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, 2001
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 jurisdiction of (I.R.S. Employer
incorporation) Identification No.)
600 EAST 96TH STREET, SUITE 575,
INDIANAPOLIS, INDIANA 46240
(Address of principal executive offices including zip code)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (317) 805-4100
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. [X]
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of March 15, 2002 was approximately $51,000,000. As of March
15, 2002, there were 55,895,853 shares of the registrant's Common Stock
outstanding.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
ITEM 1. BUSINESS.
GENERAL
Brightpoint, Inc. is a provider of outsourced services in the global
wireless telecommunications and data industry. Our services include
distribution, fulfillment, customized packaging, prepaid and e-business
solutions, inventory management and other outsourced services. Our customers
include network operators, resellers, retailers and wireless equipment
manufacturers. We handle wireless products manufactured by technology companies
such as Audiovox, Compaq, Sony Ericsson, Handspring, Hewlett-Packard, Kyocera,
Mitsubishi, Motorola, NEC, Nokia, Novatel Wireless, Palm, Panasonic, Research In
Motion, Samsung, Siemens, Sierra Wireless and Toshiba. We also provide
integrated services to wireless equipment manufacturers and wireless network
operators along with their associated service providers, resellers, agents and
other retail channels. Our distribution services include purchasing, marketing,
selling, warehousing, picking, packing, shipping and delivery of wireless
handsets (including wireless data devices) and accessories. Our integrated
logistics services include support for prepaid programs, inventory management,
procurement, product fulfillment, programming, telemarketing, private labeling,
kitting and customized packaging 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, Colombia, France, Germany, Ireland, Jordan, Mexico, New Zealand, the
People's Republic of China (including Hong Kong), the Philippines, Sweden, the
United Arab Emirates and the United States.
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
We issued restated financial statements for 1998, 1999 and 2000 in an
amended Form 10-K for the fiscal year ended December 31, 2000, which we filed
with the SEC on March 1, 2002. The effects of the restatements on our previously
issued financial statements are included in this Form 10-K. We believe that the
restatements had no effect on our cash flow and no material effect on our
current financial position. See Management's Discussion and Analysis of
Financial Condition and Results of Operations for details regarding the
restatement, Item 3-Legal Proceedings for a discussion of a related SEC
investigation and Note 18 to the Consolidated Financial Statements for details
regarding the restatement and reconciliations of previously reported amounts.
During 2001, our board of directors approved a restructuring plan that
we began to implement in the fourth quarter of 2001. The primary goal in
adopting this restructuring plan was to better position ourselves for long-term
and more consistent success by improving our cost structure and eliminating
operations in which potential returns are not adequate to justify the risks of
those operations. Certain markets in which we operate, including Brazil,
Jamaica, South Africa, Venezuela and Zimbabwe, have unusually high risk profiles
due to many factors, including among other things, high importation duties,
currency restrictions and volatile political and economic climates. We have
determined that the risks of
operating in these markets can no longer be justified given the potential
profitability of our operations in those markets, therefore, these operations
have been or will be sold or otherwise discontinued pursuant to the
restructuring plan. Additionally, pursuant to the restructuring plan, we
completed in January 2002, through certain of our subsidiaries, the formation of
a joint venture with Hong Kong-based Chinatron Group Holdings Limited. Chinatron
is involved in the wireless telecommunications and data industry. In exchange
for a 50% interest in Brightpoint China Limited, we received preference shares
in Chinatron with a face value of $10 million. In addition, Chinatron has an
option to purchase an additional 30% of Brightpoint China Limited for additional
preference shares in Chinatron with a face value of $10 million. We believe the
Chinatron transaction reduced the capital we employ in the China market,
including Hong Kong, while allowing us to continue to participate on a limited
basis in this large handset market. See Note 2 to the Consolidated Financial
Statements for further discussion.
On October 31, 2001, through our primary North American operating
subsidiaries, Brightpoint North America L.P. and Wireless Fulfillment Services
LLC, we entered into a new revolving credit facility with a syndicate of lenders
led by General Electric Capital Corporation to provide capital for our North
American operations. The revolving credit facility replaced the previous Bank
One multi-currency revolving loan. The new revolving credit facility, which
matures in October 2004, provides borrowing availability, subject to borrowing
base calculations and other limitations, of up to $90 million. Subject to
certain restrictions, funds may be available under the revolving credit facility
for us to use to repurchase our outstanding convertible notes. See Note 9 to the
Consolidated Financial Statements for further discussion.
In 2001, we experienced a net loss of $0.95 per share on revenues of
$1.8 billion, compared to net income per diluted share of $0.78 on revenues of
$2.0 billion in 2000. Because of the significance of the 2001 restructuring plan
discussed above, we have delineated our results of operations for analysis
purposes between the results of recurring operations and the results of
non-recurring operations. Readers should be cautioned that this delineation
should not be considered a substitute for consolidated financial statements
prepared in accordance with accounting principles generally accepted in the
United States (GAAP). Results of recurring operations include the results of
those operations that will be continued after completion of the restructuring
plan and results of non-recurring operations include those operations sold or
otherwise discontinued pursuant to the restructuring plan. Recurring operations
also exclude the impacts of certain non-recurring items related to the
implementation of the 2001 restructuring plan, our facilities consolidation,
extraordinary gains (losses) on debt extinguishment and a loss in the third
quarter of 2001 resulting from the settlement of a dispute with a handset
manufacturer with which we severed our relationship. Accompanying the
Consolidated Financial Statements and Management's Discussion and Analysis of
Financial Condition and Results of Operations is a reconciliation of the
delineated presentation of the Statements of Operations for 1999, 2000 and 2001.
In 2001, our revenue and net income from recurring operations were $1.7 billion
and $1.1 million, respectively, representing decreases of 4% and 97%,
respectively when compared to 2000. Earnings per diluted share from recurring
operations in 2001 were $0.02 compared to $0.73 in 2000. The decrease in
revenues from 2000 to 2001 reflects slowing demand for wireless products as well
as our related distribution and integrated logistics services. Our gross and
operating margins in 2001 decreased significantly when compared to 2000
primarily as a result of pricing pressures and related inventory valuation
adjustments created by oversupply of product in our distribution channels,
pricing pressures related to our integrated logistics services, a shift in
service line mix from higher margin accessories to
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lower margin handset sales and increased costs from business interruptions
encountered with enterprise and warehouse management software implementations.
WIRELESS TELECOMMUNICATIONS AND DATA INDUSTRY
The wireless telecommunications and data industry provides voice and
data communications utilizing various wireless terminals, including mobile
telephones, interactive pagers, personal digital assistants and other mobile
computing devices. Wireless devices are available in a variety of form factors
and using a variety of technologies including analog, digital, multi-band and
Web-enabled 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 and developing technologies (such as 1xRTT, GPRS,
EDGE and W-CDMA) to provide voice and data communication over regional, national
and multi-national networks. Developments within the wireless telecommunications
and data industry have allowed wireless subscribers to talk, send text messages,
browse the Internet and effect certain e-commerce transactions using their
wireless devices. Wireless devices and services are also being used for
monitoring services, point-of-sale transaction processing, inter-device
communications, local area networks, location monitoring, sales force automation
and customer relationship management. Developments in recent years affecting the
wireless telecommunications and data industry, including certain of our
customers, are consolidation among wireless network operators; declining access
to capital to fund capital expenditures and continuing operating losses;
changing focus from subscriber acquisition to subscriber retention and expansion
of service offerings; the convergence of the telecommunications, data and media
domains; advances in and development of next generation systems technology,
including increasing bandwidth; the increasing variety of terminal form factors;
the proliferation of manufacturers and wireless service resellers; and the
increasing affordability of wireless airtime. These developments have helped to
grow consumer acceptance and increase penetration rates for wireless
telecommunications and data equipment and services in markets around the world.
In recent years, the markets for wireless telecommunications and data
equipment and services have expanded significantly, although in 2001 this growth
was much slower. From 2000 to 2001, the number of worldwide wireless subscribers
increased by approximately 232 million, or 32%, to approximately 961 million.
From 1999 to 2000 the number of worldwide wireless subscribers increased by
approximately 250 million, or 52%. Nonetheless, at the end of 2001, wireless
penetration was estimated at approximately 47% of the population within the
United States and was still, on average, less than 16% of the population
globally. We believe these factors reflect worldwide opportunities for long-term
growth within the wireless telecommunications and data industry, although at
slower growth rates than in past years. The number of worldwide subscribers is
expected to grow to approximately 1.3 billion subscribers by the end of 2003.
During 2001, the wireless telecommunications and data industry saw its first
decline in shipments of wireless handsets from approximately 408 million in 2000
to an estimated 390 million units in 2001. However, handset shipments are
currently forecasted at approximately 410 million units in 2002 and 460 million
units in 2003. The percentage of handset shipments related to replacement units
has continued to grow and is forecasted to exceed 50% of total unit sales in
2002. 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, although this continued to be a
relatively small portion of the wireless communications industry. The
information contained in this paragraph was obtained from leading independent
industry research groups.
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We believe that our strategies are consistent with the following major
trends taking place within the wireless telecommunications and data industry,
although it cannot be assured that we will be able to take advantage of these
trends (see Business Risk Factors discussed below):
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 multi-national service areas and efforts to
increase revenue and profitability 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 could
also increase the demands placed on us and other providers of integrated
logistics services, as network operators will need to meet increasingly complex
and sophisticated customer requirements and provide services over larger
geographic regions while attempting to generate acceptable levels of
profitability. This increased focus on profitability could cause the network
operators to reduce promotional programs which could decrease the demand for our
products or services. The increase in the complexity of customer requirements
could require us to continue to upgrade our information systems and processes,
which could result in significantly increased costs. Additionally, this
consolidation reduces the number of potential contracts available to us and
other providers of integrated logistics services and could reduce the degree to
which members of the wireless telecommunications and data industry rely on
outsourced services such as the services that we provide. We could also lose
business in the near-term if network operators who are not our customers acquire
network operators who are our customers.
Migration to Next Generation Systems. As network operators compete to
offer anytime/anywhere telecommunications and data services to their customers
through the new technologies of third generation (3G) wireless systems (and the
transitional technologies that lie along the migration route to 3G, including
GPRS, EDGE, 1xRTT and others), they will be increasingly focused on spectrum
purchase, infrastructure build out, customer retention and expansion of service
offerings. This could create an industry environment in which network operators
would be more likely to outsource integrated logistics services that they do not
perceive as central to these three core activities. However, the roll-out of 3G
systems, which has been delayed and could further be delayed, could possibly
mitigate the need for some of the integrated logistics services we now offer if
the underlying technology drastically reduces or eliminates certain processes
that we currently provide to program and/or provision handsets. 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, wireless subscribers may increasingly use their wireless
devices to send and receive e-mail, browse the Internet, effect mobile commerce
transactions and access other information and services available via the
Internet. This convergence is being powered by the development of wireless Web
capabilities and new standards such as Wireless Application Protocol (WAP),
HTML, Java, Bluetooth and 3G. Other new wireless technologies and enhancements
have also been introduced into the wireless telecommunications and data 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.
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Increasing Penetration of Markets Worldwide. We expect that the demand
for wireless services may continue to drive increased penetration of markets
worldwide and the continued entry of wireless resellers in certain markets.
Recently, the economic uncertainty in many markets and the high rate of
penetration in many markets has caused the rate of subscriber growth to slow,
however, economic growth, increased service availability or the lower cost of
service compared to conventional wireline telephony systems (or a combination of
the two) 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,
increased competition and the emergence of new wireless technologies and related
applications. However, these developments may result in an increased number of
companies providing wireless services in certain markets and affect the services
provided including seamless roaming, increased coverage, improved signal quality
and greater data handling capabilities through greater bandwidth. These factors
are also expected to intensify the efforts of the network operators to maintain
competitive cost structures which could place pressure on the prices and service
levels demanded of us.
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 Web-based capabilities. We also expect
both customers and suppliers may require enhanced management of these
capabilities to remain competitive. 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.
GROWTH STRATEGY
As (i) competition creates pricing pressures for services and equipment
(ii) the variety of wireless mobile devices expands, (iii) telecommunications,
data, Internet and other technologies converge and evolve and (iv) the number
and breadth of distribution channels continues to expand, certain network
operators and manufacturers are finding that switching from in-house
distribution to independent distribution reduces overall costs and helps them to
meet the increasing demands of various market channels. In an effort to maintain
focus on and conserve resources for marketing, sales and customer retention,
certain new network operators are also outsourcing their handset distribution,
fulfillment and inventory management functions (as opposed to building
distribution infrastructure). At the same time, certain 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 distribution systems. They have also outsourced
various production and manufacturing operations. Finally, certain manufacturers
and network operators are attempting to reach the consumer segment through a
variety of retail distribution channels, requiring greater levels of
fulfillment services in order to address the logistical challenges of supporting
mass retailers and consumer electronics retail stores. Our two primary
strategies for building on our position as a leader in providing distribution
and integrated logistics services to the wireless telecommunications and data
industry are as follows:
Value Migration. This strategy calls for the integration of our
services with the key processes of our customers and suppliers, thereby
producing increased value. To achieve heightened levels of integration, we will
attempt to hasten the innovation and development of logistics and other services
for the wireless
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telecommunications and data industry, establish ourselves as a recognized
provider of products and valued services related to wireless data, and deploy
these products and services throughout our organization.
Supply Chain Development. This strategy focuses on our efforts to
expand our supplier base and broaden our product portfolio, continually seeking
to expand and enhance key supplier relationships within the wireless
telecommunications and data industry. We will seek to accomplish this by
attempting to grow product lines, brands and technologies handled within our
service territories, thereby extending our reach to allow us to provide services
to wireless equipment manufacturers in the markets in which we serve them.
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 telecommunications and data products, we intend to help manufacturers
achieve their key business objectives of increasing 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 while minimizing network operators' investments in distribution
infrastructure.
Distribution Services. Our distribution services include the
purchasing, marketing, selling, warehousing, picking, packing, shipping and
delivery of a broad selection of wireless telecommunications and data products
from leading manufacturers. We continually review and evaluate wireless
telecommunications and data 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 we distribute include a variety of devices designed to
work on substantially all operating platforms, including analog and digital, and
feature prominent brand names such as Audiovox, Compaq, Sony Ericsson,
Hewlett-Packard, Kyocera, Motorola, Mitsubishi, NEC, Nokia, Novatel Wireless,
Palm, Panasonic, Research In Motion, Samsung, Siemens, Sierra Wireless and
Toshiba. In 1999, 2000 and 2001, approximately 75%, 79% and 83%, respectively,
of our revenue from recurring operations was derived from handset sales. In
those same years, distribution services accounted for approximately 59%, 53% and
60%, respectively, of the total units we handled.
We also distribute related wireless accessories, such as batteries,
chargers, cases and "hands-free" products. We purchase and resell original
equipment manufacturer (OEM) and aftermarket accessories,
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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 call center that we manage on
behalf of the network operator. Accessories typically carry higher margins than
handsets. In 1999, 2000 and 2001, sales of accessories accounted for
approximately 17%, 12% and 8%, respectively, of our revenue from recurring
operations.
Integrated Logistics Services. Our integrated logistics services
include, among others, support for e-business and prepaid programs, inventory
management, procurement, product fulfillment, programming, telemarketing,
private labeling, kitting and customized packaging and end-user support
services. In many of our markets we have contracts with network operators and
equipment manufacturers pursuant to which we currently provide our integrated
logistics services. These customers include, but are not limited to, operating
companies or subsidiaries of COMCEL (Colombia), Nokia (United States), Esat
Digifone (Ireland), Handspring (United States, MoviStar (Puerto Rico), Nextel
(United States), Panasonic (United States) and Vodafone (Australia). We also
procure wireless mobile devices and accessories for our customers using either
our own sources or the customers' specified suppliers. We also perform packaging
and kitting functions, receiving orders-either directly from customers or from
our customers' subscribers-via various forms of electronic data transfer.
During 1999, 2000 and 2001, integrated logistics services accounted for
approximately 8%, 9% and 9%, respectively, of our total revenue from recurring
operations. Although this revenue has remained relatively consistent as a
percent of our total recurring revenues, the mix of customers generating this
revenue has changed significantly over the last three years. We have lost and
added relationships in 2001 and believe these changes in the make up of our
integrated logistics services customer base will continue. In 1999, 2000 and
2001, integrated logistics services accounted for approximately 41%, 47% and
40%, respectively, of the total units we handled in our recurring operations.
Because the fees for such services have higher gross margins than those
associated with distribution services, we believe they represent a higher than
proportionate percentage of our operating profits.
CUSTOMERS
We provide our services to a customer base of approximately 18,000
network operators, manufacturers, agents, resellers, dealers and retailers. For
2000 and 2001, aggregate revenues generated from our five largest customers
accounted for approximately 11% and 21%, respectively, of our total revenue and
no single customer accounted for 10% or more 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 agreements with
terms between one and three years that generally may be terminated by either
party subject to a short notice period.
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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 inventories of popular brand
name products on favorable pricing terms. In 2001, we made purchases from more
than 100 wireless mobile device 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, volume
incentive rebates and marketing allowances. Product manufacturers typically
provide limited warranties, which we pass through to our customers.
Our two largest suppliers of wireless mobile devices and accessories in
the aggregate accounted for approximately 73% and 78% of our product purchases
in 2000 and 2001, respectively. During 2000, Nokia and Sony Ericsson accounted
for approximately 62% and 11%, respectively, of our product purchases, and in
2001 they accounted for approximately 72% and 6%, respectively, of our product
purchases. None of our other suppliers accounted for 10% or more of product
purchases in 2000 or 2001. 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 revenue and 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. Our agreements may be subject to
certain conditions and exceptions including the retention by manufacturers of
certain direct accounts and restrictions regarding our sale of products supplied
by certain manufacturers. Most of our agreements with suppliers are
non-exclusive. Our supply agreements may require us to satisfy minimum purchase
requirements and can be terminated on short notice by either party. We purchase
products from manufacturers pursuant to purchase orders placed from time to time
in the ordinary course of business. We generally place orders on a regular basis
with our suppliers. Purchase orders are typically filled, subject to product
availability, and shipped to our designated 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
manufacturers. In 1999, we were unable to obtain sufficient product supplies
from manufacturers in many of the markets in which we operate. 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 three
regional divisions by a president for that particular division. These executives
devote a substantial amount of their time to developing and maintaining
relationships with our customers and suppliers, in addition to managing the
overall operations of their divisions. Each division's sales and operations
centers are managed by either general or country managers who report to the
appropriate divisional president and are responsible for the daily sales and
operations of their particular location. Each division has sales associates who
specialize in or focus on sales to a specific customer category (e.g., network
operator, dealer, reseller, retailer, subscriber, etc.). In addition, we have
dedicated a
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sales force to manage our network operator relationships and to further our
sales of integrated logistics services. We also market integrated logistics
services through sales directors in each of our three regional divisions and
through dedicated sales personnel. Including support and retail outlet
personnel, we had approximately 380 employees involved in sales and marketing at
December 31, 2001, including 140 in our Asia-Pacific division, 125 in our Europe
division and 115 in our Americas division.
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 our capabilities and the benefits of certain of our product lines
through advertising in trade publications and attending various 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 and services 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:
- purchasing patterns of customers in different markets;
- the timing of the introduction of new products by our suppliers and
competitors;
- variations in sales by distribution channels;
- product availability and pricing; and
- promotions and subsidies by network operators.
Consumer electronics and retail sales in many geographic markets 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. Because of a
number of factors adversely impacting the markets we service, including, but not
limited to, economic uncertainty in the United States, we did not experience our
historical seasonal increase in revenue in the fourth quarters of 2000 and 2001.
COMPETITION
We operate in a highly competitive business environment and in highly
competitive markets and believe that such competition may intensify in the
future. The markets for wireless telecommunications and data products are
characterized by intense price competition and significant price erosion over
the lives of products. We compete principally on the basis of value, in terms of
price, time, 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; electronics manufacturing
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
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wireless handsets and accessories are also entering the market to produce
various wireless mobile devices, including 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 relatively low barriers to entry. However, as the key
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 "Migration to Next
Generation Systems," entry barriers are expected to rise. Increases in the cost
of entry will most likely be driven by rising infrastructure costs, the expanded
human resource requirement and the advanced management and information systems
capabilities mandated by the integrated logistics services segment of the
business. 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 information technology requirements; new product
introductions; 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 Americas division include wireless equipment
manufacturers, network operators and other dedicated wireless distributors such
as CellStar Corporation and BrightStar Corporation. We also compete with
logistics service providers and electronics manufacturing service providers in
our Americas operations, such as Communications Test Design, Inc., UPS Logistics
and CAT Logistics. In the Asia-Pacific market, our primary competitors are
state-owned distributors that have retail outlets with direct end-user access as
well as United States-based and foreign-based exporters, traders and
distributors, including CellStar Corporation and Telepacific Pty Limited. In our
Europe division, our competitors include wireless equipment manufacturers that
sell directly to the region's network operators and retailers, network operators
themselves, and traders and other distributors, such as Dangaard Telecom Holding
A/S, Caudwell Communications Limited, European Telecom plc, Avenir S.A. and
CellStar Corporation, and logistics and transportation companies such as
TPG NV.
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 and successfully identify, obtain or develop and market new
products, including integrated logistics services, that satisfy evolving
industry and customer requirements. The use of alternative wireless
telecommunications technologies or the convergence of wireless
telecommunications and computer technologies may reduce demand for existing
wireless telecommunications 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.
10
INFORMATION SYSTEMS
Our operations are dependent on the functionality, design, performance
and utilization of our information systems. We have implemented multiple
business applications systems throughout the world which are intended to enable
us to provide our customers and suppliers with distribution and service
capabilities. These capabilities include e-commerce solutions; electronic data
interchange; Web-based order entry, account management, reporting and supply
chain management; and various inventory tracking, management and reporting
capabilities. During 1999, 2000 and 2001, we invested approximately $6.1
million, $5.5 million and $21.5 million, respectively, to install and enhance
systems, to continue to develop and enhance our systems to provide electronic
data interchange capabilities, to further automate our customer interfaces and
enhance our overall e-business capabilities, to create solutions for our
customers and to provide a flexible service delivery system in support of our
integrated logistics services. We intend to use additional funds to further
develop information systems throughout our three divisions, in part to utilize
technology to advance our base of existing service competencies and develop new
capabilities that will attempt to meet the challenges posed by convergence and
consolidation. We intend to invest an aggregate of $20 to $30 million in capital
expenditures (related primarily to information technology) over the next two
years. At December 31, 2001, there were approximately 110 employees in our
information technology departments worldwide.
During 2001, we encountered difficulties during the installation of new
enterprise and warehouse management software in our operations in the United
States and Australia. These difficulties resulted in business interruption and
significant additional costs. There can be no assurance that these
installations, or any additional such installations, will not result in
additional business interruption or costs.
EMPLOYEES
As of December 31, 2001, we had approximately 1,730 employees; 415 in
our Asia-Pacific division, 335 in our Europe division and 980 in our Americas
division. Of these employees, approximately 7 were in executive positions, 380
were engaged in sales and marketing, 920 were in service operations and 423 were
in finance and administration (including information technology employees). None
of our United States-based 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" and "We are subject to a number of regulatory and contractual
restrictions governing our relations with certain of our employees."
BUSINESS RISK FACTORS
Various statements, discussions and analyses throughout this Form 10-K
are not based on historical fact and contain forward-looking statements. These
statements are subject to certain risks and uncertainties, including those
discussed below that could cause our actual results to differ materially from
those expressed or implied in any forward-looking statements made by us. There
are many important factors that have affected, and in the future could affect,
our business, some of which are beyond our control and future trends are
difficult to predict. Readers are cautioned not to place undue reliance on any
forward-looking statement contained in this Form 10-K and should also be aware
that we undertake no obligation to update any forward-looking information
contained herein to reflect events or circumstances after the date of this Form
10-K or to reflect the occurrence of unanticipated events.
11
OUR OPERATIONS MAY BE MATERIALLY AFFECTED BY FLUCTUATIONS IN REGIONAL
DEMAND PATTERNS AND ECONOMIC FACTORS -- The demand for our products and services
has fluctuated and may continue to vary substantially within the regions served
by us. We believe the roll-out of 3G systems and other new technologies, which
has been delayed and could further be delayed, has had and will continue to have
an effect on overall subscriber growth and handset replacement demand. Economic
slow-downs in regions served by us or changes in promotional programs offered by
network operators may lower consumer demand and create higher levels of
inventories in our distribution channels which results in lower than anticipated
demand for the products and services that we offer and can decrease our gross
and operating margins. During the second quarter of 2001, we recorded inventory
valuation adjustments of approximately $13.7 million ($8.4 million, $0.15 per
diluted share, net of tax benefit) to adjust inventories to their estimated net
realizable value based on the then current market conditions. These valuation
adjustments were the result of the over-supply of product in our distribution
channel and the lower-than-anticipated level of demand experienced in the second
quarter of 2001. The write-downs were related to our North America division and
a significant portion of the impacted inventories were wireless accessories. We
believe our operations were adversely affected by an economic slow-down in the
United States during the fourth quarter of 2000 and all of 2001. We also believe
that this economic slow-down will continue to impact our operations in 2002. A
prolonged economic slow-down in the United States or any other regions in which
we have significant operations could negatively impact our results of operations
and financial position.
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 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 ability to meet our customers' technical and performance
requirements is highly dependent on the effective functioning of our information
technology systems. Further, certain of our contractual arrangements to provide
services contain performance measures and criteria that if not met could result
in early termination of the agreement and claims for damages. In connection with
the implementation of this technology we have incurred significant costs and
have experienced significant business interruptions. These business
interruptions can cause us to fall below acceptable performance levels pursuant
to our customers' requirements and could result in the loss of the related
business relationship. In 2001, difficulties with our information systems
implementation contributed to the loss of a new integrated logistics services
customer and also resulted in a claim being filed against us. We may continue to
experience additional costs and periodic business interruptions related to our
information systems as we implement new information systems in our various
operations. 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 compensate us adequately, or at all, for losses that we may incur if we
lose our equipment or systems either temporarily or permanently. 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.
12
OUR BUSINESS MAY BE ADVERSELY IMPACTED BY CONSOLIDATION OF NETWORK
OPERATORS -- The past several years have witnessed a consolidation within the
network operator community which trend is expected to continue in at least the
near future. This trend could result in a reduction or elimination of
promotional activities by the remaining network operators as they seek to reduce
their expenditures, which could in turn, result in decreased demand for our
products or services. Moreover, consolidation of network operators reduces the
number of potential contracts available to us and other providers of integrated
logistic services. We could also lose business if network operators which are
our customers are acquired by other network operators which are not our
customers.
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 to us. We provide functions such as distribution, fulfillment,
customized packaging, prepaid and e-commerce solutions, inventory management and
other outsourced services for many of these manufacturers and network operators.
Certain wireless equipment manufacturers and network operators have elected, and
others may elect, to undertake these services internally. Additionally, our
customer service levels, 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. Service periods under certain of
our contractual arrangements are expiring or will expire in the near future. The
failure to obtain renewal or otherwise maintain these agreements on terms,
including price, consistent with our current terms could have a material adverse
effect on our business.
THE LOSS OF PRINCIPAL CUSTOMERS COULD MATERIALLY ADVERSELY AFFECT OUR
BUSINESS. -- Sales to our ten largest customers accounted for approximately 32%
of our total revenues in fiscal 2001 and a significant portion of revenues
within certain of our operating divisions. Although we have entered into
contracts with certain of our largest integrated logistic service customers,
there can be no assurance that any of our customers will continue to purchase
products or services from us or that their purchases will be at the same or
greater levels than in prior periods. The loss of any of our principal
customers, a reduction in the amount of product or services our principal
customers order from us or the inability to maintain current terms, including
price, with these or other customers could have an adverse effect on our
financial condition, results of operations and liquidity.
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 products that we handle or which
otherwise render those products obsolete or less marketable. We have made and
continue to make significant capital investments in accordance with evolving
industry and customer requirements including maintaining levels of inventories
of currently popular products that we believe are necessary based on current
market conditions. These concentrations of capital increase our risk of loss due
to product obsolescence as a result of rapid technological changes in the
wireless telecommunications and data industry.
13
The use of emerging wireless communications technologies, including
GPRS, EDGE, 1xRTT, W-CDMA, Bluetooth, wireless local loop, satellite-based
communications systems and other new technologies including the new technologies
of third generation (3G) wireless systems, may reduce the demand for existing
cellular and PCS products. The roll-out of 3G systems and other new
technologies, which has been delayed and could further be delayed, could
possibly mitigate the need for some of the integrated logistics services we now
offer if the underlying technology drastically reduces or eliminates certain
processes that we currently provide to program and/or provision handsets. 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 may be required to
offer or result in significant price competition for us. Product obsolescence
could result in significantly increased inventories of our unsold products as
well as declines in the current market value of these 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.
