
such proceeding was not made in good faith or was frivolous.
(c) INSURED CLAIMS. To indemnify Indemnitee for expenses or liabilities of any
type whatsoever (including, but not limited to, judgments, fines, ERISA
excise taxes or penalties, and amounts paid in settlement) to the extent
such expenses or liabilities have been paid directly to Indemnitee by an
insurance carrier under a policy of officers' and directors' liability
insurance maintained by the Company.
7
<PAGE> 8
(d) CLAIMS UNDER SECTION 16(B). To indemnify Indemnitee for expenses and the
payment of profits arising from the purchase and sale by Indemnitee of
securities in violation of Section 16(b) of the Securities Exchange Act of
1934, as amended, or any similar successor statute.
10. CONSTRUCTION OF CERTAIN PHRASES.
(a) For purposes of this Agreement, references to the "COMPANY" shall include
any constituent corporation (including any constituent of a constituent)
absorbed in a consolidation or merger which, if its separate existence had
continued, would have had power and authority to indemnify its directors,
officers, and employees or agents, so that if Indemnitee is or was a
director, officer, employee or agent of such constituent corporation, or is
or was serving at the request of such constituent corporation as a
director, officer, employee or agent of another corporation, partnership,
joint venture, trust or other enterprise, Indemnitee shall stand in the
same position under the provisions of this Agreement with respect to the
resulting or surviving corporation as Indemnitee would have with respect to
such constituent corporation if its separate existence had continued.
(b) For purposes of this Agreement, references to "OTHER ENTERPRISES", shall
include employee benefit plans; references to "FINES" shall include any
excise taxes assessed on Indemnitee with respect to an employee benefit
plan; and references to "SERVING AT THE REQUEST OF THE COMPANY" shall
include any service as a director, officer, employee or agent of the
Company which imposes duties on, or involves services by, such director,
officer, employee or agent with respect to an employee benefit plan, its
participants, or beneficiaries; and if Indemnitee acted in good faith and
in a manner Indemnitee reasonably believed to be in the interest of the
participants and beneficiaries of an employee benefit plan, Indemnitee
shall be deemed to have acted in a manner "NOT OPPOSED TO THE BEST
INTERESTS OF THE COMPANY" as referred to in this Agreement.
11. SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon the Company
and its successors and assigns, and shall inure to the benefit of
Indemnitee and Indemnitee's estate, heirs, legal representatives and
assigns.
12. ATTORNEYS' FEES. In the event that any action is instituted by Indemnitee
under this Agreement to enforce or interpret any of the terms hereof,
Indemnitee shall be entitled to be paid all court costs and expense,
including reasonable attorneys' fees, incurred by Indemnitee with respect
to such action. The Company hereby consents to service of process and to
appear in any such action. In the event of an action instituted by or in
the name of the Company under this Agreement or to enforce or interpret any
of the terms of this Agreement, Indemnitee shall be entitled to be paid all
court costs and expenses, including attorneys' fees and costs, incurred by
Indemnitee in defense of such action (including with respect to
Indemnitee's counterclaims and cross-claims made in such action).
13. NOTICE. All notices, requests, demands and other communications under this
Agreement shall be in writing and shall be deemed duly given (i) if
delivered by hand and receipted for
8
<PAGE> 9
by the party addressee, on the date of such receipt, or (ii) if mailed by
domestic certified or registered mail with postage prepaid, on the third
business day after the date postmarked. Addresses for notice to either
party are as shown on the signature page of this Agreement, or as
subsequently modified by written notice.
14. CONSENT TO JURISDICTION. The Company and Indemnitee each hereby irrevocably
consent to the jurisdiction of the courts of the State of Indiana for all
purposes in connection with any action or proceeding which arises out of or
relates to this Agreement and agree that any action instituted under this
Agreement shall be brought only in the state courts of the State of
Indiana.
15. CHOICE OF LAW. This Agreement shall be governed by and its provisions
construed in accordance with the laws of the State of Delaware, as applied
to contracts between Delaware residents entered into and to be performed
entirely within Delaware.
16. MODIFICATION. This Agreement constitutes the entire agreement between the
parties hereto with respect to the subject matter hereof. All prior
negotiations, agreements and understandings between parties with respect
thereto are superseded hereby. This Agreement may not be modified or
amended except by an instrument in writing signed by or on behalf of the
parties hereto.
The parties hereto have executed this Agreement as of the day and year set forth
on the first page of this Agreement.
BRIGHTPOINT, INC.
By:
---------------------------------
Name:
-------------------------------
Title:
------------------------------
AGREED TO AND ACCEPTED:
INDEMNITEE
- ------------------------------------
Printed Name:
Address:
----------------------------
----------------------------
9
<PAGE> 1
EXHIBIT 11
BRIGHTPOINT, INC.
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
1997 1998 1999
-------- -------- --------
<S> <C> <C> <C>
Basic:
Weighted average shares outstanding 46,630 52,818 53,290
-------- -------- --------
Income (loss) before income taxes, minority
interest and accounting change $ 36,927 $ 31,237 $(66,827)
Deduct income taxes 11,065 11,212 12,281
Deduct minority interest
352 (151) (93)
Deduct cumulative effect of accounting change,
net of tax -- -- 14,065
-------- -------- --------
Net income (loss) $ 25,510 $ 20,176 $(93,080)
======== ======== ========
Per share amount:
Income (loss) before accounting change $ 0.55 $ 0.38 $ (1.48)
Cumulative effect of accounting change, net of tax -- -- (0.27)
-------- -------- --------
Net income (loss) $ 0.55 $ 0.38 $ (1.75)
======== ======== ========
Diluted:
Weighted average shares outstanding 46,630 52,818 53,290
Net effect of dilutive stock options and warrants-
based on the treasury stock method using
average market price 1,831 665 --
-------- -------- --------
Total weighted average shares outstanding 48,461 53,483 53,290
======== ======== ========
Income (loss) before income taxes, minority
interest and accounting change $ 36,927 $ 31,237 $(66,827)
Deduct income taxes 11,065 11,212 12,281
Deduct minority interest
352 (151) (93)
Deduct cumulative effect of accounting change,
net of tax -- -- 14,065
-------- -------- --------
Net income (loss) $ 25,510 $ 20,176 $(93,080)
======== ======== ========
Per share amount:
Income (loss) before accounting change $ 0.53 $ 0.38 $ (1.48)
Cumulative effect of accounting change, net of tax -- -- (0.27)
-------- -------- --------
Net income (loss) $ 0.53 $ 0.38 $ (1.75)
======== ======== ========
</TABLE>
<PAGE> 1
EXHIBIT 13
SELECTED PAGES FROM BRIGHTPOINT INC'S
1999 ANNUAL REPORT TO STOCKHOLDERS WHICH HAVE
BEEN INCORPORATED IN THIS FILING.
<PAGE> 2
FINANCIAL INFORMATION
- -------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
AND MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Report of Independent Auditors................................26
Management's Responsibility for Financial Statements..........26
Overview and Recent Developments..............................27
Operating Segments............................................28
Future Operating Results......................................29
Consolidated Statements of Operations and Analysis............30
Consolidated Balance Sheets and Analysis......................34
Consolidated Statements of Cash Flows and Analysis............36
Consolidated Statements of Stockholders' Equity...............38
Financial Market Risk Management..............................39
Impact of Year 2000...........................................39
Notes to Consolidated Financial Statements....................40
Other Information.............................................49
25
<PAGE> 3
- -------------------------------------------------------------------------------
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Brightpoint, Inc.
We have audited the accompanying consolidated balance sheets of Brightpoint,
Inc. as of December 31, 1999 and 1998, and the related consolidated statements
of operations, stockholders' equity and cash flows for each of the three years
in the period ended December 31, 1999, on pages 30, 34, 36, 38 and 40 through 48
and the information appearing under the caption "Operating Segments" on pages 28
and 29. These financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these financial
statements based on our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Brightpoint, Inc.
at December 31, 1999 and 1998, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
1999, in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Indianapolis, Indiana
January 24, 2000
- -------------------------------------------------------------------------------
MANAGEMENT'S RESPONSIBILITY FOR FINANCIAL STATEMENTS
The management of Brightpoint, Inc. is responsible for the preparation and
integrity of the Company's consolidated financial statements and all related
information appearing in this Annual Report. The Company maintains accounting
and internal control systems which are intended to provide reasonable assurances
that assets are safeguarded against loss from unauthorized use or disposition,
that transactions are executed in accordance with management's authorization and
that accounting records are reliable for preparing financial statements in
accordance with generally accepted accounting principles.
The financial statements for each of the years covered in this Annual Report
have been audited by independent auditors who have provided an independent
assessment as to the fairness of the financial statements.
The Board of Directors has appointed an Audit Committee whose three members are
not employees of the Company. Pursuant to its charter, the Audit Committee
meets with certain members of management and the independent auditors to review
the results of their work and satisfy itself that their responsibilities are
being properly discharged. The independent auditors have full and free access to
the Audit Committee and have discussions with the Audit Committee regarding
appropriate matters, with and without management present.
/s/ Robert J. Laikin
- -------------------------
Robert J. Laikin
Chairman of the Board and
Chief Executive Officer
/s/ J. Mark Howell
- -------------------------
J. Mark Howell
President and
Chief Operating Officer
/s/ Phillip A. Bounsall
- -------------------------
Phillip A. Bounsall
Executive Vice President and
Chief Financial Officer
/s/ John P. Delaney
- -------------------------
John P. Delaney
Vice President and
Chief Accounting Officer
26
<PAGE> 4
- -------------------------------------------------------------------------------
OVERVIEW AND RECENT DEVELOPMENTS
The discussion and analysis contained in the following pages should be read in
conjunction with the Consolidated Financial Statements of the Company and the
notes thereto. All currency amounts stated within this Annual Report refer to
U.S. Dollars and are stated in thousands (except per share data) unless
otherwise indicated.
BASIS OF PRESENTATION
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 programs. The reclassification, which reduces
revenue and cost 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. All amounts in this Annual Report reflect the retroactive
application of the reclassification.
The table below summarizes the amount of the reduction in revenue and cost of
revenue due to the reclassification.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
============================================================
1997 $1,432 $ 4,057 $10,675 $13,369 $29,533
1998 7,989 16,761 22,163 8,433 55,346
1999 8,787 14,957 19,224 20,076 63,044
==================================================================
NON-RECURRING CHARGES AND OTHER ITEMS
1998
Through the end of the third quarter of 1998, the Company had been engaged in
the business of trading wireless handsets. Trading involves the purchase of
wireless handsets from sources other than manufacturers or network operators
(i.e., trading companies) and the sale of those handsets to purchasers other
than network operators or their representatives (also trading companies). At the
beginning of the fourth quarter of 1998 the Company decided to cease its trading
activities primarily because: (i) those activities were not consistent with its
strategy of emphasizing relationships with wireless equipment manufacturers and
network operators; (ii) the margins earned on the trading activities were
rapidly decreasing; and (iii) the Company had increasing concerns about the
business practices of many trading companies. Additionally, the Company
completed a strategic shift from significant sales to other distributors to more
direct relationships with network operators and their representatives in the
fourth quarter of 1998.
In connection with these actions, the Company recorded non-recurring and unusual
charges of approximately $25.7 million ($19.9 million net of related tax
benefits) in the fourth quarter of 1998. These charges included approximately
$22.7 million to adjust assets affected by these actions to their net realizable
value and approximately $3.0 million for employee termination and other costs
related to the discontinuation of the trading division. The asset impairments
included accounts receivable generated from sales to trading companies,
inventory prepayments to trading companies, inventories purchased from trading
companies, accounts receivable generated by the sale of products to the other
distributors and supplier credits related to the purchase of products for these
channels.
