1
UNITED STATES
SECURITIES & EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended: March 31, 2001
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or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from: to
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Commission file number: 0-23494
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BRIGHTPOINT, INC.
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(Exact name of registrant as specified in its charter)
Delaware 35-1778566
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(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
6402 Corporate Drive, Indianapolis, Indiana 46278
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(Address of principal executive offices) (Zip Code)
(317) 297-6100
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(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. [X] Yes [ ] No
Number of shares of common stock outstanding at May 11, 2001: 55,798,305
shares
2
BRIGHTPOINT, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1
Consolidated Statements of Income
Three Months Ended March 31, 2000 and 2001...................3
Consolidated Balance Sheets
December 31, 2000 and March 31, 2001.........................4
Consolidated Statements of Cash Flows
Three Months Ended March 31, 2000 and 2001...................5
Notes to Consolidated Financial Statements.....................6
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations...............13
ITEM 3
Quantitative and Qualitative Disclosures
About Market Risk...........................................18
PART II. OTHER INFORMATION
ITEM 1
Legal Proceedings.............................................19
ITEM 6
Exhibits......................................................19
Signatures.............................................................20
3
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
Three Months Ended
March 31
2000 2001
--------- ---------
Revenue $ 477,772 $ 465,326
Cost of revenue 434,347 434,348
--------- ---------
Gross profit 43,425 30,978
Selling, general and administrative expenses 25,835 25,604
Unusual charges 4,814 -
--------- ---------
Income from operations 12,776 5,374
Interest expense 3,270 2,373
Other (income) expenses (403) 816
--------- ---------
Income before income taxes, minority interest and
extraordinary gain 9,909 2,185
Income taxes 3,375 676
--------- ---------
Income before minority interest and extraordinary gain 6,534 1,509
Minority interest 36 64
--------- ---------
Income before extraordinary gain 6,498 1,445
Extraordinary gain on debt extinguishment,
net of tax - 4,623
--------- ---------
Net income 6,498 $ 6,068
========= =========
Basic per share:
Income before extraordinary gain $ 0.12 $ 0.03
Extraordinary gain on debt extinguishment,
net of tax - 0.08
--------- ---------
Net income $ 0.12 $ 0.11
========= =========
Diluted per share:
Income before extraordinary gain $ 0.12 $ 0.03
Extraordinary gain on debt extinguishment,
net of tax - 0.08
--------- ---------
Net income $ 0.12 $ 0.11
========= =========
Weighted average common shares outstanding:
Basic 54,926 55,777
========= =========
Diluted 56,232 55,779
========= =========
See accompanying notes.
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4
BRIGHTPOINT, INC.
CONSOLIDATED BALANCE SHEETS
(AMOUNTS IN THOUSANDS, EXCEPT PER SHARE DATA)
(UNAUDITED)
December 31, 2000 March 31, 2001
-----------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 79,718 $ 75,206
Accounts receivable (less allowance for doubtful
accounts of $6,548 in 2000 and $5,903 in 2001) 208,116 170,221
Inventories 226,785 178,555
Other current assets 52,059 49,414
--------- ---------
Total current assets 566,678 473,396
Property and equipment 36,763 39,046
Goodwill and other intangibles 72,390 69,667
Other assets 15,828 16,000
--------- ---------
Total assets $ 691,659 $ 598,109
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 232,264 $ 163,205
Accrued expenses 61,354 58,725
--------- ---------
Total current liabilities 293,618 221,930
--------- ---------
Long-term debt:
Line of credit 53,685 47,825
Convertible notes 144,756 127,790
--------- ---------
Total long-term debt 198,441 175,615
--------- ---------
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 55,788 issued and
outstanding in 2000 and 2001, respectively 558 558
Additional paid-in capital 213,714 213,794
Retained earnings 11,759 17,827
Accumulated other comprehensive loss (26,431) (31,615)
--------- ---------
Total stockholders' equity 199,600 200,564
--------- ---------
Total liabilities and stockholders' equity $ 691,659 $ 598,109
========= =========
See accompanying notes.