THERE ARE SIGNIFICANT AMOUNTS OF OUR SECURITIES WHICH ARE ISSUABLE UPON
EXERCISE OF OUTSTANDING CONVERTIBLE SECURITIES AS WELL AS UNDER OTHER STOCK
PLANS WHICH COULD RESULT IN SUBSTANTIAL DILUTION AND ADVERSELY AFFECT THE MARKET
PRICE OF OUR COMMON STOCK -- Our zero-coupon, subordinated, convertible notes
which at December 31, 2001 had an accreted value of approximately $132 million
are convertible at the option of the holders any time prior to maturity in 2018.
These notes are convertible at the rate of 19.109 shares of common stock per
$1,000 face value note. The note holders also may require us to purchase the
notes on either March 11, 2003, 2008 or 2013, which payments we may make, at our
option in cash or in shares of our common stock valued at the then current
market price of our common stock. If we are able and choose to issue shares of
common stock to satisfy this potential obligation, the number of shares issued
would be significant and would materially dilute the ownership interests of our
holders of common stock. Moreover, sales of such shares in the marketplace could
adversely affect the market price of our common stock. Additionally, we have
reserved a significant number of shares of common stock that may be issuable
pursuant to our employee stock option and purchase plans. 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 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 would become
immediately due and payable, and the banks could foreclose on our assets. Our
senior credit facility is secured by all of our assets in North America and
borrowing availability is based primarily on a percentage of eligible accounts
receivable and inventory. Consequently, any significant decrease in eligible
accounts receivable and inventory could limit our ability to borrow additional
funds to adequately finance
14
our operations and expansion strategies. The terms of our senior credit facility
substantially prohibit us from incurring additional indebtedness in the United
States, which could limit our ability to expand our operations. The terms of our
senior credit facility also include negative covenants that, among other things,
limit our ability to sell certain assets and make certain payments, including
but not limited to, dividends, repurchases of common stock and other payments
outside the normal course of business as well as prohibiting us from merging or
consolidating with another corporation or selling all or substantially all of
our assets in the United States.
WE RELY ON OUR SUPPLIERS TO PROVIDE TRADE CREDIT FACILITIES TO
ADEQUATELY FUND OUR ON-GOING OPERATIONS AND PRODUCT PURCHASES -- As previously
discussed, our business is dependent on our ability to obtain adequate supplies
of currently popular product on favorable pricing and other terms. Our ability
to fund our product purchases is dependent on our limited number of suppliers
providing favorable payment terms that allow us to maximize the efficiency of
our capital usage. The payment terms we receive from our suppliers is dependent
on several factors, including, but not limited to, our payment history with the
supplier, the suppliers credit granting policies, contractual provisions, our
overall credit rating as determined by various credit rating agencies, industry
conditions, our recent operating results, financial position and cash flows and
the supplier's ability to obtain credit insurance on amounts that we owe them.
Adverse changes in any of these factors, certain of which may not be wholly in
our control, could have a material adverse effect on our operations.
OUR FUTURE OPERATING RESULTS WILL DEPEND ON OUR ABILITY TO CONTINUE TO
INCREASE OUR SALES SIGNIFICANTLY -- A large percentage of our total revenues is
derived 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 demand for wireless telecommunications and data products and our having
adequate supply of these 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.
WE MAY HAVE DIFFICULTY COLLECTING OUR ACCOUNTS RECEIVABLE -- We
currently offer and intend to offer open account terms to our customers, which
may subject us to credit risks, particularly in the event that any receivables
represent sales to a limited number of customers or are concentrated in
particular geographic markets. We also enter into certain securitization
transactions with financing organizations with respect to portions of our
accounts receivable in order to reduce the amount of working capital required to
fund such receivables. Certain of these transactions qualify as sales pursuant
to current accounting principles generally accepted in the United States. We are
the collection agent on behalf of the financing organization for many of these
arrangements. We have no significant retained interest or servicing liabilities
related to accounts receivable that we have sold, although in limited
circumstances, related primarily to our performance in the original
transactions, we may be required to repurchase the accounts. The collection of
our accounts receivable and our ability to accelerate our collection cycle
through the sale of accounts receivable is effected by several factors,
including, but not limited to, our credit granting policies, contractual
provisions, our customers' and our overall credit rating as determined by
various credit rating agencies, industry and economic conditions, the ability of
the
15
customer to provide security, collateral or guarantees relative to credit
granted by us, the customer's and our recent operating results, financial
position and cash flows and our ability to obtain credit insurance on amounts
that we are owed. Adverse changes in any of these factors, certain of which may
not be wholly in our control, could create delays in collecting or an inability
to collect our accounts receivable which could have a material adverse effect on
our financial position cash flows and results of operations.
A SIGNIFICANT PERCENTAGE OF OUR REVENUES IS GENERATED OUTSIDE OF NORTH
AMERICA IN COUNTRIES THAT MAY HAVE VOLATILE CURRENCIES OR OTHER RISKS -- We
maintain operations centers and sales offices in many 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 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. 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. During 1999 and 2001, and pursuant to our
restructuring plans, 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 operations. This could result in our incurring
significant additional losses.
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 wireless handsets and accessories
that we sell from wireless communications equipment manufacturers, distributors
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 and other terms. Our agreements with our suppliers generally
are 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 offer us competitive products on favorable terms
without delays. From time to time we have been unable to obtain sufficient
product supplies from manufacturers in many markets in which we operate. 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.
16
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, distributors and manufacturers,
including our own suppliers. As a provider of integrated logistics services, we
also compete with other distributors, logistics services companies and
electronic manufacturing services companies. Many of our competitors possess
greater financial and other resources than we do and may market similar products
or services directly to our customers. The wireless telecommunications and data
industry has generally had low barriers to entry. As a result, 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
wireless telecommunications 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 OR CURRENT RATES -- In prior years we have experienced 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. In addition, our growth prospects
could be adversely affected by a decline in the wireless telecommunications and
data industry generally or in one of our regional divisions, either of which
could result in reduction or deferral of expenditures by prospective customers.
OUR BUSINESS STRATEGY INCLUDES ENTERING INTO RELATIONSHIPS AND
FINANCINGS, WHICH MAY PROVIDE US WITH MINIMAL RETURNS OR LOSSES ON OUR
INVESTMENTS -- We have entered into several relationships and joint ventures
with wireless equipment manufacturers, network operators and other participants
in our industry. We intend to continue to enter into similar relationships as
opportunities arise. We may enter into distribution or integrated logistics
services agreements with these parties and may provide them with equity or debt
financing. Our ability to achieve future profitability through these
relationships will depend in part upon the economic viability, success and
motivation of the entities we select as partners and the amount of time and
resources that these partners devote to our alliances. We may receive minimal or
no business from these relationships and joint ventures, and any business we
receive may not be significant or at the level we anticipated. The returns we
receive from these relationships, if any, may not offset possible losses or our
investments or the full amount of financings that we make upon entering into
these relationships. We may not achieve acceptable returns on our investments
with these parties 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
17
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.
WE HAVE INCURRED SIGNIFICANT LOSSES DURING CERTAIN QUARTERLY PERIODS --
We incurred net losses in the second and fourth quarters of 2001 and a net loss
for the year ended December 31, 2001 of $53.3 million. We incurred net losses in
each of the first two quarters of 1999 and a net loss of $87.8 million in the
year ended December 31, 1999. The net losses for 2001 and 1999 include
approximately $39.9 million and $79.6 million, respectively, of restructuring
and other unusual charges. Also included in the net loss in 1999 is the
cumulative effect of an accounting change of $13.4 million. Several business
factors appear to have contributed to our losses in these periods including
costs related to our restructuring plans, adjustments to the carrying value of
certain inventories, an inadequate supply of products for sale through our
distribution services, inadequate demand for our products and services, costs
related to the implementation of information systems, 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 the Latin America sector of our Americas divisions. We may incur additional
future losses.
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:
- purchasing patterns of customers in different markets;
- the timing of introduction of new products by our suppliers and
competitors;
- variations in sales by distribution channels;
- product availability and pricing; and
- promotions and subsidies by network operators.
Consumer electronics and retail sales have historically experienced
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. However, this increase did not occur in 2001 or
2000. 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
18
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 ARE SUBJECT TO A NUMBER OF REGULATORY AND CONTRACTUAL RESTRICTIONS
GOVERNING OUR RELATIONS WITH CERTAIN OF OUR EMPLOYEES - We are subject to a
number of regulatory and contractual restrictions governing our relations with
certain of our employees, including national collective labor agreements, for
certain of our employees who are employed outside of the United States, and
individual employer labor agreements. These arrangements address a number of
specific issues affecting our working conditions including hiring, work time,
wages and benefits, and termination of employment. We could be required to make
significant payments in order to comply with these requirements. The cost of
complying with these requirements may materially adversely affect our business
and financial condition.
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 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.
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 real 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
19
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 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.
WE COULD BE ADVERSELY AFFECTED BY AN ADVERSE OUTCOME IN CERTAIN
EXISTING LAWSUITS IN WHICH WE ARE DEFENDANTS -- We are currently defendants in
purported class action lawsuits that allege securities law violations by us and
certain of our officers. Although we intend to vigorously defend these actions,
the outcome of litigation is uncertain, and we could be adversely affected by an
unfavorable outcome in either of these actions.
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.
THE MARKET PRICE OF OUR COMMON STOCK MAY CONTINUE TO BE VOLATILE -- The
market price of our common stock 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
certain factors, which could include actual or anticipated variations in our
quarterly operating results or financial position; restatements of previously
issued financial statements; outcome or commencement of litigation; 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 and the
enforcement of such regulation; changes in the assessment of our credit rating
as determined by various credit rating agencies; 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.
20
SEGMENT FINANCIAL INFORMATION
Financial information concerning our segments is included in
Management's Discussion and Analysis of Financial Condition and Results of
Operations under the heading "Operating Segments" on pages A-9 and A-10 of this
Annual Report on Form 10-K.
21
ITEM 2. PROPERTIES.
We provide our distribution and integrated logistics services from our
sales and operations centers located in various countries including Australia,
the People's Republic of China (including Hong Kong), Colombia, France, Germany,
Ireland, Jordan, Mexico, New Zealand, the Philippines, Sweden, the United Arab
Emirates, and the United States. Substantially all of these facilities are
occupied pursuant to operating leases. The table below summarizes information
about our sales and operations centers by operating division.
NUMBER OF AGGREGATE APPROXIMATE
LOCATIONS (1) SQUARE FOOTAGE MONTHLY RENT
------------- -------------- ------------
The Americas.............. 6 902,670 $ 491,000
Asia-Pacific.............. 9 191,748 108,000
Europe.................... 4 198,939 139,000
--- --------- ---------
19 1,293,357 $ 738,000
=== ========= =========
(1) Refers to geographic areas in which we maintain facilities and
considers multiple buildings located in the same area as a single
geographic location.
On September 28, 2001, we entered into an agreement to terminate our
financial obligations with respect to the last of the unused, or partially used,
facilities at the former North America headquarters and distribution center
located at 6402 Corporate Drive in Indianapolis, Indiana, which was serving as
our Corporate headquarters. See Note 2 to the Consolidated Financial Statements
for further discussion. In the fourth quarter of 2001, we leased the
distribution portion of the 6402 Corporate Drive property for use in our North
America operations through the second quarter of 2002. In early 2002, we moved
our Corporate headquarters to a new location in Indianapolis. The new location
is approximately 11,000 square feet of office space. The lease expires in 2008
and the current monthly rental payments are approximately $18,000.
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.
22
ITEM 3. LEGAL PROCEEDINGS
The Company and several of its executive officers and directors are
named as defendants in two complaints filed in November and December 2001, in
the United States District Court for the Southern District of Indiana, entitled
Weiss v. Brightpoint, Inc., et. al., Cause No. IP01-1796-C-T/K; and Mueller v.
Brightpoint, Inc., et. al., Cause No. IP01-1922-C-M/S. The complaints are
purported class actions asserted on behalf of all purchasers of publicly traded
Brightpoint securities between January 28 (or 29), 1999 and November 14 (or 13),
2001, alleging violations of Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder by us and certain of our officers and
directors and violations of Section 20(a) of the Exchange Act by the individual
defendants. In February 2002, the Court consolidated the Weiss and Muller
actions and appointed John Kilcoyne as lead plaintiff in this action which is
now known as In re Brightpoint, Inc. Securities Litigation. An amended complaint
has not yet been served.
The complaints allege, among other things, that the restatement of
certain of our financial statements was evidence that the defendants concealed
adverse material information and made or participated in the making of untrue
statements of material facts and omitted to state material facts concerning our
business, finances, financial condition, performance, operations, products and
future prospects. The complaints allege that our announcement that we would
restate certain financial statements reveal that our prior financial statements
violated Generally Accepted Accounting Principles and that we had internal
inefficiencies and had been misleading the public regarding the true value of
our stock. The plaintiffs seek compensatory damages, including interest, against
all of the defendants and recovery of their reasonable litigation costs and
expenses. We dispute these claims and intend to defend vigorously this matter.
A complaint was filed on November 23, 2001 against the Company and 87
other defendants in the United States District Court for the District of
Arizona, entitled Lemelson Medical, Education and Research Foundation LP v.
Federal Express Corporation, et.al., Cause No. CIV01-2287-PHX-PGR. The plaintiff
claims the Company and other defendants have infringed 7 patents alleged to
cover bar code technology. The case seeks unspecified damages, treble damages
and injunctive relief. We dispute these claims and intend to defend vigorously
this matter.
In February 2002, Nora Lee, filed a complaint in the Circuit Court,
Marion County, Indiana, Derivatively on Behalf of Nominal Defendant Brightpoint,
Inc., vs. Robert J. Laikin, et. al. and Brightpoint, Inc. as a Nominal
Defendant, Cause No. 49C01-0202-CT-000399.
The plaintiff alleges, among other things, that certain of the
individual defendants sold our common stock while in possession of material
non-public information regarding us, that the individual defendants violated
their fiduciary duties of loyalty, good faith and due care by, among other
things, causing us to disseminate misleading and inaccurate financial
information, failing to implement and maintain internal adequate accounting
control systems, wasting corporate assets and exposing us to losses. The
plaintiff is seeking to recover unspecified damages from all defendants,
23
the imposition of a constructive trust for the amounts of profits received by
the individual defendants who sold our common stock and recovery of reasonable
litigation costs and expenses.
We have responded to requests for information and subpoenas from the
Securities and Exchange Commission (SEC) in connection with an investigation
including our accounting treatment of a certain contract entered into with an
insurance company (See Footnote 18 of Notes to Financial Statements). In
addition, certain of our officers or employees have provided testimony to the
SEC and we believe that the staff of the SEC will subpoena additional testimony
of certain of our officers and employees.
We are from time to time, also involved in certain legal proceedings in
the ordinary course of conducting our business. While the ultimate liability
pursuant to these actions cannot currently be determined, we believe these legal
proceedings will not have a material adverse effect on our financial position.
Our Certificate of Incorporation and By-laws provide for us to
indemnify our officers and directors to the extent permitted by law. In
connection therewith, we have entered into indemnification agreements with our
executive officers and directors. In accordance with the terms of these
agreements we intend to reimburse them for their personal legal expenses arising
from certain pending litigation and regulatory matters.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
24
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this Item is set forth in "Other
Information" on page A-65 of this Annual Report on Form 10-K.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is set forth in "Selected
Financial Data" on page A-66 of this Annual Report on Form 10-K.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS.
The information required by this Item is set forth on pages A-3 to A-8,
A-12 to A-20, A-23 to A-29 and A-31 and A-32 of this Annual Report on Form 10-K.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item is set forth in the subsection
"Financial Market Risk Management" of Management's Discussion and Analysis on
page A-31 and A-32 of this Annual Report on Form 10-K.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is set forth in our Consolidated
Financial Statements on pages A-2, A-11, A-21, A-22, A-30, A-33 to A-64 of this
Annual Report on Form 10-K.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
25
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
Our By-laws provide that our Board of Directors is divided into three
classes (Class I, Class II and Class III). At each Annual Meeting of
Stockholders, directors constituting one class are elected for a three-year
term. Each of the directors will be elected to serve until a successor is
elected and qualified or until the director's earlier resignation or removal.
The following table sets forth, for each director, the name, age,
principal occupation and the length of continuous service as a Brightpoint
director:
CLASS I DIRECTORS
(Term Expires in 2004)
PRINCIPAL OCCUPATION
NAME OF DIRECTOR AGE OR EMPLOYMENT DIRECTOR SINCE
---------------- --- -------------------- --------------
J. Mark Howell............... 37 President and Chief Operating Officer 1994
of Brightpoint
Stephen H. Simon............. 36 President and Chief Executive Officer, 1994
Melvin Simon & Associates, Inc.
Todd H. Stuart............... 36 Vice President and Director of Stuart's 1997
Moving and Storage, Inc.
CLASS II DIRECTORS
(Term Expires in 2002)
PRINCIPAL OCCUPATION
NAME OF DIRECTOR AGE OR EMPLOYMENT DIRECTOR SINCE
---------------- --- -------------------- --------------
Robert J. Laikin............. 38 Chairman of the Board and Chief Executive 1989
Officer of Brightpoint
Robert F. Wagner............. 67 Partner of Law Firm of Lewis & Wagner 1994
Rollin M. Dick............... 70 Vice Chairman and Chief Financial Officer of 1994
Haverstick Consulting Inc.
26
CLASS III DIRECTORS
(Term Expires in 2003)
PRINCIPAL OCCUPATION
NAME OF DIRECTOR AGE OR EMPLOYMENT DIRECTOR SINCE
---------------- --- -------------------- --------------
John W. Adams 53 Vice President of Browning Investments, 1994
Inc.
Jerre L. Stead 59 Retired Chairman and Chief Executive 2000
Officer of Ingram Micro Inc.
Set forth below is a description of the backgrounds of each of our
directors and executive officers:
Robert J. Laikin, a founder of Brightpoint, has been a director since
our inception in August 1989. Mr. Laikin has been our Chairman of the Board and
Chief Executive Officer since January 1994. Mr. Laikin was our President from
June 1992 until September 1996 and our Vice President and Treasurer from August
1989 until May 1992. From July 1986 to December 1987, Mr. Laikin was Vice
President and, from January 1988 to February 1993, President of Century Cellular
Network, Inc., a company engaged in the retail sale of cellular telephones and
accessories.
J. Mark Howell has been a director since October 1994. Mr. Howell has
been our President since September 1996 and our Chief Operating Officer from
August 1995 to April 16, 1998 and from July 16, 1998 to present. He was our
Executive Vice President, Finance, Chief Financial Officer, Treasurer and
Secretary from July 1994 until September 1996. From July 1992 until joining
Brightpoint, Mr. Howell was Corporate Controller for ADESA Corporation, a
company which owns and operates automobile auctions in the United States and
Canada. Prior thereto, Mr. Howell was a Manager with Ernst & Young LLP.
John W. Adams has been a director since April 1994. Since October 1983,
Mr. Adams has been Vice President of Browning Investments, Inc., a commercial
real estate development company. Mr. Adams is a trustee of Century Realty Trust,
a publicly-held real estate investment trust.
Rollin M. Dick has been a director since April 1994. From December 2000
to present Mr. Dick has been employed as the Vice Chairman and Chief Financial
Officer of Haverstick Consulting Inc., a professional consulting firm offering
business consulting, application development and integration services. From
February 1986 to April 2000, Mr. Dick was Executive Vice President, Chief
Financial Officer and a director of Conseco, Inc., a publicly-held life
insurance holding company.
Stephen H. Simon has been a director since April 1994. Mr. Simon has
been President and Chief Executive Officer of Melvin Simon & Associates, Inc., a
privately-held shopping center development company, since February 1997. From
December 1993 until February 1997, Mr. Simon was Director of Development for an
affiliate of Simon Property Group, a publicly-held real estate investment trust.
From November 1991 to December 1993, Mr. Simon was Development Manager of Melvin
Simon & Associates, Inc.
27
Jerre L. Stead has been a director since June 2000. From August 1996 to
June 2000 he was Chairman of the Board and from August 1996 to March 2000 he was
Chief Executive Officer of Ingram Micro Inc., a worldwide distributor of
information technology products and services. He served as Chairman, President
and Chief Executive Officer of Legent Corporation, a software development
company from January 1995 until its sale in September 1995. Mr. Stead was
Executive Vice President of American Telephone and Telegraph Company, a
telecommunications company and Chairman and Chief Executive Officer of AT&T
Global Information Solutions, a computer and communications company, formerly
NCR Corp. from 1993 to 1994. He was President of AT&T Global Business
Communications Systems, a communications company, from 1991 to 1993. Mr. Stead
was Chairman, President and Chief Executive Officer from 1989 to 1991 and
President from 1987 to 1989 of Square D Company, an industrial control and
electrical distribution products company. In addition, he held numerous
positions during a 21-year career at Honeywell. Mr. Stead is a Director of
Thomas & Betts Corp., Conexant Systems, Inc., Armstrong Holdings, Inc. and
Mobility Electronics, Inc.
Todd H. Stuart has been a director since November 1997. Mr. Stuart has
been Vice President, since May 1993, and Director of Transportation, since May
1985, of Stuart's Moving and Storage, Inc., a provider of domestic and
international logistics and transportation services.
Robert F. Wagner has been a director since April 1994. Mr. Wagner has
been engaged in the practice of law with the firm of Lewis & Wagner since 1973.
Phillip A. Bounsall, age 41, has been our Executive Vice President,
Chief Financial Officer and Treasurer since October 1996. From March 1994 until
September 1996, Mr. Bounsall was Chief Financial Officer of Walker Information,
Inc., a provider of stakeholder measurement and other information services.
Previously, Mr. Bounsall was a senior manager with Ernst & Young LLP, where he
worked for 12 years. Mr. Bounsall is a director of Interactive Intelligence,
Inc., a publicly held global developer of customer interaction management
software.
Steven E. Fivel, age 41, has been our Executive Vice President, General
Counsel and Secretary since January 1997. From December 1993 until January 1997,
Mr. Fivel was an attorney with an affiliate of Simon Property Group, a
publicly-held real estate investment trust. From February 1988 to December 1993,
Mr. Fivel was an attorney with Melvin Simon & Associates, Inc., a privately-held
shopping center development company.
SECTION 16(a) BENEFICIAL OWNERSHIP REPORTING COMPLIANCE
Based solely on a review of Forms 3, 4 and 5 and amendments thereto
furnished to us with respect to our most recent fiscal year, we believe that all
required reports were filed on a timely basis.
28
ITEM 11. EXECUTIVE COMPENSATION.
SUMMARY COMPENSATION TABLE
The following table discloses for the periods presented the
compensation for the person who served as our Chief Executive Officer and for
each of our other executive officers (not including the Chief Executive Officer)
whose total individual compensation exceeded $100,000 for our fiscal year ended
December 31, 2001 (the "Named Executives").
LONG-TERM
COMPENSATION
-------------
AWARDS
ANNUAL COMPENSATION -------------
---------------------------------------------- SECURITIES
OTHER ANNUAL UNDERLYING
NAME AND PRINCIPAL POSITION YEAR SALARY BONUS COMPENSATION (1) OPTIONS
------------------------------------------------------------------------------------------------------------------------------
Robert J. Laikin.......................... 2001 $450,000 $ -- $88,550 420,000
Chairman of the Board and Chief Executive 2000 350,000 288,750 2,550 340,000
Officer 1999 275,000 250,000 2,400 350,000
J. Mark Howell............................ 2001 325,000 -- 76,050 110,000
President and Chief Operating Officer 2000 250,000 206,250 2,550 260,000(2)
1999 225,000 150,000 2,400 225,000
Phillip A. Bounsall....................... 2001 290,000 -- 44,800 95,000
Executive Vice President, Chief Financial 2000 225,000 185,625 2,550 230,000(2)
Officer and Treasurer 1999 200,000 135,000 2,400 190,000
Steven E. Fivel........................... 2001 225,000 -- 36,300 75,000
Executive Vice President, General Counsel 2000 175,000 108,400 2,550 175,000(2)
and Secretary 1999 162,500 100,000 2,400 110,000
(1) Represents our matching contributions to the respective employees
401(k) accounts. Does not include refunds to the 401(k) Plan paid in
2001 and 2002 of $1,349 and $1,251, respectively, relating to ERISA
compliance testing for the years 1999, 2000 and 2001. Also includes
payments received by the executive officers named above pursuant to the
offer to exchange certain stock options that we made to our employees
and directors during 2001.
(2) Does not include certain options originally granted in fiscal 1996 and
1997 to Messrs. Howell (750,000); Bounsall (125,000) and Fivel
(62,500), the expiration dates of which were extended during fiscal
2000 for three years from their original expiration dates.
29
OPTION GRANTS IN LAST FISCAL YEAR
The following table provides information with respect to individual
stock options granted during fiscal 2001 to each of the Named Executives:
POTENTIAL REALIZABLE VALUE AT
% OF TOTAL ASSUMED ANNUAL RATES OF STOCK
SHARES OPTIONS PRICE APPRECIATION FOR OPTION
UNDERLYING GRANTED TO EXERCISE TERM (2)
OPTIONS EMPLOYEES IN PRICE -----------------------------
NAME GRANTED(1) FISCAL YEAR ($/SH) EXPIRATION DATE 5% 10%
---- ---------- ----------- ------ --------------- ---------- -------------
Robert J. Laikin.......... 140,000 14.6 $ 3.875 2/22/2006 $ 149,883 $ 331,202
J. Mark Howell............ 110,000 11.5 3.875 2/22/2006 117,765 260,230
Phillip A. Bounsall....... 95,000 9.9 3.875 2/22/2006 101,706 224,744
Steven E. Fivel........... 75,000 7.8 3.875 2/22/2006 80,294 177,429
---------------
(1) All options were granted under our 1994 Stock Option Plan. All options are
exercisable as to one-third of the shares covered thereby on the first,
second and third anniversaries of the date of grant.
(2) The potential realizable value columns of the table illustrate values that
might be realized upon exercise of the options immediately prior to their
expiration, assuming our Common Stock appreciates at the compounded rates
specified over the term of the options. These numbers do not take into
account provisions of options providing for termination of the option
following termination of employment or nontransferability of the options
and do not make any provision for taxes associated with exercise. Because
actual gains will depend upon, among other things, future performance of
the Common Stock, there can be no assurance that the amounts reflected in
this table will be achieved.
30
AGGREGATED OPTION EXERCISES AND FISCAL YEAR-END OPTION VALUES
The following table sets forth information concerning each exercise of
stock options by each of the Named Executives during the fiscal year ended
December 31, 2001 and the value of unexercised stock options held by the Named
Executives as of December 31, 2001:
VALUE OF UNEXERCISED
NUMBER OF SECURITIES UNDERLYING IN-THE-MONEY OPTIONS AT
SHARES OPTIONS AT DECEMBER 31, 2001 DECEMBER 31, 2001 (1)
ACQUIRED VALUE ------------------------------- ---------------------------
NAME ON EXERCISE REALIZED EXERCISABLE UNEXCERCISABLE EXERCISABLE UNEXERCISABLE
------------------------- ----------- -------- ----------- ------------- ----------- -------------
Robert J. Laikin......... -- $ -- 350,001 339,999 $ -- $ --
J. Mark Howell........... -- -- 983,374 251,666 -- --
Phillip A. Bounsall...... -- -- 321,667 223,333 -- --
Steven E. Fivel.......... -- -- 192,501 164,999 -- --
---------------
(1) Year-end values for unexercised in-the-money options represent the
positive spread between the exercise price of such options and the
year-end market value of the Common Stock.
On August 31, 2001, we made an offer (Offer to Exchange), to our employees and
members of the Board of Directors, to exchange all options to purchase shares of
our common stock, outstanding under our 1994 Stock Option Plan, 1996 Stock
Option Plan and Non-Employee Directors Stock Option Plan which options had (i) a
grant date prior to March 1, 2001, and (ii) an exercise price in excess of
$10.00 per share. In exchange for the options participants (a) received a cash
payment and (b) will receive the grant of a new option or new options, as
applicable, in the amounts upon the terms and subject to the conditions as set
forth in the Offer to Exchange.
This Offer expired on October 15, 2001. The total amount of cash paid and
recognized as compensation expense in 2001 pursuant to the Offer to Exchange was
$0.4 million. The individuals that were eligible and elected to participate in
the Offer are expected to be granted a new option or new options, as applicable,
on or about the first business day which is at least six months and one day from
the cancellation date. The number of shares subject to the new option or new
options, as applicable, will be equal to one-third of the shares subject to the
options tendered and accepted by us for cancellation, rounded up to the nearest
whole share.
