UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q/A
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended: June 30, 2001
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from: to
---------------------- ----------------------
Commission file number: 0-23494
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BRIGHTPOINT, INC.
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(Exact name of registrant as specified in its charter)
Delaware 35-1778566
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State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
6402 Corporate Drive, Indianapolis, Indiana 46278
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(Address of principal executive offices) (Zip Code)
(317) 297-6100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Number of shares of common stock outstanding at November 19, 2001: 55,851,401
shares
BRIGHTPOINT, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1
Consolidated Statements of Operations
Three and Six Months Ended June 30, 2000 and 2001........4
Consolidated Balance Sheets
December 31, 2000 and June 30, 2001......................5
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2000 and 2001..................6
Notes to Consolidated Financial Statements........................7
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations...........18
ITEM 3
Quantitative and Qualitative Disclosures
About Market Risk.......................................26
PART II. OTHER INFORMATION
ITEM 1
Legal Proceedings................................................27
ITEM 4
Submission of Matters to a Vote of Security Holders..............27
ITEM 6
Exhibits.........................................................27
Signatures................................................................28
BRIGHTPOINT, INC.
INTRODUCTORY NOTE
The Company issued a press release on November 13, 2001, which it filed as an
exhibit to a Form 8-K on November 14, 2001, relating to its intention to restate
its annual financial statements for 1998, 1999, 2000 and the first two quarters
of 2001. The effects of this restatement on the financial statements are
presented in the following Form 10-Q/A. See Note 9 to the Consolidated Financial
Statements for discussion of the details surrounding the restatement and
reconciliations of previously reported amounts.
3
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended Six Months Ended
June 30 June 30
2000 2001 2000 2001
--------- --------- --------- ---------
(AS RESTATED, SEE NOTE 9) (AS RESTATED, SEE NOTE 9)
Revenue $ 461,810 $ 452,334 $ 939,582 $ 917,660
Cost of revenue 417,294 436,999 851,987 871,452
--------- --------- --------- ---------
Gross profit 44,516 15,335 87,595 46,208
Selling, general and administrative expenses 25,686 22,402 50,236 47,194
Unusual charges 517 -- 5,331 --
--------- --------- --------- ---------
Income (loss) from operations 18,313 (7,067) 32,028 (986)
Interest expense 3,241 2,652 6,427 5,025
Other (income) expenses 26 696 (315) 1,512
--------- --------- --------- ---------
Income (loss) before income taxes, minority interest
and extraordinary gain 15,046 (10,415) 25,916 (7,523)
Income taxes 5,207 (3,536) 8,803 (2,639)
--------- --------- --------- ---------
Income (loss) before minority interest and
extraordinary gain 9,839 (6,879) 17,113 (4,884)
Minority interest 94 (13) 129 51
--------- --------- --------- ---------
Income (loss) before extraordinary gain 9,745 (6,866) 16,984 (4,935)
Extraordinary gain on debt extinguishment, net of tax -- -- -- 4,623
--------- --------- --------- ---------
Net income (loss) $ 9,745 $ (6,866) $ 16,984 $ (312)
========= ========= ========= =========
Basic per share:
Income (loss) before extraordinary gain $ 0.18 $ (0.12) $ 0.31 $ (0.09)
Extraordinary gain on debt extinguishment, net of tax -- -- -- 0.08
--------- --------- --------- ---------
Net income (loss) $ 0.18 $ (0.12) $ 0.31 $ (0.01)
========= ========= ========= =========
Diluted per share:
Income (loss) before extraordinary gain $ 0.17 $ (0.12) $ 0.30 $ (0.09)
Extraordinary gain on debt extinguishment, net of tax -- -- -- 0.08
--------- --------- --------- ---------
Net income (loss) $ 0.17 $ (0.12) $ 0.30 $ (0.01)
========= ========= ========= =========
Weighted average common shares outstanding:
Basic 55,543 55,804 55,235 55,790
========= ========= ========= =========
Diluted 63,601 55,804 56,274 55,790
========= ========= ========= =========
See accompanying notes.
4
BRIGHTPOINT, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
December 31, 2000 June 30, 2001
----------------- -------------
(AS RESTATED, SEE NOTE 9)
ASSETS
Current assets:
Cash and cash equivalents $ 79,718 $ 36,350
Pledged cash -- 6,185
Accounts receivable (less allowance for doubtful
accounts of $6,548 in 2000 and $6,639 in 2001) 208,116 187,974
Inventories 226,785 162,884
Other current assets 52,059 54,900
--------- ---------
Total current assets 566,678 448,293
Property and equipment 36,763 44,226
Goodwill and other intangibles 72,390 68,264
Other assets 15,828 15,174
--------- ---------
Total assets $ 691,659 $ 575,957
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 232,159 $ 192,429
Accrued expenses 67,941 57,368
Current portion of long-term debt -- 11,735
--------- ---------
Total current liabilities 300,100 261,532
--------- ---------
Long-term debt:
Line of credit 53,685 --
Convertible notes 144,756 129,065
--------- ---------
Total long-term debt 198,441 129,065
--------- ---------
Stockholders' equity:
Preferred stock, $0.01 par value: 1,000 shares
authorized; no shares issued or outstanding -- --
Common stock, $0.01 par value: 100,000 shares
authorized; 55,763 and 55,813, issued and
outstanding in 2000 and 2001, respectively 558 558
Additional paid-in capital 213,714 213,852
Retained earnings 5,277 4,965
Accumulated other comprehensive loss (26,431) (34,015)
--------- ---------
Total stockholders' equity 193,118 185,360
--------- ---------
Total liabilities and stockholders' equity $ 691,659 $ 575,957
========= =========
See accompanying notes.
5
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
Six Months Ended June 30
2000 2001
-------- --------
(AS RESTATED, SEE NOTE 9)
OPERATING ACTIVITIES
Net income (loss) $ 16,984 $ (312)
Adjustments to reconcile net income (loss) to net cash
provided (used) by operating activities:
Depreciation and amortization 7,256 8,445
Amortization of debt discount 3,697 2,710
Income tax benefits from exercise of stock options 2,773 --
Extraordinary gain on debt extinguishment, net of tax -- (4,623)
Unusual charges 5,331 --
Minority interest and deferred taxes 130 (152)
Pledged cash requirements -- (6,185)
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable 32,925 13,328
Inventories (66,487) 60,013
Other operating assets (3,738) 4,165
Accounts payable and accrued expenses 553 (43,375)
-------- --------
Net cash provided (used) by operating activities (576) 34,014
INVESTING ACTIVITIES
Capital expenditures (6,975) (16,139)
Purchase acquisitions, net of cash acquired (4,550) --
Decrease (increase) in funded contract financing receivables 2,054 (7,937)
Increase in other assets (645) (596)
-------- --------
Net cash used by investing activities (10,116) (24,672)
FINANCING ACTIVITIES
Net proceeds (payments) on revolving credit facility 1,485 (41,941)
Repurchase of convertible notes -- (10,095)
Proceeds from common stock issuances under employee stock
option and purchase plans 6,316 137
-------- --------
Net cash provided (used) by financing activities 7,801 (51,899)
Effect of exchange rate changes on cash and cash
equivalents (1,179) (811)
-------- --------
Net decrease in cash and cash equivalents (4,070) (43,368)
Cash and cash equivalents at beginning of period 85,261 79,718
-------- --------
Cash and cash equivalents at end of period $ 81,191 $ 36,350
======== ========
See accompanying notes.
