UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-Q

þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934

For the quarterly period ended June 30, 2006

0-23494
(Commission File no.)

Brightpoint, Inc.

Indiana		35-1778566
State or other jurisdiction of		(I.R.S. Employer Identification No.)
incorporation or organization
2601 Metropolis Parkway, Suite 210, Plainfield, Indiana		46168
(Address of principal executive offices)		(Zip Code)

(317) 707-2355

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.
þ Yes o No

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Act. (Check one):

Large accelerated filer o      Accelerated filer þ      Non-accelerated filer o

Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act)
Yes o No þ

The number of shares of Common Stock outstanding as of August 2, 2006: 50,432,793

 

 

PART 1 — FINANCIAL INFORMATION

Item 1. Financial Statements

Brightpoint, Inc.
Consolidated Statements of Operations
(Amounts in thousands, except per share data)
(Unaudited)

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Revenue
Distribution revenue		$	467,014			$	431,551			$	950,486			$	832,939
Logistic services revenue			82,844				67,943				163,927				131,629
Total revenue			549,858				499,494				1,114,413				964,568
Cost of revenue
Cost of distribution revenue			447,342				416,758				911,242				801,787
Cost of logistic services revenue			66,772				53,222				131,115				106,062
Total cost of revenue			514,114				469,980				1,042,357				907,849
Gross profit			35,744				29,514				72,056				56,719
Selling, general and administrative expenses			24,418				20,461				48,170				38,668
Facility consolidation charge (benefit)			—				—				(9	)			1,203
Operating income from continuing operations			11,326				9,053				23,895				16,848
Interest, net			120				(65	)			197				16
Other (income) expenses			(52	)			258				(62	)			402
Income from continuing operations before income taxes			11,258				8,860				23,760				16,430
Income tax expense			3,046				2,188				6,547				4,617
Income from continuing operations			8,212				6,672				17,213				11,813
Discontinued operations, net of income taxes:
Loss from discontinued operations			(36	)			(1,770	)			(175	)			(4,375	)
Gain (loss) on disposal of discontinued operations			65				(3	)			71				334
Total discontinued operations, net of income taxes			29				(1,773	)			(104	)			(4,041	)
Net income		$	8,241			$	4,899			$	17,109			$	7,772
Earnings per share — basic:
Income from continuing operations		$	0.17			$	0.14			$	0.35			$	0.25
Discontinued operations, net of income taxes			—				(0.04	)			—				(0.09	)
Net income		$	0.17			$	0.10			$	0.35			$	0.16
Earnings per share — diluted:
Income from continuing operations		$	0.16			$	0.14			$	0.34			$	0.24
Discontinued operations, net of income taxes			—				(0.04	)			—				(0.08	)
Net income		$	0.16			$	0.10			$	0.34			$	0.16
Weighted average common shares outstanding:
Basic			49,023				47,647				48,916				47,749
Diluted			50,550				49,220				50,640				49,334

See accompanying notes

Brightpoint, Inc.
Consolidated Balance Sheets
(Amounts in thousands, except per share data)

		June 30,				December 31,
		2006				2005
		(Unaudited)
ASSETS
Current assets:
Cash and cash equivalents		$	82,532			$	106,053
Pledged cash			194				168
Accounts receivable (less allowance for doubtful accounts of $4,178 in 2006 and $3,621 in 2005)			158,500				168,004
Inventories			138,176				124,864
Contract financing receivable			46,025				28,749
Other current assets			25,747				22,623
Total current assets			451,174				450,461
Property and equipment, net			32,132				27,989
Goodwill and other intangibles, net			7,621				6,707
Other assets			2,700				2,667
Total assets		$	493,627			$	487,824
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable		$	208,450			$	232,258
Accrued expenses			56,751				64,494
Unfunded portion of contract financing receivable			51,497				32,373
Total current liabilities			316,698				329,125
Total long-term liabilities			11,806				9,657
Total liabilities			328,504				338,782
COMMITMENTS AND CONTINGENCIES
Shareholders’ 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; 57,296 issued in 2006 and 55,875 issued in 2005			573				559
Additional paid-in capital			262,401				258,443
Treasury stock, at cost, 6,890 shares in 2006 and 6,113 shares in 2005			(58,288	)			(39,928	)
Unearned compensation			—				(12,125	)
Retained deficit			(36,419	)			(53,528	)
Accumulated other comprehensive income (loss)			(3,144	)			(4,379	)
Total shareholders’ equity			165,123				149,042
Total liabilities and shareholders’ equity		$	493,627			$	487,824

See accompanying notes

Brightpoint, Inc.
Consolidated Statements of Cash Flows
(Amounts in thousands)
(Unaudited)