DIRECTOR COMPENSATION
For the fiscal year ended December 31, 2001, non-employee directors
received annual cash compensation of $30,000 for services rendered in their
capacity as Board members. In addition, members of the Executive, Audit and
Compensation Committees received annual payments of $6,400, $3,600 and $3,600,
respectively, as members of such committees. We have adopted a Non-Employee
Director Stock Option Plan (the "Director Plan") pursuant to which 937,500
shares of Common Stock are reserved for issuance to non-employee directors. The
Director Plan provides that eligible directors automatically receive a grant of
options to purchase 10,000 shares of Common Stock upon first becoming a director
and, thereafter, an annual grant, in January of each year, of options to
purchase 4,000 shares. All of such options are granted at fair market value on
the date of grant and are exercisable as to all of the shares covered
31
thereby commencing one year from the date of grant. To date, we have granted to
each of Messrs. Adams, Dick, Simon and Wagner options to purchase 106,625 shares
of Common Stock pursuant to the Director Plan and 10,000 shares of Common Stock
pursuant to our 1996 Stock Option Plan and have granted Mr. Stuart and Mr. Stead
options to purchase 36,000, and 14,000 shares of Common Stock, respectively
pursuant to the Director Plan. During the year ended December 31, 2001, we
granted options to purchase 4,000 shares of Common Stock, at an exercise price
of $4.016 per share, to each of Messrs. Adams, Dick, Simon, Stead, Stuart and
Wagner.
EMPLOYMENT AGREEMENTS
We have entered into five-year "evergreen" employment agreements with
each of Messrs. Laikin and Howell which are automatically renewable for
successive one-year periods and provide for an annual base compensation of
$450,000 and $325,000 respectively, and such bonuses as the Board of Directors
may from time to time determine. If we provide the employee with notice that we
desire to terminate the agreement or terminate the agreement without cause,
there is a final five-year term commencing on the date of such notice. The
employment agreements provide for employment on a full-time basis and contain a
provision that the employee will not compete or engage in a business competitive
with our business during the term of the employment agreement and for a period
of two years thereafter. The employment agreements also provide that if the
employee's employment is terminated by the employee, without Good Reason, as
defined, within 12 months after a "change of control," or if prior to and not as
a result of a change of control, the employee's employment is terminated either
by the employee for Good Reason or by us other than for disability or Cause, as
defined, the employee will be entitled to receive severance pay equal to the
highest of (a) $2,250,000 for Mr. Laikin and $1,625,000 for Mr. Howell or (b)
five times the total compensation (including salary, bonus and the value of all
perquisites) received from us during the twelve months prior to the date of
termination. If after or as a result of a change of control, the employee's
employment is terminated either by the employee for Good Reason or by us other
than for disability or Cause, the employee will be entitled to receive severance
pay equal to ten times the total compensation (including salary, bonus, the
value of all perquisites and the value of all stock options granted to the
employee) received from us during the twelve months prior to the date of
termination. In addition, (a) upon the occurrence of a change of control, (b) if
in breach of the agreement, we terminate the employee's employment other than
for disability or Cause, or (c) if the employee terminates his employment for
Good Reason at any time, the vesting of all options granted to the employee will
be accelerated so that the options become immediately exercisable. For purposes
of such agreements, a "change of control" shall be deemed to occur, unless
previously consented to in writing by the respective employee, upon (i)
individuals who constituted our then current Board of Directors ceasing to
constitute a majority of the Board of Directors, (ii) subject to certain
specified exceptions, the acquisition of beneficial ownership of 15% or more of
our voting securities by any person or entity not affiliated with the respective
employee or us, (iii) the commencement of a proxy contest against management for
the election of a majority of our Board of Directors if the group conducting the
proxy contest owns, has or gains the power to vote at least 15% of our voting
securities, (iv) the consummation under certain conditions by us of a
reorganization, merger or consolidation or sale of all or substantially all of
our assets to any person or entity not affiliated with the respective employee
or us, or (v) our complete liquidation or dissolution. In addition, we have
entered into three-year "evergreen" employment agreements with each of Messrs.
Bounsall and Fivel, which are automatically renewable for successive one-year
periods and provide for an annual base compensation of $290,000 for Mr. Bounsall
and $275,000 for Mr. Fivel. If we provide the employee with notice that we
desire to terminate the agreement without cause, there is a final three-year
term commencing on the date of
32
such notice. The agreements provide otherwise for substantially the same terms
as the employment agreements described above, except that if the employee's
employment is terminated by the employee, without Good Reason, as defined,
within 12 months after a "change of control," or if prior to and not as a result
of a change of control, the employee's employment is terminated either by the
employee for Good Reason or by us other than for disability or Cause, as
defined, the employee will be entitled to receive the highest of (a) $870,000 in
the case of Mr. Bounsall and $825,000 in the case of Mr. Fivel or (b) three
times the total compensation (including salary, bonus and the value of all
perquisites ) received from us during the twelve months prior to the date of
termination. If after or as a result of a change of control, the employee's
employment is terminated either by the employee for Good Reason or by us other
than for disability or Cause, the employee will be entitled to receive severance
pay equal to six times the compensation (including, salary, bonus, and the value
of all perquisites and the value of all stock options granted to the employee)
received or earned from us during the twelve months prior to the date of
termination. In addition, (a) upon the occurrence of a change of control, (b) if
in breach of the agreement, we terminate the employee's employment other than
for disability or Cause, or (c) if the employee terminates his employment for
Good Reason at any time, the vesting of all options granted to the employee will
be accelerated so that the options become immediately exercisable.
COMPENSATION COMMITTEE INTERLOCKS AND INSIDER PARTICIPATION
We have a Compensation Committee of the Board of Directors comprised of
non-employee directors and currently consisting of Messrs. Wagner and Adams.
Decisions as to executive compensation are made by the Board of Directors,
primarily upon the recommendation of such Committee. Mr. Wagner is a partner in
a law firm which received fees in exchange for services rendered to us during
the year ended December 31, 2001. The Board of Directors which includes Messrs.
Laikin and Howell has not modified or rejected any recommendations of the
Compensation Committee as to the compensation of our executive officers. During
the fiscal year ended December 31, 2001, none of our executive officers have
served on the board of directors or the compensation committee of any other
entity, any of whose officers serves on our Board of Directors or Compensation
Committee.
33
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The following table sets forth certain information regarding the
beneficial ownership of the Common Stock as of March 15, 2002 (Record Date)
based on information obtained from the persons named below, (i) by each
person known by us to own beneficially more than five percent of our Common
Stock, (ii) by each of the Named Executives, (iii) by each of our directors, and
(iv) by all of our executive officers and directors as a group:
AMOUNT AND NATURE PERCENTAGE OF
OF BENEFICIAL OUTSTANDING
NAME AND ADDRESS OF BENEFICIAL OWNER(1) OWNERSHIP(2) SHARES OWNED
--------------------------------------- ----------------- ------------
Robert J. Laikin (3)....................................... 883,930 1.6
J. Mark Howell (4)......................................... 1,051,137 1.8
Phillip A. Bounsall (5).................................... 383,038 *
Steven E. Fivel (6)........................................ 224,228 *
John W. Adams (7).......................................... 8,900 *
Rollin M. Dick (8)......................................... 808,999 1.5
Stephen H. Simon (9)....................................... 44,000 *
Jerre L. Stead (10)........................................ 4,000 *
Todd H. Stuart (11)........................................ 4,000 *
Robert F. Wagner (12)...................................... 24,150 *
Dimensional Fund Advisors Inc. (13)........................ 3,051,722 5.5
All executive officers and directors
as a group (ten persons) (14).............................. 3,436,382 5.9
----------------------
* Less than 1%.
(1) The address for each of such individuals, unless specified otherwise in a
subsequent footnote, is in care of Brightpoint, Inc., 600 East 96th Street,
Suite 575, Indianapolis, Indiana 46240.
(2) A person is deemed to be the beneficial owner of securities that can be
acquired by such person within 60 days from the Record Date upon the
exercise of options. Each beneficial owner's percentage ownership is
determined by assuming that options or warrants that are held by such
person (but not those held by any other person) and which are exercisable
within 60 days of the Record Date have been exercised. Unless otherwise
indicated, we believe that all persons named in
34
the table have sole voting and investment power with respect to all shares
of Common Stock beneficially owned by them. Does not include any options
that may be granted in the next 60 days to the persons named in the table
pursuant to the terms of the offer to exchange certain options that we made
to our employees and directors during 2001.
(3) Includes 396,668 shares which are exercisable within 60 days of the Record
Date. Includes 452,956 shares owned by Mr. Laikin. Includes 14,125 shares
allocated from the Brightpoint, Inc. 1999 Employee Stock Purchase Plan
("ESPP") and 20,181 shares allocated from the Brightpoint, Inc. 401k Plan
("401(k)"). Does not include options to purchase 293,332 shares.
(4) Includes 1,020,001 shares underlying options which are exercisable within
60 days of the Record Date. Includes 29,300 shares owned by J. Mark Howell
and 1,836 shares allocated from the 401(k). Does not include options to
purchase 214,999 shares.
(5) Includes 353,334 shares underlying options which are exercisable within 60
days of the Record Date. Includes 17,000 shares owned by Mr. Bounsall's
wife. Includes 5,918 shares allocated from the ESPP and 1,086 shares
allocated from the 401(k). Includes 5,700 shares held in the Howell Family
Educational Trust of which Mr. Bounsall is a trustee and as to which shares
Mr. Bounsall, as trustee, has voting and dispositive power. Does not
include options to purchase 191,666 shares.
(6) Includes 217,501 shares underlying options which are exercisable within 60
days of the Record Date. Includes 5,000 shares owned by Mr. Fivel. Includes
676 shares allocated from the ESPP and 1,051 shares allocated from the
401(k). Does not include options to purchase 139,999 shares.
(7) Includes (i) 4,900 shares owned through Mr. Adams' 401(K) Plan and (ii)
4,000 shares underlying options which are exercisable within 60 days of the
Record Date.
(8) Includes: (i) 230,625 shares held in the name of Rollin M. Dick, (ii) 529,
874 shares held of record by JLT PR LLC, an entity in which Mr. Dick is the
sole managing member and a majority equity owner, (iii) 44,500 shares held
by the Helping Fund, a charitable organization established under Section
501(c)(3) of the Internal Revenue Code of 1986, of which Mr. Dick is a
trustee with shared voting and dispositive power, and (iv) 4,000 shares
underlying options which are exercisable within 60 days of the Record
Date.
(9) Includes (i) 40,000 shares owned by Mr. Simon and (ii) 4,000 shares
underlying options which are exercisable within 60 days of the Record Date.
(10) Includes 4,000 shares underlying options which are exercisable within 60
days of the Record Date.
(11) Includes 4,000 shares underlying options which are exercisable within 60
days of the Record Date.
(12) Includes (i) 20,050 shares owned by Mr. Wagner and (ii) 100 shares held in
a joint account by Mr. Wagner and his emancipated son, of which shares Mr.
Wagner disclaims beneficial ownership and (iii) 4,000 shares underlying
options which are exercisable within 60 days of the Record Date.
35
(13) Based solely on a Schedule 13G filed with the Securities and Exchange
Commission by Dimensional Fund Advisors Inc.("Dimensional"). According to
the Schedule 13G Dimensional is an investment advisor registered under
Section 203 of the Investment Advisors Act of 1940, furnishes investment
advice to four investment companies registered under the Investment Company
Act of 1940, and serves as investment manager to certain other commingled
group trusts and separate accounts. In its role as investment advisor or
manager, Dimensional possesses voting and /or investment power over these
shares. Dimensional disclaims beneficial ownership of all such shares. The
address of Dimensional is 1299 Ocean Avenue, 11th Floor, Santa Monica,
California 90401.
(14) Includes an aggregate of 2,011,504 shares underlying options which are
exercisable within 60 days of the Record Date, including those listed in
notes (3) through (12), above.
36
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
We utilize the services of a third party for the purchase of corporate
gifts, promotional items and standard personalized stationery. Mrs Judy Laikin,
the mother of Robert J. Laikin, our Chief Executive Officer, was an independent
consultant to this third party during 2001 and prior to June 1, 2000 was the
owner of the third party. We purchased approximately $127,000 of services and
products from this third party during 2001. We believe that these purchases were
made on terms no less favorable to us than we could have obtained from an
unrelated party.
During 2001, an entity in which the father of Robert J. Laikin is a
fifty percent (50%) equity owner, provided risk management services to us for
which we paid the entity $167,000 in consulting fees. During the fiscal year
ended December 31, 2001 we paid to an insurance brokerage firm, for which the
father of Robert J. Laikin acts as an independent insurance broker, $180,000 in
service fees and certain insurance premiums, which premiums were forwarded to
our respective insurance carriers.
During 2001, in accordance with the terms of our offer to exchange
certain options with our employees and directors, we paid our officers and
directors who participated in the exchange offer an aggregate of $251,700 in
partial consideration of the options they surrendered. Of the aggregate amount,
$86,000 was paid to Robert J. Laikin and $73,500 was paid to to J. Mark Howell,
our President and Chief Operating Officer.
Our Certificate of Incorporation and By-laws provide for us to
indemnify our officers and directors to the extent permitted by law. In
connection therewith, we have entered into indemnification agreements with our
executive officers and directors. In accordance with the terms of these
agreements we intend to reimburse them for their personal legal expenses arising
from certain pending litigation and regulatory matters.
37
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON
FORM 8-K.
(a)(1) The following financial statements and information are
filed as a part of our report commencing on page A-1:
Report of Independent Auditors
Consolidated Statements of Operations for the Years
Ended December 31, 1999, 2000 and 2001 (as
restated for 1999 and 2000)
Consolidated Balance Sheets as of December 31, 2000
(as restated) and 2001
Consolidated Statements of Stockholders' Equity for
the Years Ended December 31, 1999, 2000 and 2001
(as restated for 1999 and 2000)
Consolidated Statements of Cash Flows for the Years
Ended December 31, 1999, 2000 and 2001 (as
restated for 1999 and 2000)
Notes to the Consolidated Financial Statements (as
restated)
(a)(2) The following financial statement schedule for the year ended
December 31, 2001, including the Report of Independent
Auditors on Financial Statement Schedule for the three years
ended December 31, 2001, is submitted herewith:
Schedule II - Valuation and Qualifying Accounts
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
38
EXHIBIT
NUMBER DESCRIPTION
3.1 Certificate of Incorporation of the Company, as amended (6)
3.2 Amended and Restated By-Laws of the Company (6)
3.3 Certificate of Merger of Brightpoint, Inc. into Wholesale
Cellular USA, Inc., effective September 15, 1995 (2)
4.1 Indenture between the Company and the Chase Manhattan Bank, as
Trustee (8)
4.2 Credit Agreement dated as of October 31, 2001 (as amended)
among Brightpoint North America, L.P., Wireless Fulfillment
Services LLC, the other credit parties signatory thereto, the
lenders signatory thereto from time to time and General
Electric Capital Corporation (22)
10.1 1994 Stock Option Plan, as amended (15)*
10.2 1996 Stock Option Plan, as amended (21)*
10.3 Non-Employee Directors Stock Option Plan (1)
10.4 Employee Stock Purchase Plan (13)
10.5 Amended and Restated Employment Agreement between the Company
and Robert J. Laikin dated July 1, 1999 (14)*
10.6 Amended and Restated Employment Agreement between the Company
and J. Mark Howell dated July 1, 1999 (14)*
10.7 Amended and Restated Employment Agreement between the Company
and Phillip A. Bounsall dated July 1, 1999 (14)*
10.8 Amended and Restated Employment Agreement between the Company
and Steven E. Fivel dated July 1, 1999 (14)*
10.9 Lease Agreement between the Company and Corporate Drive
Associates, LLC, dated June 6, 1995 (3)
39
EXHIBIT
NUMBER DESCRIPTION
10.10 Amendment to Lease Agreement between the Company and Corporate
Drive Associates, LLC, dated October 3, 1995 (3)
10.11 Second Amendment to Lease agreement between the Company and
Corporate Drive Associates, LLC, dated as of July 17, 1996 (6)
10.12 Lease Agreement (Building Expansion) between the Company and
Corporate Drive Associates, LLC, dated as of July 17, 1996 (6)
10.13 Rights Agreement, dated as of February 20, 1997, between the
Company and Continental Stock Transfer Trust Company, as Rights
Agent (4)
10.14 Lease Agreement between the Company and DP Operating
Partnership, L.P., dated as of March 1, 1997 (5)
10.15 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 (6)
10.16 Form of Waiver and Amendment No. 1 to Credit Agreement dated as
of November 15, 1997 (7)
10.17 Third Amendment to Multicurrency Credit Agreement dated March
20, 1998 (9)
10.18 Fourth Amendment to Multicurrency Credit Agreement dated April
16, 1998 (10)
10.19 Amended and Restated Multicurrency Credit Agreement originally
dated June 24, 1997 and amended and restated as of May 13, 1998
(10)
10.20 Lease Agreement between the Company and New World Partners
Joint Venture Number Five, dated July 30, 1998 (11)
10.21 Lease Agreement between the Company and Airtech Parkway
Associates, LLC, dated September 18, 1998 (11)
10.22 Form of Indemnification Agreement of certain officers and
directors (16)
40
EXHIBIT
NUMBER DESCRIPTION
10.23 Amendment No. 1 to Amended and Restated Multicurrency Credit
Agreement dated October 19, 1998 (12)
10.24 Amendment No. 2 to Amended and Restated Multicurrency Credit
Agreement dated September 30, 1998 (12)
10.25 Amendment No. 3 to Amended and Restated Multicurrency Credit
Agreement dated January 1, 1999 (12)
10.26 Fourth Amendment to Multicurrency Agreement dated May 13, 1998
(14)
10.27 Second Amended and Restated Multicurrency Credit Agreement
dated May 13, 1998 and amended and restated as of July 27, 1999
(14)
10.28 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 (12)
10.29 Amendment Number 1 to the Second Amended and Restated
Multicurrency Credit Agreement dated as of March 30, 2000 (17)
10.30 Amendment Number 2 to the Second Amended and Restated
Multicurrency Credit Agreement dated as of June 28, 2000 (18)
10.31 Amendment Number 3 to the Second Amended and Restated
Multicurrency Credit Agreement dated as of October 27, 2000
(19)
10.32 Amendment Number 4 to the Second Amended and Restated
Multicurrency Credit Agreement dated as of December 27, 2000
(20)
10.33 Amendment dated January 1, 2001 to the Amended and Restated
Agreement between the Company and Robert J. Laikin dated July
1, 1999 (20)*
10.34 Amendment dated January 1, 2001 to the Amended and Restated
Employment Agreement between the Company and J. Mark Howell
dated July 1, 1999 (20)*
10.35 Amendment dated January 1, 2001 to the Amended and Restated
Employment Agreement between the Company and Phillip A.
Bounsall dated July 1, 1999 (20)*
10.36 Amendment dated January 1, 2001 to the Amended and Restated
Employment Agreement between the Company and Steven E. Fivel
dated July 1, 1999 (20)*
41
EXHIBIT
NUMBER DESCRIPTION
10.37 Lease Agreement between the Company and Harbour Properties,
LLC, dated April 25, 2000 (20)
10.38 Pledge Supplement for Brightpoint North America, Inc. dated
January 1, 2001 to the Second Amended and Restated
Multicurrency Credit Agreement dated as of July 27, 1999 (20)
10.39 Pledge Supplement for Brightpoint North America L.P. dated
January 1, 2001 to the Second Amended and Restated
Multicurrency Credit Agreement dated as of July 27, 1999 (20)
10.40 Subsidiary Borrower and Guarantor Letter for Brightpoint North
America, Inc. dated January 1, 2001 under the Second Amended
and Restated Multicurrency Credit Agreement dated as of July
27, 1999 (20)
10.41 Subsidiary Borrower and Guarantor Letter for Brightpoint North
America L.P. dated January 1, 2001 under the Second Amended and
Restated Multicurrency Credit Agreement dated as of July 27,
1999 (20)
10.42 Security Agreement dated January 1, 2001 between Brightpoint
North America, Inc. and Bank One, Indiana, National Association
under the Second Amended and Restated Multicurrency Credit
Agreement dated as of July 27, 1999 (20)
10.43 Security Agreement dated January 1, 2001 between Brightpoint
North America L.P. and Bank One, Indiana, National Association
under the Second Amended and Restated Multicurrency Credit
Agreement dated as of July 27, 1999 (20)
10.44 Amendment dated January 1, 2002 to the Amended and Restated
Employment Agreement between the Company and Steven E. Fivel
dated July 1, 1999 (24)*
10.45 Distributor Agreement dated October 29, 2001 between Nokia Inc.
and Brightpoint North America L.P. (24)**
10.46 Amendment to Initial Lease and Termination of Expansion Lease
by and between the Company and Keystone Operating Partnership,
L.P. dated September 28, 2001 (24)
10.47 Fourth Amendment to Initial Lease between the Company and
Keystone Operating Partnership, L.P. dated November 30, 2001
(24)
10.48 Fifth Amendment to Initial Lease between the Company and
Keystone Operating Partnership, L.P. dated February 8, 2001
(24)
42
EXHIBIT
NUMBER DESCRIPTION
10.49 First Amendment to Lease by and between First Point Associates,
LLC and Brightpoint North America L.P., dated September 28,
2001 (24)
10.50 Brightpoint, Inc. 401(k) Plan (2001 Restatement) (24)
10.51 Amendment to the Brightpoint, Inc. 401(k) Plan effective
January 1, 2001 (24)
21 Subsidiaries (24)
23 Consent of Ernst & Young LLP (23)
99 Cautionary Statements
(1) Incorporated by reference to the applicable exhibit filed with
the Company's Registration Statement (33-75148) effective April
7, 1994.
(2) Incorporated by reference to the applicable 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 applicable 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 applicable exhibit filed with
the Company's Current Report on Form 8-K, dated March 28, 1997.
(5) Incorporated by reference to the applicable exhibit filed with
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 1997.
(6) Incorporated by reference to the applicable exhibit filed with
the Company's Registration Statement on Form S-3 (333-29533)
effective August 6, 1997.
(7) Incorporated by reference to the applicable exhibit filed with
the Company's Annual Report on Form 10-K for the fiscal year
ended December 31, 1997.
(8) Incorporated by reference to the applicable 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.
(9) Incorporated by reference to the applicable exhibit filed with
the exhibit filed with the Company's Quarterly Report on Form
10-Q for the quarter ended March 31, 1998.
43
(10) Incorporated by reference to the applicable exhibit filed with
the exhibit filed with the Company's Quarterly Report on Form
10-Q for the quarter ended June 30, 1998.
(11) Incorporated by reference to the applicable exhibit filed with
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 1998.
(12) Incorporated by reference to the applicable exhibit filed with
the Company's Form 10-K for the fiscal year ended December 31,
1998.
(13) Incorporated by reference to Appendix B filed with the
Company's Proxy Statement dated April 15, 1999 relating to its
Annual Stockholders meeting held May 18, 1999.
(14) Incorporated by reference to the applicable exhibit filed with
the Company's Quarterly report on Form 10-Q for the quarter
ended June 30, 1999.
(15) Incorporated by reference to the applicable exhibit filed with
the Company's Registration Statement on Form S-8 (333-87863)
dated September 27, 1999.
(16) Incorporated by reference to the applicable exhibit filed with
the Company's Form 10-K for the fiscal year ended December 31,
1999.
(17) Incorporated by reference to the applicable exhibit filed with
the Company's Quarterly Report on Form 10-Q for the quarter
ended March 31, 2000.
(18) Incorporated by reference to the applicable exhibit filed with
the Company's Quarterly Report on Form 10-Q for the quarter
ended June 30, 2000.
(19) Incorporated by reference to the applicable exhibit filed with
the Company's Quarterly Report on Form 10-Q for the quarter
ended September 30, 2000.
(20) Incorporated by reference to the applicable exhibit filed with
Form 10-K/A, Amendment No. 1 to the Company's Form 10-K for the
fiscal year ended December 31, 2000.
(21) Incorporated by reference to the applicable exhibit filed with
the Company's Tender Offer Statement on Schedule TO dated
August 31, 2001.
(22) Incorporated by reference to the applicable exhibit filed with
the Company's Current Report on Form 8-K for the event dated
November 1, 2001.
(23) Filed as page F-2 of this report on Form 10-K.
(24) Filed herewith.
* Denotes management compensation plan or arrangement.
44
** Portions of this document have been omitted and filed
separately with the Securities and Exchange Commission
pursuant to a request for confidential treatment under Rule
24b-2 of the Securities Exchange Act of 1934.
(b) Reports on Form 8-K:
We filed a Current Report on Form 8-K for the event dated
October 31, 2001 under Item 5 to report that our subsidiary,
Brightpoint North America L.P., had entered into a new
distribution agreement with Nokia Inc. extending our
relationship with Nokia through December 31, 2003.
In addition, we filed a Current Report on Form 8-K for the
event dated November 13, 2001 under Item 5 to report that we
would restate our annual financial statements for 1998, 1999,
2000 and the interim periods of 2001.
We filed a Current Report on Form 8-K for the event dated
November 29, 2001 under Item 5 to report that a complaint for a
purported class action, captioned Andrew Weiss, Individually
and on Behalf of All Others Similarly Situated, vs.
Brightpoint, Inc., Robert J. Laikin and J. Mark Howell,
asserted on behalf of all purchasers of publicly traded
Brightpoint securities between January 28, 1999 and November
14, 2001, alleging violations of Section 10(b) of the
Securities Exchange Act of 1934 and Rule 10b-5 promulgated
thereunder by Brightpoint and two of its officers and directors
and violations of Section 20(a) of the Exchange Act by the
individual defendants, was filed in the United States District
Court for the Southern District of Indiana, Indianapolis
Division.
45
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.
Date: March 21, 2002 /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:
SIGNATURE TITLE DATE
/s/ Robert J. Laikin Chairman of the Board March 21, 2002
----------------------------------- Chief Executive Officer and
Robert J. Laikin Director (Principal Executive Officer)
/s/ J. Mark Howell President, Chief Operating Officer and March 21, 2002
----------------------------------- Director
J. Mark Howell
/s/ Phillip A. Bounsall Executive Vice President and Chief March 21, 2002
-----------------------------------
Phillip A. Bounsall Financial Officer (Principal Financial
Officer and Principal Accounting Officer)
/s/ John W. Adams Director March 21, 2002
-----------------------------------
John W. Adams
/s/ Rollin M. Dick Director March 21, 2002
-----------------------------------
Rollin M. Dick
/s/ Stephen H. Simon Director March 21, 2002
-----------------------------------
Stephen H. Simon
/s/ Jerre L. Stead Director March 21, 2002
-----------------------------------
Jerre L. Stead
/s/ Todd H. Stuart Director March 21, 2002
-----------------------------------
Todd H. Stuart
/s/ Robert F. Wagner Director March 21, 2002
-----------------------------------
Robert F. Wagner
FINANCIAL APPENDIX A
INFORMATION
--------------------------------------------------------------------------------
CONSOLIDATED FINANCIAL STATEMENTS
AND MANAGEMENT'S DISCUSSION AND
ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
--------------------------------------------------------------------------------
Report of Independent Auditors...........................................A-2
Management's Responsibility for Financial Statements.....................A-2
Overview and Recent Developments.........................................A-3
Operating Segments.......................................................A-9
Future Operating Results.................................................A-10
Consolidated Statements of Operations and Analysis.......................A-11
Consolidated Balance Sheets and Statements of
Cash Flows and Analysis...............................................A-21
Consolidated Statements of Stockholders' Equity..........................A-30
Financial Market Risk Management.........................................A-31
Notes to Consolidated Financial Statements...............................A-33
Other Information........................................................A-65
A-1
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Brightpoint, Inc.
We have audited the accompanying Consolidated Balance Sheets of Brightpoint,
Inc. as of December 31, 2001 and 2000, and the related Consolidated Statements
of Operations, Stockholders' Equity and Cash Flows for each of the three years
in the period ended December 31, 2001, on pages A-11, A-21, A-22, A-30, and A-33
through A-64 and the information appearing under the caption "Operating
Segments" on pages A-9 and A-10. 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, 2001 and 2000, and the consolidated results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001, in conformity with accounting principles generally accepted in the United
States.
/s/ Ernst & Young LLP
Indianapolis, Indiana
February 1, 2002, except for Notes 9 and 18,
as to which the dates are March 6, 2002 and February 20, 2002, respectively
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 assurance
that assets are safeguarded against loss from unauthorized use or disposition,
transactions are executed in accordance with management's authorization and
accounting records are reliable for preparing financial statements in accordance
with accounting principles generally accepted in the United States.
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. The Board of Directors has also adopted a written
charter that establishes the roles and responsibilities of the Audit Committee.