6
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2001
(UNAUDITED)
1. Basis of Presentation
GENERAL
The accompanying unaudited Consolidated Financial Statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The preparation of
financial statements requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes.
Actual results are likely to differ from those estimates, but management does
not believe such differences will materially affect the Company's financial
position or results of operations. In the opinion of the Company, all
adjustments considered necessary to present fairly the Consolidated Financial
Statements have been included.
The Consolidated Financial Statements include the accounts of the Company and
its majority-owned or controlled subsidiaries. Significant intercompany accounts
and transactions have been eliminated in consolidation. Certain amounts in the
2000 Consolidated Financial Statements have been reclassified to conform to the
2001 presentation.
The Consolidated Balance Sheet at December 31, 2000 has been derived from the
audited Consolidated Financial Statements at that date, but does not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The unaudited Consolidated
Statements of Operations for the three and six months ended June 30, 2001 and
the unaudited Consolidated Statement of Cash Flows for the six months ended June
30, 2001 are not necessarily indicative of the operating results or cash flows
that may be expected for the entire year.
For further information, reference is made to the audited Consolidated Financial
Statements and the notes thereto included in the Company's Annual Report on Form
10-K/A (amendment number 2) for the year ended December 31, 2000.
NET INCOME (LOSS) PER SHARE
Basic net income (loss) per share is based on the weighted average number of
common shares outstanding during each period, and diluted net income (loss) per
share is based on the weighted average number of common shares and dilutive
common share equivalents outstanding during each period. The Company's common
share equivalents consist of stock options, stock warrants and the Convertible
Notes described in Note 6 to the Consolidated Financial Statements.
7
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2001
(UNAUDITED)
1. Basis of Presentation (continued)
NET INCOME (LOSS) PER SHARE (CONTINUED)
The following is a reconciliation of the numerators and denominators of the
basic and diluted net income (loss) per share computations for the three and six
months ended June 30, 2000 and 2001 (amounts in thousands, except per share
data), as restated (see Note 9 to the Consolidated Financial Statements):
Three Months Ended Six Months Ended
June 30 June 30
2000 2001 2000 2001
-------- -------- -------- --------
Basic:
Income (loss) before extraordinary gain $ 9,745 $ (6,866) $ 16,984 $ (4,935)
Extraordinary gain on debt extinguishment, net of tax -- -- -- 4,623
-------- -------- -------- --------
Net income (loss) $ 9,745 $ (6,866) $ 16,984 $ (312)
======== ======== ======== ========
Weighted average shares outstanding 55,543 55,804 55,235 55,790
======== ======== ======== ========
Per share amount:
Income (loss) before extraordinary gain $ 0.18 $ (0.12) $ 0.31 $ (0.09)
Extraordinary gain on debt extinguishment, net of tax -- -- -- 0.08
-------- -------- -------- --------
Net income (loss) $ 0.18 $ (0.12) $ 0.31 $ (0.01)
======== ======== ======== ========
Diluted:
Income (loss) before extraordinary gain $ 9,745 $ (6,866) $ 16,984 $ (4,935)
Extraordinary gain on debt extinguishment, net of tax -- -- -- 4,623
-------- -------- -------- --------
Net income (loss) 9,745 (6,866) 16,984 (312)
Interest on Convertible Notes assumed to be converted 1,192 -- -- --
-------- -------- -------- --------
Adjusted net income (loss) $ 10,937 $ (6,866) $ 16,984 $ (312)
======== ======== ======== ========
Weighted average shares outstanding 55,543 55,804 55,235 55,790
Net effect of dilutive stock options and stock
warrants-based on the treasury stock method using
average market price 797 -- 1,039 --
Assumed conversion of Convertible Notes into
common stock 7,261 -- -- --
-------- -------- -------- --------
Total weighted average shares outstanding 63,601 55,804 56,274 55,790
======== ======== ======== ========
Per share amount:
Income (loss) before extraordinary gain $ 0.17 $ (0.12) $ 0.30 $ (0.09)
Extraordinary gain on debt extinguishment, net of tax -- -- -- 0.08
-------- -------- -------- --------
Net income (loss) $ 0.17 $ (0.12) $ 0.30 $ (0.01)
======== ======== ======== ========
8
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2001
(UNAUDITED)
COMPREHENSIVE INCOME (LOSS)
Comprehensive income (loss) is comprised of net income (loss) and other
comprehensive income (loss). Other comprehensive income (loss) includes
unrealized gains or losses on derivative financial instruments and gains or
losses resulting from currency translations of foreign investments. During the
three and six months ended June 30, 2000, comprehensive income totaled $7.5
million and $13.9 million, respectively, and during the three and six months
ended June 30, 2001, comprehensive loss totaled $9.3 million and $7.9 million,
respectively.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142). SFAS No. 142 addresses accounting and
reporting of acquired goodwill and other intangible assets and must be adopted
by the Company on January 1, 2002. In addition, the goodwill impairment testing
provisions of SFAS No. 142 must be applied to any goodwill or other intangible
assets that are recognized in the Company's financial statements at the time of
adoption. Upon adoption, goodwill will no longer be amortized and will be tested
for impairment at least annually. Any goodwill or other intangible asset
impairment losses recognized from the initial impairment test are required to be
reported as a cumulative effect of a change in accounting principle in the
Company's financial statements. The Company is currently assessing the impact
that SFAS No. 142 will have on its financial statements upon adoption in the
first quarter of 2002.
Also, on June 29, 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, Business Combinations (SFAS No. 141). SFAS No. 141 must be
applied to all business combinations that are completed after June 30, 2001.
Among its many provisions, SFAS No. 141 eliminated the pooling-of-interests
method of accounting for business combinations, requires the purchase method of
accounting for business combinations and changes the criteria to recognize
intangible assets separately from goodwill. The Company believes the adoption of
SFAS No. 141 will not have a material affect on its financial statements or
future plans and will apply all provisions of SFAS No. 141 in future
acquisitions as required.
9
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2001
(UNAUDITED)
2. Extraordinary Gain on Debt Extinguishment
During the first quarter of 2001, the Company repurchased 36,000 of its
zero-coupon, subordinated, convertible notes due 2018 (Convertible Notes) for
approximately $10 million (prices ranging from $278 to $283 per Convertible
Note). As of June 30, 2001, the Convertible Notes have an accreted book value of
approximately $516 per Convertible Note. These transactions resulted in an
extraordinary gain of approximately $4.6 million ($0.08 per diluted share) after
transaction and unamortized debt issuance costs and applicable taxes. Each of
the Convertible Notes converts, at the option of the holder, into 19.109 shares
of the Company's common stock. These transactions, along with the purchase of
94,000 Convertible Notes in 2000, completed the 130,000 Convertible Notes
repurchase plan previously approved by the Company's Board of Directors.
