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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 FOR THE FISCAL YEAR ENDED DECEMBER 31, 1999
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934 FOR THE TRANSITION PERIOD FROM ________ TO _________
0-23494
(COMMISSION FILE NO.)
BRIGHTPOINT, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 35-1778566
(STATE OR OTHER JURIS- (I.R.S. EMPLOYER
DICTION OF INCORPORATION) IDENTIFICATION NO.)
6402 CORPORATE DRIVE, INDIANAPOLIS, INDIANA 46278
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES INCLUDING ZIP CODE)
REGISTRANT'S TELEPHONE NUMBER, INCLUDING AREA CODE: (317) 297-6100
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT: NONE
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT:
COMMON STOCK, $.01 PAR VALUE
PREFERRED SHARE PURCHASE RIGHTS
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes [x] No [ ]
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of the registrant's Common Stock held by
non-affiliates as of March 27, 2000 was approximately $708,000,000. As of March
27, 2000, there were 54,352,771 shares of the registrant's Common Stock
outstanding.
Documents Incorporated by Reference:
Portions of the following documents are incorporated by reference into the parts
of this Form 10-K as indicated herein:
Proxy Statement for Annual Meeting of Stockholders to
be held on May 18, 2000 Part III
1999 Annual Report to Stockholders Parts I, II & IV
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PART I
ITEM 1. BUSINESS.
GENERAL
Brightpoint, Inc. is a leading provider of outsourced services in the
global wireless telecommunications and data industry. Our innovative services
include contract manufacturing, customized packaging, prepaid and e-commerce
solutions, inventory management, distribution and other outsourced services. Our
customers include leading network operators, e-tailers, retailers and wireless
equipment manufacturers. We handle products manufactured by such technology
companies as Nokia, Ericsson, Motorola, Samsung, Panasonic, Kyocera, Alcatel,
Siemens, Sony, Audiovox, NEC and Research In Motion. We also provide integrated
services to these manufacturers and some of the world's leading wireless network
operators along with their associated service providers, resellers, agents and
retailers. Our distribution services include purchasing, marketing, selling,
warehousing, picking, packing, shipping and delivery of wireless handsets and
accessories. Our integrated logistics services include support for prepaid
programs, inventory management, procurement, product fulfillment, programming,
contract manufacturing, telemarketing, private labeling, kitting and customized
packaging, product warranty, repair and refurbishment and end-user support
services. We are one of the largest distributors of wireless handsets and
accessories in the world, with operations centers and/or sales offices in
various countries including Australia, Brazil, China (including Hong Kong),
France, Germany, Ireland, Mexico, the Netherlands, New Zealand, the Philippines,
South Africa, Sweden, the United Arab Emirates, the United States, and
Venezuela.
We were incorporated under the laws of the State of Indiana in August
1989 under the name Wholesale Cellular USA, Inc. and reincorporated under the
laws of the State of Delaware in March 1994. In September 1995, we changed our
name to Brightpoint, Inc.
RECENT DEVELOPMENTS AND FINANCIAL OVERVIEW
Effective in the first quarter of 2000, and applied retroactively to
all periods, we have reclassified certain amounts related to our services
supporting prepaid wireless programs. The reclassification, which reduces
revenue and costs of revenue by the same amount, has no impact on gross profit,
selling, general and administrative expenses, operating income, net income or
earnings per share. All amounts in this Annual Report on Form 10-K reflect the
retroactive application of the reclassification.
The table below summarizes the amount of the reduction in revenue and cost of
revenue due to the reclassification.
1st Quarter 2nd Quarter 3rd Quarter 4th Quarter Total
-----------------------------------------------------------------------------------
1997 $1,432 $ 4,057 $10,675 $13,369 $29,533
1998 7,989 16,761 22,163 8,433 55,346
1999 8,787 14,957 19,224 20,076 63,044
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Because our revenues and results of operations for the first quarter of
1999 were significantly below that which had been anticipated, we performed a
detailed evaluation of each of our operations and the market factors affecting
those operations. Consequently, beginning in the second quarter of 1999 we
implemented a broad restructuring plan in an effort to improve our position for
long-term success by eliminating or restructuring identified non-performing
business activities and reducing costs. The restructuring plan included the
disposal of operations in the United Kingdom, Poland, Taiwan and Argentina;
termination of our investments in two joint operations in China; disposal of our
67% interest in a Hong Kong-based accessories company; and initiation of cost
reduction programs in certain areas of our business. Our execution of the
restructuring plan is substantially complete. During 1999 we recorded
non-recurring restructuring and other unusual charges of approximately $84.9
million resulting from actions taken in accordance with the restructuring plan.
The charges included the write-off of goodwill and investments related to the
eliminated or terminated operations, as well as losses on the disposals of fixed
and other assets and cash expenses of approximately $6.1 million related to
lease and employee terminations and other exit costs. These amounts are recorded
in the "Trading, restructuring and other unusual charges" line in our
Consolidated Statements of Operations. The non-recurring charges also include
the write-down of inventory (included in the "Cost of revenue" line) and
accounts receivable (included in the "Selling, general and administrative
expenses" line) to their estimated net realizable value.
Because of the significance of the restructuring plan discussed
previously, the following discussion has been delineated between results from
recurring operations and results from non-recurring operations. Non-recurring
operations are those operations that have been eliminated or terminated or will
be eliminated pursuant to the restructuring plan. Recurring operations include
all operations except those presented as non-recurring. Recurring operations
also exclude impacts of non-recurring charges recorded in 1998 and 1999, the
cumulative effect of a change in accounting principle recorded in the first
quarter of 1999 and a net investment gain recognized in the first quarter of
1998. For the year ended December 31, 1999, our revenues and net income from
recurring operations were $1.6 billion and $16.8 million, respectively,
representing an increase in revenues from recurring operations of 29% and a
decrease in net income from recurring operations of 53% when compared to 1998.
In the fourth quarter of 1999 we generated net income from recurring operations
of $10.3 million ($0.18 per diluted share) on revenue of $518 million, compared
to net income from recurring operations of $11.5 million ($0.21 per diluted
share) on revenue of $438 million for the comparable 1998 period. Our growth in
revenues for both the quarter and year ended December 31, 1999 was driven
primarily by the increase in worldwide demand for wireless handsets and
accessories. Our operating margins (income from operations as a percent of
revenue) from recurring operations decreased in both the fourth quarter and on
an annual basis during 1999 due to an increase in selling, general and
administrative expenses as a percent of revenue and, for the year, due to a
decrease in gross margins. Selling, general and administrative expenses
increased in 1999 as a result of increased levels of business activity and
increased costs of serving current and anticipated integrated logistics services
customers. Gross margins for the year decreased due to increased cost of
revenues, generally arising from the addition of infrastructure to serve new
logistics customers.