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5
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(AMOUNTS IN THOUSANDS)
(UNAUDITED)
Three Months Ended March 31
2000 2001
--------- ----------
OPERATING ACTIVITIES
Net income $ 6,498 $ 6,068
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 3,762 3,792
Amortization of debt discount 1,834 1,381
Income tax benefits from exercise of stock options 1,667 -
Extraordinary gain on debt extinguishment, net of tax - (4,623)
Unusual charges 4,814 -
Minority interest and deferred taxes 36 287
Changes in operating assets and liabilities, net of
effects from acquisitions:
Accounts receivable 19,418 31,440
Inventories (75,774) 44,641
Other operating assets 1,056 (413)
Accounts payable and accrued expenses 63,912 (65,869)
--------- ---------
Net cash provided by operating activities 27,223 16,704
INVESTING ACTIVITIES
Capital expenditures (3,258) (7,148)
Decrease (increase) in funded contract financing receivables (531) 3,810
Decrease (increase) in other assets 110 (1,067)
--------- ---------
Net cash used by investing activities (3,679) (4,405)
FINANCING ACTIVITIES
Net payments on revolving credit facility (1,112) (5,851)
Repurchase of convertible notes - (10,095)
Proceeds from common stock issuances under employee stock
option and purchase plans 4,624 78
--------- ---------
Net cash provided (used) by financing activities 3,512 (15,868)
Effect of exchange rate changes on cash and cash
equivalents (717) (943)
--------- ---------
Net increase (decrease) in cash and cash equivalents 26,339 (4,512)
Cash and cash equivalents at beginning of period 85,261 79,718
--------- ---------
Cash and cash equivalents at end of period $ 111,600 $ 75,206
========= =========
See accompanying notes.
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6
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2001
(UNAUDITED)
1. Basis of Presentation
GENERAL
The accompanying unaudited consolidated financial statements have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-Q and Article 10 of
Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not
include all of the information and footnotes required by generally accepted
accounting principles for complete financial statements. The preparation of
financial statements requires management to make estimates and assumptions that
affect amounts reported in the financial statements and accompanying notes.
Actual results are likely to differ from those estimates, but management does
not believe such differences will materially affect the Company's financial
position or results of operations. In the opinion of the Company, all
adjustments considered necessary to present fairly the consolidated financial
statements have been included.
The consolidated financial statements include the accounts of the Company and
its majority-owned or controlled subsidiaries. Significant intercompany accounts
and transactions have been eliminated in consolidation. Certain amounts in the
2000 consolidated financial statements have been reclassified to conform to the
2001 presentation.
The consolidated balance sheet at December 31, 2000 has been derived from the
audited consolidated financial statements at that date, but does not include all
of the information and footnotes required by generally accepted accounting
principles for complete financial statements. The unaudited consolidated
statements of income and cash flows for the three months ended March 31, 2001
are not necessarily indicative of the operating results or cash flows that may
be expected for the entire year.
For further information, reference is made to the audited consolidated financial
statements and the notes thereto included in the Company's Annual Report on Form
10-K/A for the year ended December 31, 2000.
NET INCOME PER SHARE
Basic net income per share is based on the weighted average number of common
shares outstanding during each period, and diluted net income per share is based
on the weighted average number of common shares and dilutive common share
equivalents outstanding during each period. The Company's common share
equivalents consist of stock options, stock warrants and the Convertible Notes
described in Note 6 to the Consolidated Financial Statements.
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BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
1. Basis of Presentation (continued)
NET INCOME PER SHARE (CONTINUED)
The following is a reconciliation of the numerators and denominators of the
basic and diluted net income per share computations for the three months ended
March 31, 2000 and 2001 (amounts in thousands, except per share data):
Three Months Ended March 31
2000 2001
-------- -------
Income before extraordinary gain on debt extinguishment $ 6,498 $ 1,445
Extraordinary gain on debt extinguishment, net of tax - 4,623
-------- -------
Net income $ 6,498 $ 6,068
======== =======
Basic:
Weighted average shares outstanding 54,926 55,777
======== =======
Per share amount:
Income before extraordinary gain on debt extinguishment $ 0.12 $ 0.03
Extraordinary gain on debt extinguishment, net of tax - 0.08
-------- -------
Net income $ 0.12 $ 0.11
======== =======
Diluted:
Weighted average shares outstanding 54,926 55,777
Net effect of dilutive stock options and stock warrants-based on
the treasury stock method using average market price 1,306 2
-------- -------
Total weighted average shares outstanding 56,232 55,779
======== =======
Per share amount:
Income before extraordinary gain on debt extinguishment $ 0.12 $ 0.03
Extraordinary gain on debt extinguishment, net of tax - 0.08
-------- -------
Net income $ 0.12 $ 0.11
======== =======
COMPREHENSIVE INCOME
Comprehensive income is comprised of net income and other comprehensive income
(loss). Other comprehensive income (loss) includes unrealized gains or losses on
derivative financial instruments and gains or losses resulting from currency
translations of foreign investments. During the three months ended March 31,
2000 and 2001, comprehensive income totaled $5.6 million and $0.9 million,
respectively.
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BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
2. Extraordinary Gain on Debt Extinguishment
During the first quarter of 2001, the Company repurchased 36,000 of its
zero-coupon, subordinated, convertible notes due 2018 (Convertible Notes) for
approximately $10 million (prices ranging from $278 to $283 per Convertible
Note). As of March 31, 2001, the Convertible Notes have an accreted book value
of approximately $511 per Convertible Note. These transactions resulted in an
extraordinary gain of approximately $4.6 million ($0.08 per diluted share) after
transaction and unamortized debt issuance costs and applicable taxes. Each of
the Convertible Notes converts, at the option of the holder, into 19.109 shares
of the Company's common stock. These transactions, along with the purchase of
94,000 Convertible Notes in 2000, complete the 130,000 Convertible Notes
repurchase plan previously approved by the Company's board of directors.