		Six Months Ended
		June 30,
		2006				2005
Operating activities
Net income		$	17,109			$	7,772
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
Depreciation and amortization			6,057				5,340
Discontinued operations			104				4,041
Net operating cash flows used in discontinued operations			—				(7,152	)
Pledged cash requirements			(11	)			1,084
Non-cash compensation			2,950				677
Facility consolidation charge (benefit)			(9	)			1,203
Change in deferred taxes			172				(339	)
Income tax benefits from exercise of stock options			—				588
Other non-cash			962				—
Excess income tax benefits from stock based compensation			(7,884	)			—
			19,450				13,214
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures:
Accounts receivable			10,779				2,380
Inventories			(11,220	)			(7,693	)
Other operating assets			(4,046	)			(4,984	)
Accounts payable and accrued expenses			(24,737	)			11,802
Net cash provided by (used in) operating activities			(9,774	)			14,719
Investing activities
Capital expenditures			(9,645	)			(5,754	)
Acquisitions, net of cash acquired			(741	)			(337	)
Net investing cash flow from discontinued operations			—				(236	)
Net cash provided by (used in) contract financing arrangements			2,021				(947	)
Decrease (increase) in other assets			(38	)			2,953
Net cash used in investing activities			(8,403	)			(4,321	)
Financing activities
Net proceeds from credit facilities			—				18
Purchase of treasury stock			(18,360	)			(9,004	)
Net financing cash flow from discontinued operations			—				5,588
Excess income tax benefits from stock based compensation			7,884				—
Proceeds from common stock issuances under employee stock option and purchase plans			5,263				781
Net cash used in financing activities			(5,213	)			(2,617	)
Effect of exchange rate changes on cash and cash equivalents			(131	)			(4,360	)
Net increase (decrease) in cash and cash equivalents			(23,521	)			3,421
Cash and cash equivalents at beginning of period			106,053				72,120
Cash and cash equivalents at end of period		$	82,532			$	75,541

See accompanying notes

Brightpoint, Inc.
Notes to Consolidated Financial Statements
(Unaudited)

1. Basis of Presentation

General

The accompanying unaudited Consolidated Financial Statements have been prepared in accordance with accounting principles generally accepted in the United States for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes necessary for fair presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles. Operating results from interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. The Company is subject to seasonal patterns that generally affect the wireless device industry. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates, but management does not believe such differences will materially affect Brightpoint, Inc.’s financial position or results of operations. The Consolidated Financial Statements reflect all adjustments considered, in the opinion of management, necessary to fairly present the results for the periods. Such adjustments are of a normal recurring nature.

For further information, including the Company’s significant accounting policies, refer to the audited Consolidated Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005. As used herein, the terms “Brightpoint”, “Company”, “we”, “our” and “us” mean Brightpoint, Inc. and its consolidated subsidiaries.

Certain reclassifications have been made to prior year amounts to conform to current year presentation (see Note 3).

Earnings Per Share

Basic earnings per share is based on the weighted average number of common shares outstanding during each period, and diluted earnings per share is based on the weighted average number of common shares and dilutive common share equivalents outstanding during each period. Per share amounts for all periods presented in this report have been adjusted to reflect the 6 for 5 common stock split effected in the form of a stock dividend paid on May 31, 2006 and the 3 for 2 common stock splits effected in the form of stock dividends paid on September 30, 2005 and December 30, 2005. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations (in thousands, except per share data):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Income from continuing operations		$	8,212			$	6,672			$	17,213			$	11,813
Discontinued operations, net of income taxes			29				(1,773	)			(104	)			(4,041	)
Net income		$	8,241			$	4,899			$	17,109			$	7,772
Earnings per share — basic:
Income from continuing operations		$	0.17			$	0.14			$	0.35			$	0.25
Discontinued operations, net of income taxes			—				(0.04	)			—				(0.09	)
Net income		$	0.17			$	0.10			$	0.35			$	0.16
Earnings per share — diluted:
Income from continuing operations		$	0.16			$	0.14			$	0.34			$	0.24
Discontinued operations, net of income taxes			—				(0.04	)			—				(0.08	)
Net income		$	0.16			$	0.10			$	0.34			$	0.16
Weighted average shares outstanding for basic earnings per share			49,023				47,647				48,916				47,749
Net effect of dilutive stock options, restricted stock units and restricted stock based on the treasury stock method using average market price			1,527				1,573				1,724				1,585
Weighted average shares outstanding for diluted earnings per share			50,550				49,220				50,640				49,334

Brightpoint, Inc.
Notes to Consolidated Financial Statements

Stock Based Compensation

On January 1, 2006, the Company adopted the fair value provisions of Statement of Financial Accounting Standards (SFAS) 123(R), Share-Based Payment, using the modified prospective transition method. Prior to January 1, 2006, the Company used the intrinsic value method provisions of Accounting Principles Board (APB) Opinion No. 25, Accounting for Stock Issued to Employees and related Interpretations to account for stock based compensation. Under the modified prospective transition method, compensation cost recognized for stock based compensation beginning January 1, 2006 includes (a) compensation cost for all equity awards granted prior to, but not yet vested as of January 1, 2006, based on the grant-date fair value estimated in accordance with the original provisions of SFAS 123, and (b) compensation cost for all equity awards granted subsequent to January 1, 2006, based on the grant-date fair value estimated in accordance with the provisions of SFAS 123(R). Results for prior periods have not been restated.