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WIRELESS TELECOMMUNICATIONS AND DATA INDUSTRY
The wireless telecommunications and data industry provides voice and
data communications utilizing various wireless terminals including traditional
cellular telephones, multi-band and digital handsets, web-enabled handsets,
interactive pagers, personal digital assistants, and other mobile computing
devices. Wireless telecommunications and data services are available to
consumers and businesses through numerous network operators who utilize analog
and digital technological standards such as AMPS, GSM, CDMA, TDMA, iDEN(R) as
well as other new developing technologies to provide voice and data
communication over regional, national and worldwide networks. Developments
within the wireless telecommunications and data industry, including industry
consolidation, expansion of e-commerce and the convergence of the
telecommunications, data and media domains, allow wireless subscribers to talk,
send text messages, browse the Internet and effect certain e-commerce
transactions using their wireless devices. Among other factors, economic
development, advances in systems technology and equipment, the proliferation of
manufacturers and network operators, the availability of prepaid wireless
telecommunications and the increasing affordability of wireless services have
increased consumer acceptance and driven increases in worldwide demand for
wireless telecommunications and data equipment and services.
In recent years, the markets for wireless telecommunications and data
equipment and services have expanded significantly. From 1998 to 1999, the
number of worldwide wireless subscribers increased by 113 million, or 36%, to
approximately 428 million. Nonetheless, at the end of 1999, wireless penetration
was estimated at only 30% of the population within the United States and was
still, on average, less than 8% of the population globally. We believe this
reflects worldwide opportunities for continued growth within the wireless
telecommunications and data industry. The number of worldwide subscribers is
expected to grow to approximately 550 million subscribers by the end of 2000,
and the percentage of handset shipments related to replacement units has
continued to grow. Additionally, the use of wireless data products including
interactive pagers, personal digital assistants and other mobile computing
devices has seen recent growth and wider consumer acceptance. The information
contained in this paragraph was obtained from a leading independent industry
research group.
Although it cannot be assured that we will grow at rates comparable to
those experienced by the industry (see Business Risk Factors discussed below),
we believe we are well positioned to take advantage of the following major
trends taking place within the wireless telecommunications and data industry:
Industry Consolidation. Merger and acquisition activities within the
network operator community have increased significantly in recent years. In
general, this consolidation is being driven by improved economies of scale, the
opportunity to expand national or global service areas and efforts to increase
revenue through additional service offerings. We believe that this trend will
continue in the near future and may lead network operators to focus more tightly
on their core business of providing wireless telecommunications and data
services, which could in-turn increase the demand for outsourced integrated
logistics services. However, these same trends will also increase the demands
placed on the providers of integrated logistics services, as they will need to
meet an increasing variety of customer requirements and provide services over
larger geographic regions. Additionally, this consolidation reduces the number
of potential contracts available to providers of integrated logistics services
and could reduce the degree to which members of the wireless
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telecommunications and data industry rely on outsourced services such as the
services that we provide.
Expanded Use of E-commerce. The ability to conduct business over the
Internet has created opportunities and challenges in many industries including
the wireless telecommunications and data industry. We believe that the continued
growth of e-commerce provides the opportunity for expanded service offerings as
well as the demand for new and innovative Internet capabilities. We also expect
both customers and suppliers will require enhanced management of these
capabilities to remain competitive. New Internet retailers (e-tailers) have
entered the marketplace and existing e-tailers have broadened their product
offerings to include wireless telecommunications and data products. The expanded
use of e-commerce is expected to provide faster and more varied methods of
delivering wireless telecommunications and data products to the marketplace. We
believe the expanded use of e-commerce has also increased demand for wireless
telecommunications and data equipment with Internet capabilities and
functionality.
New Technologies, Enhancements and Applications. First generation
cellular networks primarily used analog technologies. However, these analog
technologies presented a number of challenges for network operators and users,
including ease of fraud and cloning; capacity utilization issues; limited
battery life; and difficulty in providing enhanced features. To alleviate these
concerns, new wireless networks have increasingly been built around digital
technologies, which provide increased network capacity, more functionality,
better voice quality and greater security/privacy than analog technologies. The
conversion of subscribers from analog to digital technologies, which continues
to occur primarily in North and Latin America as well as in Japan, Korea and
China, has had a positive impact on the growth of handset demand. In addition,
the emergence of new technologies is fueling the convergence of the
telecommunications, data and media domains resulting in significant changes and
opportunities in the wireless telecommunications and data industry. As a result
of this convergence, we believe wireless subscribers will increasingly use their
wireless devices to send and receive e-mail, browse the Internet, effect
m-commerce ("mobile commerce") transactions and access other information
available on the Internet. This convergence is being powered by the development
of wireless web capabilities and new standards such as Wireless Application
Protocol (WAP), Epoc, Bluetooth and 3G (the third generation of wireless systems
currently being developed). There are also other new wireless communications
technologies and enhancements being introduced into the wireless communications
market. These include wireless local loop and satellite-based communications as
well as handset feature and network enhancements such as increased talk and
standby times, smaller and lighter form factors and multiple-band reception. All
of these developments are expected to contribute to future subscriber growth.
Proliferation of Manufacturers. With the opportunities presented by a
rapidly expanding market for wireless telecommunications and data equipment as
well as new technologies, enhancements and applications and the penetration of
the mass consumer market, many new manufacturers are producing wireless handsets
and accessories, including certain manufacturers who have historically been
successful in providing consumer electronics to the mass consumer market. In
addition, it appears that manufacturers other than those that have historically
produced wireless handsets and accessories are also entering the market to
produce wireless data devices. This greater number of manufacturers is expected
to heighten competition and may provide consumers with lower handset prices,
broader selection, more feature-rich products and new market channels, resulting
in higher product turnover by end users. Although
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the entry of new manufacturers appears to be continuing, we believe that the
three largest manufacturers of wireless handsets, Nokia, Motorola and Ericsson
comprise approximately 54% of the total market for wireless telecommunications
equipment.
Increasing Penetration of Markets Worldwide and New Network Operators.
We expect that continuing demand for wireless services will drive increased
penetration of markets worldwide and the continued entry of new network
operators in certain markets. Economic growth, increased service availability or
the lower cost of service compared to conventional wireline telephony systems
has historically driven market penetration. In addition, certain markets
characterized by higher market penetration, have also grown, primarily as a
result of increasing deregulation, the availability of additional spectrum
frequencies, increased competition and the emergence of new wireless
technologies and applications. The emergence of these, and other, new wireless
communications technologies and services is expected to increase both the number
of wireless network operators in each market and the services provided,
including seamless roaming, increased service coverage, improved signal quality
and greater data transmission capacity. This increase in the number of network
operators, together with the increased number of resellers of wireless
communication services in certain markets, is expected to intensify competition
for new and existing subscribers, thereby reducing prices to subscribers and
driving growth in the subscriber base and the market for wireless communications
equipment.