3. Unusual Charges
During the first quarter of 2000, the Company began the process of consolidating
four Indianapolis, Indiana locations and a location in Bensalem, Pennsylvania
into a single, new facility located near the Indianapolis International Airport
and designed specifically for the Company and its processes. The Company
recorded an unusual charge of $4.8 million ($2.9 million or $0.05 per share net
of related tax benefits) during the three months ended March 31, 2000, related
to the consolidation for moving costs, the disposal of assets not used in the
new facility and the estimated impact of vacating the unused facilities, net of
potential subleases. At March 31, 2001, the Company had approximately $2.8
million in facility consolidation reserves and no significant adjustments to the
charge are anticipated in future periods.
4. Acquisitions and Divestitures
In December of 2000, the Company acquired Advanced Portable Technologies Pty Ltd
located in Sydney, Australia, a provider of distribution and other outsourced
services to the wireless data and portable computer industry in Australia and
New Zealand. This transaction was accounted for as a purchase and, accordingly,
the Consolidated Financial Statements include the operating results of this
business from the effective date of acquisition. The purchase price consisted of
$0.9 million in cash, the assumption of certain liabilities and remaining
contingent consideration of up to $1.3 million based upon the future operating
results of the business over the three years subsequent to the acquisition.
Goodwill of approximately $1.0 million resulted from this acquisition. Also
during 2000, the Company made cash payments of contingent consideration totaling
$4.6 million related to purchase acquisitions completed prior to 1999. These
payments resulted in additional goodwill being recorded in 2000 that is being
amortized over the remaining amortization periods of the related acquisitions.
The Company does not believe it has any other obligations related to contingent
consideration for prior acquisitions, other than the amount for Advanced
Portable Technologies Pty Ltd mentioned above.
The impact of the acquisition mentioned above was not material in relation to
the Company's consolidated results of operations. Consequently, pro forma
information is not presented.
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BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
5. Accounts Receivable Transfers
During the three months ended March 31, 2001, the Company entered into certain
transactions with respect to a portion of its accounts receivable with financing
organizations 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. 125, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities (FAS 125). Net funds
received from the sales of accounts receivable during the three months ended
March 31, 2001 totaled $40.0 million (8.8% of revenues). Fees, in the form of
discounts, incurred in connection with these sales totaled $.9 million and were
recorded as losses on the sale of assets which are included as a component of
"Other (income) expenses" in the Consolidated Statements of Income. 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.
In September of 2000, the Financial Accounting Standards Board (FASB) issued
Statement of Financial Accounting Standards No. 140, Accounting for Transfers
and Servicing of Financial Assets and Extinguishments of Liabilities (SFAS No.
140), which replaces FASB No. 125. SFAS No. 140 is effective for transfers and
servicing of financial assets and extinguishments of liabilities occurring after
March 31, 2001. With respect to recognition and reclassification of collateral
and for disclosures relating to securitization transactions and collateral, SFAS
No. 140 is effective for fiscal years ending after December 15, 2000, and is to
be applied prospectively with certain exceptions. The Company adopted the
disclosure provisions of SFAS No. 140 in 2000 and believes the complete
implementation of SFAS No. 140 in 2001 will not have a material effect on its
financial statements.
6. Long-term Debt
On July 27, 1999, the Company amended and restated its five-year senior secured
revolving line of credit facility (the Facility) with Bank One, Indiana,
National Association, as agent for a group of banks (collectively, the Banks).
The Facility, which subject to various restrictions allows for borrowings of up
to $175 million, matures in June 2002, and generally bears interest, at the
Company's option, at: (i) the greater of the agent bank's corporate base rate
plus a spread of 0 to 100 basis points and the Federal Funds effective rate plus
0.50%; or (ii) the rate at which deposits in United States Dollars or
Eurocurrencies are offered by the agent bank to first-class banks in the London
interbank market plus a spread ranging from 140 to 250 basis points (based on
the Company's leverage ratio) plus a spread reserve, if any. Borrowings by the
Company's non-United States subsidiaries bear interest at various rates based on
the type and term of advance selected and the prevailing interest rates of the
country in which the subsidiary is domiciled.
At March 31, 2001, there was approximately $41.8 million outstanding under the
Facility, all of which was denominated in foreign currencies, at interest rates
ranging from 5.5% to 6.6% (a weighted average rate of 6.1%). In addition, there
was an aggregate of $32.7 million in letters of credit issued.