As a result of adopting SFAS 123(R) on January 1, 2006, the Company’s income from continuing operations before income taxes and net income for the six months ended June 30, 2006 are $0.9 million and $0.7 million lower than if it had continued to account for stock based compensation under APB 25. Total stock based compensation expense for the six months ended June 30, 2006 was $2.0 million (net of related tax effects), compared to $1.3 million that would have been included in the determination of net income had the Company continued to account for stock based compensation under APB 25. Basic and diluted earnings per share for the six months ended June 30, 2006 are $0.01 lower than if the Company had not adopted SFAS 123(R). In addition, SFAS 123(R) requires cash flows resulting from tax deductions of stock based compensation in excess of the compensation costs recognized for those awards (excess tax benefits) to be classified as financing cash flows; whereas, previously, the Company reported all tax benefits of deductions resulting from stock based compensation as operating cash flows. As a result, the $7.9 million of excess tax benefits classified as a financing cash inflow for the six months ended June 30, 2006 would have been classified as an operating cash inflow if the Company had not adopted SFAS 123(R). Furthermore, under APB 25, grants of restricted shares were recorded in additional paid-in capital (APIC) with an offsetting amount to unearned compensation (contra equity), which was amortized to expense over the vesting period. However, under SFAS 123(R), amounts should not be recognized in equity until compensation cost is recognized over the requisite service period. Therefore, the $12.1 million unearned compensation balance at December 31, 2005 was netted against APIC during the first quarter of 2006.

The Company typically grants equity awards during the first quarter of the fiscal year based primarily on Company and individual performance. During the first quarter of 2006, the Company granted 278,177 restricted stock units and 175,200 shares of restricted stock with a weighted average grant date fair market value of $19.89 per restricted stock unit and $21.44 per share of restricted stock. A portion of the restricted stock units granted are subject to forfeiture if certain performance goals are not achieved. Those restricted stock units no longer subject to forfeiture vest in three equal annual installments beginning with the first anniversary of the grant. No stock options were granted during the six months ended June 30, 2006.

Brightpoint, Inc.
Notes to Consolidated Financial Statements

The following table illustrates the effect on net income and earnings per share if the Company had applied the fair value recognition provision of SFAS 123 for the three and six months ended June 30, 2005 (in thousands, except per share data):

		Three Months Ended				Six Months Ended
		June 30, 2005				June 30, 2005
Net income as reported		$	4,899			$	7,772
Add back; stock compensation included in net income			677				677
Stock-based employee compensation cost, net of related tax effects, that would have been included in the determination of net income if the fair value method had been applied			(930	)			(1,662	)
Pro forma net income		$	4,646			$	6,787
Earnings per share — basic:
Net income as reported		$	0.10			$	0.16
Add back; stock compensation included in net income			0.02				0.01
Stock-based employee compensation cost, net of related tax effects, that would have been included in the determination of net income if the fair value method had been applied			(0.02	)			(0.03	)
Pro forma net income		$	0.10			$	0.14
Earnings per share — diluted:
Net income as reported		$	0.10			$	0.16
Add back; stock compensation included in net income			0.01				0.01
Stock-based employee compensation cost, net of related tax effects, that would have been included in the determination of net income if the fair value method had been applied			(0.02	)			(0.03	)
Pro forma net income		$	0.09			$	0.14

Recently Issued Accounting Pronouncements

In July 2006, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. (FIN) 48, Accounting for Uncertainty in Income Taxes—an interpretation of FASB Statement No. 109, which clarifies the accounting for uncertainty in tax positions. This Interpretation requires the recognition of a tax position when it is more likely than not that the tax position will be sustained upon examination by relevant taxing authorities, based on the technical merits of the position. The provisions of FIN 48 are effective for the Company on January 1, 2007, with the cumulative effect of the change in accounting principle recorded as an adjustment to opening retained earnings. The Company is currently evaluating the impact of adopting FIN 48 on its financial statements.

Other Comprehensive Income

Comprehensive income is comprised of net income and gains or losses resulting from currency translations of foreign investments. The details of comprehensive income for the three and six months ended June 30, 2006 and 2005 are as follows (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Net income		$	8,241			$	4,899			$	17,109			$	7,772
Foreign currency translation			1,681				(2,588	)			1,235				(4,412	)
Comprehensive income		$	9,922			$	2,311			$	18,344			$	3,360

Brightpoint, Inc.
Notes to Consolidated Financial Statements

2. Acquisitions

On February 23, 2006, the Company’s wholly-owned subsidiary, Brightpoint Holdings B.V. (Brightpoint Holdings), acquired all of the outstanding shares of Persequor Limited (Persequor) effective as of January 1, 2006 for approximately $0.6 million (net of cash acquired), which included Persequor’s 15% minority interest in Brightpoint India Private Limited (Brightpoint India) valued at approximately $0.2 million. Previously, Persequor provided management services to Brightpoint Asia Limited and Brightpoint India and held a 15% minority interest in Brightpoint India. In connection with the acquisition, the management services agreements with Persequor have been terminated and Brightpoint Holdings obtained ownership of Persequor’s 15% interest in Brightpoint India. As a result of the acquisition of Persequor and the termination of the management services agreements, the sales and marketing efforts for Brightpoint Asia and Brightpoint India, which were previously outsourced to Persequor, will now be handled internally. The shareholders’ agreement among Brightpoint India, Brightpoint Holdings and Persequor dated November 1, 2003 was also terminated in connection with the acquisition by Brightpoint Holdings of Persequor. The operating results of Persequor are included in the Company’s Consolidated Statement of Operations from the effective date of the acquisition. The impact of the acquisition was not material in relation to the Company’s consolidated results of operations. Consequently, pro forma information is not presented.