GROWTH STRATEGY
As (i) the variety of handset models expands, (ii) telecommunications,
data, Internet and other technologies converge and evolve and (iii) distribution
migrates from the agent/dealer network to mass retailers, network operators are
switching from in-house distribution to independent distribution services in
order to reduce overall costs and to meet the increasing demands of the various
channels to market. In order to maintain their resources for marketing, sales
and customer retention, new network operators are also increasingly outsourcing
their handset distribution, fulfillment and inventory management functions (as
opposed to building distribution infrastructure). At the same time, handset and
other wireless device manufacturers are outsourcing some of their channel
management functions and utilizing integrated logistics services as a means of
simplifying and reducing the cost of their worldwide distribution systems.
Finally, vendors and network operators are targeting the growing consumer
segment through mass retail channels (including the Internet), requiring greater
levels of fulfillment services in order to address the logistical challenges of
supporting mass and Internet retailers and consumer electronics retail stores.
Our two primary strategies for building on our position as a global leader in
providing distribution and integrated logistics services to the wireless
telecommunications and data industry are as follows:
Value Chain Migration. Our Value Chain Migration strategy calls for a
hastening of the innovation and development of services offered that provide
superior solutions for the mission-critical business requirements of our
customers. We intend to continue to quickly deploy these service capabilities
throughout the organization, offering them in all appropriate regions, targeting
our marketing efforts on network operators and equipment manufacturers. We
intend to deliver our services through the market channels that best serve the
needs of our customers, including appropriate e-commerce venues. Our focus is on
developing a steadily increasing perception of value based on the expectation
that our outsource solutions will demonstrate competitively superior results.
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Supply Chain Development. Our Supply Chain Development strategy focuses
on expanding and enhancing key existing equipment manufacturer relationships. We
will attempt to seek to grow product lines, brands and technologies handled over
increasingly larger territories, extending our reach to allow us to provide
services to wireless equipment manufacturers in the markets that are critical to
their success. If appropriate, we intend to develop relationships with
additional key equipment manufacturers on the basis of customer demand, specific
technology competence and/or regional opportunity.
As evidenced by our implementation of a broad restructuring plan in
1999, we intend to pursue business opportunities in areas or markets where we
believe that these strategies can be successfully implemented. We also intend
to evaluate our operations as markets evolve to determine the continued synergy
of our business activities and relationships with our core strategies.
SERVICES
We have become one of the leading suppliers of distribution and
integrated logistics services that move wireless devices and accessories through
market channels, primarily because of our understanding of the needs within each
distribution channel and our development of the knowledge and resources
necessary to create successful solutions.
Our services are intended to provide value to wireless handset
manufacturers and network operators. Through the authorized distribution of
wireless communications products (handsets and accessories), we intend to help
manufacturers achieve their key business objectives of unit sales volume, market
share and points of sale. We target our efforts at the distribution channels
identified by the manufacturers. Our integrated logistics services are intended
to provide outsourcing solutions for the network operators' mission-critical
business requirements. These integrated logistics services are designed to
support network operators in their efforts to add new subscribers and increase
system usage.
Distribution Services. Our distribution services include the
purchasing, marketing, selling, warehousing, picking, packing, shipping and
delivery of a broad selection of wireless communications products from leading
manufacturers. We continually review and evaluate wireless communications
products in determining the mix of products purchased for resale and seek to
acquire distribution rights for products which we believe have the potential for
significant market penetration.
The products distributed by us include a variety of handsets designed
to work on substantially all operating platforms (including analog platforms,
such as AMPS, N-AMPS, TACS and NMT, and digital platforms, such as CDMA, GSM,
iDEN(R) and TDMA) and feature prominent brand names such as Nokia, Ericsson,
Motorola, Samsung, Panasonic, Kyocera, Alcatel, Siemens, Sony, Audiovox, NEC and
Research In Motion. In 1998 and 1999, approximately 83% and 76%, respectively,
of our revenue from recurring operations was derived from handset sales.
We also distribute handset accessories, such as batteries, chargers,
cases, "hands-free" kits and others. Among other things, we purchase and resell
original equipment manufacturer ("OEM") and aftermarket accessories, either
prepackaged or in bulk. Our accessory packaging services provide network
operators and retail chains with custom packaged and/or branded accessories
based on the specific requirements of that customer. Additionally, we provide
end-user accessory fulfillment and distribution pursuant to contractual
arrangements with certain network operators whereby the network operators'
subscribers can order their accessories through a
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customer service call center that we manage on behalf of the operator.
Accessories typically carry higher margins than handsets. In 1998 and 1999,
sales of accessories accounted for approximately 10% and 16%, respectively, of
our revenue from recurring operations.
Integrated Logistics Services. Our integrated logistics services
include, among others, support for prepaid programs, inventory management,
procurement, product fulfillment, programming, contract manufacturing,
telemarketing, private labeling, kitting and customized packaging, product
warranty, repair and refurbishment and end-user support services. In many of our
markets we have contracts with network operators pursuant to which we provide
our integrated logistics services. We also procure wireless handsets and
accessories for our customers using our own sources or the customers' specified
vendors and perform packaging and kitting functions for them, whereby we receive
orders, either directly from customers or from customers' end-users, via
electronic data interchange, and then make shelf ready kits using customers'
customized packaging in satisfaction of the orders.
During 1999, integrated logistics services accounted for approximately
8% of our total revenue from recurring operations as compared to approximately
7% of total revenue from recurring operations in 1998. Because the fees for such
services have higher margins than those associated with handset and accessory
sales, they represent a higher than proportionate percentage of our operating
profits.
CUSTOMERS
We provide distribution and integrated logistics services to a customer
base of more than 20,000 network operators, manufacturers, agents, resellers,
dealers and retailers. For 1998 and 1999, aggregate revenues generated from our
five largest customers accounted for approximately 14% and 11%, respectively,
and no single customer accounted for more than 10% of our total revenue.
We generally sell our products pursuant to customer purchase orders and
subject to our terms and conditions. We generally ship products on the same day
orders are received from the customer. Unless otherwise requested, substantially
all of our products are delivered by common carriers. Because orders are filled
shortly after receipt, backlog is generally not material to our business. Our
integrated logistics services are typically provided pursuant to renewable
agreements with terms between one and three years which generally may be
terminated by either party subject to a short notice period.