All of the Company's assets located in the United States and between 65% and
100% of the capital stock of certain of the Company's subsidiaries are pledged
to the Banks as collateral for the Facility, and the Company is substantially
prohibited from incurring additional indebtedness. Funding under the Facility is
limited by an asset coverage test, which is measured monthly. As of March 31,
2001, available funding under the Facility was approximately $11.3 million. In
addition to certain net worth and other financial covenants, the Company's
Facility limits or prohibits the Company, subject to certain exceptions, from
declaring or paying cash dividends, making capital distributions or other
payments to stockholders, merging or consolidating with another corporation, or
selling portions of its assets.
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BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
6. Long-term Debt (continued)
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, the Company renewed and revised its
agreement with China Construction Bank. The revised agreement has an initial
maturity in May 2001 and increased available advances from $4.8 million to $8.5
million. At March 31, 2001, there was approximately $6.0 million outstanding
pursuant to the loan agreement at an interest rate of 5.9%. The loan is
supported by a stand-by letter of credit of $5.0 million which was issued under
the Facility and cash collateral of approximately $1.2 million. In addition,
upon maturity the Company intends to renew this loan with the lender or replace
it with funding from the Facility. The loan prohibits the borrower from making
various changes in its ownership structure.
On March 11, 1998, the Company completed the issuance of zero-coupon,
subordinated, convertible notes due in the year 2018 (Convertible Notes) with an
aggregate face value of $380 million ($1,000 per Convertible Note) and a yield
to maturity of 4.00%. The Convertible Notes are subordinated to all existing and
future senior indebtedness of the Company and all other liabilities, including
trade payables, of the Company's subsidiaries. The Convertible Notes resulted in
gross proceeds to the Company of approximately $172 million (issue price of
$452.89 per Convertible Note) and require no periodic cash payments of interest.
The proceeds were used to reduce borrowings under the Company's revolving credit
facility and to invest in highly-liquid, short-term investments pending use in
operations.
Each Convertible Note is convertible at the option of the holder any time prior
to maturity. Upon conversion, the Company, at its option, will deliver to the
holder 19.109 shares of common stock per Convertible Note or cash equal to the
market value of such shares. On or after March 11, 2003, the Convertible Notes
may be redeemed at any time by the Company for cash equal to the issue price
plus accrued original discount through the date of redemption. In addition, each
Convertible Note may be redeemed at the option of the holder on March 11, 2003,
2008 or 2013. The purchase price for each Convertible Note at these redemption
dates is approximately $552, $673 and $820, respectively, which is equal to the
issue price plus accrued original discount through the date of redemption. The
Company may elect at its option to pay for such redemption in cash or common
stock, or any combination thereof equaling the purchase price.
On October 30, 2000, the Company announced that its Board of Directors had
approved a plan under which the Company could repurchase up to 130,000 of the
Convertible Notes. The Company and the Banks amended the Facility on October 27,
2000, to allow the Company to execute such repurchases and to modify its
leverage ratio covenant upon completion of the repurchases. As of March 31,
2001, the Company's plan to repurchase 130,000 of the Convertible Notes was
complete. During the first quarter of 2001, the Company repurchased 36,000 of
the Convertible Notes for approximately $10 million (prices ranging from $278 to
$283 per Convertible Note). These transactions resulted in an extraordinary gain
of approximately $4.6 million ($0.08 per diluted share) after transaction and
unamortized debt issuance costs and applicable taxes. As of March 31, 2001, the
remaining 250,000 Convertible Notes had an accreted book value of approximately
$511 per Convertible Note.
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BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
7. Operating Segments
The Company operates in markets worldwide and has four operating segments. These
operating segments represent the Company's four divisions: North America;
Asia-Pacific; Europe, Middle East and Africa; and Latin America. These divisions
all derive revenues from sales of wireless handsets, accessory programs and fees
from the provision of integrated logistics services. However, the divisions are
managed separately because of the geographic locations in which they operate.
The Company evaluates the performance of, and allocates resources to, these
segments based on income (loss) from operations including allocated corporate
selling, general and administrative expenses. As discussed in Note 3 to the
Consolidated Financial Statements, during 2000 the Company incurred unusual
charges, which affected certain operating segments. A summary of the Company's
operations by segment with and without the unusual charges is presented below
(in thousands):
2000 2001
----------------------------------------------------- ------------------------------
REVENUES FROM REVENUES FROM INCOME
EXTERNAL INCOME FROM INCOME FROM EXTERNAL (LOSS) FROM
CUSTOMERS OPERATIONS OPERATIONS (1) CUSTOMERS OPERATIONS
---------------------------------- ------------------ ------------------------------
THREE MONTHS ENDED
MARCH 31:
North America $167,703 $ 4,687 $ 9,486 $154,555 $ 680
Asia-Pacific 135,266 4,289 3,896 128,641 4,063
Europe, Middle East
and Africa 99,438 2,690 3,098 131,439 (553)
Latin America 75,365 1,110 1,110 50,691 1,184
-------- ------- ------- -------- ------
$477,772 $12,776 $17,590 $465,326 $5,374
======== ======= ======= ======== ======
DECEMBER 31, MARCH 31,
TOTAL SEGMENT ASSETS: 2000 2001
------------ -----------
North America (2) $ 311,402 $ 259,509
Asia-Pacific 120,386 106,361
Europe, Middle East and Africa 147,239 138,247
Latin America 112,632 93,992
---------- ----------
$ 691,659 $ 598,109
========== ==========
(1) Excludes other unusual charges - see Note 3.