1999
The Company recorded in the first quarter of 1999 a cumulative effect adjustment
for a change in accounting principle. The change in accounting principle
resulted from the required adoption of American Institute of Certified Public
Accountants Statement of Position 98-5, Reporting the Costs of Start-up
Activities, which requires the write-off of the unamortized portion of the
Company's previously capitalized start-up costs. These costs were incurred
primarily as a part of the Company's in-country expansion and long-term contract
activities 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.
Because the Company's revenues and results of operations for the first quarter
of 1999 were significantly below that which had been anticipated, the Company
performed a detailed evaluation of each of its operations and the market factors
affecting those operations. Consequently, beginning in the second quarter of
1999 the Company implemented a broad restructuring 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 restructuring plan
was approved by the Company's Board of Directors and included the disposal of
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 initiation of cost
reduction programs in certain areas of its business. 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 operating divisions outside of North America. As of
March of 2000, the Company's execution of the restructuring plan was
substantially complete.
27
<PAGE> 5
- -------------------------------------------------------------------------------
As a result of actions taken in accordance with the restructuring plan the
Company recorded in 1999 restructuring and other unusual charges of
approximately $84.9 million. The charges included the write-off of goodwill and
investments related to the eliminated or terminated operations, as well as
losses on the disposals of fixed and other assets and cash expenses of
approximately $6.1 million related to lease and employee terminations and other
exit costs. These amounts are recorded in the "Trading, restructuring and other
unusual charges" line in the Consolidated Statements of Operations. The
non-recurring charges also include the write-down of inventory (included in the
"Cost of revenue" line) and accounts receivable (included in the "Selling,
general and administrative expenses" line) to their estimated net realizable
value.
ACQUISITIONS AND DIVESTITURES
The Company completed the following purchase acquisitions and divestitures
during the past three years.
1997
- - Acquired the remaining 20% minority interests of its consolidated
subsidiaries, Brightpoint China Limited, Brightpoint (UK) Limited and
Brightpoint Australia Pty Limited during the period of February through
April 1997.
- - Acquired the business and certain net assets of the following wireless
products distributors:
- Telnic AB - located in Sweden;
- Legend International (Asia) Limited - located in Hong Kong;
- Cellular Trading 3, CA and an affiliated company - located in Venezuela.
1998
- - Acquired the business and either all of the equity interests or certain net
assets of:
- Matel-Tecnologia de Teleinformatica S.A.-Matec - a wireless
products distributor in Brazil;
- WAVETech Limited - a wireless products distributor in the United Kingdom;
- Wireless Fulfillment Services, LLC - a provider of wireless accessory
end-user fulfillment services for North American network operators;
- Axess Communications Benelux B.V. - a provider of accessory distribution
services in the wireless communications industry with operations in the
Netherlands, Germany and Poland;
- Cell Direct Limited - a wireless products distributor in New Zealand;
- Function Communications Co., Ltd. - a wireless products distributor
in Taiwan;
- Euro-Phone Sp. z o.o. - a wireless products distributor in Poland;
- Communicaciones ASBE, S.A. de C.V. - a wireless products distributor
in Mexico;
- Eurocom Systems S.A. - a provider of distribution and integrated
logistics services in the wireless communications industry in France.
1999
- - Acquired Cellular Services S.A. - a provider of integrated logistics services
in the wireless communications industry in Brazil.
- - Sold WAVETech Network Services Limited, a subsidiary of WAVETech Limited
in the United Kingdom.
- - Pursuant to its restructuring plan, terminated or disposed of certain
operations in the United Kingdom, Argentina, Taiwan, China and Poland.
NET INVESTMENT GAINS
During the first quarter of both 1997 and 1998, the Company realized net gains
on the sale of marketable equity securities, representing income of a
nonrecurring nature. These net investment gains were $1.4 million ($0.8 million
after-tax) and $0.6 million ($0.3 million after-tax) in 1997 and 1998,
respectively.
FACILITY CONSOLIDATION
In the first quarter of 2000, the Company was in the process of consolidating
four locations in Indianapolis into a single, new facility designed specifically
for the Company and its processes. This new facility is located in close
proximity to the Indianapolis International Airport. The consolidation is
expected to result in increased costs during the first quarter of 2000 due to
moving costs, the disposal of assets that will not be used in the new facility,
and the financial effects of the potential sublease of existing facilities. The
aggregate amount of these costs is not expected to exceed $5.0 million.
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 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.
28
<PAGE> 6
The Company evaluates the performance of, and allocates resources to, these
segments based on income (loss) from operations which includes allocated
corporate selling, general and administrative expenses. The accounting policies
of these reportable segments are the same as those described in Note 1 -
Significant Accounting Policies. A summary of the Company's operations by
segment is presented below:
<TABLE>
<CAPTION>
Trading,
Restructing
Revenues Income Total Allocated Allocated and Other
from External (Loss) from Segment Interest Income Unusual
Customers Operations(1) Assets Expense(2) Taxes(2) Charges
============================================================================================
<S> <C> <C> <C> <C> <C> <C>
1997
North America $ 267,941 $ 12,537 $154,925 $ 2,653 $ 3,082 $ -
Asia-Pacific 431,899 18,405 136,323 1,639 5,030 -
Europe,
Middle East
and Africa 222,352 6,773 107,158 2,009 1,429 -
Latin America 83,924 4,147 58,296 66 1,524 -
------------------------------------------------------------------------
$1,006,116 $ 41,862 $456,702 $ 6,367 $11,065 $ -
========================================================================
1998
North America $ 469,965 $ 22,625 $247,687 $ 4,995 $ 3,078 $ -
Asia-Pacific 518,516 2,958 161,449 3,347 3,241 15,148
Europe,
Middle East
and Africa 385,734 8,098 197,386 2,484 2,798 8,597
Latin America 199,061 9,456 107,928 1,646 2,095 2,004
------------------------------------------------------------------------
$1,573,276 $ 43,137 $ 714,450 $12,472 $11,212 $25,749
========================================================================
1999
North America $ 730,000 $ 23,737 $ 334,912 $ 3,649 $ 7,527 $ -
Asia-Pacific 432,730 (32,647) 104,311 3,641 2,355 37,989
Europe,
Middle East
and Africa 330,469 (42,995) 103,705 3,665 2,520 44,387
Latin America 245,959 (1,809) 80,930 2,158 (121) 2,545
------------------------------------------------------------------------
$1,739,228 $ (53,714) $623,858 $13,113 $12,281 $84,921
========================================================================
</TABLE>
(1) Includes $25.7 million and $84.9 million of trading, restructuring and
other unusual charges in 1998 and 1999, respectively.
(2) These items are allocated using various methods and are not necessarily
indicative of the actual interest expense and income taxes for the
applicable divisions.
SFAS No. 131 also requires the following enterprise-wide disclosures:
1997 1998 1999
===============================================================================
External revenue by service line:
Wireless handset sales $ 918,123 $ 1,336,368 $ 1,325,336
Wireless accessory sales 59,265 145,852 254,776
Integrated logistics
services 28,728 91,056 159,116
--------------------------------------
$ 1,006,116 $ 1,573,276 $ 1,739,228
======================================
Long-lived assets:
North America $ 25,557 $ 38,571 $ 42,144
Asia-Pacific 23,836 40,824 29,008
Europe, Middle East
and Africa 14,152 73,836 32,916
Latin America 1,646 11,994 14,871
--------------------------------------
$ 65,191 $ 165,225 $ 118,939
======================================
FUTURE OPERATING RESULTS
Various statements, discussions and analyses throughout this Annual Report,
including the following discussion, are not based on historical fact and contain
forward-looking statements. Actual future results may differ materially. Future
trends for revenue and profitability are difficult to predict due to a variety
of known and unknown risks and uncertainties, including, among others, (i)
business conditions and growth in the Company's markets, including currency,
economic and political risks in markets in which the Company operates; (ii)
availability and prices of wireless products; (iii) absorption, through revenue
growth, of the increasing operating costs that the Company has incurred and
continues to incur in connection with its expansion activities and provision of
integrated logistics services; (iv) successful consummation and integration of
acquisitions; (v) success of strategic relationships with wireless equipment
manufacturers and network operators; (vi) ability to meet the intense industry
competition; (vii) continued access to increasing amounts of capital; (viii) the
highly dynamic nature of the industry in which the Company participates; (ix)
continued tendency of wireless equipment manufacturers and network operators to
outsource aspects of their business; (x) ability to manage and sustain future
growth at our historical and current rates; (xi) ability to respond to rapid
technological changes in the wireless communications and data industry; (xii)
reliance on sophisticated information systems technologies; (xiii) ability to
attract and maintain qualified management and other personnel; and (xiv) risk of
failure or material interruption of wireless systems and services.
As previously discussed, the Company substantially completed a broad
restructuring plan during 1999 in an effort to improve its position for
long-term success. As a result of the restructuring, the Company projects a
savings of approximately $25 million in annual selling, general and
administrative costs. Although the Company believes that the objectives of the
restructuring plan were met, there can be no assurance that the actions taken as
a result of the restructuring plan will have the desired affect on future
operating results. Additionally, due to the highly competitive and dynamic
nature of the industry in which the Company operates, the ability of the Company
to avoid further restructuring in the future is somewhat uncertain.
Because of the aforementioned uncertainties affecting the Company's future
operating results, past performance should not be considered to be a reliable
indicator of future performance, and investors should not use historical trends
to anticipate future results or trends.
29
<PAGE> 7
- -------------------------------------------------------------------------------
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Amounts in thousands, except per share data)
Year ended December 31
1997 1998 1999
===============================================================================
Revenue $ 1,006,116 $ 1,573,276 $ 1,739,228
Cost of revenue 920,945 1,432,042 1,611,593
- -------------------------------------------------------------------------------
Gross profit 85,171 141,234 127,635
Selling, general and administrative
expenses 43,309 72,348 116,463
Trading, restructuring and other
unusual charges - 25,749 64,886
- -------------------------------------------------------------------------------
Income (loss) from operations 41,862 43,137 (53,714)
Net investment gain 1,432 572 -
Interest expense 6,367 12,472 13,113
- -------------------------------------------------------------------------------
Income (loss) before income taxes,
minority interest and accounting change 36,927 31,237 (66,827)
Income taxes 11,065 11,212 12,281
- -------------------------------------------------------------------------------
Income (loss) before minority interest
and accounting change 25,862 20,025 (79,108)
Minority interest 352 (151) (93)
- -------------------------------------------------------------------------------
Income (loss) before accounting change 25,510 20,176 (79,015)
Cumulative effect of accounting
change, net of tax - - (14,065)
- -------------------------------------------------------------------------------
Net income (loss) $ 25,510 $ 20,176 $ (93,080)
===============================================================================
Basic per share:
Income (loss) before accounting change $ 0.55 $ 0.38 $ (1.48)
Cumulative effect of accounting
change, net of tax - - (0.27)
- -------------------------------------------------------------------------------
Net income (loss) $ 0.55 $ 0.38 $ (1.75)
===============================================================================
Diluted per share:
Income (loss) before accounting change $ 0.53 $ 0.38 $ (1.48)
Cumulative effect of accounting
change, net of tax - - (0.27)
- -------------------------------------------------------------------------------
Net income (loss) $ 0.53 $ 0.38 $ (1.75)
===============================================================================
Weighted average common shares outstanding:
Basic 46,630 52,818 53,290
===============================================================================
Diluted 48,461 53,483 53,290
===============================================================================
See accompanying notes.