3. Unusual Charges
During the first quarter of 2000, the Company began the process of consolidating
four Indianapolis, Indiana locations and a location in Bensalem, Pennsylvania
into a single, new facility located near the Indianapolis International Airport
and designed specifically for the Company and its processes. The Company
recorded an unusual charge of $5.7 million ($3.4 million or $0.06 per share net
of related tax benefits) during the six months ended June 30, 2000 related to
the consolidation for moving costs, the disposal of assets not used in the new
facility and the estimated impact of vacating the unused facilities, net of
potential subleases. At June 30, 2001, the Company had approximately $2.6
million in facility consolidation reserves and no significant adjustments to the
charge are anticipated in future periods.
4. Acquisitions and Divestitures
In December of 2000, the Company acquired Advanced Portable Technologies Pty Ltd
(APT) located in Sydney, Australia, a provider of distribution and other
outsourced services to the wireless data and portable computer industry in
Australia and New Zealand. 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 $0.9 million in cash, the assumption of certain liabilities and
remaining contingent consideration of up to $1.3 million based upon the future
operating results of the business over the three years subsequent to the
acquisition. Goodwill of approximately $1.0 million resulted from this
acquisition. Also during 2000, the Company made cash payments of contingent
consideration totaling $4.6 million related to purchase acquisitions completed
prior to 1999. These payments resulted in additional goodwill being recorded in
2000 that is currently being amortized over the remaining amortization periods
of the related acquisitions. The Company does not believe it has any other
obligations related to contingent consideration for prior acquisitions, other
than the amount for APT mentioned above.
The impact of the APT acquisition was not material in relation to the Company's
consolidated results of operations. Consequently, pro forma information is not
presented.
10
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2001
(UNAUDITED)
5. Accounts Receivable Transfers
During the six months ended June 30, 2000 and 2001, the Company entered into
certain transactions with financing organizations with respect to a portion of
its accounts receivable in order to reduce the amount of working capital
required to fund such receivables. These transactions have been treated as sales
pursuant to the provisions of FASB Statement No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS No.
140), which became effective for transactions occurring after March 31, 2001.
The Company adopted the disclosure provisions of SFAS No. 140 in 2000. SFAS No.
140 replaces FASB Statement No. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities. Net funds received from the
sales of accounts receivable during the six months ended June 30, 2000 and 2001
totaled $37.3 million (4% of revenues) and $72.7 million (7.9% of revenues),
respectively. Fees, in the form of discounts, incurred in connection with these
sales totaled $0.4 million and $1.9 million during the six months ended June 30,
2000 and 2001, respectively, and were recorded as losses on the sale of assets
which are included as a component of "Other (income) expenses" in the
Consolidated Statements of Operations. The Company is the collection agent on
behalf of the financing organization for many of these arrangements and has no
significant retained interests or servicing liabilities related to accounts
receivable that it has sold.
6. Long-term Debt
On March 11, 1998, the Company completed the issuance of zero-coupon,
subordinated, convertible notes due in the year 2018 (Convertible Notes) with an
aggregate face value of $380 million ($1,000 per Convertible Note) and a yield
to maturity of 4.00%. The Convertible Notes are subordinated to all existing and
future senior indebtedness of the Company and all other liabilities, including
trade payables, of the Company's subsidiaries. The Convertible Notes resulted in
gross proceeds to the Company of approximately $172 million (issue price of
$452.89 per Convertible Note) and require no periodic cash payments of interest.
The proceeds were used initially to reduce borrowings under the Company's
revolving credit facility and to invest in highly-liquid, short-term investments
pending use in operations.
Each Convertible Note is convertible at the option of the holder any time prior
to maturity. Upon conversion, the Company, at its option, will deliver to the
holder 19.109 shares of common stock per Convertible Note or cash equal to the
market value of such shares. On or after March 11, 2003, the Convertible Notes
may be redeemed at any time by the Company for cash equal to the issue price
plus accrued original discount through the date of redemption. In addition, each
Convertible Note may be redeemed at the option of the holder on March 11, 2003,
2008 or 2013. The purchase price for each Convertible Note at these redemption
dates is approximately $552, $673 and $820, respectively, which is equal to the
issue price plus accrued original discount through the date of redemption. The
Company may elect at its option to pay for such redemption in cash or common
stock, or any combination thereof equaling the purchase price.
On October 30, 2000, the Company announced that its Board of Directors had
approved a plan under which the Company could repurchase up to 130,000 of the
Convertible Notes. During the first quarter of 2001, the Company repurchased
36,000 of the Convertible Notes for approximately $10 million (prices ranging
from $278 to $283 per Convertible Note). These transactions resulted in an
extraordinary gain of approximately $4.6 million ($0.08 per diluted share) after
transaction and unamortized debt issuance costs and applicable taxes. As of
March 31, 2001, the Company's plan to repurchase 130,000 of the Convertible
Notes was completed. As of June 30, 2001, the remaining 250,000 Convertible
Notes had an accreted book value of approximately $516 per Convertible Note.
11
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2001
(UNAUDITED)
6. Long-term Debt (continued)
On July 27, 1999, the Company amended and restated its five-year senior secured
revolving line of credit facility (the Facility) with Bank One, Indiana,
National Association, as agent for a group of banks (collectively, the Banks).
The Facility, which subject to various restrictions allows for borrowings of up
to $175 million, matures in June 2002, and generally bears interest, at the
Company's option, at: (i) the greater of the agent bank's corporate base rate
plus a spread of 0 to 100 basis points and the Federal Funds effective rate plus
0.50%; or (ii) the rate at which deposits in United States Dollars or
Eurocurrencies are offered by the agent bank to first-class banks in the London
interbank market plus a spread ranging from 140 to 250 basis points (based on
the Company's leverage ratio) plus a spread reserve, if any. Borrowings by the
Company's non-United States subsidiaries bear interest at various rates based on
the type and term of advance selected and the prevailing interest rates of the
country in which the subsidiary is domiciled.
At June 30, 2001, there was approximately $3.3 million outstanding under the
Facility, all of which was denominated in China's local currency, the Renminbi,
at an interest rate of approximately 6.0%. In addition, there was an aggregate
of $26.0 million in letters of credit issued.
All of the Company's assets located in the United States and between 65% and
100% of the capital stock of certain of the Company's subsidiaries are pledged
to the Banks as collateral for the Facility, and the Company is substantially
prohibited from incurring additional indebtedness. Funding under the Facility is
limited by an asset coverage test, which is measured monthly. As of June 30,
2001, available funding under the Facility was approximately $52.2 million.
However, due to the Company's lower operating results during the first half of
2001, utilization of the entire funding capacity at June 30, 2001, would have
violated certain financial covenants under the Facility. In addition to certain
net worth and other financial covenants, the 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. The
Company and the Banks amended the Facility on October 27, 2000, to allow the
Company to execute the Convertible Note repurchases discussed above and to
modify its leverage ratio covenant upon completion of the repurchases.
