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: June 30, 2005
-------------------------------
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from: to
---------------------- -----------------------
Commission file number: 0-23494
-------------
BRIGHTPOINT, INC.
--------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Indiana 35-1778566
--------------------------------------------------------------------------------
State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization
501 Airtech Parkway, Plainfield, Indiana 46168
--------------------------------------------------------------------------------
(Address of principal executive offices) (Zip Code)
(317) 707-2355
--------------------------------------------------------------------------------
(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
Indicate by checkmark whether the registrant is an accelerated filer (as defined
in Rule 12b-2 of the Exchange Act) Yes [X] No [ ]
Number of shares of the registrant's common stock outstanding at August 5, 2005:
17,981,282 shares, excluding 2,076,650 treasury shares
BRIGHTPOINT, INC.
INDEX
Page No.
--------
PART I. FINANCIAL INFORMATION
ITEM 1
Consolidated Statements of Income
Three and Six Months Ended June 30, 2005 and 2004.............................3
Consolidated Balance Sheets
June 30, 2005 and December 31, 2004...........................................4
Consolidated Statements of Cash Flows
Six Months Ended June 30, 2005 and 2004.......................................5
Notes to Consolidated Financial Statements.............................................6
ITEM 2
Management's Discussion and Analysis of
Financial Condition and Results of Operations................................19
ITEM 3
Quantitative and Qualitative Disclosures about Market Risk............................37
ITEM 4
Controls and Procedures...............................................................38
PART II. OTHER INFORMATION
ITEM 1
Legal Proceedings.....................................................................40
ITEM 2
Unregistered Sales of Equity Securities and Use of Proceeds...........................41
ITEM 4
Submission of Matters to a Vote of Security Holders...................................41
ITEM 6
Exhibits..............................................................................42
Signatures............................................................................43
Page 2
PART 1. FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF INCOME
(Amounts in thousands, except per share data)
(Unaudited)
Three Months Ended Six Months Ended
June 30, June 30,
------------------------------ ------------------------------
2005 2004 2005 2004
----------- ----------- ----------- -----------
Revenue
Distribution revenue $ 437,900 $ 397,509 $ 844,624 $ 775,451
Logistic services revenue 86,040 65,565 164,929 127,833
----------- ----------- ----------- -----------
Total revenue 523,940 463,074 1,009,553 903,284
Cost of revenue
Cost of distribution revenue 423,464 382,717 814,049 747,378
Cost of logistic services revenue 68,856 53,714 135,587 105,196
----------- ----------- ----------- -----------
Total cost of revenue 492,320 436,431 949,636 852,574
Gross profit 31,620 26,643 59,917 50,710
Selling, general and administrative expenses 23,608 19,678 46,461 39,551
Facility consolidation charge (benefit) - (215) 1,203 (215)
----------- ----------- ----------- -----------
Operating income from continuing operations 8,012 7,180 12,253 11,374
Interest expense 687 549 1,272 1,018
Interest income (235) (302) (446) (503)
Net other expenses 265 401 467 970
----------- ----------- ----------- -----------
Income from continuing operations before income taxes 7,295 6,532 10,960 9,889
Income tax expense 2,189 1,742 3,288 2,745
----------- ----------- ----------- -----------
Income from continuing operations 5,106 4,790 7,672 7,144
Discontinued operations:
Loss from discontinued operations (204) (416) (234) (757)
Gain (loss) on disposal of discontinued operations (3) (410) 335 (4,644)
----------- ----------- ----------- -----------
Total discontinued operations (207) (826) 101 (5,401)
----------- ----------- ----------- -----------
Net income $ 4,899 $ 3,964 $ 7,773 $ 1,743
=========== =========== =========== ===========
Basic per share:
Income from continuing operations $ 0.29 $ 0.25 $ 0.43 $ 0.37
Discontinued operations (0.01) (0.04) 0.01 (0.28)
----------- ----------- ----------- -----------
Net income $ 0.28 $ 0.21 $ 0.44 $ 0.09
=========== =========== =========== ===========
Diluted per share:
Income from continuing operations $ 0.28 $ 0.24 $ 0.42 $ 0.36
Discontinued operations (0.01) (0.04) 0.01 (0.27)
----------- ----------- ----------- -----------
Net income $ 0.27 $ 0.20 $ 0.43 $ 0.09
=========== =========== =========== ===========
Weighted average common shares outstanding:
Basic 17,647 19,050 17,685 19,160
=========== =========== =========== ===========
Diluted 18,230 19,622 18,272 19,784
=========== =========== =========== ===========
See accompanying notes.
Page 3
BRIGHTPOINT, INC.
CONSOLIDATED BALANCE SHEETS
(Amounts in thousands, except per share data)
JUNE 30, December 31,
2005 2004
---------- -----------
(unaudited)
ASSETS
Current assets:
Cash and cash equivalents $ 75,541 $ 72,120
Pledged cash 12,746 13,830
Accounts receivable (less allowance for doubtful
accounts of $6,560 and $6,215, respectively) 136,758 148,321
Inventories 116,975 110,089
Contract financing receivable 18,148 14,022
Other current assets 27,210 23,132
--------- ---------
Total current assets 387,378 381,514
Property and equipment, net 27,566 27,503
Goodwill and other intangibles, net 19,854 21,981
Other assets 4,686 6,586
--------- ---------
Total assets $ 439,484 $ 437,584
========= =========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 199,267 $ 201,621
Accrued expenses 60,952 61,851
Unfunded portion of contract financing receivable 26,477 23,375
Lines of credit 5,648 -
--------- ---------
Total current liabilities 292,344 286,847
--------- ---------
COMMITMENTS AND CONTINGENCIES
Minority interest - -
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; 20,016 and 19,499 issued in 2005 and
2004, respectively; 200 195
Additional paid-in capital 245,205 233,768
Unearned compensation (9,397) -
Treasury stock, at cost, 2,077 and 1,606 shares in
2005 and 2004, respectively (33,013) (24,010)
Retained earnings (deficit) (56,195) (63,968)
Accumulated other comprehensive income 340 4,752
--------- ---------
Total shareholders' equity 147,140 150,737
--------- ---------
Total liabilities and shareholders' equity $ 439,484 $ 437,584
========= =========
See accompanying notes.
Page 4
BRIGHTPOINT, INC.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Amounts in thousands)
(Unaudited)
Six Months Ended June 30,
2005 2004
-------- --------
OPERATING ACTIVITIES
Net income $ 7,773 $ 1,743
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation and amortization 5,811 5,225
Discontinued operations (101) 5,401
Net cash used in discontinued operations (16) (1,515)
Pledged cash requirements 1,084 447
Non-cash compensation 677 -
Facility consolidation charge (benefit) 1,203 (215)
Changes in deferred income taxes (1,516) -
Income tax benefits from exercise of stock options 588 -
Changes in operating assets and liabilities, net of
effects from acquisitions and divestitures:
Accounts receivable, net 6,315 4,589
Inventories, net (10,906) (5,560)
Other operating assets (5,006) (1,677)
Accounts payable 5,385 (14,658)
Accrued expenses 3,428 (5,760)
-------- --------
Net cash provided by (used in) operating activities 14,719 (11,980)
INVESTING ACTIVITIES
(Increase) Decrease in funded contract financing receivables, net (947) 7,537
Capital expenditures (5,966) (3,465)
Purchase acquisitions, net of cash acquired (337) (601)
Proceeds from sale of Ireland and Brazil operations - 576
Decrease (increase) in other assets 2,929 (467)
-------- --------
Net cash provided by (used in) investing activities (4,321) 3,580
FINANCING ACTIVITIES
Purchase of treasury stock (9,004) (19,997)
Net proceeds (payments) on revolving credit facilities 5,606 (15,639)
Pledged cash requirements - financing - 5,000
Proceeds from common stock issuances under employee stock
option and purchase plans 781 371
-------- --------
Net cash used in financing activities (2,617) (30,265)
Effect of exchange rate changes on cash and cash
equivalents (4,360) (2,250)
-------- --------
Net increase (decrease) in cash and cash equivalents 3,421 (40,915)
Cash and cash equivalents at beginning of period 72,120 98,879
-------- --------
Cash and cash equivalents at end of period $ 75,541 $ 57,964
======== ========
See accompanying notes.
Page 5
BRIGHTPOINT, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 30, 2005
(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 required
by accounting principles generally accepted in the United States 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 Brightpoint, Inc.'s (the "Company") financial position or
results of operations. The Consolidated Financial Statements reflect all
adjustments considered, in the opinion of the Company, necessary to fairly
present the results for the periods. Such adjustments are of a normal recurring
nature.
The Consolidated Financial Statements include the accounts of the Company and
its subsidiaries, all of which are wholly-owned, with the exception of the
Brightpoint India Limited subsidiary that is 85% owned by the Company.
Significant intercompany accounts and transactions have been eliminated in
consolidation. Certain amounts in the 2004 Consolidated Financial Statements
have been reclassified to conform to the 2005 presentation.
The Consolidated Balance Sheet at December 31, 2004 has been derived from the
audited Consolidated Financial Statements at that date, but does not include all
of the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements. The unaudited
Consolidated Statements of Income for the three and six months ended June 30,
2005 and the unaudited Consolidated Statement of Cash Flows for the six months
ended June 30, 2005 are not necessarily indicative of the operating results or
cash flows that may be expected for the entire year.
Due to seasonal factors, the Company's interim results may not be indicative of
annual results.
The Company has not changed its significant accounting policies from those
disclosed in its Form 10-K/A for the year ended December 31, 2004. 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, 2004, as amended.
Page 6
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 table below presents a
reconciliation of the income per share calculations (in thousands, except per
share data):
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- ----------------------------
2005 2004 2005 2004
----------------------------- ----------------------------
Income from continuing operations $ 5,106 $ 4,790 $ 7,672 $ 7,144
Discontinued operations (207) (826) 101 (5,401)
----------------------------- ----------------------------
Net income $ 4,899 $ 3,964 $ 7,773 $ 1,743
============================= ============================
Basic:
Weighted average shares outstanding 17,647 19,050 17,685 19,160
============================= ============================
Per share amount:
Income from continuing operations $ 0.29 $ 0.25 $ 0.43 $ 0.37
Discontinued operations (0.01) (0.04) 0.01 (0.28)
----------------------------- ----------------------------
Net income per share $ 0.28 $ 0.21 $ 0.44 $ 0.09
============================= ============================
Diluted:
Weighted average shares outstanding 17,647 19,050 17,685 19,160
Net effect of dilutive stock options, restricted
stock units and restricted stock awards, based on
the treasury stock method using average market
price 583 572 587 624
----------------------------- ----------------------------
Total weighted average shares outstanding 18,230 19,622 18,272 19,784
============================= ============================
Per share amount:
Income from continuing operations $ 0.28 $ 0.24 $ 0.42 $ 0.36
Discontinued operations (0.01) (0.04) 0.01 (0.27)
----------------------------- ----------------------------
Net income per share $ 0.27 $ 0.20 $ 0.43 $ 0.09
============================= ============================
Page 7
STOCK OPTIONS
The Company uses the intrinsic value method, as opposed to the fair value
method, in accounting for stock options. The table below presents a
reconciliation of the Company's pro forma net income giving effect to the
estimated compensation expense related to stock options and the Company's
Employee Stock Purchase Plan ("ESPP") that would have been reported if the
Company utilized the fair value method (in thousands, except per share data):
Three months ended Six months ended
June 30, June 30,
---------------------------------------------------------------
2005 2004 2005 2004
---------------------------------------------------------------
Net income as reported $ 4,899 $ 3,964 $ 7,773 $ 1,743
Add back; stock compensation included in Net income 677 677
---------------------------------------------------------------
Stock-based 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) (717) (1,499) (1,180)
---------------------------------------------------------------
Pro forma net income $ 4,646 $ 3,247 $ 6,951 $ 563
===============================================================
Basic earnings per share:
Net income as reported $ 0.28 $ 0.21 $ 0.44 $ 0.09
Add back; stock compensation included in Net income 0.04 0.04
---------------------------------------------------------------
Stock-based 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 (0.06) (0.04) (0.09) (0.06)
---------------------------------------------------------------
Pro forma net income $ 0.26 $ 0.17 $ 0.39 $ 0.03
===============================================================
Diluted earnings per share:
Net income as reported $ 0.27 $ 0.20 $ 0.43 $ 0.09
Add back; stock compensation included in Net income 0.04 0.04
---------------------------------------------------------------
Stock-based 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 (0.06) (0.04) (0.09) (0.06)
---------------------------------------------------------------
Pro forma net income $ 0.25 $ 0.16 $ 0.38 $ 0.03
===============================================================
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In December 2004, the FASB issued Statement of Financial Accounting
Standards No. 123R (Revised 2004), Share-Based Payment ("SFAS No. 123R"), which
requires that the compensation cost relating to share-based payment transactions
be recognized in financial statements based on alternative fair value models.