30
<PAGE> 8
- -------------------------------------------------------------------------------
ANALYSIS OF THE CONSOLIDATED STATEMENTS OF OPERATIONS
The Company's revenues are comprised of sales of wireless handsets and related
accessories and fees generated from integrated logistics services. The sale of
wireless handsets and related accessories and the resulting gross profit
reflects the compensation earned by the Company for its distribution services,
which services include purchasing, marketing, selling, warehousing, picking,
packing, shipping and delivery of wireless handsets and accessories. Fees earned
from integrated logistics services are earned as services are performed. Such
services include, among others, support for prepaid programs, inventory
management, procurement, product fulfillment, programming, contract
manufacturing, telemarketing, private labeling, kitting and customized
packaging, product warranty, repair and refurbishment and end-user support
services.
As a result of the restructuring plan implemented in 1999, the Company has
eliminated or is in the process of eliminating operations in Argentina, Poland,
Hong Kong, 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). Because of the significance
of the restructuring plan discussed previously, results of operations have been
delineated between results from recurring operations and results from
non-recurring operations. Recurring operations include all operations except
those presented as non-recurring. Non-recurring operations are those operations
that have been eliminated or terminated or will be eliminated pursuant to the
restructuring plan. Recurring operations also exclude impacts of non-recurring
charges recorded in 1998 and 1999, the cumulative effect of a change in
accounting principle recorded in the first quarter of 1999 and net investment
gains recorded in the first quarters of 1997 and 1998, all of which have been
presented separately.
RECURRING OPERATIONS
REVENUE
1997 1998 Change 1999 CHANGE
=====================================================
Revenue $841,707 $1,253,856 49% $1,618,585 29%
==============================================================================
Consolidated revenue from recurring operations for 1999 increased 29% to
approximately $1.6 billion from $1.3 billion in 1998. The increase in revenue
from recurring operations for 1998 was 49% as compared to 1997. The increases in
both periods reflect the strong worldwide demand for wireless products and the
Company's distribution and integrated logistics services. The increased demand
for wireless products resulted from, among other things, increasing numbers of
wireless subscribers in many markets worldwide and increasing demand for
replacement or upgraded equipment. The Company believes revenue from recurring
operations was adversely affected by shortages of wireless handsets during 1999.
REVENUE FROM RECURRING OPERATIONS BY SERVICE LINE
1997 1998 1999
=================================================
Wireless handset
sales $758,900 91% $1,044,757 83% $1,228,028 76%
Wireless accessory
sales 54,079 6% 127,978 10% 252,506 16%
Integrated logistics
services 28,728 3% 81,121 7% 138,051 8%
=================================================
Total $841,707 100% $1,253,856 100% $1,618,585 100%
==============================================================================
Revenue from recurring operations for the year ended December 31, 1999 as
compared to 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. Approximately 50% of the 1999 increase in total revenue from recurring
operations was attributable to a 70% increase in revenues from integrated
logistics services and a 97% increase in wireless accessories sold. Consistent
with the Company's strategy, revenue growth from these service lines outpaced
increases in wireless handset sales, which increased 18% from 1998 to 1999, and
accounted for the remaining 50% increase in 1999 total revenues. The 1998
increase in revenue from recurring operations was primarily attributable to a
38% increase in wireless handsets sold, a 182% increase in revenues from
integrated logistics services and a 137% increase in sales of wireless
accessories.
REVENUE FROM RECURRING OPERATIONS BY DIVISION
1997 1998 1999
=================================================
North America $267,941 32% $ 469,965 38% $ 730,070 45%
Asia-Pacific 426,710 51% 406,408 32% 341,006 21%
Europe, Middle East
and Africa 63,132 7% 178,434 14% 301,550 19%
Latin America 83,924 10% 199,049 16% 245,959 15%
=================================================
Total $841,707 100% $1,253,856 100% $1,618,585 100%
==============================================================================
The Company operates in various markets worldwide and business activities are
managed in four divisions: North America; Asia-Pacific; Europe, Middle East and
Africa; and Latin America. Within the North American division operations are
conducted primarily within the United States. Revenue in this region grew 55%
from 1998 to 1999 and units handled (wireless handsets sold through distribution
services or fulfilled through integrated logistics services) by the division
increased 70% in 1999 compared to 1998 due to increases in both its integrated
logistics and distribution service lines. These increases reflect growth in the
provision of services to network operators and their agents, including mass and
Internet retailers.
The Company's Asia-Pacific division maintains recurring operations in the
People's Republic of China (including Hong Kong), Australia, Philippines, and
New Zealand. Revenue from recurring operations in the Asia-Pacific division
declined 16% in 1999 when compared to 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
31
<PAGE> 9
- ------------------------------------------------------------------------------
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 of 1999 which
have been included in recurring operations and which replace those operations
that were terminated pursuant to the restructuring plan. Notwithstanding this
impact on the division's revenue in 1999, the division's other entities
experienced revenue growth of approximately 68%, reflecting continued increasing
demand for the Company's services.
The Company's Europe, Middle East and Africa division has recurring operations
in Ireland, the United Arab Emirates, France, Germany, Sweden, South Africa, the
Netherlands and Zimbabwe. The Latin America division of the Company has
recurring operations in Miami, Brazil, Mexico, Venezuela and Puerto Rico.
Revenue from recurring operations within the Europe, Middle East and Africa and
Latin America divisions grew by 69% and 24%, respectively, in 1999 compared to
1998 resulting from the strong demand for the Company's distribution and
integrated logistics services and expansion of our in-country operations in
certain markets within each of the regions. Recurring revenue within the Europe,
Middle East and Africa and Latin America divisions grew by 183% and 137%,
respectively, in 1998 compared to 1997 resulting from the migration to
in-country presences in certain markets within each region.
GROSS PROFIT
1997 1998 Change 1999 CHANGE
==================================================
Gross profit $75,814 $119,087 57% $135,014 13%
Gross margin 9.0% 9.5% 8.3%
==============================================================================
Gross profit from recurring operations in 1999 increased 13% from the prior year
to approximately $135 million, and gross profit in 1998 increased by 57% from
1997 to approximately $119 million. These increases were due to the increases in
revenue and, in 1998, an increase in gross margins. The 1998 increase in gross
margins was due primarily to the continuing execution of the Company's strategy
to provide higher-margin integrated logistics services and expanded accessory
sales in all four of the Company's divisions. However, gross margins were lower
in 1999 due to 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.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
1997 1998 Change 1999 CHANGE
==================================================
Selling, general and
administrative expenses $36,834 $58,268 58% $95,549 64%
As a percent of revenue 4.4% 4.6% 5.9%
==============================================================================
Selling, general and administrative expenses related to recurring operations
increased 64% and 58% in 1999 and 1998, respectively, as compared to the prior
years and reflect the increased cost of serving current and anticipated
integrated logistics services customers, increased levels of business activity,
and increased managerial resources in all of the Company's operating divisions.
The increases are also due to an increase in depreciation and amortization
expenses resulting from investments associated with information systems,
leasehold improvements and acquisitions as well as increased rent expense due to
expanded facilities, an increase in bad debt expense; and growth in various
marketing costs including travel, promotions and commissions.
INCOME FROM OPERATIONS
1997 1998 Change 1999 CHANGE
==================================================
Income from
operations $38,980 $60,819 56% $39,465 (35)%
As a percent
of revenue 4.6% 4.9% 2.4%
==============================================================================
In 1999, income from recurring operations decreased by 35% to approximately
$39.5 million, and the operating margin (income from operations as a percent of
revenue) also decreased from 4.9% in 1998 to 2.4% in 1999. These decreases are
primarily the result of the decrease in gross margin and from the increase in
selling, general and administrative expenses as a percent of revenue.
The 1998 increase in income from recurring operations was due to the increase in
revenue while the increase in operating margin was due to the increase in gross
margin, partially offset by the increase in selling, general and administrative
expenses as a percent of revenue.
Net Income
1997 1998 Change 1999 CHANGE
==================================================
Net income $23,538 $35,848 52% $16,793 (53)%
As a percent
of revenue 2.8% 2.9% 1.0%
Net income per share
- - Basic $ 0.50 $ 0.68 36% $ 0.32 (53)%
- - Diluted $ 0.49 $ 0.67 37% $ 0.31 (54)%
Weighted average
shares outstanding
- - Basic 46,630 52,818 13% 53,290 1%
- - Diluted 48,461 53,483 10% 54,145 1%
==============================================================================
The decrease in net income from recurring operations of 53% in 1999 when
compared to 1998 resulted primarily from the decrease in operating margins. In
addition, the effective tax rate increased in 1999 to approximately 39% from 30%
in 1998. Changes in the effective tax rate are due generally to the amount and
geographic dispersion of pretax income.
Net income from recurring operations in 1998 increased by 52% compared to 1997.
This increase was due to an increase in income from operations partially offset
by an increase in interest expense
32
<PAGE> 10
relating to additional debt obtained to fund working capital requirements. The
1998 increase in weighted average shares outstanding is due primarily to shares
issued in connection with acquisitions and the impact of stock options and
warrants.
NON-RECURRING OPERATIONS
REVENUE AND GROSS PROFIT
1997 1998 Change 1999 CHANGE
===================================================
Revenue $164,409 $319,420 94% $120,643 (62)%
Gross profit 9,357 22,147 137% 2,190 (90)%
Gross margin 5.7% 6.9% 1.8%
==============================================================================
Revenue and gross profit from non-recurring operations decreased 62% and 90% to
approximately $120.6 million and $2.2 million, respectively, from 1999 to 1998.
These decreases are due primarily to the reduced business activity resulting
from the substantial completion of the restructuring plan in 1999 and the
discontinuation of trading activities completed in the fourth quarter of 1998.
The increases in revenue and gross profit generated in non-recurring operations
from 1997 to 1998 were primarily the result of expanding operations resulting
from the Company's acquisition activities and growth in worldwide demand for
wireless products and services.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
1997 1998 Change 1999 CHANGE
==================================================
Selling, general
and administrative
expenses $ 6,475 $14,080 117% $13,973 (1)%
As a percent
of revenue 3.9% 4.4% 11.6%
==============================================================================
Selling, general and administrative expenses incurred in non-recurring
operations during 1999 were $14.0 million as compared to $14.1 million in 1998,
however, as a percent of revenue, selling, general and administrative expenses
increased by over 150%. This increase as a percent of revenue was primarily due
to the decrease in revenue in 1999. The increase in selling, general and
administrative expenses in 1998 was due primarily to the Company's increase in
business activities.
Income (Loss) from Operations
1997 1998 Change 1999 CHANGE
==================================================
Income (loss)
from operations $ 2,882 $ 8,067 180% $(11,783) (246)%
As a percent
of revenue 1.8% 2.5% (9.8)%
Net income (loss) $ 1,123 $ 3,877 245% $(10,887) (381)%
As a percent
of revenue 0.7% 1.2% (9.0)%
Net income (loss)
per share (basic
and diluted) $ 0.02 $ 0.07 250% $ (0.20) (386)%
==============================================================================
In 1999, the non-recurring operations generated an operating loss of $11.8
million and a net loss of $10.9 million ($0.20 per diluted share) compared to
operating income in 1998 and 1997 of $8.1 million and $2.9 million,
respectively, and net income in 1998 and 1997 of $3.9 million ($0.07 per diluted
share) and $1.1 million ($0.02 per diluted share), respectively. These results
are due to the declining revenues and gross margins during 1999 within these
operations and were exacerbated by increased selling, general and administrative
expenses as percent of revenue.