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 (denominated in China's local currency, the Renminbi) with China
Construction Bank Guangzhou Economic Technological Development District Branch
(China Construction Bank). In December 2000 and again in April 2001, the Company
renewed and revised its agreement with China Construction Bank. The current
agreement matures during the fourth quarter of 2001 and increased available
advances from $4.8 million to $8.5 million. At June 30, 2001, there was
approximately $8.5 million outstanding pursuant to the loan agreement at an
interest rate of approximately 5.9%. In addition, upon maturity the Company
intends to renew this loan with the lender or replace it with funding from the
Facility. The loan prohibits the borrower from making various changes in its
ownership structure.
The secured loan and current borrowings under the Facility discussed above are
supported by a stand-by letter of credit of $6.3 million which was issued under
the Facility and cash collateral of approximately $6.2 million which is
presented separately in the Consolidated Balance Sheets under the caption
"Pledged cash." The Company has classified amounts outstanding under the secured
loan and the Facility as current liabilities in the Consolidated Balance Sheets
as these amounts fall due within twelve months.
12
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2001
(UNAUDITED)
7. Operating Segments
The Company operates in markets worldwide and has four operating segments. These
operating segments represent the Company's four divisions: North America;
Asia-Pacific; Europe, Middle East and Africa; and Latin America. These divisions
all derive revenues from sales of wireless handsets, accessory programs and fees
from the provision of integrated logistics services. However, the divisions are
managed separately because of the geographic locations in which they operate.
The Company evaluates the performance of, and allocates resources to, these
segments based on income (loss) from operations including allocated corporate
selling, general and administrative expenses. As discussed in Note 3 to the
Consolidated Financial Statements, during 2000 the Company incurred unusual
charges, which affected certain operating segments. A summary of the Company's
operations by segment with and without the unusual charges is presented below
(in thousands), as restated (see Note 9 to the Consolidated Financial
Statements):
2000 2001
--------------------------------------------------- ----------------------------------
REVENUES
FROM INCOME (LOSS) INCOME (LOSS) REVENUES FROM INCOME (LOSS)
EXTERNAL FROM FROM EXTERNAL FROM
CUSTOMERS OPERATIONS OPERATIONS(1) CUSTOMERS OPERATIONS
--------- ------------- ------------- ------------- -------------
THREE MONTHS ENDED
JUNE 30:
North America (2) $ 161,001 $ 10,878 $ 11,779 $ 153,119 $ (9,036)
Asia-Pacific 131,636 6,442 5,455 99,872 3,480
Europe, Middle East
and Africa 103,277 2,450 3,053 130,501 (514)
Latin America 65,896 (1,457) (1,457) 68,842 (997)
--------- --------- --------- --------- ---------
$ 461,810 $ 18,313 $ 18,830 $ 452,334 $ (7,067)
========= ========= ========= ========= =========
SIX MONTHS ENDED
JUNE 30:
North America (2) $ 328,704 $ 15,852 $ 21,552 $ 307,674 $ (8,020)
Asia-Pacific 266,901 11,010 9,630 228,513 7,635
Europe, Middle East
and Africa 202,716 5,135 6,146 261,940 (866)
Latin America 141,261 31 31 119,533 265
--------- --------- --------- --------- ---------
$ 939,582 $ 32,028 $ 37,359 $ 917,660 $ (986)
========= ========= ========= ========= =========
(1) Excludes other unusual charges resulting from the Company's 1999
restructuring plan and facilities consolidation in 2000.
(2) Includes the impact of approximately $13.7 million of inventory write-downs
made in the second quarter of 2001.
13
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2001
(UNAUDITED)
7. Operating Segments (continued)
DECEMBER 31, JUNE 30,
TOTAL SEGMENT ASSETS: 2000 2001
------------ --------
North America (3) $311,402 $214,376
Asia-Pacific 120,386 100,612
Europe, Middle East and Africa 147,239 115,808
Latin America 112,632 145,161
-------- --------
$691,659 $575,957
======== ========
(3) Includes assets of the Company's corporate operations.
Beginning in the third quarter of 2001 the Company's operations in the Middle
East will be managed as a part of what is currently the Company's Asia-Pacific
division and will no longer be considered part of the current Europe, Middle
East and Africa division. Consistent with current accounting guidance, the
Company will reclassify its historical operating segment data to reflect this
management change during the third quarter of 2001. This change will have no
effect on previously issued Consolidated Financial Statements.
8. Contingencies
Various lawsuits, claims and proceedings have been or may be asserted against
the Company in the normal course of business. While the ultimate liability
pursuant to these actions cannot currently be determined, the Company believes
the legal proceedings in which it is currently involved will not have a material
adverse effect on its financial position.
The Company and certain of its executive officers, two of whom are also
directors, were named as defendants in four actions filed in June and July 1999,
in the United States District Court for the Southern District of Indiana. These
actions were subsequently consolidated by the court into a single action. The
action involved a purported class of purchasers of the Company's common stock
during the period October 2, 1998 through March 10, 1999. The Company and
certain of its officers and directors filed a motion to dismiss the action and
the court granted such motion on March 29, 2001, subject to the plaintiffs right
to file a motion for leave to amend the complaint before April 26, 2001. The
plaintiffs did not file such a motion and the court has entered final judgment
dismissing the action.
14
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2001
(UNAUDITED)
9. Restatement of Previously Issued Financial Statements
On November 13, 2001 the Company announced that it intended to restate its
annual financial statements for 1998, 1999 and 2000 and the interim periods of
2001. The restated financial statements reflect the correction of an error in
applying generally accepted accounting principles pertaining to the recording of
certain insurance premium expense for a policy that was entered into during
1998. At that time, the Company purchased an insurance policy that provided
coverage for both retroactive and prospective occurrences. The retroactive
occurrences related primarily to losses the Company had sustained in connection
with its closure and discontinuance of its trading division in the fourth
quarter of 1998. The Company recorded the premiums on this policy as expense
over the prospective policy period. The Company has responded to requests for
information and a subpoena from the Securities and Exchange Commission. The
Company believes that the staff of the Securities and Exchange Commission will
subpoena the testimony of certain officers and employees of the Company. In
connection with those responses, the Company and its independent auditors
reviewed the policy and the accounting for the related insurance transactions.
Upon further review, the Company and its independent auditors now believe that
premium expense should have been accrued at the date the Company entered into
the insurance policy, rather than over the prospective policy period because the
Company could not allocate the costs of the policy between the retroactive and
prospective coverage. Accordingly, approximately $15 million should have been
accrued at the date the Company entered into the insurance policy, rather than
over the prospective policy period. While the method of accounting for combined
retroactive and prospective insurance premiums used in the restatement is based
upon accounting practices that were recognized as being generally accepted at
the time the Company issued its 1998 financial statements, it was not until May
1999 that the Financial Accounting Standards Board staff confirmed the restated
accounting practice as being generally accepted for entities other than
insurance companies. The restated financial statements also include certain
adjustments and reclassifications that were previously deemed to be immaterial.
The Company believes that the restatement had no effect on its cash flow and
will have no material effect on its financial position at any future date. The
Company believes that it will recognize a gain in the fourth quarter of 2001
related to the termination of the retroactive portion of the insurance policy,
which will result in the complete reversal of the remaining accrual.