PURCHASING AND SUPPLIERS
We have established key relationships with leading manufacturers of
wireless telecommunications and data equipment. We generally negotiate directly
with manufacturers and suppliers in order to obtain wireless handset and
accessory inventories of popular brand name products on favorable pricing terms.
In 1999, we made purchases from more than 60 handset and accessory suppliers.
Inventory purchases are based on quality, price, service, customer demand,
product availability and brand name recognition. Certain of our suppliers
provide favorable purchasing terms to us, including price protection,
cooperative advertising and marketing allowances. Product manufacturers
typically provide limited warranties which we extend to our customers.
Our two largest sources of wireless handsets and accessories in the
aggregate accounted for approximately 75% of our product purchases in both 1998
and 1999.
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During 1998, Nokia and Ericsson accounted for approximately 55% and 20%,
respectively, of our product purchases and in 1999 they accounted for
approximately 68% and 7%, respectively, of our product purchases. None of our
other suppliers accounted for more than 10% of product purchases in 1998 or
1999. Loss of the applicable contracts with these or other suppliers or failure
by these or other suppliers to supply competitive products on a timely basis and
on favorable terms, or at all, would have a material adverse effect on our
operating margins and our ability to obtain and deliver products on a timely and
competitive basis. See "--Competition."
We maintain agreements with certain of our significant suppliers all of
which relate to specific geographic areas. We are the sole distributor of
wireless phones for each of Nokia, Ericsson, NEC, Sanyo and Samsung in the
United States and Kyocera on a global basis. Each of these six agreements is
subject to certain conditions and exceptions including the retention by the
manufacturer of certain direct accounts. Most of our other agreements with
suppliers (including our other territorial distribution agreements with Nokia
and Ericsson) are non-exclusive. Our supply agreements typically require us to
satisfy minimum purchase requirements and can be terminated on short notice by
either party. We purchase products from other manufacturers and dealers pursuant
to purchase orders placed from time to time in the ordinary course of business.
We generally place orders on a daily basis with our suppliers by facsimile.
Purchase orders are typically filled, subject to product availability, and
shipped to our warehouses by common carrier. We believe that our relationships
with our suppliers are generally good, however, we have from time to time
experienced inadequate product supply from certain handset manufacturers. In
1999, we were unable to obtain sufficient product supplies from manufacturers in
many of the markets in which we operate. This product shortage was most dramatic
in certain of our Asian markets. Any future failure or delay by our suppliers in
supplying us with products on favorable terms would severely diminish our
ability to obtain and deliver products to our customers on a timely and
competitive basis. If we lose any of our principal suppliers, or if any supplier
imposes substantial price increases and alternative sources of supply are not
readily available, it would have a material adverse effect on our results of
operations.
SALES AND MARKETING
Our sales and marketing efforts are coordinated in each of our four
regional divisions by a president for that particular division. Because of the
service-oriented nature of our business, these executives devote a substantial
amount of their time to developing and maintaining relationships with our
customers in addition to managing the overall operations of the division. Each
division's sales and operation centers are managed by either general or country
managers who report to the president of their division and are responsible for
the daily sales and operations of their particular location. Each division has
telemarketers who specialize in or focus on telephone sales to a particular type
of customer (e.g. network operator, dealer, reseller, retailer, etc.). In
addition, we have dedicated a professional sales force to manage our network
operator relationships and to further our sales of contractual integrated
logistics services. We also market integrated logistics services through sales
directors in each of our four regional divisions and through dedicated sales
personnel. Including support personnel, we had approximately 400 employees
involved in sales and marketing at December 31, 1999, including 70 in our
Asia-Pacific division, 160 in our North America division, 120 in our Europe,
Middle East and Africa division and 50 in our Latin America division.
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We believe that product recognition by customers and consumers is an
important factor in the marketing of the products that we sell. Accordingly, we
promote ourself and certain of our product lines through advertising in trade
publications and attendance at international, national and regional trade shows,
as well as through direct mail solicitation, broadcast faxing and telemarketing
activities. Our suppliers and customers use a variety of methods to promote
their products directly to consumers, including print and media advertising.
SEASONALITY
Our operating results are influenced by a number of seasonal factors in
the different countries and markets in which we operate. These results may
fluctuate from period to period as a result of several factors, including:
o purchasing patterns of customers in different markets;
o the timing of the introduction of new products by our
suppliers and competitors;
o variations in sales by distribution channels; and
o product availability and pricing.
Consumer electronics and retail sales tend to experience increased
volumes of sales at the end of the calendar year. This and other seasonal
factors contribute to the usual increase in our sales during the fourth quarter
and our operating results may continue to fluctuate significantly in the future.
In addition, if unanticipated events occur, including delays in securing
adequate inventories of competitive products at times of peak sales or
significant decreases in sales during these periods, it could have a material
adverse effect on our operating results.
COMPETITION
We operate in highly competitive markets and believe that such
competition will intensify in the future. The markets for wireless
telecommunications and data products are characterized by intense price
competition and significant price erosion over the life of a product. We compete
principally on the basis of value (in terms of price, time and reliability),
service and product availability. We compete with numerous well-established
manufacturers and wholesale distributors of wireless equipment, including our
customers and suppliers; wireless network operators, including our customers;
logistics service providers; and export/import and trading companies. These
companies may possess substantially greater financial, marketing, personnel and
other resources than we do. In addition, manufacturers other than those that
have historically produced wireless handsets and accessories are also entering
the market to produce wireless data devices. Their entry is creating new
competitors for distribution and provision of integrated logistics services for
these new products. Certain of these competitors have the financial resources
necessary to withstand substantial price competition and implement extensive
advertising and promotional campaigns, both generally and in response to efforts
by additional competitors to enter into new markets or introduce new products.
The wireless telecommunications and data industry has,in the past,been
characterized by low barriers to entry. However, as the market requirement
shifts from pure distribution services to a mix of distribution services and
integrated logistics services and because of the effects of convergence
discussed above under the heading New Technologies, Enhancements and
Applications, entry barriers are
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expected to rise due to the increased cost of infrastructure, the expanded human
resource requirement and the advanced management and information systems
capabilities that the integrated logistics services segment of the business
mandates. Our ability to continue to compete successfully will be largely
dependent on our ability to anticipate and respond to various competitive and
other factors affecting the industry, including; new or changing outsourcing
requirements, new products which may be introduced, inconsistent or inadequate
supply of product, changes in consumer preferences, demographic trends,
international, national, regional and local economic conditions and discount
pricing strategies and promotional activities by competitors.