The share-based compensation cost will be measured based on the fair value of
the equity or liability instruments issued. The Company currently discloses pro
forma compensation expense quarterly and annually by calculating the stock
option grants' fair value using the Black-Scholes model and disclosing the
impact on net income and net income per share in a Note to the Consolidated
Financial Statements. Upon adoption, pro forma disclosure will no longer be an
alternative. The table above reflects the estimated impact that such a change in
accounting treatment would have had on our net income and net income per share
if it had been in effect during the three and six months ended June 30, 2005 and
2004, respectively. SFAS No. 123R also requires the benefits of tax deductions
in excess of recognized compensation cost to be reported as a financing cash
flow rather than as an operating cash flow as required
Page 8
under current literature. This requirement will reduce net operating cash flows
and increase net financing cash flows in periods after adoption. While the
Company cannot estimate what those amounts will be in the future, the amount of
operating cash flows recognized for such deductions were $205 thousand for the
six months ended June 30, 2005 and $5.4 million for the year ended December 31,
2004. On April 15, 2005 the United States Securities and Exchange Commission
adopted an amendment to rule 4-01(a) of Regulation S-X regarding the compliance
date for Statement of Financial Accounting Standards No 123 (revised 2004),
Share-Based Payment. The amendment requires the Company to delay its
implementation of SFAS No. 123R until its first interim or annual reporting
period of the registrant's first fiscal year beginning on or after June 15,
2005. The amendment allows the Company to adopt the provisions of SFAS No 123R
earlier than required. The Company is evaluating in which period it will adopt
SFAS No. 123R.
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, 2005 and 2004, are as follows
(in thousands):
Three months ended Six months ended
June 30, June 30,
--------------------------------------------------
2005 2004 2005 2004
--------------------------------------------------
Net income $ 4,899 $ 3,964 $ 7,773 $ 1,743
Foreign currency translation amounts (2,588) (2,605) (4,412) (723)
--------------------------------------------------
Comprehensive income $ 2,311 $ 1,359 $ 3,361 $ 1,020
==================================================
2. Facility Consolidation Charge
In September 2004, the Company's Australian subsidiary entered into a new
facility lease arrangement, which commenced in the first quarter of 2005. The
Company vacated its previous location in Australia in the first quarter of 2005
and recorded a pre-tax charge of $1.2 million, which included approximately $968
thousand for the present value of estimated lease costs, net of an anticipated
sublease and non-cash losses on the disposal of assets of approximately $235
thousand. If the Company is unsuccessful in terminating the lease, finding a
sub-lessee or if the terms of any sublease are less than this estimate, the
Company may incur additional expenses. Reserve activity for the facility
consolidation as of June 30, 2005 is as follows (in thousands):
Lease
Termination Fixed
Costs Assets Total
----------- ------- -------
Provisions $ 968 $ 235 $ 1,203
Cash usage (90) - (90)
Non-cash usage - (221) (221)
------- ------- -------
March 31, 2005 $ 878 $ 14 $ 892
------- ------- -------
Provisions - - -
Cash usage (114) - (114)
Non-cash usage (11) (7) (18)
------- ------- -------
JUNE 30, 2005 $ 753 $ 7 $ 760
======= ======= =======
Page 9
3. Discontinued Operations
Details of discontinued operations are as follows (in thousands):
Three Months Ended June 30, Six Months Ended June 30,
-------------------------------------------------------
2005 2004 2005 2004
------- ------- ------- -------
Revenue $ - $ - $ - $ 4,037
======= ======= ======= =======
Gain (loss) from discontinued operations
Net operating loss $ (103) $ (49) $ (131) $ (384)
2001 restructuring plan charges (101) (318) (103) (372)
Other - (49) - (1)
------- ------- ------- -------
Total gain (loss) from discontinued operations (204) (416) (234) (757)
------- ------- ------- -------
Gain (loss) on disposal of discontinued operations
2001 restructuring plan charges 11 166 346 (285)
Other (14) 2 (11) (24)
Sale of Brightpoint (Ireland) Limited - 6 - (3,751)
Sale of Brightpoint do Brazil Ltda (584) (584)
------- ------- ------- -------
Total gain (loss) on disposal of discontinued (3) (410) 335 (4,644)
operations
------- ------- ------- -------
Total discontinued operations $ (207) $ (826) $ 101 $(5,401)
======= ======= ======= =======
Net assets, including reserves, related to discontinued operations are
classified in the Consolidated Balance Sheets as follows (in thousands):
JUNE 30, 2005 December 31, 2004
------------------ -------------------
Total current assets $ 736 $ 551
Other non-current assets - 137
------------------ -------------------
Total assets $ 736 $ 688
================== ===================
Accounts payable and accrued expenses $ 701 $ 770
------------------ -------------------
Total liabilities $ 701 $ 770
================== ===================
2001 Restructuring Plan
During 2001, the Company's Board of Directors approved a restructuring plan
("2001 Restructuring Plan") that the Company began to implement in the fourth
quarter of 2001. The primary goal in adopting the 2001 Restructuring Plan was to
better position the Company for long-term and more consistent success by
improving its cost structure and divesting or closing operations in which the
Company believed potential returns were not likely to generate an acceptable
return on invested capital. Therefore, certain operations were sold, or
otherwise discontinued, pursuant to the 2001 Restructuring Plan. In total, the
2001 Restructuring Plan resulted in a headcount reduction of approximately 350
employees across most areas of the Company, including marketing, operations,
finance and administration.
Page 10
2001 Restructuring Plan specific to the China operations
Additionally, pursuant to the 2001 Restructuring Plan, the Company completed in
January 2002, through certain of its subsidiaries, the formation of a joint
venture with Hong Kong-based Chinatron Group Holdings Limited ("Chinatron").
Chinatron is involved in the global wireless industry. In exchange for a 50%
interest in Brightpoint China Limited pursuant to the formation of the joint
venture, the Company received Chinatron Class B Preference Shares with a face
value of $10 million. On April 29, 2002, the Company announced that it had
completed the sale of its remaining 50% interest in Brightpoint China Limited to
Chinatron. Pursuant to this transaction, the Company received additional
Chinatron Class B Preference Shares with a face value of $11 million. In
accordance with SFAS 115, Accounting for Certain Investments in Debt and Equity
Securities, the Company designated the Chinatron Class B Preference Shares as
held-to-maturity. The carrying value of the aggregate $21 million face value of
the Chinatron Class B Preference Shares was $1.6 million at June 30, 2005, and
December 31, 2004. Pursuant to these transactions, Chinatron and the Company
entered into a services agreement, whereby Chinatron provides warehouse
management services in Hong Kong supporting the Company's Brightpoint Asia
Limited operations managed by Persequor Limited.
As of December 31, 2003, actions called for by the 2001 Restructuring Plan were
substantially complete, however, the Company expects to continue to record
adjustments through discontinued operations as necessary. The Company recorded
losses related to the 2001 Restructuring Plan as presented below (in thousands):
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30, JUNE 30,
-------------------------------------------------------
2005 2004 2005 2004
-------------------------------------------------------
Cash charges:
Employee termination costs $ - $ - $ - $ -
Sale of Brightpoint do Brazil Ltda. - 1,138 - 1,138
Other exit costs 101 17 103 92
-------------------------------------------------------
Total cash charges 101 1,155 103 1,230
-------------------------------------------------------
Non-cash charges (credits):
Write-off of Brightpoint do Brazil Ltda. net assets - (203) - (203)
Impairment of accounts receivable and inventories - - - -
Impairment of fixed and other assets - 301 - 614
Income tax effect of restructuring actions - (597) - (618)
Write-off of cumulative foreign currency translation adjustments (11) 80 (346) 218
-------------------------------------------------------
Total non-cash charges (credits) - (419) (346) 11
-------------------------------------------------------
Total restructuring plan charges $ 90 $ 736 $ (243) $ 1,241
=======================================================
Page 11
Utilization of reserves related to the 2001 Restructuring Plan charges discussed
above is as follows (in thousands):
Lease Employee
Termination Termination Other Exit
Costs Costs Costs Total
----------- ----------- ---------- -------
December 31, 2002 $ 205 $ 25 $ 727 $ 957
Provisions (1) 6 - 41 47
Cash usage (201) (25) (214) (440)
Non-cash usage - - (145) (145)
----- ----- ----- -----
December 31, 2003 $ 10 $ - $ 409 $ 419
----- ----- ----- -----
Provisions (1) - - 97 97
Cash usage (10) - (121) (131)
Non-cash usage - - (309) (309)
----- ----- ----- -----
December 31, 2004 $ - $ - $ 76 $ 76
----- ----- ----- -----
Cash usage - - (39) (39)
Non-cash usage - - (3) (3)
----- ----- ----- -----
March 31, 2005 $ - $ - $ 34 $ 34
----- ----- ----- -----
CASH USAGE - - (5) (5)
NON-CASH USAGE - - (5) (5)
----- ----- ----- -----
JUNE 30, 2005 $ - $ - $ 24 $ 24
===== ===== ===== =====
(1) Provisions do not include items that were directly expensed in the
period.
4. Accounts Receivable Transfers
During the six months ended June 30, 2005 and 2004, the Company entered into
certain transactions or agreements with banks and other third-party financing
organizations in Norway and Sweden, with respect to a portion of its accounts
receivable in order to reduce the amount of working capital required to fund
such receivables. During the six month ended June 30, 2004, the Company also
entered into certain transactions or agreements with banks and other third-party
financing organizations in France with respect to a portion of its accounts
receivable. These transactions have been treated as sales pursuant to current
accounting principles generally accepted in the United States and, accordingly,
are accounted for as off-balance sheet arrangements. Net funds received reduced
the accounts receivable outstanding while increasing cash. Fees incurred are
recorded as losses on the sale of assets and are included as a component of "Net
other expenses" in the Consolidated Statements of Income.
Net funds received from the sales of accounts receivable for continuing
operations during the six months ended June 30, 2005 and 2004, totaled $123
million and $184 million, respectively. Fees, in the form of discounts, incurred
in connection with these sales totaled $381 thousand and $541 thousand during
the six months ended June 30, 2005 and 2004, respectively. These fees are
included as a component of "Net other expenses" in the Consolidated Statements
of Income.
The Company is the collection agent on behalf of the bank or other third-party
financing organization for many of these arrangements and has no significant
retained interests or servicing liabilities related to accounts receivable that
it has sold. The Company may be required to repurchase certain accounts
Page 12
receivable sold in certain circumstances, including, but not limited to,
accounts receivable in dispute or otherwise not collectible, accounts receivable
in which credit insurance is not maintained and a violation of, the expiration
or early termination of the agreement pursuant to which these arrangements are
conducted. There were no significant repurchases of accounts receivable sold
during the six months ended June 30, 2005 and 2004. These agreements require the
Company's subsidiaries to provide collateral in the form of pledged assets
and/or, in certain situations, a guarantee by the Company of its subsidiaries'
obligations.
Pursuant to these arrangements, approximately $22 million and $36 million of
trade accounts receivable were sold to and held by banks and other third-party
financing institutions at June 30, 2005 and 2004, respectively. Amounts held by
banks or other financing institutions at June 30, 2005 were for transactions
related to the Company's Norway and Sweden arrangements. All other arrangements
have been terminated or expired.