15
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2001
(UNAUDITED)
9. Restatement of Previously Issued Financial Statements (continued)
The following tables reconcile the effects of the restatements for the three and
six months ended June 30, 2000 and 2001. All information in the following tables
is presented in thousands, except per share data.
Three Months Ended Six Months Ended
June 30 June 30
2000 2001 2000 2001
-------- -------- -------- --------
Income (loss) from operations
as previously reported $ 17,600 $ (7,780) $ 30,376 $ (2,406)
Effects of insurance accounting correction 713 713 1,426 1,426
Effects of adjustments previously deemed
immaterial -- -- 226 (6)
-------- -------- -------- --------
Income (loss) from operations as restated $ 18,313 $ (7,067) $ 32,028 $ (986)
======== ======== ======== ========
Income (loss) before income taxes, minority interest
and extraordinary gain as previously reported $ 14,333 $(11,128) $ 24,242 $ (8,943)
Effects of insurance accounting correction 713 713 1,426 1,426
Effects of adjustments previously deemed
immaterial -- -- 248 (6)
-------- -------- -------- --------
Income (loss) before income taxes, minority interest
and extraordinary gain as restated $ 15,046 $(10,415) $ 25,916 $ (7,523)
======== ======== ======== ========
Net income (loss) as previously reported $ 9,253 $ (7,358) $ 15,752 $ (1,290)
Effects of insurance accounting correction 492 492 984 984
Effects of adjustments previously deemed
immaterial -- -- 248 (6)
-------- -------- -------- --------
Net income (loss) as restated $ 9,745 $ (6,866) $ 16,984 $ (312)
======== ======== ======== ========
Net income (loss) per share (basic)
as previously reported $ 0.17 $ (0.13) $ 0.29 $ (0.02)
Effects of insurance accounting correction 0.01 0.01 0.02 0.02
Effects of adjustments previously deemed
immaterial (1) -- -- -- --
-------- -------- -------- --------
Net income (loss) per share (basic) as restated $ 0.18 $ (0.12) $ 0.31 $ (0.01)
======== ======== ======== ========
Net income (loss) per share (diluted)
as previously reported $ 0.16 $ (0.13) $ 0.28 $ (0.02)
Effects of insurance accounting correction 0.01 0.01 0.02 0.02
Effects of adjustments previously deemed
immaterial -- -- -- --
-------- -------- -------- --------
Net income (loss) per share (diluted) as restated $ 0.17 $ (0.12) $ 0.30 $ (0.01)
======== ======== ======== ========
(1) For the six months ended June 30, 2000 and 2001, the per share amount is
less than one cent.
16
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
JUNE 30, 2001
(UNAUDITED)
9. Restatement of Previously Issued Financial Statements (continued)
The effects of the restatements on the Consolidated Balance Sheets are as
follows (in thousands):
December 31, June 30,
2000 2001
------------ ---------
Total current liabilities as previously reported $ 293,618 $ 256,029
Effects of insurance accounting correction 6,487 5,503
Effects of adjustments previously deemed
immaterial (5) --
--------- ---------
Total current liabilities as restated $ 300,100 $ 261,532
========= =========
Total stockholders' equity as previously reported $ 199,600 $ 190,863
Effects of insurance accounting correction (6,487) (5,503)
Effects of adjustments previously deemed
immaterial 5 --
--------- ---------
Total stockholders' equity as restated $ 193,118 $ 185,360
========= =========
17
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW AND RECENT DEVELOPMENTS
This discussion and analysis should be read in conjunction with the accompanying
Consolidated Financial Statements and related notes. Certain statements made in
this report may contain forward-looking statements. For a description of risks
and uncertainties relating to such forward-looking statements, see Exhibit 99 to
this report and the Company's Annual Report on Form 10-K/A for the year ended
December 31, 2000.
On November 13, 2001, the Company announced that it would restate its annual
financial statements for 1998, 1999, 2000 and the interim periods of 2001. As
more fully discussed in Note 9 to the Consolidated Financial Statements, the
Company purchased an insurance policy in 1998 that provided coverage for both
retroactive and prospective occurrences. The retroactive occurrences related
primarily to previously reported losses the Company had sustained in its trading
division, an operation that the Company closed in 1998. The Company has
responded to requests for information and a subpoena from the Securities and
Exchange Commission. The Company believes that the staff of the Securities and
Exchange Commission will subpoena the testimony of certain officers and
employees of the Company. In connection with those responses, the Company and
its independent auditors reviewed the policy and the accounting for the related
insurance transactions. Upon further review, the Company and its independent
auditors now believe that premium expense should have been accrued at the date
the Company entered into the insurance policy, rather than over the prospective
policy period because the Company could not allocate the costs of the policy
between the retroactive and prospective coverage. Accordingly, approximately $15
million should have been accrued at the date the Company entered into the
insurance policy, rather than over the prospective policy period. While the
method of accounting for combined retroactive and prospective insurance premiums
used in the restatement is based upon accounting practices that were recognized
as being generally accepted at the time the Company issued its 1998 financial
statements, it was not until May 1999 that the Financial Accounting Standards
Board staff confirmed the restated accounting practice as being generally
accepted for entities other than insurance companies. The restated financial
statements also include certain adjustments and reclassifications that were
previously deemed to be immaterial. The Company believes that the restatement
had no effect on its cash flow and will have no material effect on its financial
position at any future date. The Company believes that it will recognize a gain
in the fourth quarter of 2001 related to the termination of the retroactive
portion of the insurance policy, which will result in the complete reversal of
the remaining accrual. See Note 9 to the Consolidated Financial Statements for
further discussion.
Beginning in the third quarter of 2001 the Company's operations in the Middle
East will be managed as a part of what is currently the Company's Asia-Pacific
division and will no longer be considered part of the current Europe, Middle
East and Africa division. Consistent with current accounting guidance, the
Company will reclassify its historical operating segment data to reflect this
management change during the third quarter of 2001. This change will have no
effect on previously issued Consolidated Financial Statements.
During the second quarter of 2001, the Company recorded inventory valuation
adjustments of approximately $13.7 million ($8.4 million, or $0.15 per diluted
share, net of tax benefit) to adjust inventories to their estimated net
realizable value based on market conditions. These valuation adjustments were
the result of the over-supply of product in the Company's distribution channel
and the lower-than-anticipated level of demand experienced in the second quarter
of 2001. The write-downs were related to the Company's North America division
and a significant portion of the impacted inventories were wireless accessories.
As of August 2001, the Company had disposed of approximately 90% of the
inventory to which the write-downs related. Also, during the second quarter of
2001, the Company began
18
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
OVERVIEW AND RECENT DEVELOPMENTS
operations in Jamaica pursuant to an agreement with Mossel (Jamaica) Limited, a
new network operator providing wireless communications services in Jamaica under
the trade name Digicel. Under the agreement, which expires in May of 2004, the
Company provides a variety of distribution and integrated logistics services
including handset procurement, custom packaging, fulfillment and inventory
management.