Competitors in our North America division include network operators and
other dedicated wireless distributors such as CellStar Corporation and American
Wireless. We also compete with logistics service providers in our North America
operations, such as United Parcel Service of America, Inc. In the Asia-Pacific
market, our primary competitors are national carriers and distributors that have
retail outlets with direct end-user access and United States and foreign-based
exporters, traders and distributors, including CellStar Corporation, Global Tech
(Holdings) Ltd. and Telepacific Pty Limited. In our Europe, Middle East and
Africa division our competitors include wireless equipment manufacturers who
sell directly to the region's network operators and retailers; network operators
themselves; and traders and other distributors, such as 20/20 Logistics Ltd.,
European Telecom plc, Avenir S.A. and Banner Twin Choice plc. In our Latin
America division we compete primarily with CellStar Corporation and various
other distributors.
The markets for wireless communications products are characterized by
rapidly changing technology and evolving industry standards, often resulting in
product obsolescence or short product life cycles. Accordingly, our success is
dependent upon our ability to anticipate technological changes in the industry
and to continually identify, obtain and successfully market new products that
satisfy evolving industry and customer requirements. The use of alternative
wireless communication technologies or the convergence of wireless communication
and computer technologies may reduce demand for existing wireless communications
products. Upon widespread commercial introduction, new wireless communications
or convergent technologies could materially change the types of products sold by
us and our suppliers and result in significant price competition. In addition,
products that reach the market outside of normal distribution channels, such as
"gray market" resales (e.g., unauthorized resales or illegal resales which may
avoid applicable duties and taxes), may also have an adverse impact on our
operations.
INFORMATION SYSTEMS
Our operations are partially dependent on the functionality,
performance and utilization of our information systems. We have implemented
multiple business applications systems throughout the world which enable us to
provide our customers and suppliers with distribution and service capabilities.
These capabilities include e-commerce solutions, electronic data interchange,
web order entry and tracking, various inventory tracking and management
capabilities and management reporting capabilities. During 1997, 1998 and 1999,
we invested approximately $11.1 million, $22.1 million and $6.1 million,
respectively, to install and enhance systems in newly acquired operations, to
continue to develop and enhance our systems to provide electronic data
interchange capabilities, to create solutions for our customers and to provide a
flexible service delivery system in support of our integrated logistics services
and intend to use additional funds to develop integrated information systems
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throughout our four divisions. At December 31, 1999, there were 80 employees in
our information technology departments worldwide.
EMPLOYEES
As of December 31, 1999, we had approximately 1,700 employees; 250 in
our Asia-Pacific division, 950 in our North America division, 300 in our Europe,
Middle East and Africa division and 200 in our Latin America division. Of these
employees, approximately 8 were in executive positions, 400 were engaged in
sales and marketing, 809 were in service operations and 483 were in finance and
administration (including information technology employees). None of our
employees are covered by a collective bargaining agreement. We believe that our
relations with our employees are good. See Business Risk Factors-Our labor force
experiences a high rate of personnel turnover.
BUSINESS RISK FACTORS
Various statements, discussions and analyses throughout this Form 10-K
are not based on historical fact and contain forward-looking statements. Actual
future results may differ materially. There are many factors that affect our
business, some of which are beyond our control and future trends are difficult
to predict due to a variety of known and unknown risks and uncertainties
including the factors, among others, discussed below.
We have incurred significant losses during certain quarterly periods --
Although we achieved a profit of approximately $9.9 million during the three
months ended December 31, 1999, we incurred net losses for each of the first two
quarters of 1999 and a net loss of $93.1 million for the year ended December 31,
1999. We also incurred a net loss of $7.1 million for the three months ended
December 31, 1998. The net loss for 1999 includes approximately $84.9 million of
restructuring and other unusual charges as well as the cumulative effect of an
accounting change of $14.1 million. The net loss for the three months ended
December 31, 1998 includes approximately $25.7 million of trading and other
unusual charges resulting from our decision to eliminate our trading activities.
Several business factors appear to have contributed to our losses in these
periods including an inadequate supply of products for sale through our
distribution services, our inability to replace, during 1999, revenues which had
been generated by the trading business that we exited in the fourth quarter of
1998, the impacts of the devaluation of the Brazilian Real and price competition
from trading companies in our Asia-Pacific and Latin America divisions. We may
incur additional future losses.
We have significant outstanding indebtedness, which is secured by a
large portion of our assets and which could prevent us from borrowing additional
funds, if needed -- If we violate our loan covenants, default on our obligations
or become subject to a change of control, our indebtedness could become
immediately due and payable, and the banks could foreclose on our assets. The
terms of our senior credit facility substantially prohibit us from incurring
additional indebtedness, which could limit our ability to expand our operations.
Our senior credit facility also limits or prohibits us from declaring or paying
cash dividends, making capital distributions or other payments to stockholders,
merging or consolidating with another corporation or selling all or
substantially all of our assets.
There are significant amounts of our securities which are issuable upon
exercise of outstanding convertible securities as well as under other stock
plans
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which could affect the market price of our common stock -- The $380 million face
value of our 20-year zero-coupon, subordinated, convertible notes are
convertible at the option of the holder any time prior to maturity. These notes
are convertible at the rate of 19.109 shares of common stock per $1,000 face
value note, for an aggregate of 7,261,420 shares of common stock. Additionally,
we have reserved a significant number of shares of common stock that may be
issuable pursuant to our employee stock purchase plan, our stock option plans
and upon the exercise of currently outstanding warrants. These securities when
issued and outstanding may reduce earnings per share in periods that they are
considered dilutive under Generally Accepted Accounting Principles and, to the
extent that they are exercised and shares of common stock are issued, dilute
percentage ownership to existing stockholders which could have an adverse effect
on the market price of our common stock.
We have instituted measures to protect us against a takeover -- Certain
provisions of our by-laws, stockholders rights and option plans, certain
employment agreements and the Delaware General Corporation Law are designed to
protect us in the event of a takeover attempt. These provisions could prohibit
or delay mergers or attempted takeovers or changes in control of us and,
accordingly, may discourage attempts to acquire us.
Our future operating results will depend on our ability to continue to
increase our sales significantly -- A large percentage of our total net revenues
in recent periods has come from sales of wireless handsets, a segment of our
business that operates on a high-volume, low-margin basis. Our ability to
generate these sales is based upon our having adequate supply of products. The
gross margins that we realize on sales of wireless handsets could be reduced due
to increased competition or a growing industry emphasis on cost containment. In
addition, our operating expenses have increased significantly. We expect these
expenses to continue to increase as we expand our activities and increase our
provision of integrated logistics services. Therefore, our future profitability
will depend on our ability to increase sales to cover our additional expenses.