3. Discontinued Operations

Details of discontinued operations are as follows (in thousands):

		Three Months Ended								Six Months Ended
		June 30,								June 30,
		2006				2005				2006				2005
Revenue		$	—			$	24,446			$	—			$	44,986
Loss from discontinued operations			(36	)			(1,770	)			(175	)			(4,375	)
Gain (loss) on disposal of discontinued operations			65				(3	)			71				334
Total discontinued operations		$	29			$	(1,773	)		$	(104	)		$	(4,041	)

The loss from discontinued operations for the three and six months ended June 30, 2005 relates primarily to losses incurred in Brightpoint France, which was sold during the fourth quarter of 2005.

4. Lines of Credit

There were no outstanding balances on lines of credit at June 30, 2006 and December 31, 2005. However, the timing of payments to suppliers and collections from customers causes the Company’s cash balances and borrowings to fluctuate throughout the year; and during the three-month and six-month periods ended June 30, 2006, the largest outstanding borrowings on a given day were approximately $32.0 million and $35.7 million with average outstanding balances of approximately $15.2 million and $18.5 million for the same respective periods.

At June 30, 2006, the Company and its subsidiaries were in compliance with the covenants in each of its credit agreements. Interest expense includes fees paid for unused capacity on credit lines and amortization of deferred financing fees.

Brightpoint, Inc.
Notes to Consolidated Financial Statements

The table below summarizes lines of credit that were available to the Company as of June 30, 2006 (in thousands):

														Letters of Credit &				Net
		Commitment				Gross Availability				Outstanding				Guarantees				Availability
North America		$	70,000			$	63,000			$	—			$	20,000			$	43,000
Australia			37,115				36,540				—				11,024				25,516
New Zealand			7,300				6,172				—				—				6,172
Sweden			2,084				2,084				—				—				2,084
Total		$	116,499			$	107,796			$	—			$	31,024			$	76,772

In April 2006, the credit facility utilized by the Company’s primary operating subsidiary in the Philippines, Brightpoint Philippines, Inc., matured and was not renewed. In addition, the credit facility utilized by the Company’s primary operating subsidiary in the Slovak Republic, Brightpoint Slovakia s.r.o., matured in May 2006 and was not renewed. Future borrowing needs of these operating entities may be funded with either existing liquidity or new credit facilities. Additional details on the above lines of credit are disclosed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

5. Guarantees

In 2002, the FASB issued Interpretation No. (FIN) 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others. FIN 45 requires guarantees to be recorded at fair value and requires a guarantor to make significant new disclosure, even when the likelihood of making any payments under the guarantee is remote.

The Company has issued certain guarantees on behalf of its subsidiaries with regard to lines of credit. Although the guarantees relating to lines of credit are excluded from the scope of FIN 45, the nature of these guarantees and the amounts outstanding are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2005.

In some circumstances, the Company purchases inventory with payment terms requiring letters of credit. As of June 30, 2006, the Company has issued $31.0 million in standby letters of credit. These standby letters of credit are generally issued for a one-year term and are supported by availability under the Company’s credit facilities. The underlying obligations for which these letters of credit have been issued are recorded in the financial statements at their full value. Should the Company fail to pay its obligation to one or all of these suppliers, the suppliers may draw on the standby letter of credit issued for them. The maximum future payments under these letters of credit are $31.0 million.

The Company has entered into indemnification agreements with its officers and directors, to the extent permitted by law, pursuant to which the Company has agreed to reimburse its officers and directors for legal expenses in the event of litigation and regulatory matters. The terms of these indemnification agreements provide for no limitation to the maximum potential future payments. The Company has a directors and officers insurance policy that may, in certain instances, mitigate the potential liability and payments.

Late in 2004, the Company entered into a non-exclusive agreement to distribute wireless devices in Europe for a certain supplier. Subject to this agreement, the Company provides warranty repair services on devices it distributes for this supplier. The warranty period for these devices ranges from 12 to 24 months, and the Company is liable for providing warranty repair services unless failure rates exceed a certain threshold. The Company records estimated expenses related to future warranty repair at the time the devices are sold. Estimates for warranty costs are calculated primarily based on management’s assumptions related to cost of repairs and anticipated failure rates. Warranty accruals are adjusted from time to time when the Company’s actual warranty claim experience differs from its estimates. A summary of the changes in the product warranty activity is as follows (in thousands):

Brightpoint, Inc.
Notes to Consolidated Financial Statements

		Six Months Ended
		June 30,
		2006				2005
January 1		$	2,117			$	369
Provision for product warranties			2,865				974
Change in estimate			(370	)			—
Settlements during the period			(1,425	)			(309	)
June 30		$	3,187			$	1,034

6. Operating Segments

The Company’s operations are divided into three geographic operating segments. These operating segments represent its three divisions: The Americas, Asia-Pacific and Europe. These divisions all derive revenues from sales of wireless devices, accessories, prepaid cards and fees from the provision of logistic services.