During the first quarter of 2001, the Company repurchased 36,000 of its
zero-coupon, subordinated, convertible notes due 2018 (Convertible Notes) for
approximately $10 million (prices ranging from $278 to $283 per Convertible
Note). These transactions resulted in an extraordinary gain of approximately
$4.6 million ($0.08 per diluted share) after transaction and unamortized debt
issuance costs and applicable taxes. Along with the purchase of 94,000
Convertible Notes in 2000, these transactions completed the 130,000 Convertible
Notes repurchase plan previously approved by the Company's Board of Directors.
As of June 30, 2001, the remaining 250,000 Convertible Notes have an accreted
book value of approximately $516 per Convertible Note.
During the first quarter of 2000, the Company began the process of consolidating
four Indianapolis, Indiana, locations and a location in Bensalem, Pennsylvania,
into a single, new facility located near the Indianapolis International Airport
and designed specifically for the Company and its processes. The Company
recorded an unusual charge of $5.7 million ($3.4 million or $0.06 per share net
of related tax benefits) during the six months ended June 30, 2000, related to
the consolidation for moving costs, the disposal of assets not used in the new
facility and the estimated impact of vacating the unused facilities, net of
potential subleases. See Note 3 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS - RESTATED
The following discussion of results of operations excludes the extraordinary
gain on debt extinguishment during the first quarter of 2001 of $4.6 million
($0.08 per diluted share) and the impact of the facilities consolidation and
other unusual charges for the three and six months ended June 30, 2000, totaling
$.5 million and $5.3 million, respectively, ($0.3 million or $0.01 per diluted
share and $3.0 million or $0.05 per diluted share, respectively, net of related
tax benefits) described above.
19
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS - RESTATED (CONTINUED)
Revenue
Three Months Ended June 30 Six Months Ended June 30
----------------------------------------------------------------------
(In thousands) 2000 2001 Change 2000 2001 Change
-----------------------------------------------------------------------------------------
Revenue $ 461,810 $ 452,334 (2%) $ 939,582 $ 917,660 (2%)
-----------------------------------------------------------------------------------------
Revenue for the three and six months ended June 30, 2001, decreased 2% compared
to revenue in the comparable periods of 2000. Units handled for the second
quarter of 2001 also decreased 2% when compared to the second quarter of 2000;
however, units handled on a year-to-date basis in 2001 are 10% above units
handled in the first six months of 2000. The continued economic slowdown in the
United States and other markets, transitioning product cycles in the wireless
telecommunications and data industry and the lower levels of promotions,
subsidies and agent commissions offered by network operators in many parts of
the world have resulted in higher levels of inventories in the wireless
equipment channel. The higher level of inventories has caused demand for the
Company's products and services to be lower than in the prior year.
Revenue by Division (in thousands):
Three Months Ended June 30 Six Months Ended June 30
------------------------------------------- -------------------------------------------
2000 2001 2000 2001
------------------------------------------- -------------------------------------------
North America $161,001 35% $153,119 34% $328,704 35% $307,674 34%
Asia-Pacific 131,636 29% 99,872 22% 266,901 28% 228,513 25%
Europe, Middle East and
Africa 103,277 22% 130,501 29% 202,716 22% 261,940 28%
Latin America 65,896 14% 68,842 15% 141,261 15% 119,533 13%
------------------------------------------- -------------------------------------------
Total $461,810 100% $452,334 100% $939,582 100% $917,660 100%
=========================================== ===========================================
The overall lower demand during the second quarter of 2001 resulted in a decline
in revenues for the Company's North America and Asia-Pacific divisions of 5% and
24%, respectively, when compared to the second quarter of 2000. Due to a number
of factors including new locations, the geographic diversity of the Company's
operations and the variety of services offered by the Company, revenues in the
Europe, Middle East and Africa and Latin America divisions grew by approximately
26% and 4%, respectively, from the second quarter of 2000. For the first half of
2001 the lower demand has caused revenue in all divisions except Europe, Middle
East and Africa to decline from the comparable prior period.
20
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS - RESTATED (CONTINUED)
Revenue by Service Line (in thousands):
Three Months Ended June 30 Six Months Ended June 30
------------------------------------------- ----------------------------------------------
2000 2001 2000 2001
------------------------------------------- ----------------------------------------------
Sales of wireless handsets $ 360,373 78% $ 373,524 83% $ 727,363 78% $ 760,788 83%
Accessory programs 52,804 11% 38,673 8% 115,239 12% 81,376 9%
Integrated logistics services 48,633 11% 40,137 9% 96,980 10% 75,496 8%
------------------------------------------- ----------------------------------------------
$ 461,810 100% $ 452,334 100% $ 939,582 100% $ 917,660 100%
------------------------------------------- ----------------------------------------------
Revenue from wireless handsets increased approximately 4% for the three and six
months ended June 30, 2001, as compared to the same periods in 2000. This
increase is due primarily to strong demand for the Company's products in certain
of the Company's Europe, Middle East and Africa markets, partially offset by
decreased wireless handset sales in certain Asia-Pacific markets. Revenue from
integrated logistics services and accessory programs for the second quarter of
2001, as compared to the same period in 2000 decreased 17% and 27%,
respectively. For the first half of 2001, revenue from integrated logistics
services and accessory programs decreased 22% and 29%, respectively, as compared
to the first half of 2000. Demand for much of the Company's accessory programs
and integrated logistics services is generated, directly or indirectly, through
promotional programs sponsored by network operators. The level of these
promotional activities during the first half of 2001 was lower than that of the
first half of 2000, causing the Company's revenues in these service lines to be
lower than the prior year.
Gross Profit
Three Months Ended June 30 Six Months Ended June 30
----------------------------------------- ---------------------------------------
(In thousands) 2000 2001 Change 2000 2001 Change
---------------------------------------------------------------------------------------------------------------------
Gross profit $ 44,516 $ 15,335 (66%) $ 87,595 $ 46,208 (47%)
Gross margin 9.6% 3.4% 9.3% 5.0%
---------------------------------------------------------------------------------------------------------------------
Gross profit for the three and six months ended June 30, 2001, decreased 66% and
47%, respectively, over the same periods in 2000 resulting in gross margins of
3.4% for second quarter of 2001 and 5.0% for the first half of 2001, compared to
gross margins of 9.6% and 9.3% for the comparable prior periods. The decreases
in gross margins were due primarily to i) a greater percentage of the total
revenue derived from lower margin handset sales, ii) lower margins on those
handset sales resulting from the oversupply of product in the channel and iii)
inventory write-downs made during the second quarter of 2001. As previously
discussed, due to higher levels of inventories in the channel and the
lower-than-expected level of demand experienced during the second quarter of
2001, the Company recorded inventory valuation adjustments of approximately
$13.7 million to adjust inventories to their estimated net realizable value
based on the current market conditions. Excluding these inventory write-downs,
gross margins for the three and six months ended June 30, 2001 were 6.4% and
6.5%, respectively.