(2) Includes assets of the Company's corporate operations.
11
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BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
MARCH 31, 2001
(UNAUDITED)
8. Contingencies
Various lawsuits, claims and proceedings have been or may be asserted against
the Company in the normal course of business. While the ultimate liability
pursuant to these actions cannot currently be determined, the Company believes
the legal proceedings in which it is currently involved will not have a material
adverse effect on its financial position.
The Company and certain of its executive officers, two of whom are also
directors, were named as defendants in four actions filed in June and July 1999,
in the United States District Court for the Southern District of Indiana. These
actions were subsequently consolidated by the court into a single action. The
action involved a purported class of purchasers of the Company's common stock
during the period October 2, 1998 through March 10, 1999. The Company and
certain of its officers and directors filed a motion to dismiss the action and
the court granted such motion on March 29, 2001, subject to the plaintiffs right
to file a motion for leave to amend the complaint before April 26, 2001. The
plaintiffs did not file such a motion and the court has entered final judgment
dismissing the action.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
OVERVIEW AND RECENT DEVELOPMENTS
This discussion and analysis should be read in conjunction with the accompanying
consolidated financial statements and related notes. Certain statements made in
this report may contain forward-looking statements. For a description of risks
and uncertainties relating to such forward-looking statements, see Exhibit 99 to
this report and the Company's Annual Report on Form 10-K/A for the year ended
December 31, 2000.
During the first quarter of 2001, the Company repurchased 36,000 of its
zero-coupon, subordinated, convertible notes due 2018 (Convertible Notes) for
approximately $10 million (prices ranging from $278 to $283 per Convertible
Note). These transactions resulted in an extraordinary gain of approximately
$4.6 million ($0.08 per diluted share) after transaction and unamortized debt
issuance costs and applicable taxes. Along with the purchase of 94,000
Convertible Notes in 2000, these transactions complete the 130,000 Convertible
Notes repurchase plan previously approved by the Company's Board of Directors.
As of March 31, 2001, the remaining 250,000 Convertible Notes have an accreted
book value of approximately $511 per Convertible Note.
During the first quarter of 2000, the Company began the process of consolidating
four Indianapolis, Indiana, locations and a location in Bensalem, Pennsylvania,
into a single, new facility located near the Indianapolis International Airport
and designed specifically for the Company and its processes. The Company
recorded an unusual charge of $4.8 million ($2.9 million or $0.05 per share net
of related tax benefits) during the three months ended March 31, 2000, related
to the consolidation for moving costs, the disposal of assets not used in the
new facility and the estimated impact of vacating the unused facilities, net of
potential subleases. See Note 3 to the Consolidated Financial Statements.
RESULTS OF OPERATIONS
The following discussion of results of operations excludes the extraordinary
gain on debt extinguishment for the three months ended March 31, 2001, of $4.6
million ($0.08 per diluted share) and the impact of the facilities consolidation
for the three months ended March 31, 2000, of $4.8 million ($2.9 million or
$0.05 per share net of related tax benefits) described above.
Revenue
Three Months Ended March 31
-----------------------------------------------
(In thousands) 2000 2001 Change
-----------------------------------------------------------------------------
Revenue $ 477,772 $ 465,326 (3)%
-----------------------------------------------------------------------------
Revenue in the quarter ended March 31, 2001, decreased 3%, compared to revenue
in the first quarter of 2000, however, units handled during the first quarter of
2001 increased 22% from the same period in the prior year. The economic
uncertainty in the United States, inventory surpluses and a general reduction in
the number of promotional programs sponsored by network operators in many parts
of the world have caused demand for the Company's products and services to be
lower than the prior year first quarter in which the Company experienced strong
revenue growth due in part to unfulfilled orders from the end of the fourth
quarter of 1999.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Revenue by Division (in thousands):
Three Months Ended March 31
-------------------------------------------
2000 2001
-------------------------------------------
North America $ 167,703 35% $ 154,555 33%
Asia-Pacific 135,266 28% 128,641 28%
Europe, Middle East and Africa 99,438 21% 131,439 28%
Latin America 75,365 16% 50,691 11%
-------------------------------------------
Total $ 477,772 100% $ 465,326 100%
===========================================
As discussed above, the overall lower demand during the first quarter of 2001
caused revenue in the North America, Asia-Pacific and Latin America divisions to
decline 8%, 5% and 33%, respectively, when compared to the first quarter of
2000.