5. Lines of Credit and Long-term Debt
CREDIT AGREEMENTS OUTSTANDING AT:
------------------------------------
(in thousands) JUNE 30, 2005 December 31, 2004
------------- -----------------
- Asia-Pacific $ 358 $ -
- The Americas - -
- Europe 5,290 -
------------------------------------
Total $ 5,648 $ -
------------------------------------
At June 30, 2005 and December 31, 2004, the Company was in compliance with the
covenants in its credit agreements. Interest expense includes fees paid for
unused capacity on credit lines and amortization of deferred financing fees.
Lines of Credit -Americas Division
On September 23, 2004, the Company's primary North American operating
subsidiaries, Brightpoint North America L.P. and Wireless Fulfillment Services,
LLC (the "Borrowers"), amended their Amended and Restated Credit Facility (the
"Revolver") dated March 18, 2004, between the Borrowers and General Electric
Capital Corporation ("GE Capital"). The amendment reduced the required tangible
net worth covenant by $20 million and allows for further reductions in tangible
net worth equal to the purchase price of any issued and outstanding shares of
common stock of the Company repurchased by the Company in the future. GE Capital
acted as the agent for a syndicate of banks (the "Lenders"). The Revolver
expires in March of 2007. The Revolver provides borrowing availability, subject
to borrowing base calculations and other limitations, of up to a maximum of $70
million and at June 30, 2005, bears interest, at the Borrowers' option, at the
prime rate plus 0.25% or LIBOR plus 1.75%. The applicable interest rate that the
Borrowers are subject to can be adjusted quarterly based upon certain financial
measurements defined in the Revolver. The Revolver is guaranteed by Brightpoint,
Inc., and is secured by, among other things, all of the Borrowers' assets. The
Revolver is subject to certain financial covenants, which include maintaining a
minimum fixed charge coverage ratio. The Revolver is a secured asset-based
facility where a borrowing base is calculated periodically using eligible
accounts receivable and inventory, subject to certain adjustments. Eligible
accounts receivable and inventories fluctuate over time, which can increase or
decrease borrowing availability. The Company also has pledged certain
intellectual property and the capital stock of certain of its subsidiaries as
collateral for the Revolver. At June 30, 2005, and December 31, 2004, there were
no amounts outstanding under the Revolver with available funding, net of the
Page 13
applicable required availability minimum and letters of credit, of approximately
$36 million and $33 million, respectively.
Lines of Credit - Asia-Pacific
In December of 2002, the Company's primary Australian operating subsidiary,
Brightpoint Australia Pty Ltd, entered into a revolving credit facility (the
"Facility") with GE Commercial Finance in Australia. The Facility, which matures
in December of 2005, provides borrowing availability, subject to borrowing base
calculations and other limitations, of up to a maximum amount of 50 million
Australian dollars (approximately $38 million U.S. dollars at June 30, 2005).
Borrowings under the Facility are used for general working capital purposes. The
Facility is subject to certain financial covenants, which include maintaining a
minimum fixed charge coverage ratio and bears interest at the Bank Bill Swap
Reference rate plus 2.9% (totaling 8.63% at June 30, 2005). The Facility is a
secured asset-based facility where a borrowing base is calculated periodically
using eligible accounts receivable and inventory, subject to certain
adjustments. Eligible accounts receivable and inventories fluctuate over time,
which can increase or decrease borrowing availability. At June 30, 2005, and
December 31, 2004, there was no amount outstanding under the facility with
available funding of $30 million and $32 million, respectively.
In July of 2003, the Company's primary operating subsidiary in the Philippines,
Brightpoint Philippines, Inc. ("Brightpoint Philippines") entered into a credit
facility with Banco de Oro. The facility, which matured in April of 2005,
provided borrowing availability, up to a maximum amount of 50 million Philippine
Pesos. In April of 2005 this facility was amended and renewed for another one
year term with Banco de Oro and the borrowing availability was increased to 100
million Pesos (approximately $1.8 million U.S. dollars, at June 30, 2005), and
is guaranteed by Brightpoint, Inc. The facility bears interest at the Prime
Lending Rate (10.25% at June 30, 2005). At June 30, 2005 and December 31, 2004,
the facility had $358 thousand and no amounts outstanding, respectively and
available funding of approximately $1.4 million and $889 thousand, respectively.
In April of 2004, Brightpoint Philippines entered into another credit facility
with Banco de Oro. This facility allows for letters of credit to be issued to
one of Brightpoint Philippine's main suppliers up to a total of $4 million. In
January 2005, a $2 million letter of credit was issued by Banco de Oro on the
Company's behalf to Brightpoint Philippines main supplier and at June 30, 2005,
the facility had no amounts outstanding with $2 million of available funding. At
December 31, 2004, the facility had no amounts outstanding with available
funding of approximately $4 million. The facility bears interest at the Prime
Lending Rate (10.25% at June 30, 2005).
In November 2003, the Company's primary operating subsidiary in New Zealand,
Brightpoint New Zealand Limited, entered into a revolving credit facility with
GE Commercial Finance in Australia. This facility, which matures in November of
2006, provides borrowing availability, subject to borrowing base calculations
and other limitations, of up to a maximum amount of 12 million New Zealand
dollars (approximately $8.4 million U.S. dollars at June 30, 2005). Future
borrowings under the facility will be used for general working capital purposes.
The facility is subject to certain financial covenants, which include
maintaining a minimum fixed charge coverage ratio and bears interest at the New
Zealand Index Rate plus 3.15% (10.15% at June 30, 2004). The facility is a
secured asset-based facility where a borrowing base is calculated periodically
using eligible accounts receivable and inventory, subject to certain
adjustments. Eligible accounts receivable and inventories fluctuate over time,
which can increase or decrease borrowing availability. At June 30, 2005 and
December 31, 2004, there were no amounts outstanding under the facility with
available funding of approximately $6.8 million and $8.5 million, respectively.
Page 14
A $15 million standby letter of credit supporting a credit line issued by a
vendor of the Company's Brightpoint Asia Limited subsidiary has been issued by
financial institutions on the Company's behalf and was outstanding at June 30,
2005 and December 31, 2004; secured by $12 million of cash, the assets of
Brightpoint Asia Limited and a guarantee issued by Brightpoint, Inc. The related
cash collateral has been reported under the heading "Pledged cash" in the
Consolidated Balance Sheets.
Lines of Credit - Europe
The Company's primary operating subsidiary in Sweden, Brightpoint Sweden AB, has
a short-term line of credit facility with SEB Finans AB. The facility has
borrowing availability of up to 15 million Swedish Krona (approximately $1.9
million U.S. dollars at June 30, 2005) and bears interest at the SEB Banken Base
plus 1% (2.75% at June 30, 2005). The facility is supported by a guarantee
provided by the Company. At June 30, 2005 and December 31, 2004, there were no
amounts outstanding under this facility. Available funding was approximately
$1.9 million and $2.2 million as of June 30, 2005 and December 31, 2004,
respectively.
The Company's primary operating subsidiary in France, Brightpoint France,
entered into a short-term line of credit facility with Natexis in the first
quarter of 2005. The facility has overdraft availability of up to 2.5 million
Euro (approximately $3.0 million U.S. dollars at June 30, 2005) and bears
interest at the 3-month Euribor rate plus 2.5% (4.61% at June 30, 2005). The
facility also provides for short-term cash advances on certain accounts
receivable. These advances do not meet the requirements for off-balance sheet
financing under generally accepted accounting principles in the United States
and, therefore, amounts advanced under this portion of the facility are included
on the Consolidated Balance Sheet under lines of credit. The facility is
supported by a guarantee provided by the Company and approximately $650 thousand
in cash collateral that has been reported under the heading "Pledged cash" in
the Consolidated Balance Sheets. At June 30, 2005, there was approximately $5.3
million U.S. dollars outstanding on the facility, with no available funding.
Additionally, in April 2004, Brightpoint France, entered into an accounts
receivable factoring arrangement with GE Factofrance. The arrangement does not
meet the requirements of off-balance sheet financing under current United States
generally accepted accounting principles and therefore amounts advanced under
this facility against receivables not yet collected by GE Factofrance are
included on the Consolidated Balance Sheet under lines of credit. At June 30,
2005, there were no amounts outstanding under this arrangement.
In June 2005, the Company's primary operating subsidiary in the Slovak Republic,
Brightpoint Slovakia s.r.o., entered into a revolving credit facility with Tatra
banka, a.s. This facility, which matures in May of 2006, provides borrowing
availability, subject to borrowing base calculations and other limitations, of
up to a maximum amount of 60 million Slovak crowns (approximately $1.9 million
U.S. dollars at June 30, 2005). The facility bears interest at the 1-month
Bribor rate plus 0.65%. Future borrowings under the facility will be used for
general working capital purposes by Brightpoint Slovakia s.r.o.. At June 30,
2005, there were no amounts outstanding under the facility with available
funding of approximately $1.9 million. The facility is supported by a guarantee
from the Company.
6. Guarantees
In 2002, the Financial Accounting Standards Board issued Interpretation No. 45
(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
Page 15
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 and long-term debt, for which the liability is
recorded in the Company's financial statements. Although the guarantees relating
to lines of credit and long-term debt are excluded from the scope of FIN 45, the
nature of these guarantees and the amount outstanding are described in Note 5 to
the consolidated financial statements.
In some circumstances, the Company purchases inventory with payment terms
requiring letters of credit. As of June 30, 2005, the Company has issued $25
million in standby letters of credit. These standby letters of credit are
generally issued for a one-year term and are supported by either availability
under the Company's credit facilities or cash deposits. 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 $25 million.
Additionally, the Company has issued certain guarantees on behalf of its
subsidiaries with regard to accounts receivable transferred, the nature of which
is described in Note 4. While we do not currently anticipate the funding of
these guarantees, the maximum potential amount of future payments under these
guarantees at June 30, 2005, is approximately $22 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 mitigate the
potential liability and payments.
7. 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, accessory programs and fees from the provision of logistic
services.
Page 16
The Company evaluates the performance of, and allocates resources to, these
segments based on operating income from continuing operations including
allocated corporate selling, general and administrative expenses. All amounts
presented below exclude the results of operations that have been discontinued. A
summary of the Company's operations by segment is presented below (in thousands)
for the three and six months ended June 30, 2005 and 2004:
Operating
Distribution Integrated Logistic Total Income (Loss)
Revenue from Services Revenue Revenue from
External from External from External Continuing
Customers Customers Customers Operations (1)
----------------------------------------------------------------
THREE MONTHS ENDED JUNE 30, 2005:
THE AMERICAS $ 122,568 $ 37,420 $ 159,988 $ 7,222
ASIA-PACIFIC 244,913 6,610 251,523 3,031
EUROPE 70,419 42,010 112,429 (2,241)
----------------------------------------------------------------
$ 437,900 $ 86,040 $ 523,940 $ 8,012
================================================================
Three months ended June 30, 2004:
The Americas $ 97,904 $ 24,069 $ 121,973 $ 3,832
Asia-Pacific 241,295 11,623 252,918 2,906
Europe 58,310 29,873 88,183 442
----------------------------------------------------------------
$ 397,509 $ 65,565 $ 463,074 $ 7,180
================================================================
SIX MONTHS ENDED JUNE 30, 2005:
THE AMERICAS $ 221,641 $ 71,373 $ 293,014 $ 12,758
ASIA-PACIFIC (2) 490,528 13,914 504,442 4,166
EUROPE 132,455 79,642 212,097 (4,671)
----------------------------------------------------------------
$ 844,624 $ 164,929 $1,009,553 $ 12,253
================================================================
Six months ended June 30, 2004:
The Americas $ 193,373 $ 46,896 $ 240,269 $ 6,607
Asia-Pacific 471,001 22,630 493,631 4,777
Europe 111,077 58,307 169,384 (10)
----------------------------------------------------------------
$ 775,451 $ 127,833 $ 903,284 $ 11,374
================================================================
(1) Certain corporate expenses are allocated to the segments based on total
revenue.
(2) Includes $1,203 thousand in facility consolidation charges for Australia
(See Note 2 to the Consolidated Financial statements)
JUNE 30, December 31,
2005 2004
-------- -----------
TOTAL SEGMENT ASSETS:
The Americas (1) $157,822 $152,401
Asia-Pacific 173,756 160,578
Europe 107,906 124,605
-------- --------
$439,484 $437,584
======== ========
(1) Corporate assets are included in the Americas segment.