NON-RECURRING CHARGES AND OTHER UNUSUAL ITEMS
As more fully discussed in the section entitled "Overview and Recent
Developments," the Company recorded non-recurring and other unusual charges in
1998 and 1999, a cumulative effect adjustment for a change in accounting
principle in 1999 and net gains on the sale of marketable equity securities in
1997 and 1998 that represent income or expense of a nonrecurring nature and,
accordingly, have been excluded from the previous discussion of operating
results. The table below summarizes impacts of these non-recurring items as
included in the Consolidated Statements of Operations.
Year Ended December 31
1997 1998 1999
=====================================
Revenue $ - $ - $ -
Cost of revenue - - 9,569
-------------------------------------
Gross profit (loss) - - (9,569)
Selling, general and
administrative expenses - - 6,941
Trading, restructuring and
other unusual charges - 25,749 64,886
-------------------------------------
Income (loss) from operations - (25,749) (81,396)
Net investment gain 1,432 572 -
-------------------------------------
Income (loss) before
income taxes and accounting change 1,432 (25,177) (81,396)
Income taxes 583 (5,628) 3,525
-------------------------------------
Income (loss) before
accounting change 849 (19,549) (84,921)
Cumulative effect of
accounting change,
net of tax - - (14,065)
-------------------------------------
Net income (loss) $ 849 $(19,549) $(98,986)
=====================================
Net income (loss)
per share (basic and diluted) $ 0.02 $ (0.37) $ (1.86)
=====================================
Weighted average shares
outstanding (diluted) 48,461 52,818 53,290
==============================================================================
33
<PAGE> 11
- -------------------------------------------------------------------------------
BRIGHTPOINT, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
December 31
1998 1999
- ------------------------------------------------------------------------------
Assets
Current assets:
Cash and cash equivalents $ 49,528 $ 85,261
Accounts receivable (less allowance
for doubtful accounts
of $6,045 in 1998 and $6,220 in 1999) 275,110 230,792
Inventories 156,333 140,673
Other current assets 68,254 48,193
- ------------------------------------------------------------------------------
Total current assets 549,225 504,919
Property and equipment 48,270 36,273
Goodwill and other intangibles 83,467 71,456
Other assets 33,488 11,210
- ------------------------------------------------------------------------------
Total assets $ 714,450 $ 623,858
==============================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable and accrued expenses $ 188,176 $ 236,781
- ------------------------------------------------------------------------------
Total current liabilities 188,176 236,781
- ------------------------------------------------------------------------------
Long-term debt:
Line of credit 109,020 46,022
Convertible notes 177,686 184,864
- ------------------------------------------------------------------------------
Total long-term debt 286,706 230,886
- ------------------------------------------------------------------------------
Stockholders' equity:
Preferred stock, $.01 par value:
1,000 shares authorized; no shares
issued or outstanding - -
Common stock, $.01 par value:
100,000 shares authorized; 52,821
and 54,654 issued and
outstanding in 1998 and 1999,
respectively 528 547
Additional paid-in capital 184,366 204,283
Retained earnings (deficit) 63,067 (30,013)
Accumulated other comprehensive loss (8,393) (18,626)
- ------------------------------------------------------------------------------
Total stockholders' equity 239,568 156,191
- ------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 714,450 $ 623,858
==============================================================================
See accompanying notes.
34
<PAGE> 12
Analysis of the Consolidated Balance Sheets
1997 1998 1999
=================================
Working capital $281,063 $361,049 $268,138
Cash, cash equivalents and
marketable securities $ 6,419 $ 49,528 $ 85,261
Current ratio 3.55:1 2.92:1 2.13:1
Average days revenue in
accounts receivable 44 44 43
Average inventory turnover 10 10 12
Average days costs in
accounts payable 24 20 32
Cash conversion cycle days 57 61 41
==============================================================================
The decrease in working capital in 1999 compared to 1998 is primarily comprised
of decreases in accounts receivable, inventories and other current assets and an
increase in accounts payable, partially offset by the increase in cash. The
increase in working capital in 1998 compared to 1997 is primarily comprised of
an increase in cash, accounts receivable, inventories and other current assets
partially offset by a decrease in contract financing receivables and an increase
in accounts payable. The increase in cash in both 1998 and 1999 is primarily due
to the establishment in 1998 of a centralized treasury management function which
pools cash resources from and provides timely funding to most of the Company's
subsidiaries within its Europe, Middle East and Africa and Asia-Pacific
divisions. Additionally, as of December 31, 1999, days sales outstanding in
accounts receivable was approximately 43 days, an improvement from days sales
outstanding of approximately 44 days at December 31, 1998 and 1997. During 1999,
average inventory turns were 12 times, an improvement from 10 turns during 1998
and 1997. Average days costs in accounts payable were 32 days for 1999, compared
to 20 days for 1998 and 24 days for 1997. These improvements combined to create
a decrease in cash conversion cycle days to 41 days from 61 days in 1998 and 57
days in 1997. The decrease in accounts receivable in 1999 is primarily
attributable to increased collection efforts and the tightening of credit
policies. The decrease in inventory is primarily attributable to product
shortages experienced during the second half of 1999 in markets in which the
Company operates. The decrease in other current assets is due primarily to the
decrease in the Company's contract financing activities. The 1999 increase in
accounts payable is primarily due to increased cash management efforts and the
establishment of enhanced payment terms with certain vendors.
At December 31, 1999, the Company's allowance for doubtful accounts was $6.2
million compared to $6.0 million at December 31, 1998, which the Company
believed was adequate for the size and nature of its receivables at those dates.
Bad debt expense as a percent of revenues was less than 1.0% for 1998 and 1999.
However, the Company incurred significant accounts receivable impairments in
connection with the discontinuance of trading activities in 1998 and the
Company's restructuring plan in 1999 because the Company ceased doing business
in certain markets, significantly reducing the Company's ability to collect the
related receivables. Also, for recurring operations the Company's accounts
receivable are concentrated with network operators, agent dealers and mass
retailers and delays in collection or the uncollectibility of accounts
receivable could have an adverse effect on the Company's liquidity and working
capital position. In connection with its continued expansion, the Company
intends to offer open account terms to additional customers, which subjects the
Company to further credit risks, particularly in the event that any receivables
represent sales to a limited number of customers or are concentrated in
particular geographic markets. The Company seeks to minimize losses on credit
sales by closely monitoring its customers' credit worthiness and by obtaining,
where available, credit insurance or security on open account sales to certain
customers.
The decreases in property and equipment and goodwill and other intangibles from
1999 to 1998 are due primarily to impairments recognized as a result of the
restructuring plan (see Note 4 to the Consolidated Financial Statements). This
decrease in goodwill and other intangibles is partially offset by the
recognition in 1999 of contingent purchase consideration on certain
acquisitions made in 1998.
The 1999 decrease in other assets results from the cumulative effect of a change
in accounting principle and the related expensing of certain previously
capitalized costs incurred related to expansion activities and implementation of
certain integrated logistics service contracts in prior years and the write-off
of certain investments in joint operations in China pursuant to the Company's
restructuring plan.
The Company's long-term debt at December 31, 1998 and 1999 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 $178 million and $185 million at
December 31, 1998 and 1999, respectively. The remainder of the Company's
long-term debt is comprised of borrowings or permitted indebtedness under its
$175 million senior secured revolving line of credit facility which was modified
and restated on July 27, 1999. 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 on U.S. Dollar borrowings under the restated facility,
excluding fees, range from 140 basis points to 250 basis points above LIBOR,
depending on certain leverage ratios. See Note 7 to the Consolidated Financial
Statements.
Many of the Company's assets are pledged as collateral for borrowings under the
restated 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 7 to the Consolidated Financial
Statements.
The decrease in shareholders' equity from 1998 to 1999 of $83.4 million resulted
from the 1999 net loss of $93.1 million and an increase in other comprehensive
loss of $10.2 million partially offset by funds generated from the exercise of
stock options of $6.6 million and $13.3 million of common stock issued as
contingent purchase consideration for a 1998 acquisition.
35
<PAGE> 13
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
<TABLE>
<CAPTION>
Year ended December 31
1997 1998 1999
===========================================================================================================================
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income (loss) $25,510 $20,176 $(93,080)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 4,019 11,342 15,034
Amortization of debt discount - 5,587 7,179
Cumulative effect of accounting change, net of tax - - 14,065
Trading, restructuring and other unusual charges - 25,749 84,921
Net investment gain (1,432) (572) -
Minority interest and deferred taxes (2,386) 3,680 1,102
Changes in operating assets and liabilities, net of effects from acquisitions:
Accounts receivable (92,299) (73,802) 18,577
Inventories 16,403 (64,010) 6,401
Other current assets (17,654) (3,308) (5,343)
Accounts payable and accrued expenses (58,672) 68,808 57,611
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by operating activities (126,511) (6,350) 106,467
INVESTING ACTIVITIES
Capital expenditures (18,141) (30,120) (13,716)
Net sales of marketable securities, net of
transaction costs 15,050 3,263 -
Purchase acquisitions, net of cash acquired (5,496) (48,978) (5,608)
Decrease (increase) in funded contract financing
receivables (21,644) 5,842 6,065
Decrease (increase) in other asset (4,052) (21,974) 170
- ---------------------------------------------------------------------------------------------------------------------------
Net cash used by investing activities (34,283) (91,967) (13,089)
FINANCING ACTIVITIES
Net proceeds (payments) on revolving credit facility 68,598 (37,713) (62,998)
Net proceeds from stock offering 74,883 - -
Net proceeds from issuance of convertible notes - 166,088 -
Proceeds and tax benefits from exercise of stock
options and warrants 6,980 16,822 6,639
- ---------------------------------------------------------------------------------------------------------------------------
Net cash provided (used) by financing activities 150,461 145,197 (56,359)
Effect of exchange rate changes on cash and cash
equivalents (981) (293) (1,286)
- ---------------------------------------------------------------------------------------------------------------------------
Net increase (decrease) in cash and cash equivalents (11,314) 46,587 35,733
Cash and cash equivalents at beginning of year 14,255 2,941 49,528
- ---------------------------------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of year $2,941 $49,528 $ 85,261
- ---------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying notes.
36
<PAGE> 14
- --------------------------------------------------------------------------------
ANALYSIS OF THE CONSOLIDATED STATEMENTS OF CASH FLOWS
1997 1998 1999
=======================================
Cash provided (used) by
operating activities $(126,511) $ (6,350) $ 106,467
Cash used by investing
activities (34,283) (91,967) (13,089)
Cash provided (used) by
financing activities 150,461 145,197 (56,359)
Cash operating profit (EBITDA) 42,999 72,161 54,499
- --------------------------------------------------------------------------
The Company has historically satisfied its working capital requirements
principally through cash operating profit (income from recurring operations plus
depreciation and amortization expense), vendor financing, bank borrowings and
the issuance of equity and debt securities. The Company believes that cash
operating profit 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 capital.
Net cash provided by operating activities was $106.5 million in 1999 as compared
to cash used by operating activities of $6.4 million and $126.5 million in 1998
and 1997, respectively. The increase in net cash provided by operating
activities was primarily attributable to the decrease in working capital
(discussed in the Analysis of the Consolidated Balance Sheets) excluding changes
in contract financing receivables which represent investing activities,
partially offset by a reduction in the Company's earnings in 1999. The net cash
used by operating activities in 1997 and 1998 was primarily attributable to
increases in working capital (also discussed in the Analysis of the Consolidated
Balance Sheets) excluding changes in contract financing receivables, partially
offset by the net income earned during each of those years.
The decrease in net cash used by investing activities in 1999 as compared to
1998 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 1999. The net cash used by investing activities in 1998 was
primarily attributable to capital expenditures and the cost to fund
acquisitions, net of the cash acquired. The cash used by investing activities in
1997 was primarily attributable to capital expenditures and the increase in
contract financing receivables, partially offset by the sale of the Company's
investment in certain marketable securities.