21
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RESULTS OF OPERATIONS - RESTATED (CONTINUED)
Selling, General and Administrative Expenses
Three Months Ended June 30 Six Months Ended June 30
------------------------------------ ---------------------------------------
(In thousands) 2000 2001 Change 2000 2001 Change
---------------------------------------------------------------------------------------------------------------------
Selling, general and
administrative expenses $ 25,686 $ 22,402 (13%) $ 50,236 $ 47,194 (6%)
As a percent of revenue 5.6% 5.0% 5.3% 5.1%
---------------------------------------------------------------------------------------------------------------------
Selling, general and administrative expenses for the second quarter of 2001
decreased 13% from the second quarter of 2000 and 10% from $24.8 (5.3% of
revenue) million in the first quarter of 2001. For the first half of 2001,
selling, general and administrative expenses have decreased 6% from the
comparable prior period. These decreases were primarily the result of cost
control measures instituted in response to the current market conditions.
Income (Loss) from Operations
Three Months Ended Six Months Ended
June 30 June 30
------------------------------- -------------------------------
(In thousands) 2000 2001 2000 2001
-----------------------------------------------------------------------------------------------------
Income (loss) from operations $ 18,830 $ (7,067) $ 37,359 $ (986)
As a percent of revenue 4.0% (1.6%) 4.0% (0.1%)
-----------------------------------------------------------------------------------------------------
The decrease in operating margins from 4.0% in the second quarter of 2000 to a
negative 1.6% (positive 1.5% excluding the impact of the inventory adjustments)
in the second quarter of 2001 resulted primarily from the decrease in gross
margins described above. Income from operations for the three and six months
ended June 30, 2001 (excluding the inventory write-downs) was $6.6 million and
$12.7 million, respectively, as compared to $18.8 million and $37.4 million in
the comparable 2000 periods and also decreased as a result of the reduced gross
profit discussed above.
Net Income (Loss)
Three Months Ended June 30 Six Months Ended June 30
----------------------------- ----------------------------
(In thousands) 2000 2001 2000 2001
------------------------------------------------------------------------------------------------------------
Net income (loss) $ 9,902 $ (6,866) $ 20,035 $ (312)
Net income (loss) per share (diluted) (1) $ 0.18 $ (0.12) $ 0.35 $ (0.01)
Weighted average shares outstanding (diluted) (1)
63,601 55,804 63,535 55,790
------------------------------------------------------------------------------------------------------------
(1) For the three and six months ended June 30, 2000, reflects an after tax
add-back of interest expense of $1.2 million and $2.4 million, respectively, to
net income and an increase of 7.3 million in weighted average shares outstanding
to properly reflect the dilutive effect of the Company's Convertible Notes.
The decreases in net income (loss) and net income (loss) per diluted share for
the three and six months ended June 30, 2001 when compared to the same periods
in 2000 were due primarily to the factors discussed above in the analyses of
revenue, gross profit and selling, general and administrative expenses.
22
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES - RESTATED
(In thousands) December 31, 2000 June 30, 2001
--------------------------------------------------------------------------------
Cash and cash equivalents $ 79,718 $ 36,350
Working capital $ 266,578 $ 186,761
Current ratio 1.89 : 1 1.71 : 1
--------------------------------------------------------------------------------
The Company has historically satisfied its working capital requirements
principally through cash flow from operations, vendor financing, bank borrowings
and the issuance of equity and debt securities. The decrease in working capital
at June 30, 2001 compared to December 31, 2000 is comprised primarily of the
effect of decreases in cash, accounts receivable and inventories partially
offset by a decrease in accounts payable. The Company believes that cash flow
from operations, vendor financing and available borrowing capacity under its
revolving line of credit facility will be sufficient to continue funding its
short-term capital requirements, however, continued operating losses,
significant changes in the Company's business model or expansion of operations
in the future may require the Company to raise additional capital.
Net cash provided by operating activities was $34.0 million for the six months
ended June 30, 2001, as compared to net cash used by operating activities of
$0.6 million in the comparable prior period. The increase in cash provided by
operating activities in the first half of 2001 as compared to the prior period
was primarily the result of an increase in the level of cash generated through
the reduction of accounts receivable and inventories partially offset by a
reduction in earnings and an increase in cash used to reduce accounts payable.
In addition, as of June 30, 2001, days revenue outstanding in accounts
receivable was approximately 32 days, compared to days revenue outstanding of
approximately 35 days at June 30, 2000. This reduction is attributable to the
successful acceleration of the Company's accounts receivable collection cycle,
as well as sales or financing transactions, in certain markets, of accounts
receivable to financing organizations (see Note 5 to the Consolidated Financial
Statements). Net funds received from the sale of accounts receivable during the
six months ended June 30, 2001 totaled $72.7 million (7.9% of revenue). During
the second quarter of 2001, annualized inventory turns were 10 times, compared
to 8 times during the second quarter of 2000 and inventory balances were
approximately $64 million lower than inventories at December 31, 2000. Average
days costs in accounts payable were 34 days for the second quarter of 2001,
compared to 46 days for the second quarter of 2000. These changes combined to
create a decrease in cash conversion cycle days to 34 days in the second quarter
of 2001, from 35 days in the same period of 2000.
Net cash used by investing activities for the six months ended June 30, 2001,
was $24.7 million as compared to $10.1 million in the comparable prior period.
The change between periods is primarily comprised of increases in cash used to
fund the Company's contract financing activities and capital expenditures
(primarily for upgrades to and enhancements in the Company's information
technology), partially offset by a reduction in cash expended for acquisition
activities in the first half of 2001. Net cash used by financing activities for
the six months ended June 30, 2001, was $51.9 million compared to cash provided
by financing activities of $7.8 million for the comparable prior period. The
change between periods was primarily the result of increased payments on the
Company's revolving credit facility and the repurchase of the Convertible Notes.
23
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES - RESTATED (CONTINUED)
The Company's long-term debt at June 30, 2001, is comprised of the Company's
zero-coupon, subordinated, convertible notes (the Convertible Notes) which have
an aggregate principal amount at maturity of $250.0 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 $129 million at June 30, 2001.
In addition, the Company has borrowings or permitted indebtedness totaling
approximately $11.7 million at June 30, 2001 under its senior secured revolving
line of credit facility (the Facility) which has been periodically modified.
Based on the current maturity of the Facility, the Company has classified
amounts outstanding as current liabilities in the Consolidated Balance Sheets,
as these amounts fall due within twelve months. The Facility provides the
Company, based upon a borrowing base calculation and subject to various
financial covenants, with a maximum borrowing capacity of up to $175 million.
Interest rates on U.S. Dollar borrowings under the Facility, excluding fees,
range from 140 basis points to 250 basis points above LIBOR, depending on
certain leverage ratios.
On October 30, 2000, the Company announced that its Board of Directors had
approved a plan under which the Company could repurchase up to 130,000 of the
Convertible Notes. The Company and the Banks amended the Facility on October 27,
2000, to allow the Company to execute such repurchases and to modify its
leverage ratio covenant upon completion of the repurchases. As of March 31,
2001, the Company's plan to repurchase 130,000 of the Convertible Notes was
complete. During the first quarter of 2001, the Company repurchased 36,000 of
the Convertible Notes for approximately $10 million (prices ranging from $278 to
$283 per Convertible Note). These transactions resulted in an extraordinary gain
of approximately $4.6 million ($0.08 per diluted share) after transaction and
unamortized debt issuance costs and applicable taxes. As of June 30, 2001, the
remaining 250,000 Convertible Notes had an accreted book value of approximately
$516 per Convertible Note. See Note 6 to the Consolidated Financial Statements.