Due to a number of factors including the geographic diversity of the Company's
operations, the variety of services offered by the Company and strong demand for
the Company's products and services in the Middle East, revenues in the Europe,
Middle East and Africa division grew by approximately 32% from the first quarter
of 2000.
Revenue by Service Line (in thousands):
Three Months Ended March 31
----------------------------------------------
2000 2001
----------------------------------------------
Sales of wireless handsets $ 366,989 77% $ 387,264 83%
Accessory programs 62,435 13% 42,703 9%
Integrated logistics services 48,348 10% 35,359 8%
----------------------------------------------
$ 477,772 100% $ 465,326 100%
==============================================
Revenue from wireless handsets increased 6% for the three months ended March 31,
2001, as compared to the same period in 2000. This increase is due primarily to
strong demand for the Company's products in the Middle East. Revenue from
integrated logistics services and accessory programs for the three months ended
March 31, 2001, as compared to the same periods in 2000 decreased 27% and 32%,
respectively. Demand for much of the Company's accessory programs and integrated
logistics services is generated, directly or indirectly, through promotional
programs sponsored by network operators. Many network operators reduced or
delayed promotional programs during the first quarter of 2001, causing the
Company's revenues in these service lines to be lower than the prior year first
quarter.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Gross Profit
Three Months Ended March 31
------------------------------------------------
(In thousands) 2000 2001 Change
------------------------------------------------------------------------------
Gross profit $ 43,425 $ 30,978 (29)%
Gross margin 9.1% 6.7%
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Gross profit for the three months ended March 31, 2001, decreased 29% over the
same period in 2000 resulting in gross margin of 6.7% for the first quarter of
2001, compared to gross margin of 9.1% for the comparable prior period. Gross
margins decreased due primarily to a greater percentage of the total revenue
derived from lower margin handset sales and lower margins on those handset sales
resulting from the oversupply of product in the channel during the first quarter
of 2001.
Selling, General and Administrative Expenses
Three Months Ended March 31
--------------------------------
(In thousands) 2000 2001 Change
-------------------------------------------------------------------------------
Selling, general and administrative expenses $ 25,835 $ 25,604 (1%)
As a percent of revenue 5.4% 5.5%
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Selling, general and administrative expenses for the first quarter of 2001
decreased 1% from the same period in 2000 and increased slightly as a percent of
revenue from 5.4% in the first quarter of 2000 to 5.5% in the same period of
2001. The increase as a percent of revenue was primarily the result of the
decrease in revenue for the period.
Income from Operations
Three Months Ended March 31
-------------------------------------------
(In thousands) 2000 2001 Change
-----------------------------------------------------------------------------
Income from operations $ 17,590 $ 5,374 (69%)
As a percent of revenue 3.7% 1.2%
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The decrease in operating margins from 3.7% in the first quarter of 2000 to 1.2%
in the first quarter of 2001 resulted primarily from the decrease in gross
margins described above. Income from operations in the first quarter of 2001 of
$5.4 million decreased from $17.6 million in the first quarter of 2000
(excluding the impact of the consolidation of certain facilities) and was also
the result of decreased gross profit in the first quarter of 2001.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
Net Income
Three Months Ended March 31
-------------------------------
(In thousands) 2000 2001 Change
-------------------------------------------------------------------------------
Net income $ 9,392 $ 1,445 (85%)
Net income per share (diluted) $ 0.17 $ 0.03 (82%)
Weighted average shares outstanding (diluted) 56,232 55,779
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The decreases in net income and net income per diluted share for the first
quarter of 2001 when compared to the same period in 2000 were due primarily to
the factors discussed above in the analyses of revenue, gross profit and
selling, general and administrative expenses.
LIQUIDITY AND CAPITAL RESOURCES
(In thousands) December 31, 2000 March 31, 2001
-----------------------------------------------------------------------------
Cash and cash equivalents $ 79,718 $ 75,206
Working capital $273,060 $251,466
Current ratio 1.93:1 2.13:1
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The Company has historically satisfied its working capital requirements
principally through cash flow from operations, vendor financing, bank borrowings
and the issuance of equity and debt securities. The decrease in working capital
at March 31, 2001 compared to December 31, 2000 is comprised primarily of the
effect of decreases in accounts receivable and inventories partially offset by a
decrease in accounts payable. The Company believes that cash flow from
operations, vendor financing and available borrowing capacity under its
revolving line of credit facility will be sufficient to continue funding its
short-term capital requirements, however, significant changes in the Company's
business model or expansion of operations in the future may require the company
to raise additional capital.