The net cash used by financing activities in 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 in 1998
was primarily due to $166 million generated from the issuance of the Convertible
Notes and $17 million of proceeds and tax benefits generated from the exercise
of stock options partially offset by $38 million of net principal reductions on
the Company's line of credit. The net cash provided by financing activities in
1997 was primarily due to $75 million generated from a public equity offering,
$69 million of additional borrowings on the Company's multicurrency credit
agreement and $7 million of proceeds and tax benefits from the exercise of stock
options.
The Company generated cash operating profit of approximately $54.5 million,
$72.2 million and $43.0 million in 1999, 1998 and 1997, respectively. The
decrease in 1999 was primarily due to the decrease in income from recurring
operations. The 1998 increase was primarily due to the increase in income from
recurring operations as well as the substantial increase in depreciation and
amortization expense in 1998.
37
<PAGE> 15
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Brightpoint, Inc.
Consolidated Statements of Stockholders' Equity
(Amounts in thousands)
<TABLE>
<CAPTION>
Accumulated
Additional Retained Other Total
Common Paid-in Earnings Comprehensive Stockholders' Comprehensive
Stock Capital (Deficit) Income (Loss) Equity Income (Loss)
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1997 $ 433 $ 73,142 $ 17,381 $ 4,026 $ 94,982
Net income - - 25,510 - 25,510 $ 25,510
Other comprehensive loss:
Currency translation of foreign investments - - - (4,514) (4,514) (4,514)
Unrealized loss on marketable securities,
net of tax benefit of $49 - - - (74) (74) (74)
Reclassification of marketable securities
gains, net of income taxes of $2,640 - - - (3,929) (3,929) (3,929)
Issuance of common stock, net of costs 54 74,829 - - 74,883
Exercise of stock options and warrants and
related income tax benefit 11 6,969 - - 6,980
Purchase acquisitions 6 5,447 - - 5,453
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1997 504 160,387 42,891 (4,491) 199,291 $ 16,993
=============
Net income - - 20,176 - 20,176 $ 20,176
Other comprehensive income (loss):
Currency translation of foreign investments - - - (3,214) (3,214) (3,214)
Unrealized loss on derivatives, net of
tax benefits - - - (762) (762) (762)
Reclassification of marketable securities
losses, net of income tax benefit of $49 - _ - 74 74 74
Exercise of stock options and warrants and
related income tax benefit 19 16,803 - - 16,822
Purchase acquisitions 5 7,176 - - 7,181
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1998 528 184,366 63,067 (8,393) 239,568 $ 16,274
=============
Net loss - - (93,080) - (93,080) $ (93,080)
Other comprehensive income (loss):
Currency translation of foreign
investments - - - (11,050) (11,050) (11,050)
Unrealized gain on derivatives, net of
income tax - - - 817 817 817
Exercise of stock options and warrants
and related income tax benefit 8 6,631 - - 6,639
Purchase acquisition 11 13,286 - - 13,297
- ------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999 $ 547 $ 204,283 $ (30,013) $ (18,626) $ 156,191 $(103,313)
====================================================================================================================================
</TABLE>
See accompanying notes.
38
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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 line of credit. A 10% increase in short-term borrowing rates
during 1999 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 December 31, 1999.
A substantial portion 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 year ended December 31,
1999. The same adverse change in exchange rates would have resulted in a $3.7
million increase in the fair value of the Company's cash flow and net investment
hedges open at December 31, 1999. The majority of this fair value increase would
offset currency devaluations from translating the Company's foreign investments
from functional currencies to the U.S. Dollar. The Company's sensitivity
analysis of foreign exchange rate movements does not factor in a potential
change in volumes or local currency prices of its products sold or services
provided. Actual results may differ materially from those discussed above.
IMPACT OF YEAR 2000
In prior years, the Company discussed the nature and progress of its plans to
become Year 2000 ready through its implementation of a Year 2000 readiness
project (the Project). In late 1999, the Company completed the Project and the
related remediation and testing of systems. As a result of its planning and
implementation efforts, the Company experienced no significant disruptions in
critical information technology and non-information technology systems and
believes those systems successfully responded to the Year 2000 date change. 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. The Company is not currently aware of any material problems resulting
from Year 2000 issues, either with its internal systems or the products and
services of its significant suppliers and customers. The Company will continue
to monitor its critical computer applications and those of its significant
suppliers and customers throughout 2000 to ensure that any latent Year 2000
matters that may arise are addressed promptly.
39
<PAGE> 17
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts in thousands, except per share data, unless otherwise indicated)
1. SIGNIFICANT ACCOUNTING POLICIES
PRINCIPLES OF CONSOLIDATION
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.
RECLASSIFICATIONS
Certain amounts in the 1997 and 1998 consolidated financial statements have been
reclassified to conform to the 1999 presentation. Effective in the first quarter
of 2000, and applied retroactively to all periods, the Company reclassified
certain revenue and cost of revenue amounts related to its services supporting
prepaid wireless telecommunications. The Company manages and distributes prepaid
recharge cards for various network operators. Due to the limited product risk
assumed by the Company in most of these transactions, the Company believes it is
preferable to treat these transactions as services rather than product sales. As
such, a reclassification was made to record the net margin on these transactions
as revenue, rather than the gross amount of the transactions. 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. All amounts in this Annual
Report reflect the retroactive application of the reclassification.
The table below summarizes the amount of the reduction in revenue and cost of
revenue due to the reclassification.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
===========================================================
1997 $1,432 $ 4,057 $10,675 $13,369 $29,533
1998 7,989 16,761 22,163 8,433 55,346
1999 8,787 14,957 19,224 20,076 63,044
USE OF ESTIMATES
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes.
Actual results are likely to differ from those estimates, but management does
not believe such differences will materially affect the Company's financial
position or results of operations.
REVENUE RECOGNITION
Revenue is recognized when wireless communications equipment is sold and shipped
or when the Company's integrated logistics services have been rendered to
customers.
CASH AND CASH EQUIVALENTS
All highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents.
CONCENTRATIONS OF RISK
Financial instruments that potentially expose the Company to concentrations of
credit risk consist primarily of trade accounts receivable. Trade accounts
receivable are generated from product sales and services provided to network
operators, agents, resellers, dealers and retailers in the wireless
communications industry and are dispersed throughout the world, including North
America, Asia and the Pacific Rim, Europe, the Middle East, Africa and Latin
America. No customer accounted for 10% or more of the Company's 1997, 1998 or
1999 revenue. The Company performs ongoing credit evaluations of its customers
and provides credit in the normal course of business to a large number of its
customers. However, consistent with industry practice, the Company generally
requires no collateral from its customers to secure trade accounts receivable.
The Company is dependent on equipment manufacturers, distributors and dealers
for all of its supply of wireless communications equipment. In 1997, 1998 and
1999, products sourced from the Company's three largest suppliers accounted for
approximately 65%, 79% and 75% of product purchases, respectively. The Company
is dependent on the ability of its suppliers to provide products on a timely
basis and on favorable pricing terms. The loss of certain principal suppliers or
a significant reduction in product availability from principal suppliers could
have a material adverse effect on the Company. The Company believes that its
relationships with its suppliers are satisfactory, however, the Company has
periodically experienced inadequate supply from certain handset manufacturers.
INVENTORIES
Inventories consist of wireless handsets and accessories and are stated at the
lower of cost (first-in, first-out method) or market.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts at December 31, 1998 and 1999, of cash and cash
equivalents, trade accounts receivable, other current assets, accounts payable
and accrued expenses, and the Company's revolving credit facility approximate
their fair values. See Note 7 - Long-term Debt for disclosure of the fair value
of the Company's Convertible Notes.
PROPERTY AND EQUIPMENT
Property and equipment are stated at cost and depreciation is computed using the
straight-line method over the estimated useful lives of the assets, generally
three to fifteen years. Leasehold improvements are stated at cost and
depreciated over the lease term of the associated property. Maintenance and
repairs are charged to expense as incurred.
GOODWILL
Purchase price in excess of the fair value of net assets of businesses acquired
is recorded as goodwill and is amortized on a straight-line basis over 30 years.
Amortization charged to operations was $0.8 million, $2.7 million and $2.5
million in 1997, 1998 and 1999, respectively. Goodwill as reflected in the
40
<PAGE> 18
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Consolidated Balance Sheets is presented net of accumulated amortization of $3.2
million and $4.5 million at December 31, 1998 and 1999, respectively. The
carrying amount of goodwill is regularly reviewed for indications of impairment
in value, which in the view of management are other than temporary, including
unexpected or adverse changes in the following: (i) the economic or competitive
environments in which the Company operates; (ii) profitablility; and (iii) cash
flow. If facts and circumstances suggest that an operation's net assets are
impaired, the Company assesses the fair value of the underlying business and
reduces goodwill to an amount that results in the book value of the operation
approximating fair value.
FOREIGN CURRENCY TRANSLATION
The functional currency for most of the Company's foreign subsidiaries is the
respective local currency. Gains and losses resulting from translation of
foreign currency amounts to the functional currency are included in income.
Currency translation of assets and liabilities (foreign investments) from the
functional currency to the U.S. Dollar are included as a component of other
comprehensive loss in stockholders' equity.
INCOME TAXES
The Company accounts for income taxes under the asset and liability approach,
which requires the recognition of deferred tax assets and liabilities for the
expected future tax consequence of events that have been recognized in the
Company's financial statements or income tax returns. Income taxes are
recognized during the year in which the underlying transactions are reflected in
the Consolidated Statements of Operations. Deferred taxes are provided for
temporary differences between amounts of assets and liabilities as recorded for
financial reporting purposes and such amounts as measured by tax laws.
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 year ended December 31, 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 either 1998 or 1999.
STOCK OPTIONS
The Company uses the intrinsic value method to account for stock options. Under
this method, no compensation expense has been recognized for stock options
granted to employees.
COMPREHENSIVE INCOME
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)." At December 31,
1999, accumulated other comprehensive loss was comprised primarily of $18.6
million in cumulative foreign currency translation adjustments.
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 or the forecasted transactions
are realized. The impact of ineffective hedges is recognized in results of
operations in the periods in which the hedges are deemed to be ineffective.
OPERATING SEGMENTS
The Company's operations are divided into four separately managed segments. See
additional information on Operating Segments on page 28.
41
<PAGE> 19
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data, unless otherwise indicated)
2. CUMULATIVE EFFECT OF ACCOUNTING CHANGE
In April 1998, the American Institute of Certified Public Accountants issued
Statement of Position 98-5, Reporting the Costs of Start-up Activities (SOP
98-5), which requires that such costs (as broadly defined in the Statement) be
expensed as incurred. SOP 98-5 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 of approximately $6.2 million.
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 and long-term contract activities from 1996 through 1998. The Company
believes that the ongoing application of SOP 98-5 will not have a material
adverse effect on the Company's financial position, results of operations or
cash flows.
3. ACQUISITIONS AND DIVESTITURES
1997
During 1997, the Company acquired the operations and certain net assets of three
businesses (separately located in Sweden, Hong Kong and Venezuela) and the
remaining minority interests of three majority-owned subsidiaries (Brightpoint
China Limited, Brightpoint (UK) Limited and Brightpoint Australia Pty Limited).
Each of these transactions was accounted for as a purchase; accordingly, the
consolidated financial statements include the operating results of each business
or minority interest from the date of acquisition. The aggregate purchase price
consisted of 625,834 unregistered shares of the Company's common stock valued at
$5.5 million, $6.6 million in cash, the assumption of certain liabilities and
remaining contingent cash consideration expected to be paid in early 2000 of up
to $5.5 million based on the operating results of the applicable business
through December 31, 1999. Goodwill of $17.5 million resulted from these
acquisitions.