The Company has previously discontinued several operating entities, which materially affected certain operating segments. The operating results for all periods presented below reflect the reclassification of discontinued operating entities to discontinued operations. A summary of the Company’s operations by segment is presented below (in thousands) for the three and six months ended June 30, 2006 and 2005:

		Product
		Distribution				Logistic								Operating
		Revenue				Services				Total				Income
		from				Revenue from				Revenue from				from
		External				External				External				Continuing
		Customers				Customers				Customers				Operations(1)
Three Months Ended June 30, 2006:
Americas		$	138,167			$	53,193			$	191,360			$	8,117
Asia-Pacific			235,495				5,888				241,383				370
Europe			93,352				23,763				117,115				2,839
		$	467,014			$	82,844			$	549,858			$	11,326
Three Months Ended June 30, 2005:
Americas		$	122,567			$	37,420			$	159,987			$	7,223
Asia-Pacific			244,913				6,610				251,523				3,031
Europe			64,071				23,913				87,984				(1,201	)
		$	431,551			$	67,943			$	499,494			$	9,053
Six Months Ended June 30, 2006:
Americas		$	286,824			$	106,260			$	393,084			$	17,947
Asia-Pacific			495,442				13,205				508,647				2,714
Europe			168,220				44,462				212,682				3,234
		$	950,486			$	163,927			$	1,114,413			$	23,895
Six Months Ended June 30, 2005:
Americas		$	221,641			$	71,373			$	293,014			$	12,758
Asia-Pacific			490,528				13,914				504,442				4,166
Europe			120,770				46,342				167,112				(76	)
		$	832,939			$	131,629			$	964,568			$	16,848

(1)		Certain corporate expenses are allocated to the segments based on total revenue.

Brightpoint, Inc.
Notes to Consolidated Financial Statements

Additional segment information is as follows (in thousands):

		June 30,				December 31,
		2006				2005
Total segment assets:
Americas(1)		$	199,902			$	211,608
Asia-Pacific			160,625				172,414
Europe			133,100				103,802
		$	493,627			$	487,824

(1)		Includes corporate assets.

7. Contingencies

The Company is from time to time involved in certain legal proceedings in the ordinary course of conducting its business. While the ultimate liability pursuant to these actions cannot currently be determined, the Company believes these legal proceedings will not have a material adverse effect on its financial position or results of operations.

A Complaint was filed on January 4, 2005 against the Company in the Circuit Court for Baltimore County, Maryland, Case No. 03-C-05-000067 CN, entitled Iridium Satellite, LLC, Plaintiff v. Brightpoint, Inc., Defendant. The matter was removed to the United States District Court, District of Maryland, Baltimore Division. In the Complaint, the Plaintiff alleges claims of trover and conversion, fraudulent misrepresentation and breach of contract. All claims relate to the ownership and disposition of 1,500 Series 9500 satellite telephones. In the fourth quarter of 2005, a preliminary settlement was reached pursuant to which the lawsuit was dismissed without prejudice subject to reinstatement by a party only in the event a settlement is not consummated.

The Company’s subsidiary in Sweden, Brightpoint Sweden Ab, (BP Sweden) has received an assessment from the Swedish Tax Agency (STA) regarding value-added taxes the STA claims are due, relating to certain transactions entered into by BP Sweden during 2004. BP Sweden has filed an appeal against the decision. Although the Company’s liability pursuant to this assessment by the STA, if any, cannot currently be determined, the Company believes the range of the potential liability is between $0 and $1.5 million (at current exchange rates) including penalties and interest. The Company continues to dispute this claim and intends to defend this matter vigorously.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW AND RECENT DEVELOPMENTS

This discussion and analysis should be read in conjunction with the accompanying Consolidated Financial Statements and related notes. Our discussion and analysis of the 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 accounting principles generally accepted in the United States requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis we review our estimates and assumptions. Our estimates were based on our historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates but we do not believe such differences will materially affect our financial position or results of operations. Our critical accounting policies and estimates, the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments are outlined in our Annual Report on Form 10-K, for the year ended December 31, 2005, and have not changed significantly. Certain statements made in this report may contain forward-looking statements. For a description of risks and uncertainties relating to such forward-looking statements, see the cautionary statements contained in Exhibit 99.1 to this report and our Annual Report on Form 10-K for the year ended December 31, 2005.

Brightpoint, Inc. is a global leader in the distribution of wireless devices and accessories and the provision of customized logistic services to the wireless industry including wireless network operators (also referred to as mobile operators) and Mobile Virtual Network Operators (MVNOs). Brightpoint has operations centers and/or sales offices in various countries including Australia, Colombia, Finland, Germany, India, New Zealand, Norway, the Philippines, Russia, Slovakia, Sweden, United Arab Emirates and the United States. We provide logistic services including procurement, inventory management, software loading, kitting and customized packaging, fulfillment, credit services and receivables management, call center and activation services, website hosting, e-fulfillment solutions and other services within the global wireless industry. Our customers include mobile operators, MVNOs, resellers, retailers and wireless equipment manufacturers. We provide distribution and logistic services for wireless products manufactured by companies such as High Tech Computer Corp., Kyocera, LG Electronics, Motorola, Nokia, Samsung, Siemens, Sony Ericsson and UTStarcom.