We may not be able to cause our sales rates to grow substantially. Even if our
sales rates do increase, the gross margins that we receive from our sales may
not be sufficient to make our future operations profitable.
A significant percentage of our revenues are generated outside of North
America in countries with inadequate product supplies, volatile currencies or
other risks -- We purchase and sell products and services in a large number of
foreign currencies, many of which have experienced fluctuations in currency
exchange rates. On occasion, we enter into forward exchange swaps, futures or
options contracts as a means of hedging our currency transaction and balance
sheet translation exposures. However, our management has had limited prior
experience in engaging in these types of transactions. Even if done well,
hedging may not effectively limit our exposure to a decline in operating results
due to foreign currency translation. We cannot predict the effect that future
exchange rate fluctuations will have on our operating results. We also maintain
operations centers and sales offices in many other territories and countries.
The fact that our business operations are conducted in a wide variety of
countries exposes us to increased credit risks, customs duties, import quotas
and other trade restrictions, potentially greater inflationary pressures,
shipping delays, the risk of failure or material interruption of wireless
systems and services, possible wireless product supply interruption and
potentially significant increases in wireless product prices. Changes may occur
in social, political, regulatory and economic conditions or in laws and policies
governing foreign trade and investment in the territories and countries where we
currently
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have operations. U.S. laws and regulations relating to investment and trade in
foreign countries could also change to our detriment. Any of these factors could
have a material adverse effect on our business and operations. During 1999, and
pursuant to our restructuring plan, we terminated or eliminated several of our
foreign operations because they were not performing to acceptable levels. These
terminations resulted in significant losses to us. We may in the future, decide
to terminate certain existing foreign operations. This could result in our
incurring significant additional losses.
Our business depends on the continued tendency of wireless equipment
manufacturers and network operators to outsource aspects of their business to us
in the future -- Our business depends in large part on wireless equipment
manufacturers and network operators outsourcing some or all of their business
functions. We fulfill functions such as contract manufacturing, customized
packaging, prepaid and e-commerce solutions, inventory management, distribution
and other outsourced services for many of these manufacturers and network
operators. In the future, wireless equipment manufacturers and network operators
may elect to undertake these services internally. Additionally, industry
consolidation, competition, deregulation, technological changes or other
developments could reduce the degree to which members of the wireless
telecommunications and data industry rely on outsourced integrated logistics
services such as the services we provide. Any significant change in the market
for our outsourcing services could have a material adverse effect on our
business. Our outsourced services are generally provided under multi-year
renewable contractual arrangements. The initial service periods under certain of
our contractual arrangements are expiring or will expire in the near future. The
failure to obtain renewal of these agreements could have a material adverse
effect on our business.
We buy a significant amount of our products from a limited number of
suppliers, who may not provide us with competitive products at reasonable prices
when we need them in the future -- We purchase all of the wireless handsets and
accessories that we sell from third-party wireless communications equipment
manufacturers, dealers and network operators. We depend on these suppliers to
provide us with adequate inventories of currently popular brand name products on
a timely basis and on favorable pricing terms. Our agreements with our suppliers
are generally non-exclusive, require us to satisfy minimum purchase
requirements, can be terminated on short notice and provide for certain
territorial restrictions, as is common in our industry. We generally purchase
products pursuant to purchase orders placed from time to time in the ordinary
course of business. In the future, our suppliers may not be able or may choose
not to offer us competitive products on favorable terms without delays. In 1999,
we were unable to obtain sufficient product supplies from manufacturers in many
markets in which we operate. This product shortage was most dramatic in certain
of our Asian markets. Any future failure or delay by our suppliers in supplying
us with products on favorable terms would severely diminish our ability to
obtain and deliver products to our customers on a timely and competitive basis.
If we lose any of our principal suppliers, or if any supplier imposes
substantial price increases and alternative sources of supply are not readily
available, it would have a material adverse effect on our results of operations.
The wireless telecommunications and data industry is intensely
competitive and we may not be able to continue to compete successfully in this
industry -- We compete for sales of wireless telecommunications and data
equipment, and expect that we will continue to compete, with numerous
well-established wireless network operators,
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distributors and manufacturers, including our own suppliers. As a provider of
integrated logistics services, we also compete with other distributors and with
logistics services companies. Many of our competitors possess greater financial
and other resources than we do and may market similar products directly to our
customers. The wireless telecommunications and data industry has generally had
low barriers to entry. So, additional competitors may choose to enter our
industry in the future. The markets for wireless handsets and accessories are
characterized by intense price competition and significant price erosion over
the life of a product. Many of our competitors have the financial resources to
withstand substantial price competition and to implement extensive advertising
and promotional programs, both generally and in response to efforts by
additional competitors to enter into new markets or introduce new products. Our
ability to continue to compete successfully will depend largely on our ability
to maintain our current industry relationships. We may not be successful in
anticipating and responding to competitive factors affecting our industry,
including new or changing outsourcing requirements, the entry of additional
well-capitalized competitors, new products which may be introduced, changes in
consumer preferences, demographic trends, international, national, regional and
local economic conditions and competitors' discount pricing and promotion
strategies. As the cellular markets mature and as we seek to enter into new
markets and offer new products in the future, the competition that we face may
change and grow more intense.
We may not be able to manage and sustain future growth at our
historical and current rates -- In recent years we have experienced rapid
domestic and international growth. We will need to manage our expanding
operations effectively, maintain or accelerate our growth as planned and
integrate any new businesses which we may acquire into our operations
successfully in order to continue our desired growth. If we are unable to do so,
particularly in instances in which we have made significant capital investments,
it could have a material adverse effect on our operations. Our success in
sustaining continued growth will also depend on our ability to:
o secure adequate supplies of competitive products on a timely
basis and on commercially reasonable terms;
o turn our inventories and collect our accounts receivable in a
timely manner;
o develop additional, and maintain our existing, key
relationships with leading network operators and manufacturers
and dealers of wireless handsets and accessories;
o hire and retain additional qualified management, marketing and
other personnel to successfully manage our growth, including
personnel to monitor our operations, control costs and
maintain effective management, inventory and credit controls;
and
o invest significant amounts to enhance our information systems
in order to maintain our competitiveness and to develop new
logistics services.
In addition, our growth prospects could be adversely affected by a
decline in the wireless telecommunications and data industry generally or in one
of its regional divisions, either of which could result in reduction or deferral
of expenditures by prospective customers.
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Rapid technological changes in the wireless telecommunications and data
industry could have a material adverse effect on our business -- The technology
relating to wireless telecommunications and data equipment changes rapidly, and
industry standards are constantly evolving resulting in product obsolescence or
short product life cycles. We are required to anticipate future technological
changes in our industry and to continually identify, obtain and market new
products in order to satisfy evolving industry and customer requirements.