Page 17
8. 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.
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. The Plaintiff seeks damages in the amount of $750,000 with interest
and costs. The Company continues to dispute these claims and intends to defend
this matter vigorously.
A Complaint was filed on November 23, 2001, against the Company and 87 other
defendants in the United States District Court for the District of Arizona,
entitled Lemelson Medical, Education and Research Foundation LP v. Federal
Express Corporation, et.al., Cause No. CIV01-2287-PHX-PGR. The plaintiff claims
that the Company and other defendants have infringed 7 patents alleged to cover
bar code technology. The case seeks unspecified damages, treble damages and
injunctive relief. The Court has ordered the case stayed pending the decision in
a related case in which a number of bar code equipment manufacturers have sought
a declaration that the patents asserted are invalid and unenforceable. That
trial concluded in January 2003. In January 2004, the Court rendered its
decision that the patents asserted by Lemelson were found to be invalid and
unenforceable. Lemelson filed an appeal to the Court of Appeals for the Federal
Circuit on June 23, 2004. The Company continues to dispute these claims and
intends to defend this matter vigorously.
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 $1.4 million (at current exchange rates) including
penalties and interest. The Company continues to dispute this claim and intends
to defend this matter vigorously.
Page 18
PART I FINANCIAL INFORMATION
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 our financial condition and results of operations are based upon our
consolidated financial statements, which have been prepared in accordance with
accounting principles generally accepted in the United States. The preparation
of financial statements in conformity with generally accepted accounting
principles requires us to make estimates and assumptions that affect 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 are likely to differ from those estimates under
different assumptions or conditions, but we do not believe such differences will
materially affect our financial position or results of operations. Our critical
accounting policies, 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/A, for the year ended December 31, 2004, as amended, 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/A
for the year ended December 31, 2004, as amended.
Our operating results are influenced by a number of seasonal factors, which may
cause our revenue and operating results to fluctuate on a quarterly basis. These
fluctuations are the result of several factors, including, but not limited to:
- promotions and subsidies by wireless network operators;
- the timing of local holidays and other events affecting consumer
demand;
- the timing of the introduction of new products by our suppliers and
competitors;
- purchasing patterns of customers in different markets; and
- weather patterns.
Due to seasonal factors, our interim results may not be indicative of annual
results.
The Company is conducting a review of our operations in France. We are committed
to completing our evaluation of our France operations and exploring various
strategic alternatives to enhance long-term shareholder value including, but not
limited to, the sale, restructuring, closure or other corporate action relating
to all or a portion of these operations. We do not expect to disclose
developments with respect to the exploration of strategic alternatives for our
operations in France unless and until we have entered into a definitive
transaction or other action. There can be no assurance that the Company will
complete any such sale, restructuring, closure or other action relating to all
or a portion of these operations.
Page 19
RESULTS OF OPERATIONS
REVENUE AND WIRELESS DEVICES HANDLED FOR THE THREE MONTHS ENDED JUNE 30, 2005
(Amounts in 000s) Change from
% of % of 2004 to
June 30, 2005 Total June 30, 2004 Total 2005
------------------------------------------------------------------------------
REVENUE BY DIVISION:
The Americas $159,988 31% $121,973 26% 31%
Asia-Pacific 251,523 48% 252,918 55% (1)%
Europe 112,429 21% 88,183 19% 27%
--------------------------------------------------------------------------
Total $523,940 100% $463,074 100% 13%
==========================================================================
REVENUE BY SERVICE LINE:
Distribution $437,900 84% $397,509 86% 10%
Logistic services 86,040 16% 65,565 14% 31%
--------------------------------------------------------------------------
Total $523,940 100% $463,074 100% 13%
==========================================================================
WIRELESS DEVICES HANDLED BY DIVISION:
The Americas 7,441 78% 3,747 63% 99%
Asia-Pacific 1,701 18% 1,966 33% (13)%
Europe 349 4% 209 4% 66%
--------------------------------------------------------------------------
Total 9,491 100% 5,922 100% 60%
==========================================================================
WIRELESS DEVICES HANDLED BY SERVICE LINE:
Distribution 2,724 29% 2,752 46% (1)%
Logistic services 6,766 71% 3,170 54% 113%
--------------------------------------------------------------------------
Total 9,491 100% 5,922 100% 60%
==========================================================================
Globally, the availability of feature rich wireless devices, wireless network
operator promotional activity and compelling pricing by manufacturers continues
to induce subscribers to upgrade their wireless devices. Revenue in the second
quarter of 2005 was $524 million, an increase of 13% from $463 million in the
second quarter of 2004. Wireless devices handled increased by 60% from the
second quarter of 2004 with a continued mix shift from product distribution
sales to fee-based logistic services. Our fee-based logistic services typically
generate less revenue per transaction than our distribution business, which
results in a larger increase in units handled than the increase in revenue. The
revenue increase was attributable to the increased market demand for our
products and services, particularly logistic services which experienced a 113%
increase in volume when compared to the second quarter of 2004. Wireless devices
sold in our distribution business were relatively unchanged, however revenue
increased because of a 7.9% increase in the average selling price of wireless
devices on a constant currency basis. The strengthening of foreign currencies
relative to the U.S. dollar accounted for approximately 3 percentage points of
the 13% increase in revenue.
Wireless devices handled, as compared to the second quarter of 2004:
The number of wireless devices sold through our distribution business
was relatively unchanged compared to the second quarter of 2004. Our
Americas division and Europe division experienced distribution volume
increases of 26% and 16%, respectively driven by increased demand and
improved product availability for LG, Samsung and Nokia products in
North America and High Tech Computer Corporation ("HTC") Qtek branded
smart-phones in Europe. These increases were offset by a 29% decline in
wireless devices sold through our Brightpoint Asia Limited business
primarily because of competitors' trans-shipment of product from Europe
and the Middle East into the markets we serve at price points below
that which were available to us from our suppliers.
Page 20
The number of wireless devices handled through our logistic services
business increased 113%, primarily as a result of increased demand from
current logistic services customers in the Americas division, including
Mobile Virtual Network Operators ("MVNOs") and our entry into the
Slovak Republic in July of 2004 as the provider of logistic services
for a major network operator.
Revenue by division, as compared to the second quarter of 2004:
The 31% revenue increase in our Americas division was attributable to a
99% increase in wireless devices handled which generated increased
revenue for both the Americas distribution business and integrated
logistic services business. Distribution revenue increased 25% and
integrated logistic services revenue increased 55%. Wireless devices
sold through distribution increased 26% and units handled in logistic
services increased 115%. The increase in the Americas division
distribution revenue was primarily the result of increased market
demand and improved product availability, particularly for LG, Samsung
and Nokia products in the United States. The increase in integrated
logistic services revenue in the Americas division was primarily
attributable to increased demand experienced by our network operator
customers, including mobile virtual network operators and expansion of
services to existing customers. The percentage increase in logistic
services revenue in the Americas division was less than the unit growth
rate primarily because of changes in the mix of services provided to
certain customers and the mix of volume between customers.
Revenue in our Asia-Pacific division was relatively unchanged compared
to the second quarter of 2004 as increased volumes in Australia, New
Zealand and India were offset by a 29% decline in the number of
wireless devices sold through our Brightpoint Asia Limited business. An
increase in average selling prices in the Asia-Pacific region of
approximately 15% from the second quarter of 2004 also partially offset
the decline in wireless devices handled through our Brightpoint Asia
Limited business. The increases in Australia, New Zealand and India
were primarily attributable to increased demand fueled by attractive
new product offerings from our suppliers and various network operator
promotional programs. The decline in our Brightpoint Asia Limited
business was primarily due to competitors' trans-shipment of product
from Europe and the Middle East into the markets we serve, at price
points below that which were available to us from our suppliers. The
increase in average selling prices was the result of higher demand for
new higher-priced feature-rich wireless devices primarily driven by
operator promotional activities. The increase in average selling prices
was also impacted by the effect of an increased proportion of units
handled in Australia and New Zealand as compared to Brightpoint Asia
Limited, where price points are generally lower.
The revenue increase in our Europe division of 27% was primarily
attributable to a 66% increase in wireless devices handled due to
increased sales of HTC's Qtek branded smart-phones, network operator
promotional programs in certain markets, our entry into Finland and the
Slovak Republic during the second half of 2004 and expansion of
electronic prepaid card distribution in certain markets.
Revenue by service line, as compared to the second quarter of 2004:
We experienced a 10% increase in revenue from product distribution
primarily as a result of a 7.9% increase in the average selling price
of wireless devices on a constant currency basis and a
Page 21
3% favorable impact of exchange rates on average selling prices. The
average selling price increase was driven by increased demand and
improved product availability for feature-rich products from LG,
Samsung and Nokia in the United States and HTC's Qtek branded
smart-phones in Europe.
We experienced a 31% increase in revenue from fee-based integrated
logistic services primarily as a result of a 113% growth rate in
wireless devices handled because of increased demand from current
logistic services customers, increased sales of prepaid wireless
airtime and our entry into the Slovak Republic in the second half of
2004. The percentage increase in logistic services revenue was less
than the unit growth rate primarily because of changes in the mix of
services provided to certain customers and the mix of volume between
customers.
Revenue change analysis as compared to the second quarter of 2004:
UNITS REVENUE
----- -------
Effect of change in wireless devices handled on revenue (unit volume) 60% 50%
Mix shift of wireless devices handled from product distribution to fee-based
logistic services (48%)
Change in prices 5%
Effect of foreign currency 3%
Other 3%
----
Overall percentage change in revenue 13%
The table above reconciles our wireless device unit growth rate to our
overall revenue growth rate, which includes wireless device revenue
realized through logistic services and distribution, as well as, other
non-wireless device revenue. Although the number of wireless devices
handled grew in the second quarter of 2005 by 60% as compared to the
second quarter of 2004, our revenue growth was 13%. Because we
experienced a significant shift in sales mix from higher-revenue
distribution sales to lower-revenue fee-based logistic services in the
second quarter of 2005 when compared to the second quarter of 2004, the
effect of the 60% increase in unit volume had a lesser impact on
revenue. The effect of the sales mix shift was more noticeable in gross
profit and gross margin, which grew 19% and was up 0.2 percentage
points, respectively. Fee-based logistic services grew from 54% of
total wireless devices handled in 2004 to 71% in 2005.
Page 22
REVENUE AND WIRELESS DEVICES HANDLED FOR THE SIX MONTHS ENDED JUNE 30, 2005
(Amounts in 000s)
------------------------------------------------------------------- Change from
% of % of 2004 to
June 30, 2005 Total June 30, 2004 Total 2005
-----------------------------------------------------------------------------------
REVENUE BY DIVISION:
The Americas $ 293,014 29% $ 240,269 26% 22%
Asia-Pacific 504,442 50% 493,631 55% 2%
Europe 212,097 21% 169,384 19% 25%
--------------------------------------------------------------------------------
Total $1,009,553 100% $ 903,284 100% 12%
================================================================================
REVENUE BY SERVICE LINE:
Distribution $ 844,624 84% $ 775,451 86% 9%
Logistic services 164,929 16% 127,833 14% 29%
--------------------------------------------------------------------------------
Total $1,009,553 100% $ 903,284 100% 12%
================================================================================
WIRELESS DEVICES HANDLED BY DIVISION:
The Americas 13,055 76% 7,677 66% 70%
Asia-Pacific 3,458 20% 3,510 30% (2)%
Europe 602 4% 413 4% 46%
--------------------------------------------------------------------------------
Total 17,115 100% 11,600 100% 48%
================================================================================
WIRELESS DEVICES HANDLED BY SERVICE LINE:
Distribution 5,324 31% 5,122 44% 4%
Logistic services 11,791 69% 6,478 56% 82%
--------------------------------------------------------------------------------
Total 17,115 100% 11,600 100% 48%
================================================================================
Revenue in the six months ended June 30, 2005 was $1.0 billion, an increase of
12% from $903 million in the six months ended June 30, 2004. The number of
wireless devices handled in the six months ended June 30, 2005 increased by 48%
from the six months ended June 30, 2004 with a continued mix shift from product
distribution sales to fee-based logistic services. Our fee-based logistic
services typically generate less revenue per transaction than our distribution
business, which results in a larger increase in units handled than the increase
in revenue. The revenue increase was primarily attributable to increased market
demand for our products and services, particularly fee-based logistic services
which experienced an 82% increase in volume when compared to the six months
ended June 30, 2004. Units sold in our distribution business in the six months
ended June 30, 2005 increased 4% and revenue increased 9% compared to the six
months ended June 30, 2004 primarily because of a 2.3% increase in the average
selling price of wireless devices on a constant currency basis. This increase
was driven by increased demand and improved product availability for
feature-rich products from LG, Samsung and Nokia in the United States and HTC's
Qtek branded smart-phones in Europe. The strengthening of foreign currencies
relative to the U.S. dollar accounted for approximately 2 percentage points of
the increase in revenue.