On February 23, 2006, our subsidiary, Brightpoint Holdings B.V., acquired all of the outstanding shares of Persequor Limited (Persequor) effective as of January 1, 2006 for approximately $0.6 million (net of cash acquired). Previously, Persequor provided management services to Brightpoint India Limited (Brightpoint India) and Brightpoint Asia Limited and held a 15% minority interest in Brightpoint India. In connection with the acquisition, the management services agreements with Persequor have been terminated and Brightpoint Holdings obtained ownership of Persequor’s 15% interest in Brightpoint India. As a result of the acquisition of Persequor and the termination of the management services agreements, the sales and marketing efforts for Brightpoint Asia and Brightpoint India, which were previously outsourced to Persequor, will now be handled internally. The shareholders’ agreement among Brightpoint India, Brightpoint Holdings and Persequor dated November 1, 2003 was also terminated in connection with the acquisition by Brightpoint Holdings of Persequor.

RESULTS OF OPERATIONS

Revenue and Wireless Devices Handled

		Three Months Ended
		June 30,
						% of								% of
		2006				Total				2005				Total				Change
		(Amounts in 000s)
REVENUE BY DIVISION:
Americas		$	191,360				35	%		$	159,987				32	%			20	%
Asia-Pacific			241,383				44	%			251,523				50	%			(4	)%
Europe			117,115				21	%			87,984				18	%			33	%
Total		$	549,858				100	%		$	499,494				100	%			10	%
REVENUE BY SERVICE LINE:
Distribution		$	467,014				85	%		$	431,551				86	%			8	%
Logistic services			82,844				15	%			67,943				14	%			22	%
Total		$	549,858				100	%		$	499,494				100	%			10	%
WIRELESS DEVICES HANDLED BY DIVISION:
Americas			10,911				82	%			7,441				79	%			47	%
Asia-Pacific			1,951				15	%			1,701				18	%			15	%
Europe			385				3	%			308				3	%			25	%
Total			13,247				100	%			9,450				100	%			40	%
WIRELESS DEVICES HANDLED BY SERVICE LINE:
Distribution			2,817				21	%			2,684				28	%			5	%
Logistic services			10,430				79	%			6,766				72	%			54	%
Total			13,247				100	%			9,450				100	%			40	%

For the three months ended June 30, 2006, revenue was $549.9 million, which represents growth of 10% compared to the same period in the prior year. Growth in wireless devices handled of 40% contributed to approximately 7% of our revenue growth, and higher average selling price favorably impacted revenue by approximately 3%. Revenue was positively impacted by approximately 1% due to growth in non-handset based revenue, which was offset by fluctuations in foreign currencies that negatively impacted revenue by approximately 1%.

		Six Months Ended
		June 30,
						% of								% of
		2006				Total				2005				Total				Change
		(Amounts in 000s)
REVENUE BY DIVISION:
Americas		$	393,084				35	%		$	293,014				31	%			34	%
Asia-Pacific			508,647				46	%			504,442				52	%			1	%
Europe			212,682				19	%			167,112				17	%			27	%
Total		$	1,114,413				100	%		$	964,568				100	%			16	%
REVENUE BY SERVICE LINE:
Distribution		$	950,486				85	%		$	832,939				86	%			14	%
Logistic services			163,927				15	%			131,629				14	%			25	%
Total		$	1,114,413				100	%		$	964,568				100	%			16	%
WIRELESS DEVICES HANDLED BY DIVISION:
Americas			21,129				82	%			13,055				77	%			62	%
Asia-Pacific			3,949				15	%			3,457				20	%			14	%
Europe			696				3	%			528				3	%			32	%
Total			25,774				100	%			17,040				100	%			51	%
WIRELESS DEVICES HANDLED BY SERVICE LINE:
Distribution			5,740				22	%			5,249				31	%			9	%
Logistic services			20,034				78	%			11,791				69	%			70	%
Total			25,774				100	%			17,040				100	%			51	%

Revenue for the six months ended June 30, 2006 was $1.1 billion, representing 16% growth compared to the six months ended June 30, 2005. Growth in wireless devices handled of 51% contributed to approximately 11% of our revenue growth, and higher average selling price favorably impacted revenue by approximately 4%. Growth in non-handset based revenue positively impacted revenue by approximately 3%, which was partially offset by fluctuations in foreign currencies that negatively impacted revenue by approximately 2%.