Competitors or manufacturers of wireless equipment may market products which
have perceived or actual advantages over our products or which otherwise render
our products obsolete or less marketable. We have made and continue to make
significant capital investments in accordance with evolving industry and
customer requirements. These concentrations of capital increase our risk of loss
as a result of rapid technological changes in the wireless telecommunications
and data industry.
The use of emerging wireless communications technologies, including
Bluetooth, wireless local loop, satellite-based communications systems and other
new technologies, may reduce the demand for existing cellular and PCS products.
If other companies develop and commercialize new technologies or products in
related market segments that compete with existing cellular and PCS technology,
it could materially change the types of products that we are forced to offer or
result in significant price competition for us. Product obsolescence could
result in significantly increased inventories of our unsold products. However,
if we elect to stock our inventories in the future with any of these
technologies and products, we will run the risk that our existing customers and
consumers may not be willing, for financial or other reasons, to purchase new
equipment necessary to utilize these new technologies. In addition, the complex
hardware and software contained in new wireless handsets could contain defects
which become apparent subsequent to widespread commercial use, resulting in
product recalls and returns and leaving us with additional unsold inventory.
Our business strategy includes entering into strategic relationships
and financings, which may provide us with minimal returns or losses on our
investments -- As part of our expansion strategy, we have entered into several
strategic relationships and joint ventures with wireless equipment manufacturers
and network operators. We intend to continue to enter into similar strategic
relationships as opportunities arise. We may enter into distribution or
integrated logistics services agreements with these strategic partners and may
provide them with equity or debt financing. Our ability to achieve future
profitability through our strategic relationships will depend in part upon the
economic viability, success and motivation of the entities we select as
strategic partners and the amount of time and resources that these partners
devote to our alliances. We may receive minimal or no business from future
relationships and joint ventures, and any business we receive may not be
significant or at the level we anticipated. The future profits we receive from
these strategic relationships, if any, may not offset possible losses on our
investments or the full amount of financings that we extend upon entering into
these relationships. Any loan to or investment in a future strategic partner
will be subject to many of the same risks faced by the strategic partner in
seeking to operate and grow its businesses. We may not achieve acceptable
returns on our future investments with strategic partners within an acceptable
period or at all. As a part of our restructuring plan in 1999 we terminated two
joint operations in China resulting in significant losses on our investments in
those operations. A failure in the establishment and operation of such
relationships could have a material adverse effect on our operations.
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We may have difficulty collecting on our accounts receivable -- In
connection with our continued expansion, we intend to offer open account terms
to additional customers, which may subject us to further credit risks,
particularly in the event that any receivables represent sales to a limited
number of customers or are concentrated in particular geographic markets. Any
delays in collecting or inability to collect our receivables could have a
material adverse effect on our business.
Our operating results frequently vary significantly and respond to
seasonal fluctuations in purchasing patterns -- Our operating results are
influenced by a number of seasonal factors in the different countries and
markets in which we operate. These results may fluctuate from period to period
as a result of several factors, including:
o purchasing patterns of customers in different markets;
o the timing of introduction of new products by our suppliers
and competitors;
o variations in sales by distribution channels; and
o product availability and pricing.
Consumer electronics and retail sales tend to experience increased
volumes of sales at the end of the calendar year. This and other seasonal
factors contribute to the usual increase in our sales during the fourth quarter
of our fiscal year. Our operating results may continue to fluctuate
significantly in the future. In addition, if unanticipated events occur,
including delays in securing adequate inventories of competitive products at
times of peak sales or significant decreases in sales during these periods, it
could have a material adverse effect on our operating results.
Our continued growth depends on retaining our current key employees and
attracting additional qualified personnel -- Our success depends in large part
on the abilities and continued service of our executive officers and other key
employees. Although we have entered into employment agreements with several of
our officers and employees, we may not be able to retain their services. We also
have non-competition agreements with our executive officers and some of our
existing key personnel. However, courts are sometimes reluctant to enforce
non-competition agreements. The loss of executive officers or other key
personnel could have a material adverse effect on us. In addition, in order to
support our continued growth, we will be required to effectively recruit,
develop and retain additional qualified management. If we are unable to attract
and retain additional necessary personnel, it could delay or hinder our plans
for growth.
We rely to a great extent on trade secret and copyright laws and
agreements with our key employees and other third parties to protect our
proprietary rights -- Our business success is substantially dependent upon our
proprietary business methods and software applications relating to our
information systems. We currently hold one patent relating to certain of our
business methods. Concerning other business methods and software we rely on
trade secret and copyright laws to protect our proprietary knowledge. We also
regularly enter into non-disclosure agreements with our key employees and limit
access to and distribution of our trade secrets and other proprietary
information. These measures may not prove adequate to prevent misappropriation
of our technology. Our competitors could also independently develop technologies
that are substantially equivalent or superior to our technology, thereby
eliminating one of our competitive advantages. We also have offices and conduct
our
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operations in a wide variety of countries outside the United States. The laws of
some other countries do not protect our proprietary rights to the same extent as
do laws in the United States. In addition, although we believe that our business
methods and proprietary software have been developed independently and do not
infringe upon the rights of others, third parties might assert infringement
claims against us in the future or our business methods and software may be
found to infringe upon the proprietary rights of others.
We make significant investments in the technology used in our business
and rely on this technology to function effectively without interruptions -- We
have made significant investments in sophisticated and specialized information
systems technology and have focused on the application of this technology to
provide customized integrated logistics services to wireless communications
equipment manufacturers and network operators. Our sales and marketing efforts,
a large part of which are telemarketing based, are highly dependent on computer
and telephone equipment. We anticipate that we will need to continue to invest
significant amounts to enhance our information systems in order to maintain our
competitiveness and to develop new logistics services. Our property and business
interruption insurance may not adequately compensate us for all losses that we
may incur if we lose our equipment or systems either temporarily or permanently
through a casualty or operating malfunction. In addition, a significant increase
in the costs of additional technology or telephone services that is not
recoverable through an increase in the price of our services could have a
material adverse effect on our results of operations.
Our labor force experiences a high rate of personnel turnover -- Our
distribution and integrated logistics services are labor-intensive, and we
experience high personnel turnover and can be adversely affected by shortages in
the available labor force in geographical areas where we operate. A significant
portion of our labor force is contracted through temporary agencies, and a
significant portion of our costs consist of wages to hourly workers. Growth in
our business, together with seasonal increases in net sales, requires us to
recruit and train personnel at an accelerated rate from time to time. We may not
be able to continue to hire, train and retain a significant labor force of
qualified individuals when needed, or at all. An increase in hourly costs,
employee benefit costs, employment taxes or commission rates could have a
material adverse effect on our operations. In addition, if the turnover rate
among our labor force increased further, we could be required to increase our
recruiting and training efforts and costs, and our operating efficiencies and
productivity could decrease.