Wireless devices handled, as compared to the six months ended June 30, 2004:
The number of wireless devices sold through our distribution business
increased 4% compared to the six months ended June 30, 2004. Our
Americas division and Europe divisions experienced volume increases of
15% and 7%, respectively driven by increased demand and improved
product availability for feature-rich products from LG, Samsung and
Nokia in the United States and HTC's Qtek branded smart-phones in our
Europe division. These increases were offset by an 11% decline
Page 23
in wireless devices sold through our Brightpoint Asia Limited
business. This decline was primarily due to competitors'
trans-shipment of product from Europe and the Middle East during the
second quarter of 2005 into the markets we serve, at price points
below that which were available to us from our suppliers.
The number of wireless devices handled through our integrated logistic
services business increased 82%, primarily as a result of increased
demand from current logistic services customers in the Americas
division, including MVNOs, and our entry into the Slovak Republic in
July of 2004 as the provider of logistic services for a major network
operator.
Revenue by division, as compared to the six months ended June 30, 2004:
The 22% revenue increase in the Americas division was primarily
attributable to a 70% increase in wireless devices handled which
generated increased revenue for both the Americas distribution business
and integrated logistic services business. Distribution revenue
increased 9% and fee-based logistic services revenue increased 29%.
Wireless devices sold through distribution increased 15% and units
handled in logistic services increased 82%. The increase in the
Americas division distribution revenue was primarily the result of
increased market demand and improved product availability, particularly
for LG, Samsung and Nokia products in the United States. The increase
in integrated logistic services revenue was primarily attributable to
increased demand experienced by our network operator customers,
including MVNOs, and expansion of services to our existing customers.
Revenue in the Americas division was also impacted by an increase in
sales of prepaid wireless airtime and an increased level of activations
in our channel development services business in the United States. The
percentage increase in logistic services revenue in the Americas
division was less than the unit growth rate due to changes in the mix
of services provided to certain customers and the mix of volume between
customers.
Revenue in our Asia-Pacific division increased 2% when compared to the
six months ended June 30, 2004, due to an increase in average selling
prices in our Asia-Pacific division of approximately 4%. The increase
in average selling prices was the result of higher demand for new
higher-priced feature-rich wireless devices driven by operator
promotional activities. Increased unit volumes in Australia, New
Zealand and India were more than offset by an 11% decline in wireless
devices sold through our Brightpoint Asia Limited business. The
increase in units handled in Australia, New Zealand and India resulted
from attractive new product offerings from our suppliers and various
network operator promotional programs in certain markets. The decline
in our Brightpoint Asia Limited units handled was primarily due to
competitors' trans-shipment of product from Europe and the Middle East
during the second quarter of 2005 into the markets we serve, at price
points below that which were available to us from our suppliers.
The revenue increase in our Europe division of 25% was primarily
attributable to a 46% increase in wireless devices handled due to
increased sales of HTC's Qtek branded smart-phones, network operator
promotional programs in certain markets, our entry into Finland and the
Slovak Republic during the second half of 2004 and expansion of
electronic prepaid card distribution in certain markets.
Page 24
Revenue by service line, as compared to the six months ended June 30, 2004:
We experienced a 9% increase in revenue from product distribution
primarily as a result of a 4% increase in units sold and a 2.3%
increase in the average selling price of wireless devices on a constant
currency basis. These increases were driven by increased demand and
improved product availability for feature-rich products from LG,
Samsung and Nokia in the United States and HTC's Qtek branded
smart-phones in Europe, partially offset by the decline in units sold
by our Brightpoint Asia Limited business as discussed above.
We experienced a 29% increase in revenue from fee-based integrated
logistic services primarily as a result of an 82% growth rate in the
number of wireless devices handled due to increased demand from our
current logistic services customers, increased sales of prepaid
wireless airtime and our entry into the Slovak Republic in the second
half of 2004. The percentage increase in fee-based logistic services
revenue was less than the unit growth rate due to changes in the mix of
services provided to certain customers and the mix of volume between
customers.
Gross Profit and Gross Margin
Three Months Ended Six Months Ended Percent Change
------------------------- ------------------------- ------------------------
(Amounts in 000s) JUNE 30, June 30, June 30, June 30, Q2 2004 to YTD 2004 to
2005 2004 2005 2004 Q2 2005 YTD 2005
--------------------------------------------------------------------------------------------------------
Distribution $ 14,436 $ 14,792 $ 30,575 $ 28,073 (2)% 9%
Logistic services 17,184 11,851 29,342 22,637 45% 30%
--------------------------------------------------------------------------------------------------------
Gross profit $ 31,620 $ 26,643 $ 59,917 $ 50,710 19% 18%
--------------------------------------------------------------------------------------------------------
Distribution 3.3% 3.7% 3.6% 3.6% (.4)pts 0pts
Logistic services 20.0% 18.1% 17.8% 17.7% 1.9pts .1pts
--------------------------------------------------------------------------------------------------------
Gross margin 6.0% 5.8% 5.9% 5.6% .2pts .3pts
--------------------------------------------------------------------------------------------------------
Gross profit and gross margin by service line, as compared to the second quarter
of 2004:
The overall 19% increase in gross profit was primarily attributable to
a 60% increase in wireless devices handled and the related 13% increase
in total revenue. The 0.2 percentage point increase in gross margin was
primarily the result of the shift in the mix of our total revenues from
lower margin distribution business to higher margin fee-based logistic
services. Logistic services grew from 54% of total wireless devices
handled in the second quarter of 2004 to 71% in the second quarter of
2005.
The 2% decrease in gross profit from product distribution was primarily
attributable to a decline in gross margin resulting pricing pressures
related to handsets distributed by our Brightpoint Asia Limited
operations. During the second quarter of 2005, we experienced declines
in volume and gross profit in our Brightpoint Asia Limited business due
to competitors' trans-shipment of product from Europe and the Middle
East into the markets we serve, at price points below that which were
available to us from our suppliers.
The 45% increase in gross profit from integrated logistic services was
attributable to a 31% increase in logistic services revenue and a gross
margin increase of 1.9 percentage points. The
Page 25
increase in gross margin from integrated logistic services reflects the
positive impact of lower costs per unit resulting from efficiencies and
increased logistic services unit volume partially offset by declines in
logistic services' average selling prices.
Gross profit and margin by service line, as compared to the six months ended
June 30, 2004:
The overall 18% increase in gross profit was primarily attributable to
a 48% increase in wireless devices handled and the related 12% increase
in total revenue. The 0.3 percentage point increase in gross margin was
primarily the result of the shift in the mix of our total revenues from
lower margin distribution business to higher margin fee-based logistic
services. Logistic services grew from 56% of total wireless devices
handled in the six months ended June 30, 2004 to 69% in the six months
ended June 30, 2005.
The 9% increase in gross profit from product distribution revenue was
primarily attributable to a 4% increase in units sold and a 2.3%
increase in the average selling price of wireless devices on a constant
currency basis, which generated a 9% increase in distribution revenue.
Gross margins were consistent on a year-over-year basis at 3.6%.
The 30% increase in gross profit from integrated logistic services was
attributable to a 29% increase in logistic services revenue and a gross
margin increase of 0.1 percentage points. The increase in gross margin
from integrated logistic services reflects the positive impact of lower
costs per unit resulting from efficiencies and increased logistic
services unit volume partially offset by declines in logistic services'
average selling prices.
Selling, General and Administrative Expenses
Three Months Ended Six Months Ended Percent Change
------------------------- ------------------------- ---------------------------
(Amounts in 000s) JUNE 30, June 30, June 30, Q2 2004 to YTD 2004 to
2005 2004 June 30, 2005 2004 Q2 2005 YTD 2005
---------------------------------------------------------------------------------------------------------------------
Selling, general and $ 23,608 $ 19,678 $ 46,461 $ 39,551 20% 17%
administrative expenses
As a percent of revenue 4.5% 4.2% 4.6% 4.4% .3pts .2pts
---------------------------------------------------------------------------------------------------------------------
As compared to the second quarter of 2004, SG&A expenses increased 20% in
comparison with a 13% increase in revenue and a 19% increase in gross profit.
The $3.9 million increase in SG&A spending partially resulted from $900 thousand
in employee severance and settlement payments primarily related to the
resignations of our Senior Vice President, Corporate Controller and Chief
Accounting Officer and Executive Vice President, Chief Financial Officer and
Treasurer and settlement of former employee disputes in our France operations
and Corporate headquarters. SG&A spending was also impacted by $900 thousand in
increased costs in our Americas division due to the increase in wireless devices
handled in our logistic services business, an estimated $700 thousand
unfavorable effect of the strengthening of foreign currencies relative to the
U.S. dollar, $400 thousand in legal and professional fees related to our
on-going evaluation and improvement of our internal controls in France and
Australia and $500 thousand in SG&A expense associated with our entry into the
Slovak Republic and Finland in the second half of 2004.
Page 26
As compared to the six months ended June 30, 2004, SG&A expenses increased 17%
in comparison with a 12% increase in revenue and an 18% increase in gross
profit. The $6.9 million increase in SG&A spending partially resulted from an
estimated $1.3 million unfavorable effect of the strengthening of foreign
currencies relative to the U.S. dollar, $900 thousand in increased costs in our
Americas division due to the increase in wireless devices handled in our
logistic services business and $900 thousand in employee severance and
settlement payments primarily related to the resignations of our Senior Vice
President, Corporate Controller and Chief Accounting Officer and Executive Vice
President, Chief Financial Officer and Treasurer and settlement of former
employee disputes in our France operations and Corporate headquarters. SG&A
spending was also impacted by a $950 thousand increase in bad debt expense in
our France operations, $500 thousand of professional fees, travel expenses and
other costs pertaining to the evaluation of potential geographic expansion
opportunities in our Europe and Asia-Pacific divisions which we currently
believe will not be consummated, $400 thousand in legal and professional fees
related to our on going evaluation and improvement of our internal controls in
France and Australia and $1.4 million in SG&A expense associated with our entry
into the Slovak Republic and Finland in the second half of 2004.
Facility Consolidation Charge
In September 2004, our Australian subsidiary entered into a new facility lease
arrangement, which commenced in the first quarter of 2005. We vacated our
previous location in Australia in the first quarter of 2005 and recorded a
pre-tax charge of $1.2 million, which included approximately $968 thousand for
the present value of estimated lease costs, net of an anticipated sublease, and
non-cash losses on the disposal of assets of approximately $235 thousand. If we
are unsuccessful in terminating the lease, finding a sub-lessee or if the terms
of any sublease are less than this estimate, we may incur additional expenses.
See Note 2 to the Consolidated Financial Statements for further discussion.
Operating Income from Continuing Operations
Three Months Ended Six Months Ended Percent Change
------------------------ ------------------------ --------------------------
(Amounts in 000s) JUNE 30, June 30, June 30, June 30, Q2 2004 to YTD 2004 to
2005 2004 2005 2004 Q2 2005 YTD 2005
--------------------------------------------------------------------------------------------------------
OPERATING INCOME:
The Americas $ 7,222 $ 3,832 $ 12,758 $ 6,607 88% 93%
Asia-Pacific (1) 3,031 2,906 4,166 4,777 4% (13)%
Europe (2,241) 442 (4,671) (10) NM% NM%
--------------------------------------------------------------------------------------------------------
Total $ 8,012 $ 7,180 $ 12,253 $ 11,374 12% 8%
========================================================================================================
Includes a facility consolidation charge of $1.2 million for the six months
ended June 30, 2005.