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 /s/ J. MARK HOWELL /s/ PHILLIP A. BOUNSALL
Robert J. Laikin J. Mark Howell Phillip A. Bounsall
Chairman of the Board and President and Executive Vice President, Chief
Chief Executive Officer Chief Operating Officer Financial Officer and Treasurer
A-2
OVERVIEW AND RECENT DEVELOPMENTS
--------------------------------------------------------------------------------
CRITICAL ACCOUNTING POLICIES
Our discussion and analysis of our financial condition and results of operations
are based upon our consolidated financial statements, which have been prepared
in accordance with accounting principles generally accepted in the United
States. The preparation of financial statements in conformity with generally
accepted accounting principles requires us 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 we do not believe
such differences will materially affect our financial position or results of
operations. We believe the critical accounting policies that are most important
to the presentation of our financial statements and require the most difficult,
subjective and complex judgments are discussed in Note 1 to the Consolidated
Financial Statements.
BASIS OF PRESENTATION
On November 13, 2001, we announced that we would restate our annual financial
statements for 1998, 1999, 2000 and the interim periods of 2001. On January 31,
2002, we announced that we would further restate our financial statements for
the same periods. As more fully discussed in Note 18 to the Consolidated
Financial Statements, we entered into an agreement with an insurance company,
effective in 1998, relating to retrospective and prospective loss occurrences.
The retrospective occurrences related primarily to previously reported losses we
had sustained in our trading division, an operation that we closed in 1998. We
have responded to requests for information and subpoenas from the Securities and
Exchange Commission (SEC) in connection with an investigation including our
accounting treatment of the agreement with the insurance company referenced
above. In addition, certain of our officers or employees have provided testimony
to the SEC and we believe that the staff of the SEC will subpoena additional
testimony of certain of our officers and employees. In connection with those
responses, we and our independent auditors reviewed the agreement with the
insurance company and the accounting for the related transactions. In November
of 2001, we and our independent auditors believed that insurance expense should
have been accrued at the date we entered into the agreement, rather than
prospectively over the periods covered by the agreement because we could not
allocate the costs of the agreement between the retrospective and prospective
loss occurrences. Accordingly, the November 2001 restatement of our financial
statements included an accrual in 1998 of approximately $15 million of insurance
expense related to this agreement. In January 2002, our Board of Directors
appointed an independent member of the Board to conduct an investigation of the
circumstances surrounding the procurement and accounting treatment of the
agreement with the insurance company and related matters. The independent member
of the Board retained counsel to assist in the investigation and their report
was made to the Board in February 2002. This report included findings and
recommendations concerning the investigation and the independent members of the
Board unanimously approved and adopted such findings and recommendations. In
late January 2002, we and our independent auditors reviewed the results of the
termination of the retrospective portion of the agreement and determined that
the appropriate accounting method for the agreement is deposit accounting.
Deposit accounting requires treating our payments under this agreement as
deposits rather than as premiums and our receipts under the agreement as
withdrawals rather than claims paid by the insurance company, resulting in no
income or expense recognition during the term of the agreement. As a result of
adopting this accounting method, we i) wrote-off an insurance receivable of
approximately $12 million during the quarter ended December 31, 1998, ii)
wrote-off an insurance premium payable of approximately $15 million during the
quarter ended December 31, 1998, iii) reversed collectibility reserves that had
previously been applied to the aforementioned insurance receivables, iv)
recorded the applicable income tax impacts of the foregoing actions and v) did
not recognize an anticipated gain related to the termination of the
retrospective
A-3
portion of the agreement in the quarter ended December 31, 2001. The restated
financial statements also include certain adjustments and reclassifications that
were previously deemed to be immaterial. We believe that the restatement had no
effect on our cash flow and will have no material effect on our financial
position at any future date. See Note 18 to the Consolidated Financial
Statements for further discussion.
NON-RECURRING CHARGES AND OTHER ITEMS
2001
During 2001, our board of directors approved a restructuring plan (2001
Restructuring Plan) that we began to implement in the fourth quarter of 2001.
The primary goal in adopting the 2001 Restructuring Plan was to better position
us for long-term and more consistent success by improving our cost structure and
eliminating operations in which we believe potential returns are not adequate to
justify the risks of those operations. Certain markets in which we operate,
including Brazil, Jamaica, South Africa, Venezuela and Zimbabwe, have unusually
high risk profiles due to many factors, including among other things, high
importation duties, currency restrictions and volatile political and economic
climates. We have determined that the risks of operating in these markets can no
longer be justified given the profitability potential of our operations in those
markets, therefore, these operations have been or will be sold or otherwise
discontinued pursuant to the 2001 Restructuring Plan. Additionally, pursuant to
the 2001 Restructuring Plan, we completed in January 2002, through certain of
our subsidiaries, the formation of a joint venture with Hong Kong-based
Chinatron Group Holdings Limited (Chinatron). Chinatron is involved in the
wireless telecommunications and data industry, is beneficially owned, in part,
by the managing director of Brightpoint China Limited and a former executive of
Brightpoint, Inc. In addition, an independent director of Brightpoint, Inc. is
also a director of Chinatron. A director and executive officer of Brightpoint,
Inc. and the managing director of Brightpoint China Limited were founding
shareholders of Chinatron. Prior to us entering into the agreement to form the
joint venture, our director and executive officer disposed of his interest in
Chinatron primarily through the sale of his interest to a company owned by the
managing director of Brightpoint China Limited and the former executive of
Brightpoint, Inc. In exchange, our director and executive officer received the
unconditional promise from their company to pay him $350,000 ($200,000 of which
has been paid to date). In exchange for a 50% interest in Brightpoint China
Limited, we received preference shares in Chinatron with a face value of $10
million. In addition, Chinatron has an option to purchase an additional 30% of
Brightpoint China Limited for additional preference shares in Chinatron with a
face value of $10 million. We have not yet determined the fair market value of
the Chinatron preference shares which will determine our gain or loss on the
transaction. We believe the Chinatron transaction reduced the capital we employ
in the China market, including Hong Kong, while allowing us to continue to
participate on a limited basis in this large handset market.
The 2001 Restructuring Plan is also intended to improve our cost structure and,
accordingly, our former North America and Latin America divisions were
consolidated in 2001 and are managed as one division, referred to as the
Americas. Warehouse and logistics functions formerly based in Miami were
transferred to Indianapolis and the warehouse in Miami was closed. Additionally
our operations and activities in Germany, the Netherlands and Belgium, including
regional management, will be consolidated into a new facility in Germany. In
total, the 2001 Restructuring Plan will result in a headcount reduction of
approximately 350 employees in most of our areas, including marketing,
operations, finance and administration. Additionally, we estimate that the 2001
Restructuring Plan could result in an on-going reduction of selling, general and
administrative expenses of up to $3 million to $4 million per quarter beginning
in the first quarter of 2002. There can be no assurance that the amount of our
cost savings, if any, will be consistent with this estimate.
A-4
As a result of actions taken in accordance with the 2001 Restructuring Plan, we
recorded restructuring and other unusual charges of approximately $36.5 million
in the fourth quarter of 2001. Certain actions called for by our 2001
Restructuring Plan were not complete at December 31, 2001 (including the
Chinatron transaction discussed above) and accordingly, we expect to record
adjustments to these charges through at least the second quarter of 2002. We
estimate that the total amount of charges to be recorded for all periods
relative to the 2001 Restructuring Plan will be between $45 million and $55
million. The charges in 2001 included the write-off of goodwill, accumulated
foreign currency translation adjustments 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 $3.4 million related to
lease and employee terminations and other exit costs. These amounts which total
$37.6 million are recorded in the "Restructuring and other unusual charges" line
in the Consolidated Statements of Operations for 2001. The non-recurring charges
also include the write-down of inventory (totaling $8.4 million and included in
the "Cost of revenue" line), accounts receivable (totaling $2.6 million and
included in the "Selling, general and administrative expenses" line) to their
estimated net realizable value and the income tax benefits of the foregoing
items (totaling $12.1 million and included in the "Income taxes" line). See Note
2 to the Consolidated Financial Statements for further discussion.
During the fourth quarter of 2001, our primary North American operating
subsidiaries, Brightpoint North America L.P. and Wireless Fulfillment Services,
LLC (the Borrowers), entered into a new revolving credit facility (the Revolver)
with General Electric Capital Corporation (GE Capital) to provide capital for
our North American operations. GE Capital acted as agent for a syndicate of
banks. The Revolver replaces the Facility, does not prohibit us from borrowing
additional funds outside of the United States and expires in October of 2004.
The Revolver provides borrowing availability, subject to borrowing base
calculations and other limitations, of $90 million. The Revolver bears interest,
at the Borrower's option, at the prime rate plus 1.25% or LIBOR plus 2.75%, for
the first twelve months and those rates may be periodically adjusted thereafter
based on certain financial measurements. The Revolver is secured by all of the
assets in our North America operations and borrowing availability under the
Revolver is based primarily on a percentage of eligible accounts receivable and
inventory. The terms of the Revolver include negative covenants that, among
other things, limit the Borrower's ability to sell certain assets and make
certain payments, including but not limited to, dividends, repurchases of common
stock, payments to us and other payments outside the normal course of business.
Subject to certain restrictions, we may use proceeds under the Revolver to
repurchase our outstanding zero-coupon subordinated, convertible notes due 2018
(Convertible Notes). See Note 9 to the Consolidated Financial Statements for
further discussion.
During the fourth quarter of 2001, our Board of Directors approved a plan under
which we may repurchase the remaining 250,000 Convertible Notes (accreted book
value of approximately $132 million or $527 per Convertible Note at December 31,
2001). Repurchases, if any, will be made in the open market, in
privately-negotiated transactions or otherwise. The timing and amount of
repurchases, if any, will depend on many factors, including but not limited to,
the availability of capital, the prevailing market price of the Convertible
Notes and overall market conditions. We intend to fund the repurchases of the
Convertible Notes under this plan from borrowings under the Revolver and from
working capital, however no assurance can be given that we will repurchase any
Convertible Notes. Under the Revolver, our North America subsidiaries may
transfer funds to us in order to repurchase the Convertible Notes.
In the third quarter of 2001, we recorded an unusual charge of approximately
$3.4 million ($2.8 million after applicable income tax benefit) or $0.05 per
diluted share related to the settlement of a dispute with a wireless equipment
manufacturer with which we have not done business for several quarters. The loss
includes applicable legal fees and we believe we will incur no further losses
related to the dispute.
A-5
During the first quarter of 2001, we repurchased approximately 36,000 of
Convertible Notes at prices ranging from $278 to $283 per Convertible Note,
completing a plan approved by the Board of Directors in 2000 to purchase up to
130,000 of the Convertible Notes. These transactions resulted in an
extraordinary gain in 2001 of approximately $4.6 million ($0.09 per diluted
share), net of applicable income taxes and transaction costs.
2000
During the fourth quarter of 2000, we repurchased approximately 94,000 of our
Convertible Notes for approximately $29 million ($310 per Convertible Note)
pursuant to a plan approved by the Board of Directors in 2000. These
transactions resulted in an extraordinary gain in 2000 of approximately $10.0
million ($0.18 per diluted share), net of applicable income taxes and
transaction costs.
During the first quarter of 2000, we 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 us and our processes. We recorded an unusual charge
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. The total amount of the charge recorded in 2000 was
$7.0 million ($4.2 million after applicable taxes or $0.07 per diluted share)
and was comprised of approximately $3.2 million in non-cash fixed asset
disposals and $3.8 million in moving, lease termination and other costs paid in
cash. As a result of the actions discussed above, we had approximately $3.0
million in facility consolidation reserves at December 31, 2000. In September of
2001, we entered into an agreement to terminate our financial obligations with
respect to the last of the unused, or partially used, facilities. We believe
that the termination agreement had no effect on our current year financial
statements. We had no remaining facility consolidation reserves at December 31,
2001 and no significant adjustments or revisions to the charge are anticipated
in future periods.
1999
In the first quarter of 1999, we recorded 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
required the write-off of the unamortized portion of our previously capitalized
start-up costs. These costs were incurred primarily as a part of our 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
$13.4 million is shown net of applicable taxes.
Beginning in the second quarter of 1999, we implemented a broad restructuring
plan (1999 Restructuring Plan) by eliminating or restructuring identified
non-performing business activities and reducing costs. The 1999 Restructuring
Plan was approved by our Board of Directors and 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. In total, the 1999 Restructuring Plan
resulted in a reduction in headcount of approximately 350 employees. This
headcount reduction occurred in most areas, including marketing, operations and
administration; however, substantially all of the reductions occurred in our
operating divisions outside of North America.
A-6
As a result of actions taken in accordance with the 1999 Restructuring Plan, we
recorded restructuring and other unusual charges in 1999 of approximately $79.6
million. Adjustments to the charge subsequent to its initial recording in 1999
have not been significant. 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 $5.9 million related to lease and employee terminations and other
exit costs. These amounts which total $61.3 million are recorded in the
"Restructuring and other unusual charges" line in the Consolidated Statements of
Operations, as restated. The non-recurring charges also include the write-down
of inventory (totaling $9.6 million and included in the "Cost of revenue" line)
and accounts receivable (totaling $5.2 million and included in the "Selling,
general and administrative expenses" line) to their estimated net realizable
value. Tax assets totaling $3.5 million were also written off as part of the
1999 Restructuring Plan. Our execution of the Restructuring Plan has been
substantially completed and no further revisions or adjustments to these charges
are expected in future periods.
ACQUISITIONS AND DIVESTITURES
Following are purchase acquisitions, divestitures and other disposals affected
by us during the past three years.
2001
- Acquired Mega-Hertz SARL - a provider of activation and other services to
the wireless telecommunications industry in France.
- Acquired certain net assets of Dirland SA - a provider of activation and
other services to the wireless telecommunications industry in France.
- Pursuant to our 2001 Restructuring Plan, we sold our operations in Jamaica
and otherwise disposed of (or initiated the disposal process) certain
operations in Belgium, Brazil, the Netherlands, South Africa, Venezuela and
Zimbabwe.
2000
- Acquired Advanced Portable Technologies Pty Ltd - a provider of
distribution and other outsourced services to the wireless data and
portable computer industry in Australia and New Zealand.
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 our 1999 Restructuring Plan, terminated or disposed (or
initiated the disposal process) of certain operations in the United
Kingdom, Argentina, Taiwan, China and Poland.
A-7
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On October 3, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of and also supersedes the
accounting and reporting provisions of APB Opinion Number 30, Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment
of a Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for segments of a business to be disposed of. Among its many
provisions, SFAS No. 144 retains the fundamental requirements of both previous
standards, however, it resolves significant implementation issues related to
FASB Statement No. 121 and broadens the separate presentation of discontinued
operations in the income statement required by APB Opinion Number 30 to include
a component of an entity (rather than a segment of a business). The provisions
of SFAS No. 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001 with early application encouraged. We do not
believe the adoption of SFAS No. 144 will have a material effect on our results
of operations, financial position or cash flows. However, we are continuing to
evaluate the impact that the changes in the presentation of discontinued
operations will have on our financial statements.
On June 29, 2001, the 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 with an effective date of 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 our
financial statements at the time of adoption. Upon adoption, goodwill will no
longer be amortized and will be tested for impairment at least annually. For the
year ended December 31, 2001, we recorded amortization of goodwill and other
intangibles of approximately $3.1 million. At December 31, 2001, we had goodwill
and other intangibles totaling approximately $61.3 million, net of accumulated
amortization. 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 our financial
statements. We are currently assessing the impact that SFAS No. 142 will have on
our financial statements upon adoption in 2002, however, during February of
2002, we completed the first step in the required goodwill impairment testing
process required by SFAS No. 142. The results of this first step have indicated
that we will need to complete the more detailed second step in the required
goodwill impairment testing process required by SFAS No. 142 on portions of our
goodwill and intangible assets. Although we cannot yet determine the amount of
the impairment charge, if any, that we will be required to record, the total
goodwill and intangibles at December 31, 2001 of operations that are proceeding
to the second step of impairment testing is approximately $29.6 million.
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. We believe the adoption of SFAS No.
141 did not have a material affect on our financial statements.
A-8
OPERATING SEGMENTS
We operate in markets worldwide and have three operating segments. These
operating segments represent our three divisions: the Americas, Asia-Pacific and
Europe. 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.
We evaluate the performance of, and allocate resources to, these segments based
on income (loss) from operations including allocated corporate selling, general
and administrative expenses. As discussed in Note 2 to the Consolidated
Financial Statements, we incurred restructuring and other unusual charges, which
materially affected certain operating segments. In addition, during 2001, the
management of our operations in the Middle East was transferred from the Europe
division to the Asia-Pacific division and our former North America and Latin
America divisions were consolidated and are managed as one division referred to
as the Americas. All years presented below have been reclassified to reflect our
current operating segments and management structure. A summary of our operations
by segment is presented below (in thousands), as restated for 1999 and 2000 (see
Note 18 to the Consolidated Financial Statements):
Restructuring
Revenues from Total Allocated Allocated and Other
External Income (Loss) from Segment Interest Income Unusual
Customers Operations (1) Assets Expense (2) Taxes (2) Charges (3)
-----------------------------------------------------------------------------------------------------------
1999:
The Americas $ 1,004,428 $ 23,961 $ 406,703 $ 5,757 $ 7,891 $ 3,394
Asia-Pacific 497,491 (30,888) 110,625 3,935 3,283 34,350
Europe 266,202 (40,335) 100,172 3,201 1,991 38,316
-----------------------------------------------------------------------------------------------------------
$ 1,768,121 $ (47,262) $ 617,500 $ 12,893 $ 13,165 $ 76,060
===========================================================================================================
2000:
The Americas $ 975,231 $ 27,913 $ 420,850 $ 6,488 $ 6,008 $ 6,972
Asia-Pacific 699,220 25,055 137,600 2,957 6,422 (705)
Europe 302,840 9,169 129,337 2,346 2,562 (142)
-----------------------------------------------------------------------------------------------------------
$ 1,977,291 $ 62,137 $ 687,787 $ 11,791 $ 14,992 $ 6,125
===========================================================================================================
2001:
THE AMERICAS $ 843,645 $ (64,713) $ 402,030 $ 5,505 $ (21,553) $ 40,299
ASIA-PACIFIC 683,910 8,206 98,539 2,454 2,284 3,375
EUROPE 297,614 (5,810) 108,851 1,728 3,235 8,932
-----------------------------------------------------------------------------------------------------------
$ 1,825,169 $ (62,317) $ 609,420 $ 9,687 $ (16,034) $ 52,606
===========================================================================================================
(1) Includes $76.1 million, $6.1 million, and $52.6 million of restructuring
and other unusual charges in 1999, 2000 and 2001, 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.
(3) In 1999 and 2001, a portion of these charges is included under the captions
"Cost of revenue" and "Selling, general and administrative expenses" in the
Consolidated Statements of Operations depending upon their nature. This
amount does not include the tax effect of these restructuring and other
unusual charges of $3.5 million, $(2.7) million and $(12.1) million for
1999, 2000 and 2001, respectively. See Note 2 to the Consolidated Financial
Statements.
A-9
Additional segment information is as follows (in thousands):
External revenue by service line: 1999 2000 2001
-------------------------------------------------------
Wireless handset sales $1,342,814 $1,569,777 $1,509,222
Wireless accessory programs 266,193 221,967 148,680
Integrated logistics services 159,114 185,547 167,267
-------------------------------------------------------
$1,768,121 $1,977,291 $1,825,169
=======================================================
DECEMBER 31
-------------------------------------------------------
1999 2000 2001
-------------------------------------------------------
Long-lived assets:
The Americas $ 56,840 $ 60,656 $ 60,841
Asia-Pacific 30,071 29,539 28,121
Europe 31,715 34,786 32,683
-------------------------------------------------------
$ 118,626 $ 124,981 $ 121,645
=======================================================
FUTURE OPERATING RESULTS
Various statements, discussions and analyses throughout this Annual Report on
Form 10-K are not based on historical fact and contain forward-looking
statements. Actual future results may differ materially from the forward-looking
statements in this Annual Report on Form 10-K. Future trends for revenue and
profitability are difficult to predict due to a variety of known and unknown
risks and uncertainties, including, without limitation, i) uncertainties
relating to customer plans and commitments; ii) lack of demand for our products
and services in certain markets; iii) our ability to implement enterprise and
warehouse management software systems without incurring significant additional
costs or business interruptions; iv) loss of significant customers and
difficulties collecting our accounts receivable; v) access to or the cost of
increasing amounts of capital, trade credit or other financing; vi) dilution of
the percentage ownership of existing shareholders due to significant outstanding
convertible securities; vii) our significant outstanding indebtedness and
payment obligations under certain lease and other contractual arrangements;
viii) the possible adverse effect on demand for our products resulting from
consolidation of wireless network operator customers; ix) business conditions
and growth in our markets, including currency, economic and political risks in
markets in which we operate; x) availability and prices of wireless products;
xi) our ability to absorb, through revenue growth, the increasing operating
costs that we have incurred and continue to incur in connection with our
expansion activities and provision of integrated logistics services; xii)
successful consummation and integration of businesses and product lines
acquired; xiii) success of relationships with wireless equipment manufacturers,
network operators and other participants in the wireless telecommunications and
data industry; xiv) ability to meet intense industry competition; xv) the highly
dynamic nature of the industry in which we participate; xvi) continued tendency
of wireless equipment manufacturers and network operators to outsource aspects
of their business; xvii) ability to manage and sustain future growth at our
historical or industry rates; xviii) ability to respond to rapid technological
changes in the wireless communications and data industry; xix) reliance on
sophisticated information systems technologies; xx) ability to attract and
retain qualified management and other personnel; xxi) potential performance
issues with suppliers and customers; xxii) ability to protect our proprietary
information; xxiii) uncertainties regarding the outcome of pending litigation
and xxiv) risk of failure or material interruption of wireless systems and
services.
Because of the aforementioned uncertainties affecting our 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.
A-10
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF OPERATIONS
--------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31
--------------------------------------------------------
1999 2000 2001
--------------------------------------------------------
(AS RESTATED, SEE NOTE 18)
Revenue $ 1,768,121 $ 1,977,291 $ 1,825,169
Cost of revenue 1,636,207 1,806,731 1,744,258
--------------------------------------------------------
Gross profit 131,914 170,560 80,911
Selling, general and administrative expenses 117,925 102,298 101,584
Restructuring and other unusual charges 61,251 6,125 41,644
--------------------------------------------------------
Income (loss) from operations (47,262) 62,137 (62,317)
Interest expense 12,893 11,791 9,687
Other expenses 1,216 1,656 1,642
--------------------------------------------------------
Income (loss) before income taxes, minority interest,
accounting change and extraordinary gain (61,371) 48,690 (73,646)
Income taxes 13,165 14,992 (16,034)
--------------------------------------------------------
Income (loss) before minority interest, accounting change and (74,536) 33,698 (57,612)
extraordinary gain
Minority interest (93) 3 (11)
--------------------------------------------------------
Income (loss) before accounting change and extraordinary gain (74,443) 33,695 (57,601)
Cumulative effect of accounting change, net of tax (13,404) - -
Extraordinary gain on debt extinguishment, net of tax - 9,988 4,300
--------------------------------------------------------
Net income (loss) $ (87,847) $ 43,683 $ (53,301)
========================================================
Basic per share:
Income (loss) before accounting change and
extraordinary gain $ (1.40) $ 0.61 $ (1.03)
Cumulative effect of accounting change, net of tax (0.25) - -
Extraordinary gain on debt extinguishment, net of tax - 0.18 0.08
--------------------------------------------------------
Net income (loss) $ (1.65) $ 0.79 $ (0.95)
========================================================
Diluted per share:
Income (loss) before accounting change and
extraordinary gain $ (1.40) $ 0.60 $ (1.03)
Cumulative effect of accounting change, net of tax (0.25) - -
Extraordinary gain on debt extinguishment, net of tax - 0.18 0.08
--------------------------------------------------------
Net income (loss) $ (1.65) $ 0.78 $ (0.95)
========================================================
Weighted average common shares outstanding:
Basic 53,290 55,461 55,814
========================================================
Diluted 53,290 56,105 55,814
========================================================
See accompanying notes.
A-11
ANALYSIS OF THE CONSOLIDATED STATEMENTS OF OPERATIONS
(AS RESTATED FOR 1999 AND 2000)
--------------------------------------------------------------------------------
Our revenues are comprised of sales of wireless handsets (including wireless
data devices), accessory programs and fees generated from the provision of
integrated logistics services. The sale of wireless handsets and related
accessories and the resulting gross profit reflects the compensation we earned
for our distribution services, which services include purchasing, marketing,
selling, warehousing, picking, packing, shipping and delivery. Fees 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, telemarketing,
private labeling, kitting and customized packaging, product warranty, repair and
refurbishment and end-user support services.
Due to the significance of the restructuring plans we announced on June 30, 1999
and November 1, 2001, results of operations have been delineated between results
from recurring operations and results from non-recurring operations for the
purposes of the following discussion and analysis. Readers should be cautioned
that this delineation should not be considered a substitute for consolidated
financial statements prepared in accordance with accounting principles generally
accepted in the United States (GAAP). This presentation is provided for analysis
purposes only and represents how we currently analyze the performance of our
on-going operations. In addition, the impacts of non-recurring gains and charges
have been shown and discussed separately under the heading "Non-recurring
Charges and Other Items" in the previous discussion entitled "Overview and
Recent Developments." Recurring operations include all operations except those
that were eliminated or terminated in accordance with the restructuring plans.
Recurring operations also exclude the impacts of the gains on debt
extinguishment realized in 2000 and 2001, the cumulative effect of a change in
accounting principle in 1999, and non-recurring and other unusual charges in
1999, 2000 and 2001. A reconciliation of the delineated presentation of the
statement of operations for the years ended December 31, 1999, 2000 and 2001 is
at the end of this analysis.
RECURRING OPERATIONS (RESTATED FOR 1999 AND 2000)
REVENUE
(In thousands) 1999 2000 Change 2001 CHANGE
-----------------------------------------------------------------------------------------------------------------
Revenue $ 1,502,270 $ 1,794,274 19% $ 1,726,658 (4%)
=================================================================================================================
Revenue from recurring operations for 2001 decreased 4% to approximately $1.7
billion from $1.8 billion in 2000. Revenue from recurring operations for 2000
increased 19% when compared to 1999. The decrease in 2001 when compared to 2000
resulted primarily from lower demand for our products and services due to i)
slowing economic growth in many of the markets in which we operate, ii) an
excess supply of products in many of the distribution channels through which we
sell our products, iii) our inability to obtain an adequate supply of products
in certain of the distribution channels through which we sell our products,
primarily in China, iv) a reduction in the number of promotions offered by or
fulfilled for certain network operator customers and v) business interruptions
due to difficulties encountered with enterprise software implementations. We
believe that current economic trends and delays in subscribers replacing
handsets with new, not-yet-introduced products will continue to cause revenue
growth to be lower than recent historical periods. The increase in 2000 compared
to 1999 is a result of the worldwide demand for wireless products and our
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.
A-12
RECURRING OPERATIONS (RESTATED FOR 1999 AND 2000)
However, we believe revenue from recurring operations was adversely affected by
lower-than-anticipated demand for wireless products in the U.S. market in the
fourth quarter of 2000 and pricing pressures in the Latin America market
throughout 2000 due to a general oversupply of products. The rate of growth in
revenues from recurring operations over the last 5 years has fluctuated
significantly due to a variety of factors, including fluctuating industry growth
rates, changes in our acquisition and expansion activities, changes in the mix
of services we offer and economic changes in the markets in which we operate.
REVENUE BY SERVICE LINE
(In thousands) 1999 2000 2001
----------------------------------------------------------------------------------------------------------------------------------
Wireless handset sales $ 1,125,168 75% $ 1,423,111 79% $ 1,428,229 83%
Wireless accessory programs 256,418 17% 211,847 12% 142,295 8%
Integrated logistics services 120,684 8% 159,316 9% 156,134 9%
-----------------------------------------------------------------------------------
Total $ 1,502,270 100% $ 1,794,274 100% $ 1,726,658 100%
====================================================================================================================================
Revenue from recurring operations in 2001 reflects a greater proportion of total
revenues from wireless handset sales than that experienced in 2000, although
dollars of revenue derived from this service line increased by less than 1%.