Revenue and wireless devices handled by division:

		Three Months Ended																				Six Months Ended
Americas		June 30,																				June 30,
						% of								% of												% of								% of
(Amounts in 000s)		2006				Total				2005				Total				Change				2006				Total				2005				Total				Change
REVENUE:
Distribution		$	138,167				72	%		$	122,567				77	%			13	%		$	286,824				73	%		$	221,641				76	%			29	%
Logistic services			53,193				28	%			37,420				23	%			42	%			106,260				27	%			71,373				24	%			49	%
Total		$	191,360				100	%		$	159,987				100	%			20	%		$	393,084				100	%		$	293,014				100	%			34	%
WIRELESS DEVICES HANDLED:
Distribution			1,014				9	%			872				12	%			16	%			1,966				9	%			1,584				12	%			24	%
Logistic services			9,897				91	%			6,569				88	%			51	%			19,163				91	%			11,471				88	%			67	%
Total			10,911				100	%			7,441				100	%			47	%			21,129				100	%			13,055				100	%			62	%

Revenue in our Americas division increased 20% to $191.4 million for the three months ended June 30, 2006 compared to $160.0 million for the same period in the prior year. Product distribution revenue increased 13% in our Americas division to $138.2 million for the three months ended June 30, 2006 compared to $122.6 million for the same period in the prior year. Growth in wireless devices handled positively impacted distribution revenue by 16%, and increased accessory sales contributed to 3% of the distribution revenue growth in our Americas division. These increases were partially offset by lower average selling price, which negatively impacted revenue by approximately 6%. The number of wireless devices sold through our Americas distribution business increased primarily as a result of an overall increase in market demand and the addition of new products and customers in 2006 and late 2005. During the second quarter of 2006 we believe we increased our market share with Tier 2 and Tier 3 operators through our preferred supplier agreements with Revol and Associated Carrier Group (ACG). These preferred supplier agreements also enhanced our relationship with Motorola and other product suppliers within the regional carrier channel. The reduction in average selling price of wireless devices sold through our Americas distribution business was due primarily to aggressive price competition between manufacturers.

Logistic services revenue in our Americas division increased 42% to $53.2 million for the three months ended June 30, 2006 compared to $37.4 million for the same period in the prior year. Growth in wireless devices handled and growth in non-handset based revenue positively impacted logistic services revenue by approximately 31% and 16%. A decrease in average fulfillment fee per unit negatively impacted logistic services revenue in our Americas division by approximately 5%. The 51% increase in wireless devices handled through logistic services was due primarily to increased demand as a result of market growth experienced by our current logistic services customers (including MVNOs) as well as expanded services offered to our current logistic services customers. Growth in non-handset based revenue was due primarily to increased revenue generated from prepaid airtime. Average fulfillment fee per unit decreased as a result of tiered pricing structures based on volume and reduced fee structures with certain key customers. The tiered pricing structures are primarily driven by volume commitments as well as anticipated volume increases from certain network operators. Although our average selling price was not significantly impacted by a shift in the nature of services provided during the second quarter of 2006, the mix of services provided can have a significant impact on average selling price. Our logistic services revenue is derived from a mix of services with different fee structures from full pallet pick, pack and ship services to more complex software loading, kitting, customized packaging and individual handset fulfillment services. While fee structures are higher for more complex services, we generally strive to maintain a consistent profit margin for each service. The average fulfillment fee per unit may be further negatively impacted during the second half of 2006 due to a reduced fee structure associated with the modification and extension of a logistic services agreement with a significant customer in our North America business. It is anticipated that the reduction in average fulfillment fee per unit will be partially offset by increased volumes with this customer beginning in 2007.

For the six months ended June 30, 2006, revenue in our Americas division increased 34% to $393.1 million compared to $293.0 million for the same period in the prior year. Product distribution revenue increased 29% to $286.8 million for the six months ended June 30, 2006 compared to $221.6 million for the same period in the prior year. Logistic services revenue in our Americas division increased 49% to $106.3 million for the six months ended June 30, 2006 compared to $71.4 million for the same period in the prior year.

		Three Months Ended																				Six Months Ended
Asia-Pacific		June 30,																				June 30,
						% of								% of												% of								% of
(Amounts in 000s)		2006				Total				2005				Total				Change				2006				Total				2005				Total				Change
REVENUE:
Distribution		$	235,495				98	%		$	244,913				97	%			(4	)%		$	495,442				97	%		$	490,528				97	%			1	%
Logistic services			5,888				2	%			6,610				3	%			(11	)%			13,205				3	%			13,914				3	%			(5	)%
Total		$	241,383				100	%		$	251,523				100	%			(4	)%		$	508,647				100	%		$	504,442				100	%			1	%
WIRELESS DEVICES HANDLED:
Distribution			1,526				78	%			1,609				95	%			(5	)%			3,267				83	%			3,297				95	%			(1	)%
Logistic services			425				22	%			92				5	%			362	%			682				17	%			160				5	%			326	%
Total			1,951				100	%			1,701				100	%			15	%			3,949				100	%			3,457				100	%			14	%

Revenue in our Asia-Pacific division decreased 4% to $241.4 million for the three months ended June 30, 2006 compared to $251.5 million for the same period in the prior year. Product distribution revenue decreased 4% to $235.5 million for the three months ended June 30, 2006 compared to $244.9 million for the same period in the prior year. A decrease in the number of devices sold and fluctuations in foreign exchange rates negatively impacted distribution revenue in our Asia-Pacific division by approximately 5% and 2%. These decreases were partially offset by a higher average selling price and growth in accessory sales, which positively impacted revenue by approximately 2% and 1%. The decrease in distribution revenue and the number of devices sold through our Asia-Pacific distribution business was due to a decrease in distribution devices sold in Australia. The decrease in wireless devices sold through our distribution business in Australia was due to a change in terms with a significant customer in that market to a fee-based logistic services arrangement from a distribution arrangement as well as the decision by a certain network operator to change to a closed distribution model for 3G wireless devices. Our distribution business in India experienced growth in revenue and wireless devices sold during the second quarter of 2006 compared to the second quarter of 2005; however, Nokia recently announced its decision to discontinue CDMA manufacturing, which may have a negative impact on future revenue generated from our distribution business in India.