1998
During 1998, the Company made acquisitions of businesses located in Brazil, the
United Kingdom, the Netherlands, Germany, Poland, the United States, Taiwan,
France, Mexico and New Zealand. Each of these transactions was accounted for as
a purchase and accordingly the consolidated financial statements include the
operating results of each business from the effective date of its acquisition.
The aggregate purchase price for these businesses consisted of 1,431,468
unregistered shares of the Company's common stock valued at $19.4 million, $37.6
million in cash, the assumption of certain liabilities and remaining contingent
cash consideration of up to $1.5 million based upon operating results of the
applicable business during the two years following the acquisition. Goodwill of
$60.4 million resulted from these acquisitions.
1999
During 1999, the Company acquired Cellular Services S.A., a provider of
integrated logistics services in 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
cash consideration of $20.5 million based upon the future operating results of
the Company's Brazilian operations over the next five years. Goodwill of
approximately $4.9 million resulted from this acquisition. 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.
The impact of these acquisitions was not material in relation to the Company's
consolidated results of operations. Consequently, pro forma information is not
presented.
4. TRADING, RESTRUCTURING AND OTHER UNUSUAL CHARGES
1998
The Company recorded non-recurring and unusual charges totaling approximately
$17.7 million ($13.8 million net of related tax benefits) in the fourth quarter
of 1998 related to the elimination of its trading division. The Company decided
to cease its trading activities primarily (i) because those activities were not
consistent with its strategy of emphasizing relationships with wireless
equipment manufacturers and network operators; (ii) because the margins earned
on the trading activities were rapidly decreasing; and (iii) because of
increasing concerns the Company had about the business practices of many trading
companies.
The trading charges consisted of the following:
Impairment of trading accounts receivable $ 9,652
Impairment of inventory prepayments and trading-related
inventory losses 5,117
Losses upon liquidation of trading inventories 1,484
Legal and professional fees 894
Employee termination costs 602
-------
$17,749
=======
The impairment in receivables resulted from actions necessary to discontinue the
trading division and the Company's emphasis on its in-country presence in the
regions in which its customers operate. The development of in-country resources
and the elimination of the Company's trading activities severely harmed the
businesses of many of the Company's trading customers, thereby impairing amounts
due from those customers. The impairment of inventory prepayments and trading
related inventory losses is primarily the result of certain inappropriate
business activities carried out by individuals and third-party trading companies
in 1998 that were inconsistent with the best interests of the
42
<PAGE> 20
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Company. These losses were net of $11.9 million of estimated insurance
recoveries. The losses on the liquidation of trading inventories were incurred
upon subsequent disposal of on-hand quantities earmarked specifically for
trading activities. The legal and professional fees include legal advice related
to employee terminations as well as investigation costs into the aforementioned
inappropriate activities. The termination costs were incurred to terminate all
trading division employees.
In addition to the charges related to exiting the trading business noted above,
the Company also recorded other non-recurring charges in the fourth quarter of
1998 totaling $8.0 million ($6.1 million net of related tax benefits) which were
the result of impairments in the value of assets resulting from the Company's
elimination of other distributors from the Company's supply and sales channels.
The assets determined to be impaired include accounts receivable generated by
sales to other distributors and supplier credits related to the purchase of
products for these channels. Both classes of assets were determined by the
Company to have lost significant value upon termination of the related business
relationships as the Company deliberately shifted its focus from significant
sales to other distributors to direct in-country relationships with network
operators and their representatives.
1999
During the second quarter of 1999, the Company began implementing a broad
restructuring plan 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 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 initiating cost reduction programs in certain areas of
its business. 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 operating
divisions outside of North America.
As a result of actions taken in accordance with the restructuring plan the
Company recorded in 1999 non-recurring and unusual charges of approximately
$84.9 million. The charges included the write-off of goodwill and investments
related to the eliminated or terminated operations, as well as losses on the
disposals of fixed and other assets and cash expenses of approximately $6.1
million related to lease and employee terminations and other exit costs. These
amounts are recorded in the "Trading, restructuring and other unusual charges"
line of the Consolidated Statements of Operations. These charges also include
the write-down of inventory (included in the "Cost of revenue" line) and
accounts receivable (included in the "Selling, general and administrative
expenses" line) to their estimated net realizable value.
The Company's execution of the restructuring plan is substantially complete,
resulting in the following restructuring and other unusual charges (in
millions):
Non-cash charges:
Impairment of goodwill and investments in joint operations $39.9
Impairment of accounts receivable and inventories of
restructured operations 16.5
Impairment of accounts receivable related to elimination
of sales to other distributors 8.0
Impairment of fixed assets 7.3
Write-off of deferred tax assets 3.5
Write-off of cumulative foreign currency translation adjustments 2.0
Other 1.6
-----
78.8
-----
Cash charges:
Employee termination costs 3.2
Lease termination costs 1.3
Other exit costs 1.6
-----
6.1
-----
$84.9
=====
The aforementioned charges have been recorded within the following captions in
the Consolidated Statements of Operations for 1999 (in millions):
Cost of revenue $ 9.5
Selling, general and administrative expenses 7.0
Trading, restructuring and other unusual charges 64.9
Income taxes 3.5
-----
$84.9
=====
Approximately $13.7 million of the non-cash charges included in the line item
"Trading, restructuring and other unusual charges" in 1999 relate to the
termination of investments in joint operations in China and include impairments
of accounts receivable and inventories which are considered to be unusual items
because they result from terminating joint operations as opposed to normal
recurring distribution activities. In addition, approximately $8.0 million of
the non-cash charges represent further impairments of accounts receivable
related to the elimination of other distributors from the Company's supply and
sales channels. The Company had restructuring reserves of approximately $0.6
million at December 31, 1999, which related to unpaid employee termination,
lease termination and other exit costs. As a result of the actions taken under
the restructuring plan the Company had approximately $1.3 million in assets held
for disposal as of December 31, 1999, which are classified in the Consolidated
Balance Sheets under the caption "Other current assets."
5. NET INVESTMENT GAIN
During the first quarter of 1997, the Company realized a gain on the sale of a
marketable equity security. The gain, net of transaction costs, was
approximately $8.3 million. In addition, on March 31, 1997, the issuer of a
convertible debt security in which the Company had an investment, filed for
protection under Chapter 11 of the U.S. Bankruptcy Code. Accordingly, the
Company recognized $6.9 million of realized losses on this investment and two
smaller equity investments, which did not qualify as marketable securities.
These transactions resulted in a net investment gain of $1.4 million ($0.8
million net of tax).
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data, unless otherwise indicated)
During the first quarter of 1998, the Company realized a gain on the sale of
another marketable equity security. The net gain after related transaction costs
was approximately $0.6 million ($0.3 million net of tax).
At December 31, 1998 and 1999, the Company had no investments in marketable
equity securities.
6. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows:
December 31
1998 1999
=======================
Furniture and equipment $14,485 $13,999
Information systems equipment
and software 39,080 37,923
Leasehold improvements 7,373 6,497
-----------------------
60,938 58,419
Less accumulated depreciation 12,668 22,146
-----------------------
$48,270 $36,273
=======================
Depreciation expense charged to operations was $3.2 million, $8.6 million and
$12.5 million in 1997, 1998 and 1999, respectively.
7. 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 December 31, 1999, there was approximately $41.2 million outstanding under
the Restated Facility, all of which was denominated in foreign currencies, at
interest rates ranging from 5.9% to 8.3% (a weighted average rate of 6.7%). In
addition, there was an aggregate of $18.2 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 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. As of December 31, 1999, available funding under the Restated Facility
was approximately $52.9 million. 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.
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 Restated Facility. In addition, upon maturity the Company intends to
effectively renew this loan with the lender or replace it with funding from its
Restated Facility. The loan prohibits the borrower from making various changes
in its ownership structure.
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 (as defined in the indenture pursuant to
which the Convertible Notes were issued) 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 December 31, 1999, the
Convertible Notes had an accreted value of $185 million and an estimated fair
market value of approximately $124 million based on their quoted market price.
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
44
<PAGE> 22
- --------------------------------------------------------------------------------
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.
At December 31, 1997, 1998 and 1999, the Company was in compliance with the
covenants in its credit agreements. Interest payments for 1997, 1998 and 1999
were approximately $6.1 million, $5.4 million and $6.7 million, respectively.
8. INCOME TAXES
For financial reporting purposes, income (loss) before income taxes and minority
interest, by tax jurisdiction, is comprised of the following:
1997 1998 1999
==============================
United States $11,130 $11,613 $(15,443)
Foreign 25,797 19,624 (51,384)
------------------------------
$36,927 $31,237 $(66,827)
==============================
The reconciliation for 1997, 1998 and 1999 of income tax expense computed at the
U.S. federal statutory tax rate to the Company's effective income tax rate is as
follows:
1997 1998 1999
=============================
Tax at U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net
of U.S. federal benefit 1.5 2.1 (0.5)
Foreign sales corporation and
foreign taxes (5.9) (3.0) (50.8)
Other (0.6) 1.8 (2.1)
-----------------------------
30.0% 35.9% (18.4)%
=============================
The Company's effective tax rate for 1999, excluding the effect of non-recurring
operations and non-recurring charges, would have been 39% based on income before
taxes and minority interest. Due to the elimination of certain operations in
1999, the related tax benefits on losses generated within those operations
during 1999 and prior years will not be realized through the application of net
operating loss carryforwards in future periods. Consequently, the Company
provided for tax expense in 1999 based on recurring operations income before
income taxes of $27.4 million and the rates applicable to its recurring
operations which had effective tax rates of 30% and 39% in 1998 and 1999,
respectively. The Company also recognized the impairment of tax benefits
recognized in prior periods for operations eliminated as a part of the
restructuring plan.
Significant components of the provision for income taxes are as follows:
1997 1998 1999
===============================
Current:
Federal $ 5,050 $ 608 $ 3,200
State 1,308 314 646
Foreign 7,445 6,459 7,240
-------------------------------
13,803 7,381 11,086
-------------------------------
Deferred:
Federal (2,262) 3,313 (1,145)
State (476) 704 (588)
Foreign - (186) 2,928
-------------------------------
(2,738) 3,831 1,195
-------------------------------
$11,065 $11,212 $12,281
===============================
Components of the Company's net deferred tax asset (liability) after valuation
allowance are as follows:
December 31
1998 1999
========================
Deferred tax assets:
Current:
Capitalization of inventory costs $ 450 $ 545
Allowance for doubtful accounts 1,154 1,205
Accrued liabilities and other 816 500
Noncurrent:
Other long-term investments 2,103 2,083
Net operating losses and other carryforwards 2,960 7,026
------------------------
7,483 11,359
Valuation allowance - (5,800)
------------------------
7,483 5,559
Deferred tax liabilities:
Noncurrent:
Depreciation (878) (642)
Other assets (7,054) (3,846)
------------------------
(7,932) (4,488)
------------------------
$ (449) $ 1,071
========================
Income tax payments were $6.2 million in 1997, $5.9 million in 1998 and $4.1
million in 1999.
At December 31, 1999, the Company had net operating loss carryforwards of $47.5
million, of which approximately $32.5 million have no expiration date. The
remaining foreign net operating loss carryforwards expire through the year 2019.