This change in mix was primarily the result of a decrease in revenue from
wireless accessory programs from 12% of total revenue in 2000 to 8% of total
revenue in 2001. Additionally, dollars of revenue derived from this service line
in 2001 decreased by 33% from 2000. Although revenue from accessory programs
decreased worldwide, we experienced our most significant decline in this service
line in our Americas division due to a reduction in the number of promotions
offered by or fulfilled for certain network operator customers, particularly in
the United States. We believe this trend in reduced revenue from accessory
programs will continue in 2002. Revenue from recurring operations for 2000 as
compared to 1999 includes a greater proportion of revenues from integrated
logistics services as we continued to develop and grow our service offerings and
obtain new customers in this area. Revenue from wireless handset sales grew 26%
from the prior year due to the increased demand for wireless handsets and
improved product availability. Revenue from accessory programs decreased
worldwide due to a reduction in the number of promotions offered by or fulfilled
for certain network operators. Revenue from the provision of integrated
logistics services increased 32% in 2000 when compared to 1999 as we continued
the execution of our strategy of focusing on this higher-margin service line.
REVENUE BY DIVISION
(In thousands) 1999 2000 2001
-----------------------------------------------------------------------------------------------------------------------------------
Americas $ 879,433 59% $ 828,262 46% $ 769,378 44%
Asia-Pacific 405,767 27% 699,220 39% 683,910 40%
Europe 217,070 14% 266,792 15% 273,370 16%
---------------------------------------------------------------------------------------
Total $ 1,502,270 100% $ 1,794,274 100% $ 1,726,658 100%
===================================================================================================================================
A-13
RECURRING OPERATIONS (RESTATED FOR 1999 AND 2000)
We operate in various markets worldwide and business activities are managed in
three divisions: the Americas, Asia-Pacific and Europe. The Americas division
conducts its operations within the United States, Mexico, Colombia and Puerto
Rico. Revenue from recurring operations in the Americas division declined by 7%
compared to 2000, due primarily to i) slowing economic growth in the United
States, ii) an excess supply of products in the United States and Mexico
distribution channels, iii) a reduction in the number of promotions offered by
or fulfilled for certain network operator customers and iv) business
interruptions due to difficulties encountered with enterprise software
implementations in the United States. We believe that these trends will continue
in 2002. Revenue from recurring operations in the Americas division decreased 6%
in 2000 compared to 1999 primarily due to lower demand in the fourth quarter of
2000 in the United States due to a variety of factors including economic
uncertainty.
Our Asia-Pacific division maintains operations in Australia, Middle East, New
Zealand, Philippines and the People's Republic of China (including Hong Kong).
Revenue from recurring operations in the Asia-Pacific division decreased 2% in
2001 when compared to 2000. This decrease was due primarily to i) slowing
economic growth in many of the Asia-Pacific markets, ii) an excess supply of
products in the distribution channels in this region, iii) an inadequate supply
of products in the distribution channels in this region during the fourth
quarter of 2001, primarily in China, iv) a reduction in the number of promotions
offered by or fulfilled for certain network operator customers and v) business
interruptions due to difficulties encountered with an enterprise software
implementation in Australia. These declines were partially offset by revenue
growth in the Middle East due to increased demand in these markets. Revenue from
recurring operations in the Asia-Pacific division during 2000 increased 72% when
compared to 1999 due primarily to changes in our strategy in China and
significant growth in revenues in the Middle East as we expanded our operations
in these markets.
Our Europe division has operations in France, Germany, Ireland, and Sweden.
Revenue from recurring operations within the Europe division grew by 2% in 2001
compared to 2000. Although the Europe division suffered from many of the factors
impacting the other divisions, the diversity of the services offered in the
division enabled the Europe division to realize slight revenue growth. Recurring
revenue within the Europe division grew by 23% in 2000 compared to 1999
resulting from the strong demand for our distribution and integrated logistics
services and expansion of our in-country operations in certain markets within
the division.
GROSS PROFIT
(In thousands) 1999 2000 Change 2001 CHANGE
___________________________________________________________________________________________________________________________
Gross profit $ 124,751 $ 160,374 29% $ 93,024 (42%)
Gross margin 8.3% 8.9% 5.4%
___________________________________________________________________________________________________________________________
Gross profit in 2001 decreased 42% from 2000 to approximately $93 million, and
gross profit in 2000 increased 29% from the prior year to approximately $160
million. The decrease in gross profit in 2001 compared to 2000 was due primarily
to price pressures created by the oversupply of product in the supply channels
and price pressures related to our integrated logistics services. We also
recorded inventory valuation adjustments of approximately $13.7 million ($8.4
million, or $0.15 per diluted share, net of tax benefit) in the second quarter
of 2001 to adjust inventories to their estimated net realizable value based on
the then current market conditions. These valuation adjustments were the result
of the over-supply of product in the industry's supply channels, including our
channels, and the lower-than-anticipated level of demand experienced in the
United States
A-14
RECURRING OPERATIONS (RESTATED FOR 1999 AND 2000)
during 2001. The write-downs were related to our United States operations and a
significant portion of the write-downs were related to wireless accessories. As
of December 31, 2001, we had disposed of materially all of the inventory to
which the write-downs related. In addition, the shift in service line mix from
higher margin accessories to lower margin handset sales also reduced the gross
profit in 2001. Lastly, as previously discussed, we experienced business
interruptions and increased costs during 2001 in connection with enterprise and
warehouse management software implementations in the United States and
Australia. The increased costs had a negative impact on our gross margin as a
portion of these costs are considered direct costs and are classified in cost of
revenue. The increase in gross profit in 2000 when compared to 1999 was due
primarily to the increase in revenue. Gross margins for 2000 were slightly
higher than 1999, due to improved profitability in integrated logistics services
and existing accessory programs offset by a shift in service line mix from
higher-margin accessory programs to lower-margin handset sales. We expect
pricing pressures and lower demand, partially offset by improving industry
characteristics and improving service line mix, to cause gross margins to not
vary significantly from 2001.
SELLING, GENERAL AND ADMINISTRATIVE EXPENSES
(In thousands) 1999 2000 Change 2001 CHANGE
______________________________________________________________________________________________________________________________
Selling, general and administrative expenses $ 87,500 $ 89,440 2% $ 84,330 (6%)
As a percent of revenue 5.8% 5.0% 4.9%
______________________________________________________________________________________________________________________________
Selling, general and administrative expenses decreased 6% in 2001 compared to
the prior year recurring operations and improved as a percent of revenue in 2001
to 4.9% from 5.0% in 2000. The decrease was comprised primarily of a decrease in
our Americas division costs in 2001 as compared to 2000 offset by slight
increases during 2001 in selling, general and administrative expenses incurred
in our Europe and Asia-Pacific divisions. Savings realized in selling, general
and administrative expenses in 2001 compared to 2000, which were partially
offset by increases in other components of selling, general and administrative
expenses, included i) a reduction in commissions paid by us to network operator
customers pursuant to certain accessory programs in the United States as the
related sales activity decreased significantly and ii) lower performance-based
compensation to key employees. Selling, general and administrative expenses
increased 2% in 2000 compared to 1999 recurring operations and improved as a
percent of revenue in 2000 to 5.0% from 5.8% in 1999. These changes were due to
cost reduction programs initiated in the second half of 1999 and continued
monitoring of costs by management in 2000. We expect selling, general and
administrative expenses as a percent of revenues to not vary significantly from
2001.
INCOME FROM OPERATIONS
(In thousands) 1999 2000 Change 2001 CHANGE
______________________________________________________________________________________________________________________________
Income from operations $37,251 $ 70,934 90% $ 8,694 (88%)
As a percent of revenue 2.5% 4.0% 0.5%
______________________________________________________________________________________________________________________________
In 2001, income from recurring operations decreased by 88% to approximately $8.7
million, and the operating margin (income from operations as a percent of
revenue) also decreased from 4.0% in 2000 to 0.5% in 2001. The decrease in
operating income is due primarily to the decrease in gross margins in 2001. In
2000, income
A-15
RECURRING OPERATIONS (RESTATED FOR 1999 AND 2000)
from recurring operations increased by 90% to approximately $71.0 million, and
the operating margin also increased from 2.5% in 1999 to 4.0% in 2000. The
increase was primarily the result of the increase in gross margin.
NET INCOME
(In thousands, except per share data) 1999 2000 Change 2001 CHANGE
-----------------------------------------------------------------------------------------------------------------------
Net income $15,176 $ 40,707 168% $ 1,135 (97%)
As a percent of revenue 1.0% 2.3% 0.0%
Net income per share
- Basic $0.28 $0.73 161% $0.02 (97%)
- Diluted $0.28 $0.73 161% $0.02 (97%)
Weighted average shares outstanding
- Basic 53,290 55,461 4% 55,814 1%
- Diluted 53,290 56,105 5% 55,814 (1%)
-----------------------------------------------------------------------------------------------------------------------
Net income from recurring operations in 2001 decreased by 97% compared to 2000.
This decrease was due primarily to the decrease in income from recurring
operations. The increase in net income from recurring operations of 168% in 2000
when compared to 1999 resulted primarily from the increase in income from
recurring operations as well as a decrease in the effective income tax rate to
32% in 2000 from 42% in 1999 reflecting a decrease in the percentage of taxable
income generated during 2000 in higher tax rate jurisdictions. Changes in the
effective tax rate are due generally to the amount and geographic dispersion of
pretax income.
RECONCILIATION OF RECURRING OPERATIONS PRESENTATION
The preceding recurring operations discussion represents our analysis of the
historical performance and trends affecting our on-going operations. The
following tables reconcile the historical operating results for these recurring
operations to the Consolidated Statements of Operations prepared in accordance
with GAAP for the years ended December 31, 1999, 2000 and 2001. Following the
tables is a separate discussion of the results of operations of our
non-recurring operations.
A-16
BRIGHTPOINT, INC.
RECONCILIATION OF CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
Year Ended December 31, 1999
-----------------------------------------------------------------------------
Non-recurring
Recurring Non-recurring Charges and Other
Operations Operations Items Consolidated
-----------------------------------------------------------------------------
Revenue $ 1,502,270 $ 265,851 $ - $ 1,768,121
Cost of revenue 1,377,519 249,120 9,568 1,636,207
-----------------------------------------------------------------------------
Gross profit (loss) 124,751 16,731 (9,568) 131,914
Selling, general and administrative expenses 87,500 25,184 5,241 117,925
Restructuring and other unusual charges - - 61,251 61,251
-----------------------------------------------------------------------------
Income (loss) from operations 37,251 (8,453) (76,060) (47,262)
Interest expense 10,723 2,170 - 12,893
Other expenses 508 708 - 1,216
-----------------------------------------------------------------------------
Income (loss) before income taxes, minority
interest and accounting change 26,020 (11,331) (76,060) (61,371)
Income taxes 10,884 (1,223) 3,504 13,165
-----------------------------------------------------------------------------
Income (loss) before minority
interest and accounting change 15,136 (10,108) (79,564) (74,536)
Minority interest (40) (53) - (93)
-----------------------------------------------------------------------------
Income (loss) before accounting change 15,176 (10,055) (79,564) (74,443)
Cumulative effect of accounting change, net of
tax - - (13,404) (13,404)
-----------------------------------------------------------------------------
Net income (loss) $ 15,176 $ (10,055) $ (92,968) $ (87,847)
=============================================================================
Basic per share:
Income (loss) before accounting change $ 0.28 $ (0.19) $ (1.49) $ (1.40)
Cumulative effect of accounting change, net of
tax - - (0.25) (0.25)
-----------------------------------------------------------------------------
Net income (loss) $ 0.28 $ (0.19) $ (1.74) $ (1.65)
=============================================================================
Diluted per share:
Income (loss) before accounting change $ 0.28 $ (0.19) $ (1.49) $ (1.40)
Cumulative effect of accounting change, net of
tax - - (0.25) (0.25)
-----------------------------------------------------------------------------
Net income (loss) $ 0.28 $ (0.19) $ (1.74) $ (1.65)
=============================================================================
Weighted average common shares outstanding:
Basic 53,290 53,290 53,290 53,290
=============================================================================
Diluted 53,290 53,290 53,290 53,290
=============================================================================
A-17
BRIGHTPOINT, INC.
RECONCILIATION OF CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
Year Ended December 31, 2000
------------------------------------------------------------------------------
Non-recurring
Recurring Non-recurring Charges and Other
Operations Operations Items Consolidated
------------------------------------------------------------------------------
Revenue $ 1,794,274 $ 183,017 $ - $ 1,977,291
Cost of revenue 1,633,900 172,831 - 1,806,731
------------------------------------------------------------------------------
Gross profit 160,374 10,186 - 170,560
Selling, general and administrative expenses 89,440 12,858 - 102,298
Restructuring and other unusual charges - - 6,125 6,125
------------------------------------------------------------------------------
Income (loss) from operations 70,934 (2,672) (6,125) 62,137
Interest expense 10,832 959 - 11,791
Other expenses 159 1,497 - 1,656
------------------------------------------------------------------------------
Income (loss) before income taxes, minority
interest and extraordinary gain 59,943 (5,128) (6,125) 48,690
Income taxes 19,233 (1,550) (2,691) 14,992
------------------------------------------------------------------------------
Income (loss) before minority
interest and extraordinary gain 40,710 (3,578) (3,434) 33,698
Minority interest 3 - - 3
------------------------------------------------------------------------------
Income (loss) before extraordinary gain 40,707 (3,578) (3,434) 33,695
Extraordinary gain on debt extinguishment,
net of tax - - 9,988 9,988
------------------------------------------------------------------------------
Net income (loss) $ 40,707 $ (3,578) $ 6,554 $ 43,683
==============================================================================
Basic per share:
Income (loss) before extraordinary gain $ 0.73 $ (0.06) $ (0.06) $ 0.61
Extraordinary gain on debt extinguishment,
net of tax - - 0.18 0.18
------------------------------------------------------------------------------
Net income (loss) $ 0.73 $ (0.06) $ 0.12 $ 0.79
==============================================================================
Diluted per share:
Income (loss) before extraordinary gain $ 0.73 $ (0.06) $ (0.06) $ 0.60
Extraordinary gain on debt extinguishment,
net of tax - - 0.18 0.18
------------------------------------------------------------------------------
Net income (loss) $ 0.73 $ (0.06) $ 0.12 $ 0.78
==============================================================================
Weighted average common shares outstanding:
Basic 55,461 55,461 55,461 55,461
==============================================================================
Diluted 56,105 56,105 56,105 56,105
==============================================================================
A-18
BRIGHTPOINT, INC.
RECONCILIATION OF CONSOLIDATED STATEMENT OF OPERATIONS
--------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31, 2001
------------------------------------------------------------------------------
NON-RECURRING
RECURRING NON-RECURRING CHARGES AND OTHER
OPERATIONS OPERATIONS ITEMS CONSOLIDATED
------------------------------------------------------------------------------
Revenue $ 1,726,658 $ 98,511 $ - $ 1,825,169
Cost of revenue 1,633,634 102,244 8,380 1,744,258
------------------------------------------------------------------------------
Gross profit (loss) 93,024 (3,733) (8,380) 80,911
Selling, general and administrative expenses 84,330 14,672 2,582 101,584
Restructuring and other unusual charges - - 41,644 41,644
------------------------------------------------------------------------------
Income (loss) from operations 8,694 (18,405) (52,606) (62,317)
Interest expense 8,423 1,264 - 9,687
Other expenses 179 1,463 - 1,642
------------------------------------------------------------------------------
Income (loss) before income taxes, minority
interest and extraordinary gain 92 (21,132) (52,606) (73,646)
Income taxes (1,032) (2,325) (12,677) (16,034)
------------------------------------------------------------------------------
Income (loss) before minority
interest and extraordinary gain 1,124 (18,807) (39,929) (57,612)
Minority interest (11) - - (11)
------------------------------------------------------------------------------
Income (loss) before extraordinary gain 1,135 (18,807) (39,929) (57,601)
Extraordinary gain on debt extinguishment,
net of tax - - 4,300 4,300
------------------------------------------------------------------------------
Net income (loss) $ 1,135 $ (18,807) $ (35,629) $ (53,301)
==============================================================================
Basic per share:
Income (loss) before extraordinary gain $ 0.02 $ (0.34) $ (0.72) $ (1.03)
Extraordinary gain on debt extinguishment,
net of tax - - 0.08 0.08
------------------------------------------------------------------------------
Net income (loss) $ 0.02 $ (0.34) $ (0.64) $ (0.95)
==============================================================================
Diluted per share:
Income (loss) before extraordinary gain $ 0.02 $ (0.34) $ (0.72) $ (1.03)
Extraordinary gain on debt extinguishment,
net of tax - - 0.08 0.08
------------------------------------------------------------------------------
Net income (loss) $ 0.02 $ (0.34) $ (0.64) $ (0.95)
==============================================================================
Weighted average common shares outstanding:
Basic 55,814 55,814 55,814 55,814
==============================================================================
Diluted 55,814 55,814 55,814 55,814
==============================================================================
A-19
NON-RECURRING OPERATIONS (RESTATED FOR 1999 AND 2000)
Non-recurring operations include certain of our operations which have been sold,
terminated or otherwise eliminated in accordance with our 1999 and 2001
restructuring plans described in the section entitled "Overview and Recent
Developments." Specifically, non-recurring operations represent our former
operations in the United Kingdom, Poland, Taiwan, Argentina, two joint
operations in China and a Hong Kong based accessory business that were all sold
or otherwise eliminated in 1999 pursuant to the 1999 Restructuring Plan and our
operations in Brazil, Jamaica, South Africa, Venezuela, Zimbabwe and operations
centers in the Netherlands and Belgium that were or will be sold, disposed of or
otherwise eliminated in 2001 and 2002 pursuant to the 2001 Restructuring Plan.
Revenue from non-recurring operations declined to $98.5 million in 2001 from
$183.0 million and $265.9 million in 2000 and 1999, respectively, representing
decreases of 46% and 31%, respectively. These declines reflect the reduced
business activity resulting from execution of the respective restructuring plans
in 1999 and 2001. Non-recurring operations experienced a gross loss of $3.7
million in 2001 compared to gross profit of $10.2 million and $16.7 million in
2000 and 1999, respectively. The gross loss in 2001 reflects costs and losses
incurred in winding-up the business activities of these operations pursuant to
the 2001 Restructuring Plan, particularly in Venezuela and Brazil. The decrease
in gross profits generated by non-recurring operations in 2000 as compared to
1999 is primarily the result of the full elimination of operations pursuant to
the 1999 Restructuring Plan as well as declining profitability in Venezuela and
South Africa. Additionally, revenues and gross profit in non-recurring
operations were adversely affected immediately preceding the execution of the
respective restructuring plans by industry, economic and other market factors in
the countries in which the operations were located.
Non-recurring operations experienced an increase in selling, general and
administrative expenses of 14% in 2001 compared to 2000 and a decrease in
selling, general and administrative expenses of 49% in 2000 when compared to
1999. The increase in 2001 reflects costs and losses incurred in winding-up the
business activities of these operations pursuant to the 2001 Restructuring Plan.
The decrease in 2000 reflects the elimination of costs pursuant to the
activities called for by the 1999 Restructuring Plan. Selling, general and
administrative expenses for non-recurring operations as a percent of the related
revenues were 9.5%, 7% and 15% in 1999, 2000 and 2001, respectively, reflecting
both the effects of the actions called for by the restructuring plans and our
difficulties in controlling costs in these markets.
In 1999, 2000 and 2001, non-recurring operations generated operating losses of
$8.5 million, $2.7 million and $18.4 million and net losses of $10.1 million
($0.19 per diluted share), $3.6 million ($0.06 per diluted share) and $18.8
million ($0.34 per diluted share), respectively. These results are due to the
declining revenues and gross margins during 2001 and 2000 within these
operations and were exacerbated by increased selling, general and administrative
expenses as a percent of revenue.
NON-RECURRING CHARGES AND OTHER ITEMS (RESTATED FOR 1999 AND 2000)
As more fully discussed in the section entitled "Overview and Recent
Developments," we recorded non-recurring, restructuring and other unusual
charges in 1999, 2000 and 2001, extraordinary gains on debt extinguishment in
2000 and 2001 and a cumulative effect adjustment for a change in accounting
principle in 1999 that represent income or expense of a non-recurring nature
and, accordingly, have been excluded from the previous discussions of operating
results.
A-20
BRIGHTPOINT, INC.
CONSOLIDATED BALANCE SHEETS
--------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
DECEMBER 31
----------------------------------------------
2000 2001
----------------------------------------------
(AS RESTATED, SEE
NOTE 18)
ASSETS
Current assets:
Cash and cash equivalents $ 79,718 $ 58,295
Pledged cash - 16,657
Accounts receivable (less allowance for doubtful
accounts of $6,548 in 2000 and $6,272 in 2001) 208,181 181,755
Inventories 225,337 137,549
Contract financing receivable 11,756 60,404
Other current assets 37,814 33,115
----------------------------------------------
Total current assets 562,806 487,775
Property and equipment 36,763 45,047
Goodwill and other intangibles 72,390 61,258
Other assets 15,828 15,340
----------------------------------------------
Total assets $ 687,787 $ 609,420
==============================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 232,542 $ 194,776
Accrued expenses 61,447 52,743
Unfunded portion of contract financing receivable 1,260 45,499
Lines of credit, short-term - 10,323
----------------------------------------------
Total current liabilities 295,249 303,341
----------------------------------------------
Long-term debt:
Line of credit 53,685 24,419
Convertible notes 144,756 131,647
----------------------------------------------
Total long-term debt 198,441 156,066
----------------------------------------------
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 55,860 issued and
outstanding in 2000 and 2001, respectively 558 559
Additional paid-in capital 213,714 213,973
Retained earnings (deficit) 6,256 (47,045)
Accumulated other comprehensive loss (26,431) (17,474)
----------------------------------------------
Total stockholders' equity 194,097 150,013
----------------------------------------------
Total liabilities and stockholders' equity $ 687,787 $ 609,420
==============================================
See accompanying notes.
A-21
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
--------------------------------------------------------------------------------
(Amounts in thousands)
YEAR ENDED DECEMBER 31
---------------------------------------
1999 2000 2001
---------------------------------------
(AS RESTATED, SEE NOTE 18)
OPERATING ACTIVITIES
Net income (loss) $ (87,847) $ 43,683 $ (53,301)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation and amortization 15,034 14,142 16,954
Amortization of debt discount 7,179 7,169 5,182
Cumulative effect of accounting change, net of tax 13,404 -- --
Income tax benefits from exercise of stock options 1,557 2,717 --
Extraordinary gain on debt extinguishment, net of tax -- (9,988) (4,300)
Restructuring and other unusual charges 79,564 6,125 40,394
Minority interest and deferred taxes 1,102 (1,911) (6,184)
Pledged cash requirements -- -- (16,657)
Changes in operating assets and
liabilities, net of effects from acquisitions:
Accounts receivable 17,930 10,667 13,981
Inventories 6,874 (86,351) 77,912
Other operating assets 117 3,190 4,307
Accounts payable and accrued expenses 53,110 47,453 (27,649)
--------- --------- ---------
Net cash provided by operating activities 108,024 36,896 50,639
INVESTING ACTIVITIES
Capital expenditures (13,716) (14,664) (27,442)
Purchase acquisitions, net of cash acquired (5,608) (6,215) (7,963)
Decrease (increase) in funded contract financing receivables 6,065 (4,210) (5,199)
Decrease (increase) in other assets 170 108 (1,683)
--------- --------- ---------
Net cash used by investing activities (13,089) (24,981) (42,242)
FINANCING ACTIVITIES
Net proceeds (payments) on credit facilities (62,998) 7,682 (18,934)
Repurchase of convertible notes -- (29,329) (10,095)
Proceeds from common stock issuances under employee stock
option and purchase plans 5,082 6,724 259
--------- --------- ---------
Net cash used by financing activities (57,916) (14,923) (28,770)
Effect of exchange rate changes on cash and cash equivalents (1,286) (2,535) (1,050)
--------- --------- ---------
Net increase (decrease) in cash and cash equivalents 35,733 (5,543) (21,423)
Cash and cash equivalents at beginning of year 49,528 85,261 79,718
--------- --------- ---------
Cash and cash equivalents at end of year $ 85,261 $ 79,718 $ 58,295
========= ========= =========
See accompanying notes
A-22
ANALYSIS OF THE CONSOLIDATED BALANCE SHEETS AND
STATEMENTS OF CASH FLOWS
(AS RESTATED FOR 1999 AND 2000)
--------------------------------------------------------------------------------
(dollars in thousands) 1999 2000 2001
--------------------------------------------------------------------------------------------------------------
Working capital $261,037 $267,557 $184,434
Cash provided by operating activities 108,024 36,896 50,639
Cash operating profit (EBITDA) 49,523 83,762 23,948
Bank borrowings 46,022 53,685 34,742
Convertible Notes 184,864 144,756 131,647
Current ratio 2.10 : 1 1.91 : 1 1.61 : 1
Average days revenue in accounts receivable 43 33 37
Average inventory turnover 12 9 10
Average days costs in accounts payable 32 40 41
Cash conversion cycle days 41 34 32
--------------------------------------------------------------------------------------------------------------
We have historically satisfied our working capital requirements principally
through cash operating profit (also referred to as EBITDA and calculated as
income from recurring operations plus depreciation and amortization expense
related to those operations), vendor financing, bank borrowings and the issuance
of equity and debt securities. We believe that cash operating profit and
available bank borrowings will be sufficient to continue funding our short-term
capital requirements, however, repurchases of Convertible Notes (described
below), if any, significant changes in our business model, significant operating
losses or expansion of operations in the future may require us to raise
additional capital.
CASH OPERATING PROFIT AND WORKING CAPITAL
We generated cash operating profit of approximately $49.5 million, $83.8 million
and $23.9 million in 1999, 2000 and 2001, respectively. The decrease in 2001 and
the increase in 2000 in cash operating profit was primarily the result of the
corresponding changes in income from recurring operations. In addition, in 2001
depreciation and amortization expense increased slightly due to depreciation
incurred on investments in certain enterprise and warehouse management software
implementations. We lease our office and warehouse/distribution space as well as
certain furniture and equipment under operating leases. Total rent expense for
all operating leases was $10.1 million, $11.5 million and $13.4 million for
1999, 2000 and 2001, respectively.
The aggregate future minimum payments on the above leases are as follows (in
thousands):
YEAR ENDING DECEMBER 31
-------------------------
2002 $ 11,950
2003 11,137
2004 9,551
2005 7,137
2006 6,691
THEREAFTER 58,509
---------------
$ 104,975
===============
A-23
The commitments above include approximately $0.3 million in facility lease
payments for 2002 that relate to our former North America headquarters and main
distribution center in Indianapolis. We terminated the lease for this facility
and do not expect to incur rental payments after the second quarter of 2002.
The decrease in working capital in 2001 compared to 2000 is comprised primarily
of the net effect of decreases in cash and cash equivalents, accounts
receivable, inventories, accounts payable and accrued expenses and increases in
funded contract financing receivables and new short-term bank borrowings. The
increase in working capital in 2000 compared to 1999 is comprised primarily of
the net effect of increases in inventories, accounts payable and accrued
expenses and a decrease in accounts receivable. These changes in working
capital, particularly the low levels of accounts receivable and inventories at
December 31, 2001 compared to the increased level of inventories at December 31,
2000, and an unusually low level of inventories at December 31, 1999, caused by
product shortages in the 1999 fourth quarter, resulted in an increase in cash
provided by operating activities in 2001 when compared 2000 and a decrease in
net cash provided by operating activities in 2000 when compared to 1999. These
changes were partially offset by a decrease in net income in 2001 compared to
2000 and an increase in net income in 2000 compared to 1999.
Additionally, as of December 31, 2001, average days revenue in accounts
receivable were approximately 37 days, compared to days revenue outstanding of
approximately 33 and 43 days for 2000 and 1999, respectively. During 2001,
average inventory turns were 10 times, compared to 9 times and 12 times in 2000
and 1999, respectively. Average days costs in accounts payable were 41 days for
2001, compared to 40 days and 32 days in 2000 and 1999, respectively. These
changes combined to create a decrease in cash conversion cycle days to 32 days
in 2001 from 34 days in 2000 and 41 days in 1999.
Total cash and cash equivalents decreased by approximately $4.8 million during
2001 when compared to 2000 and unpledged cash decreased by approximately $21.4
million during 2001 when compared to 2000 as we issued cash-secured letters of
credit in 2001 to support certain vendor credit lines primarily within our
Asia-Pacific division. As of December 31, 2001, we had pledged cash totaling
$16.7 million. In January 2002, we issued a $10 million cash-secured letter of
credit to support Brightpoint China Limited's credit facilities from Standard
Chartered Bank and DBS Bank described below. A significant portion of our cash
is held by our primary subsidiary operating as our European Treasury Center,
Brightpoint Holdings B.V., and if brought back to the United States could have
certain tax implications.