Net cash provided by operating activities was $16.7 million for the three months
ended March 31, 2001, as compared to $27.2 million in the comparable prior
period. The decrease in cash provided by operating activities was primarily the
result of a reduction in earnings and accounts payable in the first quarter of
2001 partially offset by cash generated through reducing accounts receivable and
inventories during the period.
In addition, as of March 31, 2001, days revenue outstanding in accounts
receivable was approximately 34 days, compared to days revenue outstanding of
approximately 37 days at March 31, 2000. This reduction is attributable to the
successful acceleration of the Company's accounts receivable collection cycle,
as well as sales or financing transactions, in certain markets, of accounts
receivable to financing organizations (see Note 5 to the Consolidated Financial
Statements). Net funds received from the sale of accounts receivable during the
three months ended March 31, 2001 totaled $40.0 million (8.6% of revenue).
During the first quarter of 2001, annualized inventory turns were 9 times,
compared to 10 times during the first quarter of 2000 and inventory balances
were approximately $48 million lower than inventories at December 31, 2000.
Average days costs in accounts payable were 39 days for the first quarter of
2001, compared to 43 days for the first quarter of 2000. These changes combined
to create an increase in cash conversion cycle days to 38 days in the first
quarter of 2001, from 31 days in the same period of 2000.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS (CONTINUED)
LIQUIDITY AND CAPITAL RESOURCES (CONTINUED)
Net cash used by investing activities for the three months ended March 31, 2001,
was $4.4 million as compared to $3.7 million in the comparable prior period. The
change between periods is primarily comprised of an increase in cash provided by
the Company's contract financing activities offset by an increase in capital
expenditures (primarily for information technology). Net cash used by financing
activities for the three months ended March 31, 2001, was $15.9 million compared
to cash provided by financing activities of $3.5 million for the comparable
prior period. The change between periods was primarily the result of increased
payments on the Company's revolving credit facility and the repurchase of the
Convertible Notes.
The Company's long-term debt at March 31, 2001, includes the Company's
zero-coupon, subordinated, convertible notes (the Convertible Notes) which have
an aggregate principal amount at maturity of $250.0 million ($1,000 face value
per Convertible Note). The Convertible Notes are due in the year 2018, have a
yield to maturity of 4.00% and are convertible into the Company's common stock
at a rate of 19.109 shares per Convertible Note. The accreted value of the
Convertible Notes was approximately $128 million at March 31, 2001. The
remainder of the Company's long-term debt is comprised of borrowings or
permitted indebtedness under its senior secured revolving line of credit
facility (the Facility) which has been periodically modified. The Facility
provides the Company, based upon a borrowing base calculation, with a maximum
borrowing capacity of up to $175 million. Interest rates on U.S. Dollar
borrowings under the Facility, excluding fees, range from 140 basis points to
250 basis points above LIBOR, depending on certain leverage ratios. On October
30, 2000, the Company announced that its Board of Directors had approved a plan
under which the Company could repurchase up to 130,000 of the Convertible Notes.
The Company and the Banks amended the Facility on October 27, 2000, to allow the
Company to execute such repurchases and to modify its leverage ratio covenant
upon completion of the repurchases. As of March 31, 2001, the Company's plan to
repurchase 130,000 of the Convertible Notes was complete. During the first
quarter of 2001, the Company repurchased 36,000 of the Convertible Notes for
approximately $10 million (prices ranging from $278 to $283 per Convertible
Note). These transactions resulted in an extraordinary gain of approximately
$4.6 million ($0.08 per diluted share) after transaction and unamortized debt
issuance costs and applicable taxes. As of March 31, 2001, the remaining 250,000
Convertible Notes had an accreted book value of approximately $511 per
Convertible Note. See Note 6 to the Consolidated Financial Statements.
All of the Company's assets located in the United States and between 65% and
100% of the capital stock of certain of the Company's subsidiaries are pledged
to the Banks as collateral for the Facility, and the Company is substantially
prohibited from incurring additional indebtedness, either of which terms could
limit the Company's ability to implement its expansion plans. The Company is
also subject to certain covenants as more fully described in Note 6 to the
Consolidated Financial Statements.
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ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
FINANCIAL MARKET RISK MANAGEMENT
The Company is exposed to financial market risks, including changes in interest
rates and foreign currency exchange rates. To mitigate interest rate risks, the
Company has utilized interest rate swaps to convert certain portions of its
variable rate debt to fixed interest rates. To mitigate foreign currency
exchange rate risks, the Company utilizes its multi-currency revolving line of
credit and derivative financial instruments under a risk management program
approved by the Company's Board of Directors. The Company does not use
derivative instruments for speculative or trading purposes.