Undistributed earnings of the Company's foreign operations were approximately
$9.3 million at December 31, 1999. Those earnings are considered to be
indefinitely reinvested and accordingly, no provision for U.S. federal or state
income taxes or foreign withholding taxes has been made. Upon distribution of
those earnings, the Company would be subject to U.S. income taxes (subject to a
reduction for foreign tax credits) and withholding taxes payable to the various
foreign countries. Determination of the amount of unrecognized deferred U.S.
income tax liability is not practicable; however, unrecognized foreign tax
credit carryovers would be available to reduce some portion of the U.S. tax
liability.
45
<PAGE> 23
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data, unless otherwise indicated)
9. STOCKHOLDERS' EQUITY
All references in the financial statements related to share amounts, per share
amounts, average shares outstanding and information concerning stock option
plans have been adjusted retroactively to reflect stock splits.
In February 1997, the Company adopted a Stockholders' Rights Agreement commonly
known as a "poison pill," which provides that in the event an individual or
entity becomes a beneficial holder of 15% or more of the shares of the Company's
capital stock, other stockholders of the Company shall have the right to
purchase shares of the Company's (or in some cases, the acquiror's) common stock
at 50% of its then market value.
In August 1997, the Company consummated a public offering of 5.4 million shares
of common stock by the Company and an additional 4.6 million shares of common
stock on behalf of two former stockholders (Selling Stockholders). Upon
consummation of the offering, the Selling Stockholders, who were former
stockholders of Allied Communications, resigned as members of the Company's
Board of Directors pursuant to an agreement with the Company. The Company's
proceeds from the offering of approximately $75 million (net of estimated
expenses) were used to reduce the borrowings outstanding on the Restated
Facility.
The Company has authorized 1.0 million shares of preferred stock which remain
unissued. The Board of Directors has not yet determined the preferences,
qualifications, relative voting or other rights of the authorized shares of
preferred stock.
STOCK OPTION PLANS
The Company has three fixed stock option plans, which reserve shares of common
stock for issuance to executives, key employees, directors and others.
The Company maintains the 1994 Stock Option Plan whereby employees of the
Company and others are eligible to be granted incentive stock options or
non-qualified stock options. Under this plan there were 8.2 million common
shares reserved for issuance at December 31, 1998. In 1999, an amendment to the
1994 Stock Option Plan was approved by the Company's stockholders to increase
the common shares reserved for issuance to 10.5 million. At December 31, 1998
and 1999, 4.9 million and 6.7 million common shares, respectively, were
authorized but unissued. In October 1996, the Company adopted the 1996 Stock
Option Plan whereby employees of the Company and others are eligible to be
granted non-qualified stock options. Under this plan there are 3.8 million
common shares reserved for issuance of which 2.4 million and 2.3 million were
authorized but unissued at December 31, 1998 and 1999, respectively. For both
plans, a committee of the Board of Directors determines the time or times at
which the options will be granted, selects the employees or others to whom
options will be granted and determines the number of shares covered by each
option, purchase price, time of exercise (not to exceed ten years from the date
of the grant) and other terms.
The Company also maintains the Non-Employee Directors Stock Option Plan whereby
non-employee directors are eligible to be granted non-qualified stock options.
Under this plan there are 937,500 common shares reserved for issuance of which
744,375 and 594,375 were authorized but unissued at December 31, 1998 and 1999,
respectively. Options to purchase 10,000 shares of common stock are granted to
each newly elected non-employee director and, on the first day of each year,
each individual elected and continuing as a non-employee director receives an
option to purchase 4,000 shares of common stock.
The exercise price of stock options granted may not be less than the fair market
value of a share of common stock on the date of the grant. Options become
exercisable in periods ranging from one to three years after the date of the
grant. Information regarding these option plans for 1997 through 1999 is as
follows:
<TABLE>
<CAPTION>
1997 1998 1999
===================================================================
Weighted Weighted Weighted
Average Average Average
Exercise Exercise Exercise
Shares Price Shares Price Shares Price
===================================================================
<S> <C> <C> <C> <C> <C> <C>
Options outstanding,
beginning of year 5,098,624 $ 5.13 7,063,586 $ 8.36 6,685,348 $ 9.87
Options granted 3,336,500 11.85 2,893,500 12.40 1,531,500 8.35
Options exercised (1,092,788) 3.47 (1,855,568) 6.46 (710,462) 7.31
Options canceled (278,750) 10.23 (1,416,170) 12.57 (916,166) 11.85
-------------------------------------------------------------------
Options outstanding,
end of year 7,063,586 $ 8.36 6,685,348 $ 9.87 6,590,220 $ 9.42
-------------------------------------------------------------------
Option price range
at end of year $1.33-$16.94 $1.33-$17.50 $3.84-$19.06
Option price range
for exercised shares $1.33-$ 7.33 $1.33-$11.20 $1.33-$13.00
Options available for
grant at year end 2,830,793 1,353,462 3,038,129
Weighted average
fair value of
options granted
during the year $4.28 $4.96 $3.81
</TABLE>
The following table summarizes information about the fixed price stock options
outstanding at December 31, 1999.
Exercisable
Weighted ------------------------
Number Average Weighted Number Weighted
Outstanding at Remaining Average Outstanding at Average
Range of December 31, Contractual Exercise December 31, Exercise
Exercise Prices 1999 Life Price 1999 Price
- --------------------------------------------------------------------------------
$ 3.84 - $ 5.73 1,228,590 4 years $ 4.28 274,590 $ 4.20
$ 6.06 - $ 9.00 2,532,210 3 years $ 6.83 1,829,884 $ 6.55
$ 9.70 - $14.38 2,076,418 3 years $12.95 1,115,503 $12.86
$14.88 - $19.06 753,002 3 years $16.74 136,106 $16.41
Disclosure of pro forma information regarding net income and earnings per share
is required to be presented as if the Company has accounted for its employee
stock options granted subsequent to December 31, 1994, under the fair value
method. The fair value for options granted by the Company is estimated at the
date of grant using a Black-Scholes option pricing model with the following
weighted-average assumptions:
1997 1998 1999
==============================
Risk-free interest rate 5.25% 5.33% 6.10%
Dividend yield 0.00% 0.00% 0.00%
Expected volatility .51 .67 .69
Expected life of the options (years) 2.33 2.42 2.67
46
<PAGE> 24
- --------------------------------------------------------------------------------
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including expected stock price volatility. Because the
Company's employee stock options have characteristics significantly different
from those of traded options, and because changes in the subjective input
assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
For purposes of pro forma disclosures, the estimated fair value of the options
and stock warrants, discussed below, are amortized to expense over the related
vesting period. Because compensation expense is recognized over the vesting
period, the initial impact on pro forma net income for 1997 and 1998 may not be
representative of compensation expense in future years (including 1999), when
the effect of amortization of multiple awards would be reflected in pro forma
net income. The Company's pro forma information giving effect to the estimated
compensation expense related to stock options and warrants is as follows:
1997 1998 1999
==============================
Pro forma net income (loss) $21,044 $12,362 $(97,614)
Pro forma net income (loss)
per share (diluted) $ 0.44 $ 0.23 $ (1.83)
STOCK WARRANTS
In connection with its acquisition of Cellular Trading 3, CA in Venezuela, the
Company issued to a principal of the seller, who became and remains an employee
of a subsidiary of the Company, warrants to purchase up to 200,000 shares of
common stock at $15.44 per share. These warrants become exercisable over a
three-year period commencing in 1998. However, the ability of the option holder
to exercise the warrants is contingent upon the financial performance of the
Company's operating subsidiary, Brightpoint de Venezuela, C.A. The Company
expects all of these warrants to become exercisable in 2000.
EMPLOYEE STOCK PURCHASE PLAN
During 1999, the Company's shareholders approved the 1999 Brightpoint, Inc.
Employee Stock Purchase Plan ("ESPP"). The ESPP, available to substantially all
employees of the Company, is designed to comply with Section 423 of the Internal
Revenue Code for employees living in the United States and eligible employees
may authorize payroll deductions of up to 10% of their monthly salary to
purchase shares of the Company's common stock at 85% of the lower of the fair
market value as of the beginning and ending of each month. Each employee is
limited to a total monthly payroll deduction of $2,000 for ESPP purchases. The
Company reserved 2,000,000 shares for issuance under the ESPP. During 1999,
employees made contributions to the ESPP to purchase 1,428 shares at a
weighted-average fair value of $9.08 per share.
10. DERIVATIVE FINANCIAL INSTRUMENTS
The Company enters into derivative contracts to hedge forecasted future cash
flows and net investments in foreign operations. The Company utilizes interest
rate swaps to hedge foreign currency transactions and forward exchange contracts
with maturities generally less than twelve months to hedge a portion of its
forecasted transactions. The Company utilizes borrowings on its multicurrency
credit facility to hedge a portion of its foreign net investments. The fair
value of the Company's foreign currency forward contracts by currency and hedge
designation recorded as liabilities was as follows at December 31, 1998 and
1999:
1998 1999
=======================================================
Cash Flow Net Investment Cash Flow Net Investment
-------------------------------------------------------
Euro $ - $ - $ (407) $ (2,489)
Hong Kong
Dollar 514 453 285 -
All others - 121 - (32)
-------------------------------------------------------
$ 514 $ 574 $ (122) $ (2,521)
=======================================================
From July 1, 1998 (the date of adoption of SFAS No. 133) through December 31,
1999, gains and losses recognized in earnings on cash flow hedges and the gains
and losses from net investments hedges included as a component of other
comprehensive loss in stockholders' equity have not been significant.
11. LEASE ARRANGEMENTS
The Company leases its office and warehouse/distribution space as well as
certain furniture and equipment under operating leases.
Total rent expense for all operating leases was $3.3 million, $7.1 million and
$10.1 million for 1997, 1998 and 1999, respectively.
The aggregate future minimum payments on the above leases are as follows:
YEAR ENDING DECEMBER 31
=======================
2000 $ 13,718
2001 10,077
2002 9,585
2003 8,800
2004 7,596
Thereafter 61,802
--------
$111,578
========
The commitments above include approximately $5.1 million in aggregate facility
lease payments for the years 2000 through 2004 and approximately $3.1 million
payable thereafter through 2007 that relate to the Company's former North
America headquarters and main distribution center in Indianapolis. The Company
is currently attempting to sublease this facility.
12. EMPLOYEE SAVINGS PLAN
The Company maintains an employee savings plan which permits employees based in
the United States with at least four months of service to make contributions by
salary reduction pursuant to section 401(k) of the Internal Revenue Code. The
Company matches 25% of employee contributions, up to 6% of each employee's
salary, in Company common stock. In connection
47
<PAGE> 25
- --------------------------------------------------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Amounts in thousands, except per share data, unless otherwise indicated)
with the required match, the Company's contributions to the Plan were $0.1
million, $0.1 million and $0.2 million in 1997, 1998 and 1999, respectively.
13. 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
December 31, 1999, the Real's exchange rate to the U.S. Dollar has declined
significantly. During 1999, the average exchange rate for the Real was
approximately 36.5% lower than the average exchange rate in 1998. As most of the
Company's transactions in Brazil are Real-denominated, translating the results
of operations of the Company's Brazilian subsidiary into U.S. Dollars at
devalued exchange rates resulted in a lower contribution to consolidated
revenues and operating income. Based on the exchange rates on December 31, 1999,
the Company's currency translation of the foreign investment in its Brazilian
subsidiary from the Real (functional currency) to the U.S. Dollar resulted in a
devaluation of approximately $5.7 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.
14. CONTINGENCIES
Various lawsuits, claims and proceedings have been or may be asserted against
the Company in the normal course of business. The ultimate liability pursuant to
these actions cannot now be determined because of various uncertainties that
exist. The Company and certain of its executive officers, two of which 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 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.