The reduction in accounts receivable in 2001 was attributable to the decreased
sales activity and successful acceleration of our accounts receivable collection
cycle, as well as sales or financing transactions of certain accounts receivable
to financing organizations. During 2000 and 2001, we entered into certain
transactions with financing organizations with respect to a portion of our
accounts receivable in order to reduce the amount of working capital required to
fund such receivables. Certain of these transactions qualify as sales pursuant
to current accounting principles generally accepted in the United States. Net
funds received from the sales of accounts receivable during 2000 and 2001
totaled $149.3 million (7.6% of revenues) and $151.6 million (8.3% of revenues),
respectively. We are the collection agent on behalf of the financing
organization for many of these arrangements. We have no significant retained
interests or servicing liabilities related to accounts receivable that we have
sold, although in limited circumstances related primarily to our performance in
the original transactions, we may be required to repurchase the accounts. The
collection of our accounts receivable and our ability to accelerate our
collection cycle through the sale of accounts receivable is affected by several
factors, including, but not limited to, our credit granting policies,
contractual provisions, our customers' and our overall credit rating as
determined by various credit rating agencies, industry and economic conditions,
the ability of the customer to provide security, collateral or guarantees
relative to credit granted by us, the customer's and our recent operating
results, financial position and cash flows and our ability to obtain credit
insurance on amounts
A-24
that we are owed. Adverse changes in any of these factors, certain of which may
not be wholly in our control, could create delays in collecting or an inability
to collect our accounts receivable which could have a material adverse effect on
our financial position cash flows and results of operations.
At December 31, 2001, our allowance for doubtful accounts was $6.3 million
compared to $6.5 million at December 31, 2000, which we believe was adequate for
the size and nature of our receivables at those dates. Bad debt expense as a
percent of revenues was less than 1.0% for 2001 and 2000. However, we have
incurred significant accounts receivable impairments in connection with our 1999
and 2001 restructuring plans because we ceased doing business in certain
markets, significantly reducing our ability to collect the related receivables.
Also, our accounts receivable are concentrated with network operators, agent
dealers and retailers operating in the wireless telecommunications and data
industry and delays in collection or the uncollectibility of accounts receivable
could have an adverse effect on our liquidity and working capital position. We
believe that during 2001 many participants in the wireless telecommunications
and data industry, including certain of our customers, experienced operating
results that were below previous expectations, decreases in overall credit
ratings and increasing costs to obtain additional capital. We believe this trend
will continue into 2002 and could have an adverse effect on our financial
position and results of operations. In connection with our continued expansion,
we intend to offer open account terms to additional customers, which subjects us
to further credit risks, particularly in the event that receivables are
concentrated in particular geographic markets or with particular customers. We
seek to minimize losses on credit sales by closely monitoring our customers'
credit worthiness and by obtaining, where available, credit insurance or
security on open account sales to certain customers.
The decrease in inventories and corresponding increase in average inventory
turns during 2001 are due primarily to i) an unusually high level of inventories
at December 31, 2000 due to lower-than-anticipated demand in the fourth quarter
of 2000 for products in the United States, ii) reduction in our inventory levels
commensurate with the overall lower demand in 2001 which we expect to continue
in certain markets during 2002 and iii) our inability to obtain an adequate
supply of products in certain of the distribution channels through which we sell
our products, primarily in China. Additionally, during the second quarter of
2001, we recorded inventory valuation adjustments of approximately $13.7 million
($8.4 million, $0.15 per diluted share, net of tax benefit) to adjust
inventories to their estimated net realizable value based on the then current
market conditions. These valuation adjustments were the result of the
over-supply of product in our distribution channel and the
lower-than-anticipated level of demand experienced in the second quarter of
2001. The write-downs were related to our North America division and a
significant portion of the impacted inventories were wireless accessories.
We offer financing of inventory and receivables to certain network operator
customers and their agents and manufacturer customers under contractual
arrangements. Under these contracts we manage and finance, but do not own,
inventories and receivables for these customers resulting in a contract
financing receivable. Contract financing receivables increased to $60.4 million
in 2001 from $11.8 million in 2000 which is partially offset by the $45.5
million and $1.3 million unfunded portion of these receivables at December 31,
2001 and 2000, respectively. The increase is due to certain new logistics
customers that we began serving in the fourth quarter of 2001. These receivables
were secured at December 31, 2000 and 2001 by $0.4 million and $23.8 million,
respectively, of wireless products located at our facilities. In addition, we
have commitments under these contracts to provide inventory financing for these
customers pursuant to various limitations defined in the applicable service
agreements.
The 2001 reductions in accounts payable and accrued expenses are due primarily
to the reduced business activity in 2001, including inventory purchases. We rely
on our suppliers to provide trade credit facilities and favorable payment terms
to adequately fund our on-going operations and product purchases. The payment
terms received
A-25
from our suppliers is dependent on several factors, including, but not limited
to, our payment history with the supplier, the suppliers credit granting
policies, contractual provisions, our overall credit rating as determined by
various credit rating agencies, our recent operating results, financial position
and cash flows and the supplier's ability to obtain credit insurance on amounts
that we owe them. Adverse changes in any of these factors, certain of which may
not be wholly in our control, could have a material adverse effect on our
operations. We have from time to time obtained extended payment terms from
certain significant vendors at the end of each quarter. Consequently, our
accounts payable and cash balances at quarter end may be higher than what is
experienced throughout the quarter. For 2001 and 2000 our average cash balances
were $57.3 million and $73.5 million, respectively.
CAPITAL EXPENDITURES AND OTHER INVESTING ACTIVITIES
The increase in net property and equipment during 2001 was primarily the result
of a significant increase in capital expenditures which totaled $27.4 million
during 2001, partially offset by current year depreciation expense and
approximately $3.9 million in fixed asset write-offs incurred pursuant to the
2001 Restructuring Plan. The increase in capital expenditures was primarily the
result of investments totaling approximately $21.5 million to install and
enhance systems, to continue to develop and enhance our systems to provide
electronic data interchange capabilities, to further automate our customer
interfaces and enhance our overall e-business capabilities, to create solutions
for our customers and to provide a flexible service delivery system in support
of our integrated logistics services. We intend to use additional funds to
further develop information systems throughout our three divisions, in part to
utilize technology to advance our base of existing service competencies and
develop new capabilities that will attempt to meet the challenges posed by
convergence and consolidation. We intend to invest an aggregate of $20 to $30
million in capital expenditures (related primarily to information technology)
over the next two years.
The decrease in goodwill and other intangibles in 2001 compared to 2000 is
primarily the result of current year amortization expense and non-cash
write-offs totaling approximately $11.6 million from operations that were
terminated pursuant to the 2001 Restructuring Plan, partially offset by
approximately $8.0 million expended on new acquisitions in 2001, primarily in
France. The increase in net cash used by investing activities in 2001 as
compared to 2000 is due primarily to the increase in information technology
related capital expenditures discussed above. The increase in net cash used by
investing activities in 2000 compared to 1999 is primarily the result of
increased funding of our contract financing activity during 2000.
BANK BORROWINGS AND OTHER FINANCING ACTIVITIES
On March 11, 1998, we 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 of our existing and
future senior indebtedness and all other liabilities, including trade payables
of our subsidiaries. The Convertible Notes resulted in gross proceeds 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 our revolving credit facility and to invest in
highly liquid, short-term investments pending use in operations. On October 30,
2000, we announced that our Board of Directors had approved a plan under which
we could repurchase up to 130,000 Convertible Notes. We repurchased 94,000
Convertible Notes during the fourth quarter of 2000 and realized a gain on the
repurchases of approximately $16.6 million ($10.0 million, net of tax) that was
recorded as an extraordinary gain on debt extinguishment in the Consolidated
Statements of Operations. During the first quarter of 2001, we repurchased
36,000 Convertible Notes for approximately $10 million (prices ranging from $278
to $283 per Convertible Note), resulting in an extraordinary gain of
A-26
approximately $4.6 million ($0.08 per diluted share) after transaction and
unamortized debt issuance costs and applicable taxes. As of March 31, 2001, our
plan to repurchase 130,000 Convertible Notes was completed.
On November 1, 2001, we announced that our Board of Directors had approved
another plan under which we may repurchase the remaining 250,000 Convertible
Notes. Repurchases, if any, may be made in the open market, in
privately-negotiated transactions or otherwise. The timing and amount of
repurchases, if any, will depend on many factors, including but not limited to,
the availability of capital, the prevailing market price of the Convertible
Notes and overall market conditions. We intend to fund the repurchases of the
Convertible Notes from borrowings under our North America revolving credit
facility (discussed below) and from working capital, however no assurance can
be given that we will repurchase any Convertible Notes. As of December 31, 2001,
the remaining 250,000 Convertible Notes had an accreted book value of
approximately $527 per Convertible Note and an estimated fair market value of
approximately $470 per Convertible Note based on the quoted market price. At
March 6, 2002, the Convertible Notes had an estimated fair market value of
approximately $370 per Convertible Note based on the quoted market price.
The $250 million face value of the Convertible Notes is 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 4,777,250 shares of common stock. The bondholders also may require
us to purchase the bonds on the fifth, tenth and fifteenth anniversary date of
the issuance of the bonds. The five-year anniversary is March 11, 2003. We have
the option to pay the purchase price of approximately $138 million for the
250,000 bonds in cash or common stock. If we are able and choose to utilize
common stock to satisfy this potential obligation, the number of shares issued
would be significant and could significantly dilute the ownership interests of
our common stockholders. The number of shares that would be issued to holders of
the convertible bonds, if we choose to use only common stock and no cash to
purchase the bonds, would be the $138 million accreted value of the bonds at the
five-year anniversary date divided by the average sales price of the common
stock for the five trading day period prior to the three trading days before the
five-year anniversary date.
On October 31, 2001, our primary North American operating subsidiaries,
Brightpoint North America L.P. and Wireless Fulfillment Services, LLC (the
Borrowers), entered into a new revolving credit facility, which was amended on
December 31, 2001(the Revolver), with General Electric Capital Corporation (GE
Capital) to provide capital for our North American operations. GE Capital acted
as agent for a syndicate of banks (the Lenders). The Revolver replaces our
former Bank One multicurrency facility discussed below, does not prohibit us
from borrowing additional funds outside of the United States and expires in
October of 2004. The Revolver provides borrowing availability, subject to
borrowing base calculations and other limitations, of $90 million and bears
interest, at the Borrower's option, at the prime rate plus 1.25% or LIBOR plus
2.75%, for the first twelve months and those rates may be periodically adjusted
thereafter based on certain financial measurements. The Revolver is guaranteed
by Brightpoint, Inc. and is secured by all of the Borrower's assets in North
America and borrowing availability under the Revolver is based primarily on a
percentage of eligible accounts receivable and inventory. The terms of the
Revolver include negative covenants that, among other things, limit the
Borrower's ability to sell certain assets and make certain payments, including
but not limited to, dividends, repurchases of common stock, payments to us and
other payments outside the normal course of business. The provisions of the
Revolver are such that if our unused borrowing availability falls below $20
million, we are then subject to a minimum fixed charge coverage ratio as defined
in the agreement and an unused borrowing availability of $10 million. Any of the
following events could cause us to be in default under the Revolver, including
but not limited to, (i) the expiration or termination of our distribution
agreement in the United States with Nokia Inc., (ii) a change in control of
Brightpoint, Inc., (iii) Standard & Poor's lowering their issuer rating of
Brightpoint, Inc. to "B-" or lower, (iv) the availability of borrowings under
the Revolver falling below $10 million or (v) the violation of the fixed charged
coverage ratio, if applicable. In the event of default, the Lenders may (i)
terminate
A-27
all or a portion of the Revolver with respect to further advances or the
incurrence of further letter of credit obligations, (ii) declare all or any
portion of the obligations due and payable and require any and all of the letter
of credit obligations be cash collateralized, or (iii) exercise any rights and
remedies provided to the Lenders under the loan document or at law or equity.
Additionally, the Lenders may increase the rate of interest applicable to the
advances and the letters of credit to the default rate as defined in the
agreement. Subject to certain restrictions, we may use proceeds under the
Revolver to repurchase our outstanding Convertible Notes. At December 31, 2001,
there was approximately $23.6 million outstanding under the Revolver at an
interest rate of 6.0% and available funding under the Revolver was approximately
$36.4 million. At December 31, 1999, 2000 and 2001, we were in compliance with
the covenants in our credit agreements.
During 2001, one of our subsidiaries, Brightpoint (France) SARL, entered into a
short-term line of credit facility with Natexis Banque. The facility has
borrowing availability of up to approximately $6.9 million Euros (6.1 million
U.S. Dollars), is guaranteed by the receivables of one of Brightpoint (France)
SARL's customers and bears interest at EURIBOR plus 2.5%. At December 31, 2001,
the interest rate was approximately 5.8%. A two-month notice is required to
terminate the facility. At December 31, 2001, the total amount available was
outstanding under this facility. Also, during 2001, another of our subsidiaries,
Brightpoint Australia Pty Ltd, entered into a short-term line of credit facility
with Westpac Banking Corporation. The facility, which is due on demand, has
borrowing availability of up to $10 million Australian Dollars ($5.1 million
U.S. Dollars) and bears interest at Westpac's base overdraft rate plus 1.95%. At
December 31, 2001, the interest rate was approximately 8.9%. The facility is
secured by a fixed and floating charge over all of the assets of Brightpoint
Australia Pty Ltd and is guaranteed by Brightpoint, Inc. At December 31, 2001,
there was approximately $4.2 million U.S. Dollars outstanding under this
facility.
In January 2002, in connection with the agreement made with Chinatron as
discussed in Note 5 to the Consolidated Financial Statements, Brightpoint China
Limited entered into two separate credit facilities. The first agreement is with
DBS Kwong On Bank Limited, has a maximum available borrowing limit of
approximately 78.0 million Hong Kong Dollars (approximately $10 million U.S.
Dollars), bears interest at 0.5% over the prime rate as quoted by DBS Kwong On
Bank Limited (5.1% at December 31, 2001) and is due on demand. This facility is
supported by a letter of credit of $2.5 million issued by Brightpoint Holdings
B.V. and a $2.5 million letter of credit issued by a shareholder in Chinatron as
well as corporate and personal guarantees from certain shareholders of
Chinatron. This facility requires that Brightpoint China Limited maintain a
minimum paid up capital amount, a minimum net worth amount, a debt-to-equity
ratio within certain limits and shall not pledge any of its accounts receivable
to any other financial institution without prior consent. The second facility is
with Standard Chartered Bank, Hong Kong Branch and has a maximum available
borrowing limit of approximately $16 million U.S. Dollars, bears interest at the
greater of 0.5% over the prime rate as quoted by Standard Chartered Bank or
HIBOR plus 0.5% (5.6% at December 31, 2001) and is due on demand. The facility
is secured by a letter of credit of $7.5 million, issued by Brightpoint Holdings
B.V. as well as corporate and personal guarantees from certain shareholders of
Chinatron and requires a minimum level of paid up capital. This facility
includes a sub-facility under which portions of the maximum available borrowing
limit may be borrowed in Renminbi.
Our long-term debt at December 31, 2000 included borrowings or permitted
indebtedness under our $175 million senior secured revolving line of credit
facility which was modified and restated on July 27, 1999. The Facility was
cancelled and replaced with the Revolver in the fourth quarter of 2001. The
Facility provided us, based upon a borrowing base calculation, with a maximum
borrowing capacity of up to $175 million. Interest rates on U.S. Dollar
borrowings under the Facility, excluding fees, ranged from 140 basis points to
250 basis points above LIBOR, depending on certain leverage ratios. Many of our
assets were pledged as collateral for borrowings under the Facility and we were
substantially prohibited from incurring additional indebtedness. We
A-28
were also subject to certain restrictive covenants as more fully described in
Note 9 to the Consolidated Financial Statements.
Net cash used by financing activities in 2001 was primarily the result of the
Convertible Note repurchases discussed above and repayments on our credit
facilities in 2001. Net cash used by financing activities in 2000 was also
primarily the result of the Convertible Note repurchases, partially offset by
borrowings on our line of credit and proceeds from the issuance of common stock
pursuant to our employee stock option and purchase plans.
The decrease in shareholders' equity from December 31, 2000 to December 31, 2001
of $44.1 million resulted primarily from a net loss in 2001 of $53.3 million and
a decrease in accumulated other comprehensive loss of $9.0 million. The decrease
in accumulated other comprehensive loss was primarily the result of accumulated
foreign currency translation adjustments that were written-off for operations
that were terminated pursuant to the 2001 Restructuring Plan offset by current
year foreign currency translation adjustments, due particularly to the
strengthening of the U.S. Dollar in 2001. These adjustments are recorded in
accumulated other comprehensive income (loss) when we translate our foreign
currency denominated assets and liabilities to the U.S. Dollar at the end of
each accounting period.
A-29
BRIGHTPOINT, INC.
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY (AS RESTATED FOR 1999 AND 2000,
SEE NOTE 18) (Amounts in thousands)
Accumulated
Additional Retained Other Total
Common Paid-in Earnings Comprehensive Stockholders' Comprehensive
Stock Capital (Deficit) Income (Loss) Equity Income (Loss)
--------------------------------------------------------------------------------------------------------------------------
Balance at January 1, 1999 $ 528 $ 184,366 $ 50,420 $ (8,693) $ 226,621 $ (8,693)
1999 Activity:
Net loss -- -- (87,847) -- (87,847) $ (87,847)
Other comprehensive income (loss):
Currency translation of foreign
investments -- -- -- (10,750) (10,750) (10,750)
Unrealized gain on derivatives, net
of income tax -- -- -- 817 817 817
Exercise of stock options and related
income tax benefit 8 6,631 -- -- 6,639
Purchase acquisitions 11 13,286 -- -- 13,297
--------------------------------------------------------------------------
Balance at December 31, 1999 547 204,283 (37,427) (18,626) 148,777 $ (97,780)
=========
2000 Activity:
Net income -- -- 43,683 -- 43,683 $ 43,683
Other comprehensive income (loss):
Currency translation of foreign
investments -- -- -- (7,939) (7,939) (7,939)
Unrealized gain on derivatives, net
of income tax -- -- -- 134 134 134
Common stock issued in connection with
employee stock option and purchase
plans and related income tax benefit 11 9,431 -- -- 9,442
--------------------------------------------------------------------------
Balance at December 31, 2000 558 213,714 6,256 (26,431) 194,097 $ 35,878
=========
2001 Activity:
Net loss -- -- (53,301) -- (53,301) $ (53,301)
Other comprehensive income (loss):
Currency translation of foreign
investments -- -- -- 9,097 9,097 9,097
Unrealized loss on derivatives, net
of income tax -- -- -- (140) (140) (140)
Common stock issued in connection with
employee stock option and purchase
plans and related income tax benefit 1 259 -- -- 260 $ (17,474)
--------------------------------------------------------------------------
Balance at December 31, 2001 $ 559 $ 213,973 $ (47,045) $ (17,474) $ 150,013 $ (44,344)
==========================================================================
See accompanying notes.
A-30
FINANCIAL MARKET RISK MANAGEMENT
--------------------------------------------------------------------------------
INTEREST RATE AND FOREIGN CURRENCY EXCHANGE RATE RISKS
We are exposed to financial market risks, including changes in interest rates
and foreign currency exchange rates. To mitigate interest rate risks, we have
periodically utilized interest rate swaps to convert certain portions of our
variable rate debt to fixed interest rates. To mitigate foreign currency
exchange rate risks, we periodically utilize derivative financial instruments
under the Foreign Currency Risk Management Policy approved by our Board of
Directors. We do not use derivative instruments for speculative or trading
purposes.
We are exposed to changes in interest rates on our variable interest rate
revolving lines of credit. A 10% increase in short-term borrowing rates during
2001 would have resulted in only a nominal increase in interest expense. We did
not have any interest rate swaps outstanding at December 31, 2001.
A substantial portion of our revenue and expenses are transacted in markets
worldwide and are denominated in currencies other than the U.S. Dollar.
Accordingly, our future results could be adversely affected by a variety of
factors, including changes in specific countries' political, economic or
regulatory conditions and trade protection measures.
Our 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. Our hedging
programs reduce, but do not eliminate, the impact of foreign currency 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 negative impact on our
results of operations for 2001, due to the aggregate losses experienced in our
foreign operations. At December 31, 2001, there were no cash flow or net
investment hedges open. Our sensitivity analysis of foreign currency exchange
rate movements does not factor in a potential change in volumes or local
currency prices of our products sold or services provided. Actual results may
differ materially from those discussed above. For further discussion see Note 12
to the Consolidated Financial Statements entitled "Derivative Financial
Instruments."
Certain of our 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 non-cash
transactions. Local currencies remained legal tender until December 31, 2001 at
which time participating countries issued 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 2001,
our 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." We have made significant investments in
information technology in Europe and have experienced no significant information
technology or operational problems as a result of the Euro conversion. In
addition, we continue to evaluate the effects on our business of the Euro
conversion for the affected operations and
A-31
believe that the completion of the Euro conversion during 2001 and 2002 will
not have a material effect on our financial position or results of operations.
EQUITY PRICE RISKS
As more fully described in the Analysis of the Consolidated Balance Sheets and
Statements of Cash Flows, we have issued zero-coupon, subordinated, convertible
notes (Convertible Notes). The Convertible Notes have an accreted value at
December 31, 2001 of approximately $132 million (approximately $527 per
Convertible Note). The holders of the Convertible Notes may cause us to
repurchase the Convertible Notes on March 11, 2003, at the accreted value at
that date for cash or common stock. The accreted value at March 11, 2003 will be
approximately $552 per Convertible Note.
If we are able and choose to use common stock to satisfy this potential
obligation, the number of shares to be issued will be directly affected by the
market price of the common stock on the five trading days prior to the three
trading days before March 11, 2003. The number of shares that would be issued to
satisfy this potential obligation would be calculated as the total number of
Convertible Notes outstanding (250,000 as of December 31, 2001) multiplied by
the accreted value per Convertible Note at March 11, 2003 (approximately $552
per Convertible Note) divided by the market price of the common stock calculated
in the aforementioned manner. If common stock is used to satisfy this potential
obligation, it could result in significant dilution to the holders of our common
stock.
We have, and may from time to time in the future, repurchase Convertible Notes
depending on many factors including but not limited to, the availability of
capital, the prevailing market price of the Convertible Notes and overall market
conditions, however, no assurance can be given that we will repurchase any
Convertible Notes.
A-32
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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. Certain amounts in the
1999 and 2000 Consolidated Financial Statements have been reclassified to
conform to the 2001 presentation.
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 equipment is sold and shipped or when the
Company's integrated logistics services have been rendered. In arrangements
where the Company both sells wireless equipment and provides integrated
logistics services, revenue is recognized separately for these functions and the
Company consistently applies the above criteria. In certain circumstances the
Company manages and distributes wireless equipment and prepaid recharge cards on
behalf of various network operators and assumes little or no product risk. The
Company records revenue for these integrated logistics services at the amount of
the net margin rather than the gross amount of the transactions.
CASH AND CASH EQUIVALENTS
All highly liquid investments with maturities of three months or less when
purchased are considered to be cash equivalents. Pledged cash represents cash
reserved as collateral for letters of credit issued by the Company.
CONCENTRATIONS OF RISK
Financial instruments that potentially expose the Company to concentrations of
credit risk consist primarily of trade accounts receivable. These receivables
are generated from product sales and services provided to network operators,
agents, resellers, dealers and retailers in the wireless telecommunications and
data 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 1999, 2000 or 2001 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.
A-33
However, consistent with industry practice, the Company generally requires no
collateral from its customers to secure trade accounts receivable.
The Company is dependent primarily on wireless equipment manufacturers for its
supply of wireless telecommunications and data equipment. Products sourced from
the Company's three largest suppliers accounted for approximately 75%, 79% and
82% of product purchases in 1999, 2000 and 2001, respectively. The Company is
dependent on the ability of its suppliers to provide an adequate supply of
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. We also
rely on our suppliers to provide trade credit facilities and favorable payment
terms to adequately fund our on-going operations and product purchases. The
payment terms received from our suppliers is dependent on several factors,
including, but not limited to, our payment history with the supplier, the
suppliers credit granting policies, contractual provisions, our overall credit
rating as determined by various credit rating agencies, our recent operating
results, financial position and cash flows and the supplier's ability to obtain
credit insurance on amounts that we owe them. Adverse changes in any of these
factors, certain of which may not be wholly in our control, could have a
material adverse effect on our operations. The Company believes that its
relationships with its suppliers are satisfactory, however, the Company has
periodically experienced inadequate supply from certain handset manufacturers.
ALLOWANCE FOR DOUBTFUL ACCOUNTS
The Company evaluates the collectibility of its accounts receivable based on a
combination of factors. In circumstances where the Company is aware of a
specific customer's inability to meet its financial obligations, the Company
records a specific allowance against amounts due to reduce the net recognized
receivable to the amount the Company reasonably believes will be collected. For
all other customers, the Company recognizes allowances for doubtful accounts
based on the length of time the receivables are past due, the current business
environment and the Company's historical experience. If the financial condition
of the Company's customers were to deteriorate or if economic conditions
worsened, additional allowances may be required in the future.
ACCOUNTS RECEIVABLE TRANSFERS
The Company from time to time enters 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. Fees, in the form of discounts, are recorded as
losses on the sale of assets which are included as a component of "Other
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
A-34
receivable that it has sold, although in limited circumstances related primarily
to the Company's performance in the original transactions, the Company may be
required to repurchase the accounts.
INVENTORIES
Inventories consist of wireless handsets and accessories and are stated at the
lower of cost (first-in, first-out method) or market. At each balance sheet
date, the Company evaluates its ending inventories for excess quantities and
obsolescence. This evaluation includes analyses of sales levels by product and
projections of future demand. The Company writes off inventories that are
considered obsolete. Remaining inventory balances are adjusted to approximate
the lower of cost or market value. If future demand or market conditions are
less favorable than the Company's projections, additional inventory write-downs
may be required and would be reflected in cost of sales in the period the
revision is made.
FAIR VALUE OF FINANCIAL INSTRUMENTS
The carrying amounts at December 31, 2000 and 2001, of cash and cash
equivalents, pledged cash, trade accounts receivable, contract financing
receivable, other current assets, accounts payable, accrued expenses, unfunded
portion of contract financing receivable and the Company's credit facilities
approximate their fair values. See Note 9 - Lines of Credit and 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.
IMPAIRMENT OF LONG-LIVED ASSETS
The Company routinely considers whether indicators of impairment of long-lived
assets are present. If such indicators are present, the Company determines
whether the sum of the estimated undiscounted cash flows attributable to the
assets in question is less than their carrying value. If less, the Company
recognizes an impairment loss based on the excess of the carrying amount of the
assets over their respective fair values. Fair value is determined by discounted
future cash flows, appraisals or other methods. If the assets determined to be
impaired are to be held and used, the Company recognizes an impairment charge to
the extent the present value of anticipated net cash flows attributable to the
asset are less than the asset's carrying value. The fair value of the asset then
becomes the asset's new carrying value, which the Company depreciates over the
remaining estimated useful life of the asset. The Company may incur impairment
losses in future periods if factors influencing its estimates change.
A-35
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 $2.5 million, $2.5 million and $3.1
million in 1999, 2000 and 2001, respectively. Goodwill and other intangibles as
reflected in the Consolidated Balance Sheets are presented net of accumulated
amortization of $7.0 million and $8.4 million at December 31, 2000 and 2001,
respectively. The carrying amount of goodwill is regularly reviewed for
indicators of impairment in value, which in the view of management are other
than temporary, including unexpected or adverse changes in the economic or
competitive environments in which the Company operates and historical and
forecasted profitability and cash flow. If facts and circumstances suggest that
a subsidiary'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. Upon the adoption of SFAS
No. 142 in 2002, as discussed below, goodwill will no longer be amortized and
will be reviewed annually for impairment.
FOREIGN CURRENCY TRANSLATION
The functional currency for most of the Company's foreign subsidiaries is the
respective local currency. Revenue and expenses denominated in foreign
currencies are translated to the U.S. Dollar at average exchange rates in effect
during the year and assets and liabilities denominated in foreign currencies are
translated to the U.S. Dollar at the exchange rate in effect at the end of the
period. Foreign currency transaction gains and losses are included in the
Consolidated Statements of Operations as "Other expenses." Currency translation
of assets and liabilities (foreign investments) from the functional currency to
the U.S. Dollar are included as a component of accumulated 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 year, 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 year. The Company's common
share equivalents consist of stock options and the Convertible Notes described
in Note 11 and Note 9, respectively, to the Consolidated Financial Statements.