Logistic services revenue decreased 11% to $5.9 million for the three months ended June 30, 2006 compared to $6.6 million for the same period in the prior year. The decrease in logistic services revenue in our Asia-Pacific division was due primarily to a decrease in revenue from the sale of prepaid airtime in New Zealand, which was partially offset by an increase in handset fulfillment revenue from our Australia business due to a shift to a fee-based logistic services arrangement from a distribution arrangement with a significant customer in that market as discussed above. The decrease in revenue from prepaid airtime in New Zealand was a result of the decision by a major network operator to change from prepaid airtime cards to electronic distribution in that market for which we are not participating in the distribution.

For the six months ended June 30, 2006, revenue in our Asia-Pacific division increased 1% to $508.6 million compared to $504.4 million for the same period in the prior year. Product distribution revenue increased 1% to $495.4 million for the six months ended June 30, 2006 compared to $490.5 million for the same period in the prior year. Logistic services revenue decreased 5% to $13.2 million for the six months ended June 30, 2006 compared to $13.9 million for the same period in the prior year.

		Three Months Ended																				Six Months Ended
Europe		June 30,																				June 30,
						% of								% of												% of								% of
(Amounts in 000s)		2006				Total				2005				Total				Change				2006				Total				2005				Total				Change
REVENUE:
Distribution		$	93,352				80	%		$	64,071				73	%			46	%		$	168,220				79	%		$	120,770				72	%			39	%
Logistic services			23,763				20	%			23,913				27	%			(1	)%			44,462				21	%			46,342				28	%			(4	)%
Total		$	117,115				100	%		$	87,984				100	%			33	%		$	212,682				100	%		$	167,112				100	%			27	%
WIRELESS DEVICES HANDLED:
Distribution			277				72	%			203				66	%			36	%			507				73	%			368				70	%			38	%
Logistic services			108				28	%			105				34	%			3	%			189				27	%			160				30	%			18	%
Total			385				100	%			308				100	%			25	%			696				100	%			528				100	%			32	%

Revenue in our Europe division increased 33% to $117.1 million for the three months ended June 30, 2006 compared to $88.0 million for the same period in the prior year. Product distribution revenue increased 46% to $93.4 million for the three months ended June 30, 2006 compared to $64.1 million for the same period in the prior year. Growth in wireless devices handled positively impacted distribution revenue by 36%, and a higher average selling price contributed to 14% of the distribution revenue growth in our Europe division. These increases were partially offset by a decline in accessory sales, which negatively impacted distribution revenue in our Europe division by approximately 4%. The increases in average selling price and the number of devices sold through distribution in our Europe division were due primarily to increased demand for and availability of branded converged wireless devices as well as our entry into Russia during the second quarter of 2006.

Logistic services revenue decreased 1% to $23.8 million for the three months ended June 30, 2006 compared to $23.9 million for the same period in the prior year. The decrease in logistic services revenue was due primarily to a shift in mix to fee based prepaid recharge card fulfillment revenue (net basis) from prepaid recharge card distribution revenue (gross basis), for which revenue from both types of transactions are included in logistic services.

For the six months ended June 30, 2006, revenue in our Europe division increased 27% to $212.7 million compared to $167.1 million for the same period in the prior year. Product distribution revenue increased 39% to $168.2 million for the six months ended June 30, 2006 compared to $120.8 million for the same period in the prior year. Logistic services revenue in our Europe division decreased 4% to $44.5 million for the six months ended June 30, 2006 compared to $46.3 million for the same period in the prior year.

Gross Profit and Gross Margin

		Three Months Ended																				Six Months Ended
		June 30,																				June 30,
						% of								% of												% of								% of
(Amounts in 000s)		2006				Total				2005				Total				Change				2006				Total				2005				Total				Change
Distribution		$	19,672				55	%		$	14,793				50	%			33	%		$	39,244				54	%		$	31,152				55	%			26	%
Logistic services			16,072				45	%			14,721				50	%			9	%			32,812				46	%			25,567				45	%			28	%
Gross profit		$	35,744				100	%		$	29,514				100	%			21	%		$	72,056				100	%		$	56,719				100	%			27	%
Distribution			4.2	%							3.4	%				0.8% points							4.1	%							3.7	%				0.4% points
Logistic services			19.4	%							21.7	%				(2.3)% points							20.0	%							19.4	%				0.6% points
Gross margin			6.5	%							5.9	%				0.6% points							6.5	%							5.9	%				0.6% points