15. QUARTERLY RESULTS OF OPERATIONS (UNAUDITED)
The quarterly results of operations are as follows:
1998 First Second Third Fourth
- -------------------------------------------------------------------
Revenue $335,344 $313,052 $423,609 $501,271
Gross profit 30,077 30,505 38,074 42,578
Net income (loss) 8,843 9,058 9,418 (7,143)
Net income (loss)
per share:
Basic 0.17 0.17 0.18 (0.14)
Diluted 0.17 0.17 0.18 (0.14)
1999 First Second Third Fourth
- -------------------------------------------------------------------
Revenue $363,932 $399,032 $450,534 $525,730
Gross profit 28,387 20,745 34,662 43,841
Net income (loss)
before accounting
change (1,212) (90,514) 2,818 9,893
Net income (loss) (15,277) (90,514) 2,818 9,893
Basic per share:
Income (loss)
before accounting
change $(0.02) $(1.70) $0.05 $0.19
Cumulative effect
of accounting
change, net of tax (0.27) - - -
--------------------------------------------
Net income (loss) $(0.29) $(1.70) $0.05 $0.19
============================================
Diluted per share:
Income (loss)
before accounting
change $(0.02) $(1.70) $0.05 $0.18
Cumulative effect
of accounting
change, net of tax (0.27) - - -
--------------------------------------------
Net income (loss) $(0.29) $(1.70) $0.05 $0.18
============================================
48
<PAGE> 26
- ------------------------------------------------------------------------------
COMMON STOCK INFORMATION (UNAUDITED)
The Company's Common Stock is listed on the NASDAQ Stock Market(R) under the
symbol CELL. The following tables set forth, for the periods indicated, the high
and low sale prices for the Common Stock as reported by the NASDAQ Stock
Market(R).
1998 High Low
============================================================================
First quarter $21.50 $14.00
Second quarter 21.63 11.88
Third quarter 17.75 7.25
Fourth quarter 16.06 5.00
1999 HIGH LOW
============================================================================
FIRST QUARTER $18.56 $ 5.81
SECOND QUARTER 7.25 5.31
THIRD QUARTER 7.28 3.53
FOURTH QUARTER 14.88 6.84
At March 20, 2000, there were approximately 475 stockholders of record.
The Company has not paid cash dividends on its Common Stock other than S
corporation distributions made to stockholders during periods prior to the
rescissions of S corporation elections by the Company or its predecessors. In
addition, 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. The Board of Directors
intends to continue a policy of retaining earnings to finance the Company's
anticipated growth and development of its business and does not expect to
declare or pay any cash dividends in the foreseeable future.
The Company has declared the following stock splits which were effected in the
form of stock dividends:
DECLARATION DATE DIVIDEND PAYMENT DATE SPLIT RATIO
=============================================================================
August 31, 1995 September 20, 1995 5 for 4
November 12, 1996 December 17, 1996 3 for 2
January 28, 1997 March 3, 1997 5 for 4
October 22, 1997 November 21, 1997 2 for 1
- -----------------------------------------------------------------------------
SELECTED FINANCIAL DATA
(Amounts in thousands, except per share data)
<TABLE>
<CAPTION>
Year Ended December 31
1995 1996 1997 1998 1999
======================================================
<S> <C> <C> <C> <C> <C>
Revenue(1) $419,149 $589,718 $1,006,116 $1,573,276 $1,739,228
Gross profit(2) 28,199 45,840 85,171 141,234 127,635
Income (loss) from operations(2) 13,386 24,991 41,862 43,137 (53,714)
Net income (loss) before accounting change(2) 8,165 11,037 25,510 20,176 (79,015)
Net income (loss)(2) 8,165 11,037 25,510 20,176 (93,080)
Basic per share:
Income (loss) before accounting change $ 0.25 $ 0.27 $ 0.55 $ 0.38 $ (1.48)
Cumulative effect of accounting change, net of tax - - - - (0.27)
------------------------------------------------------
Net income (loss) $ 0.25 $ 0.27 $ 0.55 $ 0.38 $ (1.75)
======================================================
Diluted per share:
Income (loss) before accounting change $ 0.24 $ 0.26 $ 0.53 $ 0.38 $ (1.48)
Cumulative effect of accounting change, net of tax - - - - (0.27)
------------------------------------------------------
Net income (loss) $ 0.24 $ 0.26 $ 0.53 $ 0.38 $ (1.75)
======================================================
December 31
1995 1996 1997 1998 1999
======================================================
Working capital $ 62,219 $143,481 $ 281,063 $ 361,049 $ 268,138
Total assets 119,787 299,045 456,702 714,450 623,858
Long-term obligations 602 79,894 146,963 286,706 230,886
Total liabilities 54,930 203,125 257,411 474,882 467,667
Stockholders' equity 64,857 94,982 199,291 239,568 156,191
</TABLE>
(1) Revenue has been adjusted to reflect the impact of a reclassification of
certain amounts related to the Company's services supporting prepaid wireless
programs. The reclassification, which reduces revenue and cost 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. See Notes to
Consolidated Financial Statements.
(2) Includes the after-tax effects of the following items: (i) one-time merger
expenses of $2,061 in 1996; (ii) non-recurring investment gains of $849 and $343
in 1997 and 1998, respectively; (iii) one-time trading, restructuring and other
unusual charges of $19,892 and $84,921 in 1998 and 1999, respectively; and (iv)
the results of those operations that were terminated or sold in 1999 in
accordance with the Company's restructuring plan. See Notes to Consolidated
Financial Statements.
49
<PAGE> 1
EXHIBIT 21
SUBSIDIARIES
<TABLE>
<CAPTION>
SUBSIDIARIES (1) SUBSIDIARY JURISDICTION
- ---------------- -----------------------
<S> <C>
Brightpoint Latin America Holdings, Inc. Indiana
Brightpoint de Venezuela, C.A. Venezuela
Brightpoint do Brasil Ltda. Brazil
Brightpoint International Ltd Delaware
Brightpoint EMA Limited United Kingdom
Brightpoint (UK) Limited United Kingdom
Brightpoint (South Africa) (Proprietary) Limited South Africa
Brightpoint Sweden AB Sweden
Brightpoint Middle East FZE U.A.E.
Brightpoint (Ireland) Limited Ireland
Brightpoint (Private) Limited Sri Lanka
Brightpoint Philippines, Inc. Philippines
Brightpoint Australasia Pty. Limited Australia
Brightpoint International (Asia Pacific) Pte. Ltd. Singapore
Brightpoint International Trading (Guangzhou) Co. Ltd. China
Brightpoint Australia Pty Ltd Australia
Brightpoint China Limited Hong Kong
Brightpoint FSC, Inc. Barbados
Brightpoint Global Access, Inc. Indiana
Brightpoint Holdings Belgium Belgium
Brightpoint India Private Limited India
Eurocom Systems, S.A. France
Brightpoint North America, Inc. Indiana
Brightpoint JBA, LLC Indiana
Wireless Fulfillment Services LLC California
Brightpoint International Holdings B.V. Netherlands
Brightpoint de Mexico, S.A. de C.V. Mexico
Servicios Brightpoint de Mexico, S.A. de C.V. Mexico
Brightpoint Solutions de Mexico, S.A. de C.V. Mexico
Brightpoint Holdings B.V. Netherlands
Brightpoint France (SARL) France
Brightpoint Germany GmbH Germany
Brightpoint B.V. Netherlands
Fono Distribution Services Limited Liability Company U.A.E.
Brightpoint Netherlands Holdings B.V. Netherlands
Brightpoint International Trading (Shanghai) Co. Ltd. China
Brightpoint New Zealand Limited New Zealand
Brightpoint GmbH Germany
Axess Communications Sp. z o. o. Poland
Winning Land Company Limited British Virgin Islands
Brightpoint Taiwan Limited British Virgin Islands
Brightpoint Zimbabwe (Private) Limited Zimbabwe
Brightpoint de Colombia, Inc. Indiana
Brightpoint Puerto Rico, Inc. Indiana
Cellular Services S.A. Brazil
Wireless Fulfillment Services Holdings, Inc. Delaware
Brightpoint (PRC) Limited Hong Kong
Sunrise International Limited Cayman Islands
</TABLE>
(1) Each of the named subsidiaries is not necessarily a "significant subsidiary"
as defined in Rule 1-02 (w) of Regulation S-X, and Brightpoint has several
additional subsidiaries not named above. The unnamed subsidiaries, considered in
the aggregate as a single subsidiary, would not constitute a "significant
subsidiary" at the end of the year covered by this report.
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
CONSOLIDATED FINANCIAL STATEMENTS INCLUDED IN THE REGISTRANT'S ANNUAL REPORT ON
FORM 10-K OF WHICH THIS SCHEDULE IS AN EXHIBIT THERETO AND IS QUALIFIED IN ITS
ENTIRETY BY REFERENCE TO SUCH CONSOLIDATED FINANCIAL STATEMENTS.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-END> DEC-31-1999
<CASH> 85,261
<SECURITIES> 0
<RECEIVABLES> 237,012
<ALLOWANCES> 6,220
<INVENTORY> 140,673
<CURRENT-ASSETS> 504,919
<PP&E> 58,419
<DEPRECIATION> 22,146
<TOTAL-ASSETS> 623,858
<CURRENT-LIABILITIES> 236,781
<BONDS> 230,886
0
0
<COMMON> 547
<OTHER-SE> 155,644
<TOTAL-LIABILITY-AND-EQUITY> 623,858
<SALES> 1,739,228
<TOTAL-REVENUES> 1,739,228
<CGS> 1,611,593
<TOTAL-COSTS> 1,611,593
<OTHER-EXPENSES> 64,886
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 13,113
<INCOME-PRETAX> (66,827)
<INCOME-TAX> 12,281
<INCOME-CONTINUING> (79,015)
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> (14,065)
<NET-INCOME> (93,080)
<EPS-BASIC> (1.75)
<EPS-DILUTED> (1.75)
</TABLE>
<PAGE> 1
EXHIBIT 99
CAUTIONARY STATEMENTS
Certain statements in this Form 10-K and in the documents incorporated by
reference herein constitute "forward-looking statements" within the meaning of
the Private Securities Litigation Reform Act of 1995. Such forward-looking
statements involve known and unknown risks, uncertainties and other factors
which may cause the actual results, performance or achievements of the Company
to be materially different from any future results, performance or achievements
expressed or implied by such forward-looking statements. Such factors include,
among others, the following: the ability to hire and retain key personnel;
successful completion and integration of future acquisitions; relationships with
and dependence on third-party wireless communications equipment manufacturers
and suppliers, network operators and other providers of wireless communications
logistics services; uncertainties relating to business and economic conditions
in markets in which the Company operates; uncertainties relating to government
and regulatory policies and other political risks; uncertainties relating to
customer plans and commitments; dependence on the wireless communications
industry; pricing and availability of wireless communications equipment
materials and inventories; rapid technological developments and obsolescence in
the wireless communications industry; potential performance issues with
suppliers and customers; governmental export and import policies; global trade
policies; worldwide political stability and economic growth; the highly
competitive environment in which the Company operates; potential entry of new,
well-capitalized competitors into the Company's markets; changes in the
Company's capital structure and cost of capital; the Company's continued
ability, through sales growth, to absorb the increasing costs incurred and to be
incurred in connection with its expansion activities and provision of integrated
logistics services; uncertainties inherent in international operations; foreign
currency fluctuations; and failure of the Company or critical third parties with
which the Company does business to be Year 2000 compliant. The words "believe,"
"expect," "anticipate," "intend," and "plan" and similar expressions identify
forward-looking statements. Readers are cautioned not to place undue reliance on
these forward-looking statements, which speak only as of the date of the
statement was made.