The Company is exposed to changes in interest rates on its variable interest
rate revolving lines of credit. A 10% increase in short-term borrowing rates
during the quarter ended March 31, 2001, would have resulted in only a nominal
increase in interest expense as well as a nominal increase in the fair value of
the Company's interest rate swaps at March 31, 2001.
A substantial portion of the Company's revenue and expenses are transacted in
markets outside of the United States and are denominated in currencies other
than the U.S. Dollar. Accordingly, the Company's future results could be
adversely affected by a variety of factors, including changes in a specific
country's political, economic or regulatory conditions and trade protection
measures.
The Company's foreign currency risk management program is designed to reduce but
not eliminate unanticipated fluctuations in earnings, cash flows and the value
of foreign investments caused by volatility in currency exchange rates by
hedging, where believed to be cost-effective, significant exposures with foreign
currency exchange contracts, options and foreign currency borrowings. The
Company's hedging programs reduce, but do not eliminate, the impact of foreign
exchange rate movements. An adverse change (defined as a 10% strengthening of
the U.S. Dollar) in all exchange rates would have resulted in only a nominal
decrease in results of operations for the three months ended March 31, 2001. The
same adverse change in exchange rates would have resulted in a $6.3 million
increase in the fair value of the Company's cash flow and net investment hedges
open at March 31, 2001. The majority of this fair value increase would offset
currency devaluations from translating the Company's foreign investments from
functional currencies to the U.S. Dollar. The Company's sensitivity analysis of
foreign exchange rate movements does not factor in a potential change in volumes
or local currency prices of its products sold or services provided. Actual
results may differ materially from those discussed above.
Certain of the Company's foreign entities are located in countries that are
members of the European Union (EU) and, accordingly, have adopted the Euro, the
EU's new single currency, as their legal currency effective January 1, 1999.
From that date, the Euro has been traded on currency exchanges and available for
noncash transactions. Local currencies remain legal tender until December 31,
2001 at which time participating countries will issue Euro-denominated bills and
coins for use in cash transactions. By no later than July 1, 2002, participating
countries will withdraw all bills and coins denominated in local currencies.
During 2000 and 2001, the Company's operations that are located in EU countries
(France, Germany, Ireland and the Netherlands) have transacted business in both
the Euro and their local currency as appropriate to the nature of the
transaction under the EU's "no compulsion, no prohibition principle." The
Company has made significant investments in information technology in Europe and
has experienced no significant information technology or operational problems as
a result of the Euro conversion. In addition, the Company continues to evaluate
the effects on its business of the Euro conversion for the affected operations
and believes that the completion of the Euro conversion during 2001 and 2002
will not have a material effect on its financial position or results of
operations.
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PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Company is from time to time, involved in certain legal proceedings in the
ordinary course of conducting its business. While the ultimate liability
pursuant to these actions cannot currently be determined, the Company believes
the legal proceedings in which it is currently involved will not have a material
adverse effect on its financial position.
The Company and certain of its executive officers, two of whom are also
directors, were named as defendants in four actions filed in June and July 1999,
in the United States District Court for the Southern District of Indiana. These
actions were subsequently consolidated by the court into a single action. The
action involved a purported class of purchasers of the Company's common stock
during the period October 2, 1998 through March 10, 1999. The Company and
certain of its officers and directors filed a motion to dismiss the action and
the court granted such motion on March 29, 2001, subject to the plaintiffs right
to file a motion for leave to amend the complaint before April 26, 2001. The
plaintiffs did not file such a motion and the court has entered final judgment
dismissing the action.
Item 6. Exhibits
(a) Exhibits
The list of exhibits is hereby incorporated by reference to the Exhibit
Index on page 21 of this report.
(b) Reports on Form 8-K
On February 26, 2001, the Company filed a Form 8-K with the Securities
and Exchange Commission reporting under Item 5 - Other Events, the
press release announcing that revenue and earnings for the quarter
ending March 31, 2001, would be below the expectations disclosed in the
Company's January 25, 2001 conference call.
On March 1, 2001, the Company filed a Form 8-K with the Securities and
Exchange Commission reporting under Item 5 - Other Events, the press
release announcing that the Company completed the repurchases of its
convertible, subordinated, zero-coupon bonds which are due in 2018. On
March 2, 2001, the Company issued a press release to clarify the number
of convertible, subordinated, zero-coupon bonds repurchased in 2000 and
2001.
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SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Brightpoint, Inc.
-----------------
(Registrant)
Date May 14, 2001 /s/ Phillip A. Bounsall
-------------------------------- -----------------------------------
Phillip A. Bounsall
Executive Vice President,
Chief Financial Officer
(Principal Financial Officer and
Principal Accounting Officer)
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EXHIBIT INDEX
Exhibit No. Description
----------- -----------
99 Cautionary Statements
21