As compared to the second quarter of 2004, operating income from continuing
operations increased $832 thousand. The increase in operating income from
continuing operations was primarily a result of the 13% increase in revenue and
an associated 19% increase in gross profit, partially offset by a 20% increase
in SG&A expenses. Operating income from continuing operations was negatively
impacted primarily due to $900 thousand in employee severance and settlement
payments, $800 thousand of operating losses relating to our France operations
and $400 thousand in legal and professional fees related to our on-going
evaluation and improvement of our internal controls in France and Australia.
The increased operating income from continuing operations for the second quarter
of 2005 when compared to the second quarter of 2004 in our Americas division is
primarily due to a 99% increase in
Page 27
wireless devices handled, partially offset by increased SG&A costs related to
the increase in wireless devices handled in our logistic services business.
The increased operating income from continuing operations for the second quarter
of 2005 when compared to the second quarter of 2004 in our Asia-Pacific division
is primarily due to the favorable impact of $560 thousand of gross profit from
an agreement to retain airtime commissions with a mobile operator in the
Asia-Pacific division partially offset by pricing pressures related to handsets
distributed through our Brightpoint Asia Limited operations. During the second
quarter of 2005 we experienced declines in volume and gross profit in our
Brightpoint Asia Limited business due to competitors' trans-shipment of product
from Europe and the Middle East into the markets we serve, at price points below
that which were available to us from our suppliers.
The operating loss for the second quarter of 2005 in the Europe division was
primarily due to operating losses of approximately $800 thousand in France,
product write-downs of $556 thousand associated with certain wireless devices at
the end of their product life cycle, settlement of former employee disputes of
approximately $233 thousand in France and decreased demand for our products and
services in Sweden.
As compared to the six months ended June 30, 2004, operating income from
continuing operations increased $879 thousand. The increase in operating income
from continuing operations was primarily a result of the 12% increase in revenue
and an associated 18% increase in gross profit, partially offset by a 17%
increase in SG&A expenses. Operating income from continuing operations was
negatively impacted by $4.4 million in operating losses relating to our France
operations, $500 thousand of professional fees, travel expenses and other costs
pertaining to the evaluation of potential geographic expansion opportunities in
our Europe and Asia-Pacific divisions which we currently believe will not be
consummated, $400 thousand in legal and professional fees related to our
on-going evaluation and improvement of our internal controls in France and
Australia and the $1.2 million facility consolidation charge in Australia.
Income from Continuing Operations
Three Months Ended Six Months Ended
---------------------------- --------------------------
JUNE 30, June 30, June 30, June 30,
(Amounts in 000s) 2005 2004 2005 2004
--------------------------------------------------------------------------------------------
Income from continuing $ 5,106 $ 4,790 $ 7,672 $ 7,144
operations
As a percent of revenue 1.0% 1.0% 0.8% 0.8%
Diluted shares outstanding 18,230 19,622 18,272 19,784
Income per diluted share from
continuing operations $ 0.28 $ 0.24 $ 0.42 $ 0.36
Income from continuing operations, as compared to the second quarter of 2004:
Income from continuing operations increased by $316 thousand or 7%. The increase
was primarily a result of the 13% increase in revenue and an associated 19%
increase in gross profit, partially offset by a 20% increase in SG&A expenses.
Income from continuing operations was negatively impacted primarily due to $900
thousand in employee severance and settlement payments, $800 thousand of
operating losses
Page 28
relating to our France operations and $400 thousand in legal and professional
fees related to our on going evaluation and improvement of our internal controls
in France and Australia.
Income per diluted share from continuing operations was $0.28 for the second
quarter of 2005, as compared to $0.24 in the second quarter of 2004. The
reduction in diluted shares outstanding is attributable to the repurchase of
approximately 2.1 million shares of the Company's common stock pursuant to the
previously approved and announced share repurchase plans
Income from continuing operations, as compared to the six months ended June 30,
2004:
Income from continuing operations increased by $528 thousand or 7%. The increase
was primarily a result of the 12% increase in revenue and an associated 18%
increase in gross profit, partially offset by a 17% increase in SG&A expenses.
Income from continuing operations was negatively impacted by $4.4 million in
operating losses relating to our France operations, $500 thousand of
professional fees, travel expenses and other costs pertaining to the evaluation
of potential geographic expansion opportunities in our Europe and Asia-Pacific
divisions which we currently believe will not be consummated, $400 thousand in
legal and professional fees related to our on-going evaluation and improvement
of our internal controls in France and Australia and the $1.2 million facility
consolidation charge in Australia.
Income per diluted share from continuing operations was $0.42 for the six months
ended June 30, 2005, as compared to $0.36 for the six months ended June 30,
2004. The reduction in diluted shares outstanding is attributable to the
repurchase of approximately 2.1 million shares of our common stock pursuant to
the previously approved and announced share repurchase plans
Discontinued Operations
Three Months Ended Six Months Ended
----------------------- --------------------
(Amounts in 000s) JUNE 30, June 30, June 30, June 30,
2005 2004 2005 2004
----------------------------------------------------------------------------------------------------
Loss from discontinued operations $ (204) $ (416) $ (234) $ (757)
Income (loss) on disposal of discontinued
operations (3) (410) 335 (4,644)
----------------------- --------------------
Total discontinued operations $ (207) $ (826) $ 101 $(5,401)
Loss per diluted share from discontinued
operations $(0.01) $ (0.04) $ 0.01 $ (0.27)
The total loss from discontinued operations in the second quarter of 2005 was
primarily attributable to income taxes, professional services and liquidation
fees.
The loss on disposal of discontinued operations in the second quarter of 2004
was mostly related to a $584 thousand loss on the sale of the Company's
subsidiary, Brightpoint do Brazil Ltda., partially offset by unrealized foreign
currency translation gains caused by the strengthening of the U.S. dollar
relative to certain foreign currencies.
The total loss from discontinued operations in the six months ended June 30,
2005 was primarily attributable to income taxes, professional services and
liquidation fees.
Page 29
The loss from discontinued operations for the six months ended June 30, 2004 was
mainly ascribable to losses incurred in Brightpoint Ireland's operations, an
unrealizable asset written off and various professional and liquidation fees.
The loss on disposal of discontinued operations for the six months ended June
30, 2004, was primarily attributable to a $3.8 million loss on the sale of
Brightpoint Ireland and a $584 thousand loss on the sale of our subsidiary,
Brightpoint do Brazil Ltda., partially offset by unrealized foreign currency
translation gains caused by the strengthening of the U.S. dollar relative to
certain foreign currencies. On February 19, 2004, the Company's subsidiary,
Brightpoint Holdings B.V., completed the sale of its 100% interest in
Brightpoint Ireland to Celtic Telecom Consultants Ltd. Cash consideration for
the sale was approximately $1.7 million. The $3.8 million loss included the
non-cash write-off of approximately $1.6 million of cumulative currency
translation adjustments.
Net Income
Three Months Ended Six Months Ended
------------------------ ------------------------
JUNE 30, June 30, June 30, June 30,
(Amounts in 000s) 2005 2004 2005 2004
-----------------------------------------------------------------------------------
Net income $ 4,899 $ 3,964 $ 7,773 $ 1,743
As a percent of revenue 0.9% 0.9% 0.8% 0.2%
Diluted shares outstanding 18,230 19,622 18,272 19,784
Earnings per diluted share $ 0.27 $ 0.20 $ 0.43 $ 0.09
Net income increased 24% for the second quarter of 2005 to $4.9 million, or
$0.27 per diluted share compared to net income in the second quarter of 2004 of
$4.0 million or $0.20 per diluted share. The increase was primarily a result of
a 7% increase in income from continuing operations which was attributable to the
13% increase in revenue and an associated 19% increase in gross profit,
partially offset by a 20% increase in SG&A expenses. Net income was negatively
impacted primarily due to $900 thousand in employee severance and settlement
payments, $800 thousand of operating losses relating to our France operations
and $400 thousand in legal and professional fees related to our on going
evaluation and improvement of our internal controls in France and Australia..
Net income for the six months ended June 30, 2005 was $7.8 million, or $0.43 per
diluted share compared to net income in the six months ended June 30, 2004 of
$1.7 million or $0.09 per diluted share. The increase was primarily a result of
a $5.5 million improvement in discontinued operations and a 7% increase in
income from continuing operations which was attributable to the 12% increase in
revenue and an associated 18% increase in gross profit, partially offset by a
17% increase in SG&A expenses. Net income for the six months ended June 30, 2005
was negatively impacted by $4.4 million in operating losses relating to our
France operations, $500 thousand of professional fees, travel expenses and other
costs pertaining to the evaluation of potential geographic expansion
opportunities in our Europe and Asia-Pacific divisions which we currently
believe will not be consummated, $400 thousand in legal and professional fees
related to our on-going evaluation and improvement of our internal controls in
France and Australia and the $1.2 million facility consolidation charge in
Australia.
Page 30
RETURN ON INVESTED CAPITAL FROM OPERATIONS, LIQUIDITY AND CAPITAL RESOURCES
RETURN ON INVESTED CAPITAL FROM OPERATIONS ("ROIC")
We believe that it is equally important for our business to manage its balance
sheet as its statement of operations. A measurement that ties the statement of
operation performance with the balance sheet performance is Return on Invested
Capital from Operations, or ROIC. We believe if we are able to grow our earnings
while minimizing the use of invested capital, we will be optimizing shareholder
value and concurrently preserving resources in preparation for further potential
growth opportunities. We take a simple approach in calculating ROIC: we apply an
estimated average tax rate to the operating income of our continuing operations
with adjustments for unusual items, such as facility consolidation charges, and
apply this tax-adjusted operating income to our average capital base, which, in
our case, is our shareholders' equity and debt.
The details of this measurement are outlined below.
THREE MONTHS ENDED TRAILING TWELVE MONTHS ENDED
------------------------- ----------------------------
JUNE 30, JUNE 30, JUNE 30, JUNE 30,
2005 2004 2005 2004
--------- --------- --------- ---------
Operating income after taxes:
Operating income from
continuing operations $ 8,012 $ 7,180 $ 31,810 $ 29,366
Plus: Facility consolidation charge
(benefit) - (215) 1,182 785
Less: Estimated income taxes(1) (2,404) (1,857) (9,889) (8,183)
--------- --------- --------- ---------
Operating income after taxes $ 5,608 $ 5,108 $ 23,103 $ 21,968
========= ========= ========= =========
Invested capital:
Debt $ 5,648 $ 832 $ 5,648 $ 832
Shareholders' equity 147,140 128,980 147,140 128,980
--------- --------- --------- ---------
Invested capital $ 152,788 $ 129,812 $ 152,788 $ 129,812
========= ========= ========= =========
Average invested capital (2) $ 152,631 $ 138,684 $ 144,760 $ 141,543
========= ========= ========= =========
ROIC (3) 15% 15% 16% 16%
========= ========= ========= =========
(1) Estimated income taxes were calculated by multiplying the sum of operating
income from continuing operations and the facility consolidation charge by
the respective periods' effective tax rate.
(2) Average invested capital for quarterly periods represents the simple average
of the beginning and ending invested capital amounts for the respective
quarter. Average invested capital for the trailing twelve month periods
represents the average of the ending invested capital amounts for the
current and four prior quarter period ends.
(3) ROIC is calculated by dividing operating income after taxes by average
invested capital. ROIC for quarterly periods is stated on an annualized
basis and is calculated by dividing operating income after taxes by average
invested capital and multiplying the result by four (4) to state ROIC on an
annualized basis.