A-36
The following is a reconciliation of the numerators and denominators of the
basic and diluted net income (loss) per share computations for 1999, 2000 and
2001 (in thousands, except per share data) as restated for 1999 and 2000 (see
Note 18 to the Consolidated Financial Statements):
YEAR ENDED DECEMBER 31
1999 2000 2001
------------------------------------------
Income (loss) before accounting change and
extraordinary gain $ (74,443) $ 33,695 $ (57,601)
Cumulative effect of accounting change, net of tax (13,404) - -
Extraordinary gain on debt extinguishment, net of tax - 9,988 4,300
------------------------------------------
Net income (loss) $ (87,847) $ 43,683 $ (53,301)
==========================================
Basic:
Weighted average shares outstanding 53,290 55,461 55,814
==========================================
Per share amount:
Income (loss) before accounting change and
extraordinary gain $ (1.40) $ 0.61 $ (1.03)
Cumulative effect of accounting change, net of tax (0.25) - -
Extraordinary gain on debt extinguishment, net of tax - 0.18 0.08
------------------------------------------
Net income (loss) $ (1.65) $ 0.79 $ (0.95)
==========================================
Diluted:
Weighted average shares outstanding 53,290 55,461 55,814
Net effect of dilutive stock options and stock
warrants-based on the treasury stock method using average
market price - 644 -
------------------------------------------
Total weighted average shares outstanding 53,290 56,105 55,814
==========================================
Per share amount:
Income (loss) before accounting change and
extraordinary gain $ (1.40) $ 0.60 $ (1.03)
Cumulative effect of accounting change, net of tax (0.25) - -
Extraordinary gain on debt extinguishment, net of tax - 0.18 0.08
------------------------------------------
Net income (loss) $ (1.65) $ 0.78 $ (0.95)
==========================================
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
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.
A-37
At December 31, 2000 and 2001, accumulated other comprehensive loss was
comprised primarily of cumulative foreign currency translation adjustments
totaling $26.6 million and $17.5 million, respectively.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
On October 3, 2001, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets (SFAS No. 144). SFAS No. 144
supersedes FASB Statement No. 121, Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of and also supersedes the
accounting and reporting provisions of APB Opinion Number 30, Reporting the
Results of Operations - Reporting the Effects of Disposal of a Segment of a
Business, and Extraordinary, Unusual and Infrequently Occurring Events and
Transactions, for segments of a business to be disposed of. Among its many
provisions, SFAS No. 144 retains the fundamental requirements of both previous
standards, however, it resolves significant implementation issues related to
FASB Statement No. 121 and broadens the separate presentation of discontinued
operations in the income statement required by APB Opinion Number 30 to include
a component of an entity (rather than a segment of a business). The provisions
of SFAS No. 144 are effective for financial statements issued for fiscal years
beginning after December 15, 2001 with early application encouraged. We do not
believe the adoption of SFAS No. 144 will have a material effect on our results
of operations, financial position or cash flows. However, we are continuing to
evaluate the impact that the changes in the presentation of discontinued
operations will have on our financial statements.
On June 29, 2001, the 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 with an effective date of 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. For the year ended December 31, 2001, the Company recorded
amortization of goodwill and other intangibles of approximately $3.1 million. At
December 31, 2001, the Company had goodwill and other intangibles totaling
approximately $61.3 million, net of accumulated amortization. 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 2002, however, during February of 2002, the Company
completed the first step in the required goodwill impairment testing process
required by SFAS No. 142. The results of this first step have indicated that the
Company will need to complete the more detailed second step in the required
goodwill impairment testing process required by SFAS No. 142 on portions of its
goodwill and intangible assets. Although the Company cannot yet determine the
amount of the impairment charge, if any, that it will be required to record, the
total goodwill and intangibles at December 31, 2001 of operations that are
proceeding to the second step of impairment testing is approximately $29.6
million.
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
A-38
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 adoption of SFAS No. 141 did not have a material affect on
the Company's financial statements.
DERIVATIVE FINANCIAL INSTRUMENTS
The Company records all derivative instruments 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 three separately managed segments. See
additional information on Operating Segments on pages A-9 and A-10.
2. RESTRUCTURING AND OTHER UNUSUAL CHARGES
2001
During 2001, the Company's board of directors approved a restructuring plan
(2001 Restructuring Plan) that the Company began to implement in the fourth
quarter of 2001. The primary goal in adopting the 2001 Restructuring Plan was to
better position the Company for long-term and more consistent success by
improving its cost structure and eliminating operations in which the Company
believes potential returns are not adequate to justify the risks of those
operations. Certain markets in which the Company operates, including Brazil,
Jamaica, South Africa, Venezuela and Zimbabwe, have unusually high risk profiles
due to many factors, including among other things, high importation duties,
currency restrictions and volatile political and economic climates. The Company
has determined that the risks of operating in these markets can no longer be
justified given the profitability potential of our operations in those
A-39
markets, therefore, these operations have been or will be sold or otherwise
discontinued pursuant to the 2001 Restructuring Plan. Additionally, pursuant to
the 2001 Restructuring Plan, we completed in January 2002, through certain of
our subsidiaries, the formation of a joint venture with Hong Kong-based
Chinatron Group Holdings Limited (Chinatron). Chinatron is involved in the
wireless telecommunications and data industry, is beneficially owned, in part,
by the managing director of Brightpoint China Limited and a former executive of
Brightpoint, Inc. In addition, an independent director of Brightpoint, Inc. is
also a director of Chinatron. A director and executive officer of Brightpoint,
Inc. and the managing director of Brightpoint China Limited were founding
shareholders of Chinatron. Prior to us entering into the agreement to form the
joint venture, our director and executive officer disposed of his interest in
Chinatron primarily through the sale of his interest to a company owned by the
managing director of Brightpoint China Limited and the former executive of
Brightpoint, Inc. In exchange, our director and executive officer received the
unconditional promise from their company to pay him $350,000 ($200,000 of which
has been paid to date). In exchange for a 50% interest in Brightpoint China
Limited, we received preference shares in Chinatron with a face value of $10
million. In addition, Chinatron has an option to purchase an additional 30% of
Brightpoint China Limited for additional preference shares in Chinatron with a
face value of $10 million. We have not yet determined the fair market value of
the Chinatron preference shares which will determine our gain or loss on the
transaction. We believe the Chinatron transaction reduced the capital we employ
in the China market, including Hong Kong, while allowing us to continue to
participate on a limited basis in this large handset market.
The 2001 Restructuring Plan is also intended to improve the Company's cost
structure and, accordingly, the Company's former North America and Latin America
divisions were consolidated in 2001 and are managed as one division, referred to
as the Americas. Warehouse and logistics functions formerly based in Miami were
transferred to Indianapolis and the warehouse in Miami was closed. Additionally
the Company's operations and activities in Germany, the Netherlands and Belgium,
including regional management, will be consolidated into a new facility in
Germany. In total, the 2001 Restructuring Plan will result in a headcount
reduction of approximately 350 employees in most areas of the Company, including
marketing, operations, finance and administration. Additionally, the Company
estimates that the 2001 Restructuring Plan could result in an on-going reduction
of selling, general and administrative expenses of up to $3 million to $4
million per quarter beginning in the first quarter of 2002. There can be no
assurance that the amount of the Company's cost savings, if any, will be
consistent with this estimate.
A-40
As a result of actions taken in accordance with the 2001 Restructuring Plan, the
Company recorded restructuring and other unusual charges totaling approximately
$36.5 million in 2001 as follows (in millions):
Non-cash charges:
Impairment of goodwill and investments $12.7
Impairment of accounts receivable and inventories of
restructured operations 11.0
Impairment of fixed and other assets 4.7
Income tax effect of restructuring actions (12.1)
Write-off of cumulative foreign currency translation
adjustments 16.8
-----
33.1
-----
Cash charges:
Employee termination costs 1.7
Lease termination costs 1.3
Other exit costs 0.4
-----
3.4
-----
$36.5
=====
The aforementioned charges have been recorded within the following captions in
the Consolidated Statements of Operations for 2001 (in millions):
2001
-----
Cost of revenue $ 8.4
Selling, general and administrative expenses 2.6
Restructuring and other unusual charges 37.6
Income taxes (12.1)
-----
$36.5
=====
At December 31, 2001, the Company had approximately $2.3 million in
restructuring reserves related to the 2001 Restructuring Plan. As a result of
the actions taken under the 2001 Restructuring Plan, the Company had
approximately $3.5 million in net assets held for disposal as of December 31,
2001. Certain actions called for by the Company's 2001 Restructuring Plan were
not complete at December 31, 2001 (including the Chinatron transaction discussed
above) and accordingly the Company expects to record adjustments to these
charges through at least the second quarter of 2002. The Company estimates that
the total amount of charges to be recorded for all periods relative to the 2001
Restructuring Plan will be between $45 million and $55 million.
2000
In 2000, the Company consolidated four Indianapolis, Indiana, locations and a
location in Bensalem, Pennsylvania, into a single, new facility located near the
Indianapolis International Airport and designed specifically for the Company and
its processes. The Company recorded an unusual charge related to the
consolidation for 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. The total amount of the charge
A-41
recorded in 2000 was $7.0 million ($4.2 million after applicable taxes or $0.07
per diluted share) and was comprised of approximately $3.2 million in non-cash
fixed asset disposals and $3.8 million in moving, lease termination and other
costs paid in cash. During 2001, the Company incurred approximately $0.6 million
in additional facility charges. No additional charges are anticipated.
1999
In 1999, the Company implemented a broad restructuring plan (1999 Restructuring
Plan) eliminating or restructuring identified non-performing business activities
and improving the Company's cost structure. The 1999 Restructuring Plan was
approved by the Company's Board of Directors on June 30, 1999, and included the
disposal of certain operations in the United Kingdom, Poland, Taiwan and
Argentina; termination of the Company's investments in two joint operations in
China; disposal of its 67% interest in a Hong Kong-based accessories company;
and cost reduction initiatives in selected operating subsidiaries and its
regional and corporate operations. In total, the 1999 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 1999 Restructuring Plan, the
Company recorded restructuring and other unusual charges totaling approximately
$78.7 million in 1999 and 2000 as follows (in millions):
Non-cash charges:
Impairment of goodwill and investments in joint operations $38.5
Impairment of accounts receivable and inventories of
restructured operations 12.0
Impairment of accounts receivable related to elimination
of sales to other distributors 8.0
Impairment of fixed assets 7.1
Write-off of deferred tax assets 3.5
Write-off of cumulative foreign currency translation
adjustments 1.8
Other 1.9
-----
72.8
-----
Cash charges:
Employee termination costs 3.2
Lease termination costs 1.0
Other exit costs 1.7
-----
5.9
-----
$78.7
=====
A-42
The Company's execution of the 1999 Restructuring Plan is complete and no
further revisions or adjustments to these charges are expected in future
periods. The aforementioned charges and related adjustments have been recorded
within the following captions in the Consolidated Statements of Operations for
1999 and 2000 (in millions):
YEAR ENDED DECEMBER 31
----------------------
1999 2000
-------- --------
Cost of revenue $ 9.6 $ -
Selling, general and administrative expenses 5.2 -
restructuring and other unusual charges 61.3 (0.9)
Income taxes 3.5 -
-------- --------
$79.6 $(0.9)
======== ========
At December 31, 2000, the Company had no significant reserves or assets held for
disposal related to the 1999 Restructuring Plan.
3. EXTRAORDINARY GAIN ON DEBT EXTINGUISHMENT
During the fourth quarter of 2000, the Company repurchased approximately 94,000
of its zero-coupon, subordinated, convertible notes due 2018 (Convertible Notes)
for approximately $29 million ($310 per Convertible Note). These transactions
resulted in an extraordinary gain in 2000 of approximately $10.0 million ($0.18
per diluted share), net of applicable income taxes and transactions costs.
During the first quarter of 2001, the Company repurchased 36,000 Convertible
Notes for approximately $10 million (prices ranging from $278 to $283 per
Convertible Note). These transactions resulted in an extraordinary gain in 2001
of approximately $4.6 million ($0.08 per diluted share) after transaction and
unamortized debt issuance costs and applicable taxes, and completed the 130,000
Convertible Notes repurchase plan previously approved by the Company's Board of
Directors. On October 30, 2001, the Company's Board of Directors approved,
subject to certain conditions, the purchase of the remaining Convertible Notes.
See Note 9 to the Consolidated Financial Statements.
4. 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 $13.4
million, net of the applicable income tax benefit of $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.
A-43
5. ACQUISITIONS AND DIVESTITURES
2001
During the second half of 2001, the Company acquired certain net assets of
Dirland SA and Mega-Hertz SARL. Both companies acquired are providers of
activation and other services to the wireless telecommunications industry in
France. The purpose of these acquisitions was to expand the Company's customer
base and geographic presence in France. These transactions were accounted for as
purchases and, accordingly, the Consolidated Financial Statements include the
operating results of these businesses from the effective dates of the
acquisitions. The combined purchase price consisted of $5.3 million in cash and
the assumption of certain liabilities. As a result of these acquisitions, the
Company recorded goodwill and other intangible assets totaling approximately
$5.5 million which, pursuant to the provisions of SFAS No. 142, will not be
amortized, but will be tested for impairment at least annually. In addition, the
Company, pursuant to the 2001 Restructuring Plan completed the sale of its
former operations in Jamaica (Brightpoint Jamaica Limited) during the fourth
quarter of 2001. The Company incurred a loss on this disposal of approximately
$1.3 million ($0.8 million, net of tax).
In February 2002, the Company announced that, through certain of its
subsidiaries, it has completed the formation of the joint venture with Hong
Kong-based Chinatron Group Holdings Limited. Chinatron is involved in the
wireless telecommunications and data industry, is beneficially owned, in part,
by the managing director of Brightpoint China Limited and a former executive of
Brightpoint, Inc. In addition, an independent director of Brightpoint, Inc. is
also a director of Chinatron. A director and executive officer of Brightpoint,
Inc. and the managing director of Brightpoint China Limited were founding
shareholders of Chinatron. Prior to us entering into the agreement to form the
joint venture, our director and executive officer disposed of his interest in
Chinatron primarily through the sale of his interest to a company owned by the
managing director of Brightpoint China Limited and the former executive of
Brightpoint, Inc. In exchange, our director and executive officer received the
unconditional promise from their company to pay him $350,000 ($200,000 of which
has been paid to date). In exchange for a 50% interest in Brightpoint China
Limited, we received preference shares in Chinatron with a face value of $10
million. In addition, Chinatron has an option to purchase an additional 30% of
Brightpoint China Limited for additional preference shares in Chinatron with a
face value of $10 million. We have not yet determined the fair market value of
the Chinatron preference shares which will determine our gain or loss on the
transaction. We believe the Chinatron transaction reduced the capital we employ
in the China market, including Hong Kong, while allowing us to continue to
participate on a limited basis in this large handset market. The Company will
continue to consolidate the results of the China business in accordance with
current accounting rules as long as the Company has the ability to exert control
over the operations via its interest in Brightpoint China Limited and Chinatron.
If Chinatron exercises its option, the Company believes that it will no longer
exert control and, after such exercise, would anticipate using the equity method
of accounting rather than consolidating the operations of Brightpoint China
Limited.
2000
In December of 2000, the Company acquired Advanced Portable Technologies Pty Ltd
located in Sydney, Australia, a provider of distribution and other outsourced
services to the wireless data and
A-44
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 following the acquisition. Goodwill of approximately $1.0 million
resulted from this acquisition.
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 up to $15.0 million based upon the future operating
results of the Company's Brazilian operations over the five years following the
acquisition. Goodwill of approximately $5.0 million resulted from this
acquisition. This goodwill was written off due to the restructuring plan that
was implemented in the fourth quarter of 2001. 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.
6. ACCOUNTS RECEIVABLE TRANSFERS
During the years ended December 31, 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 years ended
December 31, 2000 and 2001 totaled $149.3 million (7.6% of revenues) and $151.6
million (8.3% of revenues), respectively. Fees, in the form of discounts,
incurred in connection with these sales totaled $2.6 million and $3.2 million
during the years ended December 31, 2000 and 2001, respectively, and were
recorded as losses on the sale of assets which are included as a component of
"Other 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, although in limited
circumstances related primarily to the
A-45
Company's performance in the original transactions, the Company may be required
to repurchase the accounts.
7. CONTRACT FINANCING RECEIVABLE
The Company offers financing of inventory and receivables to certain network
operator customers and their agents and wireless equipment manufacturers under
contractual arrangements. Under these arrangements, the Company manages and
finances, but does not own, accounts receivable and inventories for these
customers. The amount financed pursuant to these arrangements is recorded as a
current asset under the caption "Contract financing receivables." The Company
has commitments under these contracts to provide inventory financing for these
customers pursuant to various limitations defined in the applicable service
agreements. At December 31, 2000 and 2001, contract financing receivables of
$11.8 million ($1.3 million of which was unfunded) and $60.4 million ($45.5
million of which was unfunded), respectively, were secured by $0.4 million and
$23.8 million, respectively, of wireless products located at the Company's
facilities.
The Company's contract financing activities are provided to network operators
and their authorized dealer agents and wireless equipment manufacturers located
throughout the United States. Decisions to grant credit under these arrangements
are at the discretion of the Company, are made within guidelines established by
the network operators and wireless equipment manufacturers and are subject to
the Company's normal credit granting and ongoing credit evaluation process.
8. PROPERTY AND EQUIPMENT
The components of property and equipment are as follows (in thousands):
DECEMBER 31
-------------------
2000 2001
-------------------
Furniture and equipment $16,383 $14,557
Information systems equipment and software 43,565 63,206
Leasehold improvements 7,858 7,401
-------------------
67,806 85,164
Less accumulated depreciation 31,043 40,117
-------------------
$36,763 $45,047
===================
Depreciation expense charged to operations was $12.5 million, $11.6 million and
$13.9 million in 1999, 2000 and 2001, respectively.
9. LINES OF CREDIT AND 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
A-46
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
Convertible Notes. The Company repurchased 94,000 Convertible Notes during the
fourth quarter of 2000 and realized a gain on the repurchases of approximately
$16.6 million ($10.0 million, net of tax) that was recorded as an extraordinary
gain on debt extinguishment in the Consolidated Statements of Operations. During
the first quarter of 2001, the Company repurchased 36,000 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 Convertible Notes was completed.
On November 1, 2001, the Company announced that its Board of Directors had
approved another plan under which the Company may repurchase the remaining
250,000 Convertible Notes. Repurchases, if any, will be made in the open market,
in privately-negotiated transactions or otherwise. The timing and amount of
repurchases, if any, will depend on many factors, including but not limited to,
the availability of capital, the prevailing market price of the Convertible
Notes and overall market conditions. The Company intends to fund the repurchases
of the Convertible Notes from borrowings under its North America revolving
credit facility (discussed below) and from working capital, however no assurance
can be given that the Company will repurchase any Convertible Notes. As of
December 31, 2001, the remaining 250,000 Convertible Notes had an accreted book
value of approximately $132 million or $527 per Convertible Note and a fair
market value of approximately $118 million or $470 per Convertible Note based on
the quoted market price. At March 6, 2002, the Convertible Notes had an
estimated fair market value of approximately $93 million or $370 per Convertible
Note based on the quoted market price.
On October 31, 2001, the Company's primary North American operating
subsidiaries, Brightpoint North America L.P. and Wireless Fulfillment Services,
LLC (the Borrowers), entered into a new revolving credit facility, which was
amended on December 21, 2001 (the Revolver), with General Electric Capital
Corporation (GE Capital) to provide capital for its North American operations.
GE Capital acted as agent
A-47
for a syndicate of banks (the Lenders). The Revolver replaces the Company's
former Bank One multicurrency facility discussed below, does not prohibit the
Company from borrowing additional funds outside of the United States and expires
in October of 2004. The Revolver provides borrowing availability, subject to
borrowing base calculations and other limitations, of $90 million and bears
interest, at the Borrower's option, at the prime rate plus 1.25% or LIBOR plus
2.75%, for the first twelve months and those rates may be periodically adjusted
thereafter based on certain financial measurements. The Revolver is guaranteed
by Brightpoint, Inc. and is secured by all of the Borrower's assets in North
America. Borrowing availability under the Revolver is based primarily on a
percentage of eligible accounts receivable and inventory. The terms of the
Revolver include negative covenants that, among other things, limit the
Borrower's ability to sell certain assets and make certain payments, including
but not limited to, dividends, repurchases of common stock, payments to the
Company and other payments outside the normal course of business. The provisions
of the Revolver are such that if the Company's unused borrowing availability
falls below $20 million, the Company is then subject to a minimum fixed charge
coverage ratio as defined in the agreement and an unused borrowing availability
of $10 million. Any of the following events could cause the Company to be in
default under the Revolver, including but not limited to, (i) the expiration or
termination of our distribution agreement in the United States with Nokia Inc.,
(ii) a change in control of the Company, (iii) Standard & Poor's lowering their
issuer rating of Brightpoint, Inc. to "B-" or lower, (iv) the availability of
borrowings under the Revolver falling below $10 million or (v) the violation of
the fixed charged coverage ratio, if applicable. In the event of default, the
Lenders may (i) terminate all or a portion of the Revolver with respect to
further advances or the incurrence of further letter of credit obligations, (ii)
declare all or any portion of the obligations due and payable and require any
and all of the letter of credit obligations be cash collateralized, or (iii)
exercise any rights and remedies provided to the Lenders under the loan document
or at law or equity. Additionally, the Lenders may increase the rate of interest
applicable to the advances and the letters of credit to the default rate as
defined in the agreement. Subject to certain restrictions, the Company may use
proceeds under the Revolver to repurchase its outstanding Convertible Notes. At
December 31, 2001, there was approximately $23.6 million outstanding under the
Revolver at an interest rate of 6.0% and available funding under the Revolver
was approximately $36.4 million. At December 31, 1999, 2000 and 2001, the
Company was in compliance with the covenants in its credit agreements. Interest
payments for 1999, 2000 and 2001 were approximately $6.7 million, $2.9 million
and $4.3 million, respectively.
During 2001, one of our subsidiaries, Brightpoint (France) SARL, entered into a
short-term line of credit facility with Natexis Banque. The facility has
borrowing availability of up to approximately $6.9 million Euros (6.1 million
U.S. Dollars), is guaranteed by the receivables of one of Brightpoint (France)
SARL's customers and bears interest at EURIBOR plus 2.5%. At December 31, 2001,
the interest rate was approximately 5.8%. A two-month notice is required to
terminate the facility. At December 31, 2001, the total amount available was
outstanding under this facility. Also, during 2001, another of our subsidiaries,
Brightpoint Australia Pty Ltd, entered into a short-term line of credit facility
with Westpac Banking Corporation. The facility, which is due on demand, has
borrowing availability of up to $10 million Australian Dollars ($5.1 million
U.S. Dollars) and bears interest at Westpac's base overdraft rate plus 1.95%. At
December 31, 2001, the interest rate was approximately 8.9%. The facility is
secured by a fixed and floating charge over all of the assets of Brightpoint
Australia Pty Ltd and is guaranteed by Brightpoint, Inc. At December 31, 2001,
there was approximately $4.2 million U.S. Dollars outstanding under this
facility.
A-48
In January 2002, in connection with the agreement made with Chinatron as
discussed in Note 5 to the Consolidated Financial Statements, Brightpoint China
Limited entered into two separate credit facilities. The first agreement is with
DBS Kwong On Bank Limited, has a maximum available borrowing limit of
approximately 78.0 million Hong Kong Dollars (approximately $10 million U.S.
Dollars), bears interest at 0.5% over the prime rate as quoted by DBS Kwong On
Bank Limited (5.1% at December 31, 2001) and is due on demand. This facility is
supported by a letter of credit of $2.5 million issued by Brightpoint Holdings
B.V. and a $2.5 million letter of credit issued by a shareholder in Chinatron as
well as corporate and personal guarantees from certain shareholders of
Chinatron. This facility requires that Brightpoint China Limited maintain a
minimum paid up capital amount, a minimum net worth amount, a debt-to-equity
ratio within certain limits and shall not pledge any of its accounts receivable
to any other financial institution without prior consent. The second facility
is with Standard Chartered Bank, Hong Kong Branch and has a maximum available
borrowing limit of approximately $16 million U.S. Dollars, bears interest at the
greater of 0.5% over the prime rate as quoted by Standard Chartered Bank or
HIBOR plus 0.5% (5.6% at December 31, 2001) and is due on demand. The facility
is secured by a letter of credit of $7.5 million, issued by Brightpoint Holdings
B.V. as well as corporate and personal guarantees from certain shareholders of
Chinatron and requires a minimum level of paid up capital. This facility
includes a sub-facility under which portions of the maximum available borrowing
limit may be borrowed in Renminbi.
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).
On October 31, 2001, the Facility was cancelled and replaced with the new
Revolver discussed above. The Facility, which subject to various restrictions,
allowed for borrowings of up to $175 million, had a stated maturity date of June
2002, and generally bore 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 plus a spread reserve, if any. At December 31, 2000
there was approximately $48.9 million outstanding under the Facility.
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 revised
agreement increased available advances from $4.8 million to $8.5 million and
matured during the fourth quarter of 2001.
A-49
10. INCOME TAXES
For financial reporting purposes, income (loss) before income taxes, minority
interest, accounting change and extraordinary gain, by tax jurisdiction, is
comprised of the following (in thousands):
YEAR ENDED DECEMBER 31
------------------------------------
1999 2000 2001
------------------------------------
United States $(14,046) $ 3,963 $(59,001)
Foreign (47,325) 44,727 (14,645)
------------------------------------
$(61,371) $ 48,690 $(73,646)
====================================
The reconciliation for 1999, 2000 and 2001 of income tax expense computed at the
U.S. federal statutory tax rate to the Company's effective income tax rate is as
follows:
------------------------
1999 2000 2001
------------------------
Tax at U.S. federal statutory rate 35.0% 35.0% 35.0%
State and local income taxes, net of U.S. federal benefit (0.7) 1.0 3.1
Net benefit of tax on foreign operations (51.4) (7.9) (17.0)
Other (4.4) 2.7 0.7
------------------------
(21.5)% 30.8% 21.8%
========================
The Company's effective tax rate for 1999, excluding the effect of non-recurring
operations and non-recurring charges, would have been 42% based on income before
taxes and minority interest. Due to the elimination of certain operations in
2001, the related tax benefits on losses generated within those operations
during 2001 and prior years will not be realized through the application of net
operating loss carryforwards in future periods. 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 (in
thousands):
1999 2000 2001
------------------------------------
Current:
Federal $ 4,084 $ 6,465 $(11,397)
State 646 879 (3,698)
Foreign 7,240 9,562 5,235
------------------------------------
11,970 16,906 (9,860)
------------------------------------
Deferred:
Federal (1,145) (1,216) (6,145)
State (588) (444) 465
Foreign 2,928 (254) (494)
------------------------------------
1,195 (1,914) (6,174)
------------------------------------
$ 13,165 $ 14,992 $(16,034)
====================================
A-50
Components of the Company's net deferred tax asset after valuation allowance are
as follows (in thousands):
DECEMBER 31
----------------------
2000 2001
----------------------
Deferred tax assets:
Current:
Capitalization of inventory costs $ 1,598 $ 893
Allowance for doubtful accounts 1,282 583
Accrued liabilities and other 859 661
Noncurrent:
Other long-term investments 4,244 3,597
Net operating losses and other carryforwards 14,290 15,726
----------------------
22,273 21,460
Valuation allowance (13,938) (7,039)
----------------------
8,335 14,421
Deferred tax liabilities:
Noncurrent:
Depreciation (269) (155)
Other assets (5,081) (5,108)
----------------------
(5,350) (5,263)
----------------------
$ 2,985 $ 9,158
======================
Income tax payments were $4.1 million, $5.6 million and $6.5 million in 1999,
2000 and 2001, respectively.
At December 31, 2001, the Company had net operating loss carryforwards of $47.9
million, of which approximately $18.3 million have no expiration date.
Approximately $0.1 million, $7.6 million, $5.8 million and $4.2 million expire
in 2004, 2005, 2006 and 2008, respectively. The remaining foreign net operating
loss carryforwards expire in 2021. Undistributed earnings of the Company's
foreign operations were approximately $29.8 million at December 31, 2001. 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 may be available to reduce
some portion of the U.S. tax liability.
A-51
11. 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.
The Company has 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.
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 are 10.5 million common
shares reserved for issuance of which 6.4 million were authorized but unissued
at December 31, 2000 and 2001. The Company also maintains 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 5.8 million common shares
reserved for issuance of which 1.7 million and 3.7 million were authorized but
unissued at December 31, 2000 and 2001, 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, as well as
the purchase price, time of exercise (not to exceed ten years from the date of
the grant) and other terms of the option.
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
524,375 were authorized but unissued at December 31, 2000 and 2001. 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.