All of the Company's assets located in the United States and between 65% and
100% of the capital stock of certain of the Company's subsidiaries are pledged
to the Banks as collateral for the Facility, and the Company is substantially
prohibited from incurring additional indebtedness, either of which terms could
limit the Company's ability to implement its expansion plans. In addition, at
June 30, 2001 the Company had pledged cash balances totaling approximately $ 6.2
million as cash collateral for certain of its borrowings in the Peoples Republic
of China. The Company is also subject to certain covenants as more fully
described in Note 6 to the Consolidated Financial Statements.
24
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS (CONTINUED)
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On June 29, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 142, Goodwill and Other
Intangible Assets (SFAS No. 142). SFAS No. 142 addresses accounting and
reporting of acquired goodwill and other intangible assets and must be adopted
by the Company on January 1, 2002. In addition, the goodwill impairment testing
provisions of SFAS No. 142 must be applied to any goodwill or other intangible
assets that are recognized in the Company's financial statements at the time of
adoption. Upon adoption, goodwill will no longer be amortized and will be tested
for impairment at least annually. Any goodwill or other intangible asset
impairment losses recognized from the initial impairment test are required to be
reported as a cumulative effect of a change in accounting principle in the
Company's financial statements. The Company is currently assessing the impact
that SFAS No. 142 will have on its financial statements upon adoption in the
first quarter of 2002.
Also, on June 29, 2001, the FASB issued Statement of Financial Accounting
Standards No. 141, Business Combinations (SFAS No. 141). SFAS No. 141 must be
applied to all business combinations that are completed after June 30, 2001.
Among its many provisions, SFAS No. 141 eliminated the pooling-of-interests
method of accounting for business combinations, requires the purchase method of
accounting for business combinations and changes the criteria to recognize
intangible assets separately from goodwill. The Company believes the adoption of
SFAS No. 141 will not have a material affect on its financial statements or
future plans and will apply all provisions of SFAS No. 141 in future
acquisitions as required.
25
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL MARKET RISK MANAGEMENT
The Company is exposed to financial market risks, including changes in interest
rates and foreign currency exchange rates. To mitigate interest rate risks, the
Company has utilized interest rate swaps to convert certain portions of its
variable rate debt to fixed interest rates. To mitigate foreign currency
exchange rate risks, the Company utilizes its multi-currency revolving line of
credit and derivative financial instruments under a risk management program
approved by the Company's Board of Directors. The Company does not use
derivative instruments for speculative or trading purposes.
The Company is exposed to changes in interest rates on its variable interest
rate revolving lines of credit. A 10% increase in short-term borrowing rates
during the quarter ended June 30, 2001, 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 June 30, 2001.
A substantial portion of the Company's revenue and expenses are transacted in
markets outside of the United States and are denominated in currencies other
than the U.S. Dollar. Accordingly, the Company's future results could be
adversely affected by a variety of factors, including changes in a specific
country's political, economic or regulatory conditions and trade protection
measures.
The Company's foreign currency risk management program is designed to reduce but
not eliminate unanticipated fluctuations in earnings, cash flows and the value
of foreign investments caused by volatility in currency exchange rates by
hedging, where believed to be cost-effective, significant exposures with foreign
currency exchange contracts, options and foreign currency borrowings. The
Company's hedging programs reduce, but do not eliminate, the impact of foreign
exchange rate movements. An adverse change (defined as a 10% strengthening of
the U.S. Dollar) in all exchange rates would have resulted in only a nominal
decrease in results of operations for the six months ended June 30, 2001. 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 June 30, 2001. 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.
Certain of the Company's foreign entities are located in countries that are
members of the European Union (EU) and, accordingly, have adopted the Euro, the
EU's new single currency, as their legal currency effective January 1, 1999.
From that date, the Euro has been traded on currency exchanges and available for
noncash transactions. Local currencies remain legal tender until December 31,
2001 at which time participating countries will issue Euro-denominated bills and
coins for use in cash transactions. By no later than July 1, 2002, participating
countries will withdraw all bills and coins denominated in local currencies.
During 2000 and 2001, the Company's operations that are located in EU countries
(France, Germany, Ireland and the Netherlands) have transacted business in both
the Euro and their local currency as appropriate to the nature of the
transaction under the EU's "no compulsion, no prohibition principle." The
Company has made significant investments in information technology in Europe and
has experienced no significant information technology or operational problems as
a result of the Euro conversion. In addition, the Company continues to evaluate
the effects on its business of the Euro conversion for the affected operations
and believes that the completion of the Euro conversion during 2001 and 2002
will not have a material effect on its financial position or results of
operations.
26
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is from time to time, involved in certain legal proceedings in the
ordinary course of conducting its business. While the ultimate liability
pursuant to these actions cannot currently be determined, the Company believes
the legal proceedings in which it is currently involved will not have a material
adverse effect on its financial position.
The Company and certain of its executive officers, two of whom are also
directors, were named as defendants in four actions filed in June and July 1999,
in the United States District Court for the Southern District of Indiana. These
actions were subsequently consolidated by the court into a single action. The
action involved a purported class of purchasers of the Company's common stock
during the period October 2, 1998 through March 10, 1999. The Company and
certain of its officers and directors filed a motion to dismiss the action and
the court granted such motion on March 29, 2001, subject to the plaintiffs right
to file a motion for leave to amend the complaint before April 26, 2001. The
plaintiffs did not file such a motion and the court has entered final judgment
dismissing the action.
Item 4. Submission of Matters to a Vote of Security Holders
An Annual Meeting of Stockholders was held on June 7, 2001, to elect three (3)
Class I directors.
The three (3) Class I directors are to hold office until the Annual Meeting of
Stockholders to be held in 2004 and until their successors have been duly
elected and qualified. The results of the vote to elect the three (3) Class I
directors were as follows:
J. Mark Howell received 48,508,035 votes for and 0 votes against. 3,514,951
votes were withheld.
Stephen H. Simon received 51,629,841 votes for and 0 votes against. 393,345
votes were withheld.
Todd H. Stuart received 51,618,996 votes for and 0 votes against. 403,990
votes were withheld.
Item 6. Exhibits
(a) Exhibits
The list of exhibits is hereby incorporated by reference to the
Exhibit Index on page 29 of this report.
(b) Reports on Form 8-K
On June 18, 2001, the Company filed a Form 8-K with the Securities and
Exchange Commission reporting under Item 5 - Other Events, the press
release announcing that revenue and earnings for the quarter ending
June 30, 2001, would be below the expectations disclosed in the
Company's April 26, 2001 conference call.
27
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Brightpoint, Inc.
-----------------
(Registrant)
Date November 21, 2001 /s/ Phillip A. Bounsall
-------------------------------- --------------------------------
Phillip A. Bounsall
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
28
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
99 Cautionary Statements
29