Page 31
CASH CONVERSION CYCLE
Management utilizes the cash conversion cycle days metric and its components to
evaluate the Company's ability to manage its working capital and its cash flow
performance. Cash conversion cycle days and its components for the quarters
ending June 30, 2005 and 2004, were as follows:
Three Months Ended
---------------------
JUNE 30, June 30,
2005 2004
---------------------
Days sales outstanding in accounts receivable 22 21
Days inventory on-hand 23 24
Days payable outstanding (39) (39)
---- ---
Cash Conversion Cycle Days 6 6
==== ===
A key source of our liquidity is our ability to invest in inventory, sell the
inventory to our customers, collect cash from our customers, and pay our
suppliers. We refer to this as the cash conversion cycle. For additional
information regarding this measurement and the detail calculation of the
components of the cash conversion cycle, please refer to our Annual Report on
Form 10-K/A, as amended, for the year ended December 31, 2004.
During the second quarters of 2005 and 2004 our cash conversion cycle was 6
days. On year over year basis we have been able to manage our working capital
consistently for all the components of cash conversion cycle days.
Six days is a low number for a distribution company and it is unlikely that we
can sustain this short cycle for an extended period of time. Increases in the
cash conversion cycle would have the effect of consuming our cash, potentially
causing us to borrow from lenders or issuing common stock to fund the related
increase in working capital. Our potential investments in new markets may cause
us to increase our inventory levels in conditions where our customer base is
relatively new and whose purchasing behavior is less predictable. This situation
can have the effect of increasing our cash conversion cycle and consequently
consume our cash or increase our debt levels.
CONSOLIDATED STATEMENTS OF CASH FLOWS
We use the indirect method of preparing and presenting our statements of cash
flows. In our opinion, it is more practical than the direct method and provides
the reader with a good perspective and analysis of the Company's cash flows.
OPERATING ACTIVITIES
For the six months ended June 30, 2005, net cash provided by operating
activities was $14.7 million. Net cash provided by operating activities was
primarily due to net income of $7.8 million, depreciation and amortization of
$5.8 million, a $1.0 million decrease in operating assets and liabilities
consisting primarily of a changes in accounts receivable, inventories and
accounts payable, a reduction in pledged cash of $1.1 million, partially offset
by a change in deferred taxes of $1.5 million.
Page 32
JUNE 30, December 31,
(Amounts in 000s) 2005 2004
-------- ------------
Working capital $ 95,034 $ 94,667
Current ratio 1.33 : 1 1.33 : 1
We have historically satisfied our working capital requirements principally
through cash flow from operations, vendor financing, bank borrowings and the
issuance of equity and debt securities. We believe that cash flow from
operations and available bank borrowings will be sufficient to continue funding
our short-term capital requirements. However, significant changes in our
business model, significant operating losses or expansion of operations in the
future may require us to seek additional and alternative sources of capital.
Consequently, there can be no assurance that we will be able to obtain any
additional funding on terms acceptable to us or at all.
INVESTING ACTIVITIES
For the six months ended June 30, 2005, net cash used by investing activities
was $4.3 million. Net cash used by investing activities was primarily due to
$6.0 million used for capital expenditures and a $1.0 million increase in funded
contract financing receivables. These uses of cash were partially offset by a
decrease in other assets due to the repayment of a note receivable that was
issued as a part of the divestiture of our former Middle East operations in
2002. Capital expenditures were primarily directed toward improving our
information systems, particularly in the United States, the expansion of our
warranty and non-warranty repair business in India and moving our operations in
Australia into a new facility. We offer financing of inventory and receivables
to certain network operator customers and their agents and manufacturer
customers under contractual arrangements. Under these contracts, we manage and
finance inventories and receivables for these customers resulting in a contract
financing receivable. The change in contract financing receivables is typically
due to timing of product receipts at the end of each quarter.
FINANCING ACTIVITIES
For the six months ended June 30, 2005, net cash used in financing activities
was $2.6 million. Net cash used in financing activities was primarily comprised
of $9.0 million of repurchases of our common stock, partially offset by net
borrowings on credit facilities of $5.6 million. On November 30, 2004, we
announced that our Board of Directors had approved a share repurchase program
authorizing the Company to repurchase up to $20 million of the Company's common
stock by December 31, 2005. During the six months ended June 30, 2005, the
Company repurchased approximately 471 thousand shares of its own common stock at
an average price of $19.11 per share, totaling $9.0 million. As of June 30,
2005, approximately $7.0 million may be used to purchase additional shares under
this program.
Page 33
Detail of the 2005 repurchases is provided in the table below.
Issuer purchases of equity securities:
Total number of Total amount Maximum dollar value of
Total number Average shares purchased as purchased as part of shares that may yet be
of shares price paid part of the publicly the publicly purchased under the
Month of purchase purchased per share announced program announced program program
----------------- ------------ ---------- -------------------- -------------------- ------------------------
January 2005 150,300 $19.40 150,300 $ 2,915,706 $13,071,524
February 2005 75,000 $19.27 75,000 1,445,495 11,626,029
March 2005 2,100 $18.06 2,100 37,922 11,588,107
April 2005 - - - - 11,588,107
May 2005 216,150 $18.85 216,150 4,073,923 7,514,184
June 2005 27,500 $19.29 27,500 530,580 6,983,604
------- ------ ------- ----------- -----------
Total/Average 471,050 $19.11 471,050 $ 9,003,626 $ 6,983,604
------- ------ ------- ----------- -----------
LINES OF CREDIT
The table below summarizes lines of credit that were available to the Company as
of June 30, 2005:
(Amounts in 000s) Gross Letters of Credit &
Commitment Availability Outstanding Guarantees Net Availability
---------- ------------ ----------- ------------------- ----------------
North America $ 70,000 $ 39,913 $ - $ 4,000 $ 35,913
Australia 38,120 33,806 - 4,258 29,548
New Zealand 8,369 6,842 - 21 6,821
France 5,290 5,290 5,290 - -
Sweden 1,921 1,921 - - 1,921
Slovak Republic 1,893 1,893 - - 1,893
Philippines 5,786 5,787 358 2,000 3,429
---------- -------- ----------- ----------- --------
Total $ 131,379 $ 95,452 $ 5,648 $ 10,279 $ 79,525
========== ======== =========== ============ =========
Additional details on the above lines of credit are disclosed in Note 5 of the
Notes to Consolidated Financial Statements. Interest payments were approximately
$687 thousand and $1.3 million for the three and six months ended June 30, 2005.
Interest expense includes fees paid for unused capacity on credit lines and
amortization of deferred financing fees.
OFF-BALANCE SHEET ARRANGEMENTS - ACCOUNTS RECEIVABLES TRANSFERS
During the six months ended June 30, 2005 and 2004, we entered into certain
transactions or agreements with banks and other third-party financing
organizations in Norway and Sweden, with respect to a portion of our accounts
receivable in order to reduce the amount of working capital required to fund
such receivables. During the six month ended June 30, 2004, we also entered into
certain transactions or agreements with banks and other third-party financing
organizations in France with respect to a portion of our accounts receivable.
These transactions have been treated as sales pursuant to current accounting
principles generally accepted in the United States and, accordingly, are
accounted for as off-balance sheet arrangements. Net funds received reduced the
accounts receivable outstanding while increasing cash. Fees incurred are
recorded as losses on the sale of assets and are included as a component of "Net
other expenses" in the Consolidated Statements of Income.
Page 34
Net funds received from the sales of accounts receivable for continuing
operations during the six months ended June 30, 2005 and 2004, totaled $123
million and $184 million, respectively. Fees, in the form of discounts, incurred
in connection with these sales totaled $381 thousand and $541 thousand during
the six months ended June 30, 2005 and 2004, respectively. These fees are
included as a component of "Net other expenses" in the Consolidated Statements
of Income.
The Company is the collection agent on behalf of the bank or other third-party
financing organization for many of these arrangements and has no significant
retained interests or servicing liabilities related to accounts receivable that
it has sold. We may be required to repurchase certain accounts receivable sold
in certain circumstances, including, but not limited to, accounts receivable in
dispute or otherwise not collectible, accounts receivable in which credit
insurance is not maintained and a violation of, the expiration or early
termination of the agreement pursuant to which these arrangements are conducted.
There were no significant repurchases of accounts receivable sold during the six
months ended June 30, 2005 and 2004. These agreements require our subsidiaries
to provide collateral in the form of pledged assets and/or, in certain
situations, a guarantee by us of our subsidiaries' obligations.
Pursuant to these arrangements, approximately $22 million and $36 million of
trade accounts receivable were sold to and held by banks and other third-party
financing institutions at June 30, 2005 and 2004, respectively. Amounts held by
banks or other financing institutions at June 30, 2005 were for transactions
related to our Norway and Sweden arrangements. All other arrangements have been
terminated or expired.
LIQUIDITY ANALYSIS
Our measurement for liquidity is the summation of total unrestricted cash and
unused borrowing availability. We use this measurement as an indicator of how
much access to cash we have to either grow the business through investment in
new markets, acquisitions, or through expansion of existing service or product
lines or to contend with adversity such as unforeseen operating losses
potentially caused by reduced demand for our products and services, a material
uncollectible accounts receivable, or a material inventory write-down, as
examples.
The table below shows this calculation.
(Amounts in 000s) JUNE 30, December 31,
2005 2004 % Change
--------- ------------ ---------
Unrestricted cash $ 75,541 $ 72,120 4.7%
Borrowing availability 79,525 77,146 3.1%
---------- --------- ----
Liquidity $ 155,066 $ 149,266 3.9%
========== ========= ====
As of June 30, 2005, our liquidity increased $5.8 million from December 31,
2004. The increase was driven by increases in both cash and borrowing
availability. Cash increased by 5% while borrowing availability increased by 3%.
We routinely make large payments, in certain occasions, in excess of $10
million, to suppliers and routinely collect large payments from customers, in
certain occasions, in excess of $10 million. The timing of these payments or
collections can cause our cash balances and borrowings to fluctuate throughout
the year. During the six months ended June 30, 2005 our largest outstanding
borrowings on a given day were approximately $27 million with an average
outstanding balance of approximately $14 million.
Page 35
While it is difficult to quantify the adequacy of our liquidity for future
needs, with our unrestricted cash balance and unused borrowing availability,
totaling $155 million on June 30, 2005, and a positive quarterly EBITDA, we
believe we have adequate liquidity to operate the business with our own
resources for the next 12 months and to invest in potential growth
opportunities.
Page 36
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
CONCENTRATION OF CREDIT RISK
Financial instruments, which potentially subject us to concentrations of credit
risk consist principally of cash investments, forward currency contracts and
accounts receivable. We maintain cash investments primarily in AAA rated money
market mutual funds and overnight repurchase agreements, which have minimal
credit risk. We place forward currency contracts with high credit-quality
financial institutions in order to minimize credit risk exposure. Concentrations
of credit risk with respect to accounts receivable are limited due to the large
number of geographically dispersed customers. We perform ongoing credit
evaluations of our customers' financial condition and generally do not require
collateral to secure accounts receivable.
EXCHANGE RATE RISK MANAGEMENT
A substantial portion of our revenue and expenses are transacted in markets
worldwide and may be denominated in currencies other than the U.S. dollar.
Accordingly, our future results could be adversely affected by a variety of
factors, including changes in specific countries' political, economic or
regulatory conditions and trade protection measures.
Our foreign currency risk management program is designed to reduce, but not
eliminate, unanticipated fluctuations in earnings and cash flows caused by
volatility in currency exchange rates by hedging. Generally, through purchase of
forward contracts, we hedge transactional currency risk, but do not hedge
foreign currency revenue or future operating income. Also, we do not hedge our
investment in foreign subsidiaries, where fluctuations in foreign currency
exchange rates may affect our comprehensive income or loss. At June 30, 2005 and
December 31, 2004, the face amount of outstanding forward currency contracts to
buy U.S. dollars to hedge those currency exposures associated with certain
assets and liabilities denominated in non-functional currencies was $18 million
and $23 million, respectively. An adverse change (defined as a 10% strengthening
of the U.S. dollar) in all exchange rates, relative to our foreign currency risk
management program, would have had no material impact on our results of
operations for 2004 or 2003. At June 30, 2005, there was no cash flow or net
investment hedges open. Our sensitivity analysis of foreign currency exchange
rate movements does not factor in a potential change in volumes or local
currency prices of our products sold or services provided. Actual results may
differ materially from those discussed above.