A-52
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 1999 through 2001 is as
follows:
1999 2000 2001
---------------------------------------------------------------------
Weighted Weighted WEIGHTED
Average Average AVERAGE
Exercise Exercise EXERCISE
Shares Price Shares Price SHARES PRICE
---------------------------------------------------------------------
Options outstanding,
beginning of year 6,685,348 $ 9.87 6,590,220 $ 9.42 7,336,804 $ 10.21
Options granted 1,531,500 8.35 2,270,300 10.70 957,500 3.75
Options exercised (710,462) 7.31 (1,065,258) 6.22 - -
Options canceled (916,166) 11.85 (458,458) 10.51 (3,181,466) 13.94
---------------------------------------------------------------------
Options outstanding,
end of year 6,590,220 $ 9.42 7,336,804 $ 10.21 5,112,838 $ 6.67
=====================================================================
Options exercisable,
end of year 3,356,083 $ 8.85 3,654,372 $ 10.17 3,051,976 $ 7.38
=====================================================================
Option price range at end
of year $3.84-$19.06 $3.50-$19.06 $2.72-$19.06
Option price range for
exercised shares $1.33-$13.00 $3.84-$11.20 -
Options available for grant
at year end 3,038,129 1,221,288 5,450,253
Weighted average fair value
of options granted during
the year $ 3.81 $ 5.09 $ 1.82
On August 31, 2001, the Company made an offer (Offer to Exchange), to its
employees and members of the Board of Directors of the Company, to exchange all
options to purchase shares of its common stock outstanding under the Company's
1994 Stock Option Plan, 1996 Stock Option Plan and Non-Employee Directors Stock
Option Plan which options had (i) a grant date prior to March 1, 2001, and (ii)
an exercise price in excess of $10.00 per share. In exchange for the options,
the participants (a) received a cash payment and (b) will receive the grant of a
new option or new options, as applicable, in the amounts upon the terms and
subject to the conditions as set forth in the Offer to Exchange.
This Offer expired on October 15, 2001. The total amount of cash paid and
recognized as compensation expense in 2001 pursuant to the Offer to Exchange was
approximately $0.4 million. The individuals that were eligible and elected to
participate in the Offer are expected to be granted a new option or new options,
as applicable, on or about the first business day which is at least six months
and one day from the cancellation date. The number of shares subject to the new
option or new options, as applicable, will be equal to one-third of the shares
subject to the options tendered and accepted by the Company for cancellation,
rounded up to the nearest whole share.
A-53
The following table summarizes information about the fixed price stock options
outstanding at December 31, 2001.
Exercisable
Weighted ----------------------------------
Number Average Number
Outstanding at Remaining Weighted Outstanding at Weighted
Range of December 31, Contractual Average December 31, Average
Exercise Prices 2001 Life Exercise Price 2001 Exercise Price
----------------------------------------------------------------------------------------------------------
$ 2.72 - $ 4.25 1,593,534 4 years $ 3.96 458,681 $ 4.25
$ 4.38 - $ 6.23 1,338,750 3 years $ 5.83 1,072,924 $ 6.02
$ 6.72 - $ 8.81 1,731,970 3 years $ 8.28 1,087,787 $ 7.98
$ 9.70 - $19.06 448,584 1 year $ 12.61 432,584 $ 12.49
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 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:
1999 2000 2001
--------------------------------
Risk-free interest rate 6.10% 5.46% 5.47%
Dividend yield 0.00% 0.00% 0.00%
Expected volatility .69 .72 .74
Expected life of the options (years) 2.67 2.76 2.76
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 1999 and 2000 may not be
representative of compensation expense in future years (including 2001), when
the effect of amortization of multiple awards would be reflected in pro forma
net income (loss). The Company's pro forma information giving effect to the
estimated compensation expense related to stock options and warrants is as
follows (in thousands, except per share data):
1999 2000 2001
------------------------------------
Pro forma net income (loss) $(92,381) $ 38,710 $(53,968)
Pro forma net income (loss) per share (diluted) $ (1.74) $ 0.72 $ (0.97)
A-54
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 or 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, 2000
and 2001, employees made contributions to the ESPP to purchase 1,428, 56,811 and
93,727 shares, respectively, at a weighted-average price of $9.08, $5.76 and
$2.63 per share, respectively.
12. DERIVATIVE FINANCIAL INSTRUMENTS
From time to time the Company has entered into derivative contracts to hedge
forecasted future cash flows and net investments in foreign operations. The
Company utilizes interest rate swaps to hedge interest rate risk on its
multi-currency borrowings and forward exchange contracts with maturities
generally less than twelve months to hedge a portion of its forecasted
transactions. 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, 1999 and 2000, respectively (in thousands):
1999 2000
------------------------------------------------------------
Cash Flow Net Investment Cash Flow Net Investment
------------------------------------------------------------
Euro $ (407) $(2,489) $ (291) $(3,819)
Hong Kong Dollar 285 - (18) -
Swedish Krona - (543) - (1,207)
Australian Dollar - 511 - (1,425)
------------------------------------------------------------
$ (122) $(2,521) $ (309) $(6,451)
------------------------------------------------------------
There were no open cash flow or net investment hedges at December 31, 2001.
From July 1, 1998 (the date of adoption of SFAS No. 133) through December 31,
2001, gains and losses recognized in earnings on cash flow hedges and the gains
and losses from net investments hedges included as a component of accumulated
other comprehensive loss in stockholders' equity have not been significant.
A-55
13. 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 $10.1 million, $11.5 million and $13.4 million for
1999, 2000 and 2001, respectively.
The aggregate future minimum payments on the above leases are as follows (in
thousands):
YEAR ENDING
DECEMBER 31
---------------
2002 $ 11,950
2003 11,137
2004 9,551
2005 7,137
2006 6,691
THEREAFTER 58,509
----------
$ 104,975
==========
14. 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 with the required match, the
Company's contributions to the Plan were $0.2 million, $0.2 million and $0.2
million in 1999, 2000 and 2001, respectively. The employee savings plan was
restated in 2001 in order to comply with certain laws that have become effective
since the Plan's last amendment. Effective January 1, 2002, the Plan was amended
to allow employees to direct the investment of their Company matching
contributions in any of the Plan's investment options including Company common
stock. Effective May 1, 2002, the Company stock fund will be closed to new
contributions and incoming transfers and participating employees will be able to
direct that their pre-2002 matching contribution accounts either remain invested
in Company stock or be transferred to other Plan investment funds.
15. 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 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 in 1999. 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. Valuation changes in the Real during
2000 and 2001 were not significant.
A-56
16. CONTINGENCIES (UNAUDITED)
The Company and several of its executive officers and directors are named as
defendants in two complaints filed in November and December 2001, in the United
States District Court for the Southern District of Indiana, entitled Weiss v.
Brightpoint, Inc., et. al., Cause No. IP01-1796-C-T/K; and Mueller v.
Brightpoint, Inc., et. al., Cause No. IP01-1922-C-M/S. The complaints are
purported class actions asserted on behalf of all purchasers of publicly traded
Brightpoint securities between January 28 (or 29), 1999 and November 14 (or 13),
2001, alleging violations of Section 10(b) of the Securities Exchange Act of
1934 and Rule 10b-5 promulgated thereunder by us and certain of our officers and
directors and violations of Section 20(a) of the Exchange Act by the individual
defendants. In February 2002 the Court consolidated the Weiss and Muller actions
and appointed John Kilcoyne as lead plaintiff in this action which is now known
as In re Brightpoint, Inc. Securities Litigation. An amended complaint has not
yet been served.
The complaints allege, among other things, that the restatement of certain of
our financial statements was evidence that the defendants concealed adverse
material information and made or participated in the making of untrue statements
of material facts and omitted to state material facts concerning our business,
finances, financial condition, performance, operations, products and future
prospects. The complaints allege that our announcement that we would restate
certain financial statements reveal that our prior financial statements violated
Generally Accepted Accounting Principles and that we had internal inefficiencies
and had been misleading the public regarding the true value of our stock. The
plaintiffs seek compensatory damages, including interest, against all of the
defendants and recovery of their reasonable litigation costs and expenses. We
dispute these claims and intend to defend vigorously this matter.
A complaint was filed on November 23, 2001 against the Company and 87 other
defendants in the United States District Court for the District of Arizona,
entitled Lemelson Medical, Education and Research Foundation LP v. Federal
Express Corporation, et. al., Cause No. CIV01-2287-PHX-PGR. The plaintiff claims
the Company and other defendants have infringed 7 patents alleged to cover bar
code technology. The case seeks unspecified damages, treble damages and
injunctive relief. We dispute these claims and intend to defend vigorously this
matter.
In February 2002, Nora Lee, filed a complaint in the Circuit Court, Marion
County, Indiana, Derivatively on Behalf of Nominal Defendant Brightpoint, Inc.,
vs. Robert J. Laikin, et. al. and Brightpoint, Inc. as a Nominal Defendant,
Cause No. 49C01-0202-CT-000399.
The plaintiff alleges, among other things, that certain of the individual
defendants sold our common stock while in possession of material non-public
information regarding us, that the individual defendants violated their
fiduciary duties of loyalty, good faith and due care by, among other things,
causing us to disseminate misleading and inaccurate financial information,
failing to implement and maintain internal adequate accounting control systems,
wasting corporate assets and exposing us to losses. The plaintiff is seeking to
recover unspecified damages from all defendants, the imposition of a
A-57
constructive trust for the amounts of profits received by the individual
defendants who sold our common stock and recovery of reasonable litigation costs
and expenses.
We have responded to requests for information and subpoenas from the Securities
and Exchange Commission (SEC) in connection with an investigation including our
accounting treatment of a certain contract entered into with an insurance
company (See Footnote 18 of Notes to Financial Statements). In addition, certain
of our officers or employees have provided testimony to the SEC and we believe
that the staff of the SEC will subpoena additional testimony of certain of our
officers and employees.
We are from time to time, also involved in certain legal proceedings in the
ordinary course of conducting our business. While the ultimate liability
pursuant to these actions cannot currently be determined, we believe these legal
proceedings will not have a material adverse effect on our financial position.
Our Certificate of Incorporation and By-laws provide for us to indemnify our
officers and directors to the extent permitted by law. In connection therewith
we have entered into indemnification agreements with our executive officers and
directors. In accordance with the terms of these agreements we intend to
reimburse them for their personal legal expenses arising from certain pending
litigation and regulatory matters.
A-58
17. QUARTERLY RESULTS OF OPERATIONS
(AS RESTATED FOR 2000 AND THE FIRST THREE QUARTERS OF 2001)
(UNAUDITED)
The quarterly results of operations are as follows (in thousands, except per
share data):
2001 FIRST SECOND THIRD FOURTH
--------------------------------------------------------------------------------------------------------
REVENUE $ 465,046 $ 452,334 $ 499,045 $ 408,744
GROSS PROFIT 31,854 15,335 26,108 7,614
INCOME (LOSS) BEFORE
EXTRAORDINARY GAIN (LOSS) 2,401 (6,866) (6,881) (46,255)
NET INCOME (LOSS) 7,024 (6,866) (6,881) (46,578)
BASIC PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY
GAIN (LOSS) $ 0.04 $ (0.12) $ (0.12) $ (0.83)
NET INCOME (LOSS) $ 0.13 $ (0.12) $ (0.12) $ (0.83)
DILUTED PER SHARE:
INCOME (LOSS) BEFORE EXTRAORDINARY
GAIN (LOSS) $ 0.04 $ (0.12) $ (0.12) $ (0.83)
NET INCOME (LOSS) $ 0.13 $ (0.12) $ (0.12) $ (0.83)
2000 First Second Third Fourth
--------------------------------------------------------------------------------------------------------
Revenue $ 477,772 $ 461,810 $ 517,360 $ 520,349
Gross profit 43,079 44,516 42,971 39,994
Income before extraordinary gain 7,239 9,905 9,170 7,381
Net income 7,239 9,905 9,170 17,369
Basic per share:
Income before extraordinary gain $ 0.13 $ 0.18 $ 0.16 $ 0.13
Net income $ 0.13 $ 0.18 $ 0.16 $ 0.31
Diluted per share:
Income before extraordinary gain $ 0.13 $ 0.17 $ 0.16 $ 0.13
Net income $ 0.13 $ 0.17 $ 0.16 $ 0.31
A-59
18. RESTATEMENTS OF PREVIOUSLY ISSUED FINANCIAL STATEMENTS
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. On
January 31, 2002, the Company announced that it would further restate its
financial statements for the same periods. The restated financial statements
reflect the correction of an error in applying generally accepted accounting
principles pertaining to the accounting for an agreement that was entered into
with an insurance company, effective in 1998, relating to retrospective and
prospective loss occurrences. The retrospective occurrences related primarily to
losses the Company had sustained and recorded in connection with its closure and
discontinuance of its trading division in the fourth quarter of 1998. The
Company has responded to requests for information and subpoenas from the
Securities and Exchange Commission (SEC) in connection with an investigation
including the Company's accounting treatment of the agreement with the insurance
company referenced above. In addition, certain officers or employees of the
Company have provided testimony to the SEC and the Company believes that the
staff of the SEC will subpoena additional testimony of certain officers and
employees of the Company. In connection with those responses, the Company and
its independent auditors reviewed the agreement with the insurance company and
the accounting for the related transactions. In November of 2001, the Company
and its independent auditors believed that insurance expense should have been
accrued at the date the Company entered into the agreement, rather than
prospectively over the periods covered by the agreement because the Company
could not allocate the costs of the agreement between the retrospective and
prospective loss occurrences. Accordingly, the Company's November 2001
restatement of its financial statements included an accrual in 1998 of
approximately $15 million of insurance expense related to this agreement. In
January 2002, the Company's Board of Directors appointed an independent member
of the Board to conduct an investigation of the circumstances surrounding the
procurement and accounting treatment of the agreement with the insurance company
and related matters. The independent member of the Board retained counsel to
assist in the investigation and their report was made to the Board in February
2002. This report included findings and recommendations concerning the
investigation and the independent members of the Board unanimously approved and
adopted such findings and recommendations. In late January 2002, the Company and
its independent auditors reviewed the results of the termination of the
retrospective portion of the agreement and determined that the appropriate
accounting method for the agreement is deposit accounting. Deposit accounting
requires treating the Company's payments under this agreement as deposits rather
than as premiums and the Company's receipts under the agreement as withdrawals
rather than claims paid by the insurance company, resulting in no income or
expense recognition during the term of the agreement. As a result of adopting
this accounting method, the Company i) wrote-off an insurance receivable of
approximately $12 million during the quarter ended December 31, 1998, ii)
wrote-off an insurance premium payable of approximately $15 million during the
quarter ended December 31, 1998, iii) reversed collectibility reserves that had
previously been applied to the aforementioned insurance receivables, iv)
recorded the applicable income tax impacts of the foregoing actions and v) did
not recognize an anticipated gain related to the termination of the
retrospective portion of the agreement in the quarter ended December 31, 2001.
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 the Company's cash flow and will
have no material effect on its financial position at any future date.
A-60
The following tables reconcile the effects of the restatements for the fiscal
years ended December 31, 1998, 1999, 2000 and the first three quarters of 2001.
All information in the following tables is presented in thousands, except per
share data. The effects of the restatements on the Consolidated Statements of
Operations are as follows:
1998 1999 2000
-------- -------- --------
Income (loss) from operations as initially reported $ 41,486 $(52,750) $ 59,791
Effects of November 2001 insurance accounting correction (15,103) 2,852 2,852
Effects of January deposit accounting correction 3,285 2,685 245
Effects of adjustments previously deemed immaterial (839) (49) (751)
-------- -------- --------
Income (loss) from operations as restated $ 28,829 $(47,262) $ 62,137
======== ======== ========
Income (loss) before income taxes, minority interest,
accounting change and extraordinary gain as
initially reported $ 31,237 $(66,827) $ 46,322
Effects of November 2001 insurance accounting correction (15,103) 2,852 2,852
Effects of January 2002 deposit accounting correction 3,285 2,685 245
Effects of adjustments previously deemed immaterial (829) (81) (729)
-------- -------- --------
Income (loss) before income taxes, minority interest,
accounting change and extraordinary gain as restated $ 18,590 $(61,371) $ 48,690
======== ======== ========
Net income (loss) as initially reported $ 20,176 $(93,080) $ 41,772
Effects of November 2001 insurance accounting correction (10,421) 1,968 1,968
Effects of January 2002 deposit accounting correction (1,397) 2,685 161
Effects of adjustments previously deemed immaterial (829) 580 (218)
-------- -------- --------
Net income (loss) as restated $ 7,529 $(87,847) $ 43,683
======== ======== ========
Net income (loss) per share (basic) as initially reported $ 0.38 $ (1.75) $ 0.75
Effects of November 2001 insurance accounting correction (0.20) 0.04 0.04
Effects of January 2002 deposit accounting correction (0.03) 0.05 -
Effects of adjustments previously deemed immaterial (0.01) 0.01 -
-------- -------- --------
Net income (loss) per share (basic) as restated $ 0.14 $ (1.65) $ 0.79
======== ======== ========
Net income (loss) per share (diluted) as initially reported $ 0.38 $ (1.75) $ 0.74
Effects of November 2001 insurance accounting correction (0.20) 0.04 0.04
Effects of January 2002 deposit accounting correction (0.03) 0.05 -
Effects of adjustments previously deemed immaterial (0.01) 0.01 -
-------- -------- --------
Net income (loss) per share (diluted) as restated $ 0.14 $ (1.65) $ 0.78
======== ======== ========
A-61
Quarter Ended
----------------------------------------
March 31, June 30, September 30,
2001 2001 2001
----------- ----------- -------------
(Unaudited) (Unaudited) (Unaudited)
Income (loss) from operations as initially reported $ 5,374 $ (7,780) $ (3,672)
Effects of November 2001 insurance accounting correction 713 713 713
Effects of January deposit accounting correction - - -
Effects of adjustments previously deemed immaterial 975 - -
-------- -------- --------
Income (loss) from operations as restated $ 7,062 $ (7,067) $ (2,959)
======== ======== ========
Income (loss) before income taxes, minority interest,
accounting change and extraordinary gain as
initially reported $ 2,185 $(11,128) $ (6,987)
Effects of November 2001 insurance accounting correction 713 713 713
Effects of January 2002 deposit accounting correction - - -
Effects of adjustments previously deemed immaterial 975 - -
-------- -------- --------
Income (loss) before income taxes, minority interest,
accounting change and extraordinary gain as restated $ 3,873 $(10,415) $ (6,274)
======== ======== ========
Net income (loss) as initially reported $ 6,068 $ (7,358) $ (7,373)
Effects of November 2001 insurance accounting correction 492 492 492
Effects of January 2002 deposit accounting correction - - -
Effects of adjustments previously deemed immaterial 464 - -
-------- -------- --------
Net income (loss) as restated $ 7,024 $ (6,866) $ (6,881)
======== ======== ========
Net income (loss) per share (basic) as initially reported $ 0.11 $ (0.13) $ (0.13)
Effects of November 2001 insurance accounting correction 0.01 0.01 0.01
Effects of January 2002 deposit accounting correction - - -
Effects of adjustments previously deemed immaterial 0.01 - -
-------- -------- --------
Net income (loss) per share (basic) as restated $ 0.13 $ (0.12) $ (0.12)
======== ======== ========
Net income (loss) per share (diluted) as initially reported $ 0.11 $ (0.13) $ (0.13)
Effects of November 2001 insurance accounting correction 0.01 0.01 0.01
Effects of January 2002 deposit accounting correction - - -
Effects of adjustments previously deemed immaterial 0.01 - -
-------- -------- --------
Net income (loss) per share (diluted) as restated $ 0.13 $ (0.12) $ (0.12)
======== ======== ========
A-62
The effects of the restatements on the Consolidated Balance Sheets are as
follows (in thousands):
1998 1999 2000
--------- --------- ---------
Total current assets as initially reported $ 549,225 $ 504,919 $ 566,678
Effects of January 2002 deposit accounting correction (11,818) (6,281) (3,184)
Effects of adjustments previously deemed immaterial (2,146) 236 (688)
--------- --------- ---------
Total current assets as restated $ 535,261 $ 498,874 $ 562,806
========= ========= =========
Total assets as initially reported $ 714,450 $ 623,858 $ 691,659
Effects of January 2002 deposit accounting correction (11,818) (6,281) (3,184)
Effects of adjustments previously deemed immaterial (3,292) (77) (688)
--------- --------- ---------
Total assets as restated $ 699,340 $ 617,500 $ 687,787
========= ========= =========
Total current liabilities as initially reported $ 188,176 $ 236,781 $ 293,618
Effects of November 2001 insurance accounting correction 10,421 8,454 6,487
Effects of January 2002 deposit accounting correction (10,421) (7,569) (4,634)
Effects of adjustments previously deemed immaterial (2,163) 171 (222)
--------- --------- ---------
Total current liabilities as restated $ 186,013 $ 237,837 $ 295,249
========= ========= =========
Total stockholders' equity as initially reported $ 239,568 $ 156,191 $ 199,600
Effects of November 2001 insurance accounting correction (10,421) (8,454) (6,487)
Effects of January 2002 deposit accounting correction (1,397) 1,288 1,451
Effects of adjustments previously deemed immaterial (1,129) (248) (467)
--------- --------- ---------
Total stockholders' equity as restated $ 226,621 $ 148,777 $ 194,097
========= ========= =========
March 31, June 30, September 30,
2001 2001 2001
----------- ----------- -------------
(Unaudited) (Unaudited) (Unaudited)
Total current assets as initially reported $ 473,396 $ 448,293 $ 484,259
Effects of January 2002 deposit accounting correction (2,471) (1,758) (1,045)
Effects of adjustments previously deemed immaterial - - -
--------- --------- ---------
Total current assets as restated $ 470,925 $ 446,535 $ 483,214
========= ========= =========
Total assets as initially reported $ 598,109 $ 575,957 $ 614,302
Effects of January 2002 deposit accounting correction (2,471) (1,758) (1,045)
Effects of adjustments previously deemed immaterial - - -
--------- --------- ---------
Total assets as restated $ 595,638 $ 574,199 $ 613,257
========= ========= =========
A-63
March 31, June 30, September 30,
2001 2001 2001
----------- ----------- -------------
(Unaudited) (Unaudited) (Unaudited)
Total current liabilities as initially reported $ 221,930 $ 256,029 $ 302,606
Effects of November 2001 insurance accounting correction 5,996 5,503 5,011
Effects of January 2002 deposit accounting correction (3,920) (3,207) (2,494)
Effects of adjustments previously deemed immaterial - - -
--------- --------- ---------
Total current liabilities as restated $ 224,006 $ 258,325 $ 305,123
========= ========= =========
Total stockholders' equity as initially reported $ 200,564 $ 190,863 $ 181,350
Effects of November 2001 insurance accounting correction (5,996) (5,503) (5,011)
Effects of January 2002 deposit accounting correction 1,449 1,449 1,449
Effects of adjustments previously deemed immaterial - - -
--------- --------- ---------
Total stockholders' equity as restated $ 196,017 $ 186,809 $ 177,788
========= ========= =========
A-64
OTHER INFORMATION
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).
2001 HIGH LOW
-----------------------------------------------------------
FIRST QUARTER $ 5.19 $ 2.41
SECOND QUARTER 4.48 2.04
THIRD QUARTER 3.97 2.80
FOURTH QUARTER 3.84 2.70
2000 High Low
------------------------------------------------------------
First quarter $ 16.31 $ 11.44
Second quarter 12.94 8.53
Third quarter 9.50 4.41
Fourth quarter 6.94 3.34
At March 15, 2002, there were approximately 455 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 bank agreements limit or prohibit the Company, subject
to certain exceptions, from declaring or paying cash dividends, making capital
distributions or other payments to stockholders (See Note 9 - Long-term Debt).
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 affected 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
A-65
SELECTED FINANCIAL DATA (AS RESTATED FOR 1998, 1999 AND 2000, SEE NOTE 18 TO THE
CONSOLIDATED FINANCIAL STATEMENTS (1))
--------------------------------------------------------------------------------
(Amounts in thousands, except per share data)
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------------
1997 1998 1999 2000 2001
-----------------------------------------------------------------------------
Revenue (2) $ 1,006,116 $ 1,584,198 $ 1,768,121 $ 1,977,291 $ 1,825,169
Gross profit (2) 85,171 123,373 131,914 170,560 80,911
Income (loss) from operations (2) 41,862 28,829 (47,262) 62,137 (62,317)
Income (loss) before accounting
change and extraordinary gain 25,510 7,529 (74,443) 33,695 (57,601)
Net income (loss) 25,510 7,529 (87,847) 43,683 (53,301)
Basic per share:
Income (loss) before accounting change and
extraordinary gain $ 0.55 $ 0.14 $ (1.40) $ 0.61 $ (1.03)
Cumulative effect of accounting change,
net of tax - - (0.25) - -
Extraordinary gain on debt extinguishment,
net of tax - - - 0.18 0.08
-----------------------------------------------------------------------------
Net income (loss) $ 0.55 $ 0.14 $ (1.65) $ 0.79 $ (0.95)
=============================================================================
Diluted per share:
Income (loss) before accounting change and
extraordinary gain $ 0.53 $ 0.14 $ (1.40) $ 0.60 $ (1.03)
Cumulative effect of accounting change,
net of tax - - (0.25) - -
Extraordinary gain on debt extinguishment,
net of tax - - - 0.18 0.08
-----------------------------------------------------------------------------
Net income (loss) $ 0.53 $ 0.14 $ (1.65) $ 0.78 $ (0.95)
=============================================================================
DECEMBER 31
-----------------------------------------------------------------------------
1997 1998 1999 2000 2001
-----------------------------------------------------------------------------
Working capital $ 281,063 $ 349,248 $ 261,037 $ 267,557 $ 184,434
Total assets 456,702 699,340 617,500 687,787 609,420
Long-term obligations 146,963 286,706 230,886 198,441 156,066
Total liabilities 257,411 472,719 468,723 493,690 459,407
Stockholders' equity 199,291 226,621 148,777 194,097 150,013
(1) Operating data includes non-recurring charges and other unusual items that
were recorded in the years presented as follows: investment gains on marketable
equity securities in 1997 and 1998; restructuring and other unusual charges in
1998, 1999, and 2000; the results of those operations that were terminated or
sold in 1999 and 2001 in accordance with the Company's respective Restructuring
Plans; the cumulative effect of an accounting change in 1999 and an
extraordinary gain on debt extinguishment in 2000 and 2001. See Management's
Discussion and Analysis of Financial Condition and Results of Operations and
Notes to Consolidated Financial Statements.
(2) The Company has reclassified certain prior year amounts to conform to the
2001 presentation primarily to reflect certain classification requirements of
accounting pronouncements issued in 2001. The amounts reclassified were not
significant and had no effect on net income or earnings per share.
A-66
BRIGHTPOINT, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULE
PAGE
Report of Independent Auditors on Financial Statement Schedule........... F-1
Consent of Ernst & Young LLP............................................. F-2
Financial Statement Schedule for the years 2001, 2000 and 1999:
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS...................... F-3
REPORT OF INDEPENDENT AUDITORS
To the Board of Directors and Stockholders
Brightpoint, Inc.
We have audited the Consolidated Financial Statements of Brightpoint, Inc. as of
December 31, 2001 and 2000, and for each of the three years in the period ended
December 31, 2001, and have issued our report thereon dated February 1, 2002
(except for Notes 9 and 18, as to which the dates are March 6, 2002 and February
20, 2002, respectively). 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
February 1, 2002
F-1
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 Nos. 333-15663, 333-29533, 333-07892, 333-37587, 333-55945,
333-58863, 333-34952, and 333-37022) pertaining to certain common stock of
Brightpoint, Inc. of our report dated February 1, 2002 (except for Notes 9 and
18, as to which the dates are March 6, 2002 and February 20, 2002, respectively)
with respect to the Consolidated Financial Statements and our report dated
February 1, 2002 with respect to the financial statement schedule, both included
in this Annual Report (Form 10-K) of Brightpoint, Inc.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
March 20, 2002
F-2
BRIGHTPOINT, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
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
----------- --------- ----------- -------- ---------- ---------
Year ended December 31, 2001:
Deducted from asset accounts:
Allowance for doubtful
accounts..................... $ 6,548,000 $ 8,389,000 $ -- $ 8,665,000(2) $ 6,272,000
----------- ------------ ----------- ------------ -----------
Total .......................... $ 6,548,000 $ 8,389,000 $ -- $ 8,665,000 $ 6,272,000
=========== ============ =========== ============ ===========
Year ended December 31, 2000:
Deducted from asset accounts:
Allowance for doubtful
accounts..................... $ 6,220,000 $ 6,328,000 $ -- $ 6,000,000(2) $ 6,548,000
----------- ------------ ----------- ------------ -----------
Total .......................... $ 6,220,000 $ 6,328,000 $ -- $ 6,000,000 $ 6,548,000
=========== ============ =========== ============ ===========
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
=========== ============ =========== ============ ===========
(1) Does not include impairments of accounts receivable recognized in
connection with the Company's restructuring and other unusual charges. See
notes to Consolidated Financial Statements.
(2) Uncollectible accounts written off.
F-3