INTEREST RATE RISK MANAGEMENT
We are exposed to potential loss due to changes in interest rates. Investments
with interest rate risk include short-term marketable securities. Debt with
interest rate risk includes the fixed and variable rate debt. To mitigate
interest rate risks, we have, in the past, utilized interest rate swaps to
convert certain portions of our variable rate debt to fixed interest rates.
We are exposed to changes in interest rates on our variable interest rate
revolving lines of credit. A 10% increase in short-term borrowing rates during
the quarter would have resulted in only a nominal increase in interest expense.
We did not have any interest rate swaps outstanding at June 30, 2005.
Page 37
ITEM 4. CONTROLS AND PROCEDURES
DISCLOSURE CONTROLS AND PROCEDURES
The Company's management, including the Company's Principal Executive Officer,
and its acting Chief Financial Officer ("Principal Financial Officer"), has
evaluated the effectiveness of its disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end
of the period covered by this quarterly report. Based on that evaluation, the
Principal Executive Officer and Principal Financial Officer have concluded that,
solely due to the material weaknesses with respect to our operations in France
described in Amendment No. 2 to our Form 10-K for the fiscal year ended December
31, 2004 ("Amendment No. 2"), as to which the process of remediation was ongoing
as of June 30, 2005, the Company's disclosure controls and procedures were not
effective as of June 30, 2005.
As previously reported in Amendment No. 2, the Company's management revised its
assessment of the effectiveness of the Company's internal control over financial
reporting as of December 31, 2004, originally included in Management's Report on
Internal Control Over Financial Reporting in the Company's annual report on Form
10-K filed on February 3, 2005. In that report, management concluded that the
Company's internal control over financial reporting was effective as of December
31, 2004, notwithstanding the existence of significant deficiencies that were
deemed by the Company's management not to be material weaknesses. Subsequent to
filing its annual report on Form 10-K, the Company identified errors in its 2004
financial statements and has restated those annual financial statements in
Amendment No. 2, which was filed on May 9, 2005. Management concluded that these
errors resulted from control deficiencies that represent material weaknesses in
internal control over financial reporting. As a result, management revised its
assessment of the effectiveness of the Company's internal control over financial
reporting due to the following identified material weaknesses:
- The Company's operations in France receive mobile operator commission,
subsidy, bonus and residual airtime revenues as a result of subscriber
activations or subscriber upgrades generated by the Company's network of
independent authorized retailers and the Company's directly owned retail
stores. The financial reporting control procedures for certain account
receivable reconciliations and revenue recognition control procedures
for proper pricing and invoicing of these transactions failed to operate
effectively and in a timely fashion as of December 31, 2004. In
addition, revenue recognition control procedures for invoicing and cash
application of receipts related to these transactions were ineffectively
designed as of December 31, 2004. Due to errors made in recording these
transactions, the Company's operations in France overstated revenue
resulting in a related overstatement of accounts receivable. In
addition, certain other related adjustments were made in error, which
did not have an impact on net income, but resulted in an overall
understatement of accounts receivable and accounts payable during the
year ended December 31, 2004.
- The Company's operations in Australia failed to identify certain rebates
that were not recorded related to a 2004 program, which resulted in an
error in the December 31, 2004 financial statements. The communications
process whereby new contracts are forwarded to regional finance
personnel did not include communicating significant modifications to
contracts. Accordingly, internal control in relation to the
communication of rebate arrangements (between the product
manager/country manager and the finance team) and assessments as to
whether the terms and conditions for rebates have been achieved did not
operate effectively. This error resulted in an overstatement of cost of
Page 38
revenue and the understatement of vendor receivables that would have
reduced accounts payable, resulting in an overstatement of accounts
payable in the 2004 financial statements.
SUBSEQUENT CONTROL CHANGES
The Company has implemented changes in procedures for the reporting of mobile
operator commissions, subsidies and bonuses in its France operations and rebates
earned on non-financial key performance metrics in its Australia operations and
believes that these changes will assure proper recognition of these items. As
part of the assessment of its internal controls over financial reporting, the
Company has initiated changes in processes in our France and Australia
operations to correct the errors that occurred and to reduce the likelihood that
similar errors could occur in the future. In addition, management of the
Company, with the assistance of certain members of the Board of Directors, is
reviewing the regional financial organizational structure, instituting new
financial reporting and revenue recognition controls at all Brightpoint
locations, performing supplementary detailed monthly review of accounts by
regional and corporate management and executing more frequent internal audits.
In France, the Company has implemented a change in reporting structure for
personnel as well as a change in personnel, enhanced its balance sheet
reconciliation procedures, developed month-end reporting checklists and
processes to review and revise certain critical balance sheet accounts,
implemented quarter-end reconciliation procedures of significant customer and
vendor accounts, and enhanced its operating controls. In Australia, the Company
has enhanced the dissemination of written communications with significant
vendors relating to rebates, volume bonuses and other incentives and has
established a monthly meeting between the Finance Director of our Australia
operations, the CFO of our Asia Pacific Division and product sales and
operations management to discuss data related to vendor rebates, volume bonuses
and other incentives.
Certain of the changes in the Company's internal controls over financial
reporting described in the previous paragraph are still on-going. Management
believes that the changes previously implemented have alleviated the material
weaknesses in internal control with respect to our operations in Australia as of
June 30, 2005. Other than as described above, there were no changes in the
Company's internal control over financial reporting that occurred during the
quarter ended June 30, 2005, that have materially affected, or are reasonably
likely to materially affect, the Company's internal control over financial
reporting.
Page 39
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
these legal proceedings will not have a material adverse effect on its financial
position.
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. The Plaintiff seeks damages in the amount of $750,000 with interest
and costs. The Company continues to dispute these claims and intends to defend
this matter vigorously.
A Complaint was filed on November 23, 2001, against the Company and 87 other
defendants in the United States District Court for the District of Arizona,
entitled Lemelson Medical, Education and Research Foundation LP v. Federal
Express Corporation, et.al., Cause No. CIV01-2287-PHX-PGR. The plaintiff claims
that the Company and other defendants have infringed 7 patents alleged to cover
bar code technology. The case seeks unspecified damages, treble damages and
injunctive relief. The Court has ordered the case stayed pending the decision in
a related case in which a number of bar code equipment manufacturers have sought
a declaration that the patents asserted are invalid and unenforceable. That
trial concluded in January 2003. In January 2004, the Court rendered its
decision that the patents asserted by Lemelson were found to be invalid and
unenforceable. Lemelson filed an appeal to the Court of Appeals for the Federal
Circuit on June 23, 2004. The Company continues to dispute these claims and
intends to defend this matter vigorously.
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 $1.4 million (at current exchange rates) including
penalties and interest. The Company continues to dispute this claim and intends
to defend this matter vigorously.
Page 40
ITEM 2. UNREGISTERED SALES OF EQUITY SECURITIES AND USE OF PROCEEDS
On November 30, 2004, we announced that our Board of Directors had approved a
share repurchase program authorizing the Company to repurchase up to $20 million
of the Company's common stock by December 31, 2005. During the six months ended
June 30, 2005, the Company repurchased approximately 471 thousand shares of its
own common stock at an average price of $19.11 per share, totaling $9.0 million.
As of June 30, 2005, approximately $7.0 million may be used to purchase shares
under this program. Detail of the 2005 repurchases is provided in the table
below.
Issuer purchases of equity securities:
Total number of Total amount Maximum dollar value of
Total number Average shares purchased as purchased as part of shares that may yet be
of shares price paid part of the publicly the publicly purchased under the
Month of purchase purchased per share announced program announced program program
----------------- ------------ ---------- --------------------- --------------------- ------------------------
January 2005 150,300 $ 19.40 150,300 $ 2,915,706 $13,071,524
February 2005 75,000 $ 19.27 75,000 1,445,495 11,626,029
March 2005 2,100 $ 18.06 2,100 37,922 11,588,107
April 2005 - - - - 11,588,107
May 2005 216,150 $ 18.85 216,150 4,073,923 7,514,184
June 2005 27,500 $ 19.29 27,500 530,580 6,983,604
------- -------- ------- ----------- -----------
Total/Average 471,050 $ 19.11 471,050 $ 9,003,626 $ 6,983,604
------- -------- ------- ----------- -----------
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On June 2, 2005, the Company held its Annual Meeting of Shareholders at which
time the following matters were approved by the Company's shareholders by the
votes indicated:
1) Election of three Class II Directors:
Director Votes Cast "For" Votes Withheld
-------- ------------------ --------------
Robert J. Laikin 15,981,175 462,171
Robert F. Wagner 15,979,425 463,921
Richard W. Roedel 16,070,018 373,328
2) Ratification of the Appointment of Ernst & Young LLP as the Company's
Independent Accountants for the Fiscal Year ending December 31, 2005:
Votes Cast "For" Votes Cast "Against" Votes "Abstaining"
---------------- -------------------- -----------------
16,186,218 239,818 17,311
Page 41
PART II OTHER INFORMATION
ITEM 6. EXHIBITS
(a) Exhibits
The list of exhibits is hereby incorporated by reference to the Exhibit
Index on page 44-45 of this report.
Page 42
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: August 8, 2005 /s/ Robert J. Laikin
----------------- -------------------------------------
Robert J. Laikin
Chairman of the Board and Chief
Executive Officer
(Principal Executive Officer)
Date: August 8, 2005 /s/ Anthony W. Boor
------------------ -------------------------------------
Anthony W. Boor
acting Chief Financial Officer
(acting Principal Financial Officer)
Date: August 8, 2005 /s/ Gregory L. Wiles
----------------- -------------------------------------
Gregory L. Wiles
acting Chief Accounting Officer
(acting Principal Accounting Officer)
Page 43
EXHIBIT INDEX
Exhibit No. Description
----------- -----------
10.1 Amendment No. 4 to the Amended and Restated Employment Agreement
dated as of July 1, 1999 between Brightpoint, Inc. and Robert J.
Laikin dated as of April 7, 2005.*
10.2 Amendment No. 4 to the Amended and Restated Employment Agreement
dated as of July 1, 1999 between Brightpoint, Inc. and J. Mark
Howell dated as of April 7, 2005.*
10.3 Amendment No. 5 to the Amended and Restated Employment Agreement
dated as of July 1, 1999 between Brightpoint, Inc. and Steven E.
Fivel dated as of April 7, 2005.*
10.4 Agreement for Supplemental Executive Retirement Benefit dated as
of April 7, 2005 by and between Robert J. Laikin and Brightpoint,
Inc.*
10.5 Agreement for Supplemental Executive Retirement Benefit dated as
of April 7, 2005 by and between J. Mark Howell and Brightpoint,
Inc.*
10.6 Agreement for Supplemental Executive Retirement Benefit dated as
of April 7, 2005 by and between Steven E. Fivel and Brightpoint,
Inc.*
10.7 Restricted Stock Award Agreement Pursuant to the 2004 Long-Term
Incentive Plan of Brightpoint, Inc. dated as of April 7, 2005
between Brightpoint, Inc. and Robert J. Laikin.*
10.8 Restricted Stock Award Agreement Pursuant to the 2004 Long-Term
Incentive Plan of Brightpoint, Inc. dated as of April 7, 2005
between Brightpoint, Inc. and J. Mark Howell.*
10.9 Restricted Stock Award Agreement Pursuant to the 2004 Long-Term
Incentive Plan of Brightpoint, Inc. dated as of April 7, 2005
between Brightpoint, Inc. and Steven E. Fivel.*
10.11 Separation Agreement and General Release dated as of June 30,
2005 by and between Brightpoint, Inc. and Frank Terence**
Page 44
31.1 Certification of Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934, implementing
Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities Exchange Act of 1934 implementing
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant To Section 906 of the
Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer Pursuant to 18 U.S.C.
Section 1350, As Adopted Pursuant To Section 906 of the
Sarbanes-Oxley Act of 2002.
99.1 Cautionary Statements
* Incorporated by reference to the Registrant's report on Form 8-K filed on
April 12, 2005, as amended.
** Incorporated by reference to the Registrant's report on Form 8-K filed on
June 30, 2005
Page 45