We have significant future payment obligations pursuant to certain
leases and other long-term contracts -- We lease our office and
warehouse/distribution facilities as well as certain furniture and equipment
under property and personal equipment leases. Many of these leases are for terms
that exceed one year and require us to pay significant monetary charges for
early termination or breach by us of the lease terms. We cannot be certain of
our ability to adequately fund these lease commitments from our future
operations and our decision to modify, change or abandon any of our existing
facilities could have a material adverse effect on our operations.
We may become subject to suits alleging medical risks associated with
our wireless handsets -- Lawsuits or claims have been filed or made against
manufacturers of wireless handsets over the past years alleging possible medical
risks, including brain cancer, associated with the electromagnetic fields
emitted by wireless
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communications handsets. There has been only limited relevant research in this
area, and this research has not been conclusive as to what effects, if any,
exposure to electromagnetic fields emitted by wireless handsets has on human
cells. Substantially all of our revenues are derived, either directly or
indirectly, from sales of wireless handsets. We may become subject to lawsuits
filed by plaintiffs alleging various health risks from our products. If any
future studies find possible health risks associated with the use of wireless
handsets or if any damages claim against us is successful, it could have a
material adverse effect on our business. Even an unsubstantiated perception that
health risks exist could adversely affect our ability or the ability of our
customers to market wireless handsets.
The market price of our common stock may be volatile -- The market
price of our common stock has risen substantially and has fluctuated
significantly from time to time since our initial public offering in April 1994.
The trading price of our common stock could experience significant fluctuations
in the future in response to several factors, which could include actual or
anticipated variations in our quarterly operating results; the introduction of
new services, products or technologies by us, our suppliers or our competitors;
changes in other conditions or trends in the wireless telecommunications and
data industry; changes in governmental regulation; or changes in securities
analysts' estimates of our future performance or that of our competitors or our
industry in general. General market price declines or market volatility in the
prices of stocks for companies in the wireless telecommunications and data
industry or in the distribution or integrated logistics services sectors of the
wireless telecommunications and data industry could also affect the market price
of our common stock.
SEGMENT FINANCIAL INFORMATION
Reference is made to the information set forth in the Company's 1999
Annual Report to Stockholders on pages 28 and 29 under the caption "Operating
Segments", which information is incorporated herein by reference.
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ITEM 2. PROPERTIES
We provide our distribution and integrated logistics services from our
sales and operations centers located in various countries including Australia,
Brazil, China (including Hong Kong), France, Germany, Ireland, Mexico, the
Netherlands, New Zealand, the Philippines, South Africa, Sweden, the United Arab
Emirates, the United States, and Venezuela. Substantially all of these
facilities are operated under operating leases. The table below summarizes
information about our sales and operations centers by operating division.
NUMBER OF AGGREGATE SQUARE APPROXIMATE
LOCATIONS(1) FOOTAGE MONTHLY RENT
------------ ---------------- ------------
North America 4 1,096,708 $576,000
Asia-Pacific 6 117,160 94,000
Europe, Middle East and
Africa 11 128,118 111,000
Latin America 5 119,513 63,000
--------- ---------- --------
26 1,461,499 $844,000
========= ========== ========
(1) Refers to geographic areas in which we maintain facilities and considers
multiple buildings located in the same area as a single geographic location.
In the first quarter of 2000, we consolidated four locations in
Indianapolis into a single, new facility designed specifically for our processes
and other requirements. This new facility is located in close proximity to the
Indianapolis International Airport. With 495,000 square feet of office and plant
space it is our largest operations center. We are attempting to sublease the
former North America headquarters and main distribution center located in
Indianapolis, Indiana ("the 6402 facility"). The lease term for this facility
expires on December 31, 2006 and current rental payments are approximately
$84,000 per month. The consolidation is expected to result in increased costs
during the first quarter of 2000 due to moving costs, the disposal of assets
that will not be used in the new facility, and the financial effects of the
potential sublease of existing facilities. The aggregate amount of these costs
is not expected to exceed $5.0 million.
We believe that our existing facilities are adequate for our current
requirements and that suitable additional space will be available as needed to
accommodate future expansion of our operations.
ITEM 3. LEGAL PROCEEDINGS.
We are from time to time, involved in certain legal proceedings in the
ordinary course of conducting our business. We believe there are no pending
legal proceedings in which we are currently involved which will have a material
adverse effect on our financial position.
We and certain of our executive officers, two of whom are also
directors, were named as defendants in four actions filed in June and July 1999,
in the United States District Court for the Southern District of Indiana. These
actions were subsequently consolidated by the Court into a single action. The
action asserts claims under sections 10 (b) and 20 (a) of the Securities
Exchange Act of 1934, and
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Rule 10b-5 of the Exchange Act, based on allegations that false and misleading
statements were rendered and/or statements were omitted concerning our then
current and future financial condition and business prospects. The action
involves a purported class of purchasers of our stock during the period October
2, 1998 through March 10, 1999. We and the individual defendants intend to
vigorously defend these actions. The outcome of any litigation is uncertain and
it is possible that an unfavorable decision could have a material adverse effect
on our financial position, results of operations or cash flows.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS.
Not Applicable.
PART II
With the exception of the information expressly incorporated by
reference from the Company's 1999 Annual Report to Stockholders into Parts I, II
and IV of this Form 10-K, the Company's Annual Report to Stockholders is not to
be deemed filed as part of this report.
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS.
The information required by this Item is set forth in the Company's
1999 Annual Report to Stockholders, on page 49 under the caption "Common Stock
Information," which information is incorporated herein by reference.
ITEM 6. SELECTED FINANCIAL DATA.
The information required by this Item is set forth in the Company's
1999 Annual Report to Stockholders, on page 49 under the caption "Selected
Financial Data," which information is incorporated herein by reference.
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
The information required by this Item is set forth in the Company's
1999 Annual Report to Stockholders, on pages 27, 28, 29, 31, 32, 33, 35, 37 and
39, which information is incorporated herein by reference.
ITEM 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK.
The information required by this Item is set forth in the Company's
1999 Annual Report to Stockholders, on page 39 under the caption "Financial
Market Risk Management," which information is incorporated herein by reference.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA.
The information required by this Item is set forth in the Company's 1999 Annual
Report to Stockholders, on pages 26, 30, 34, 36, 38 and 40 through 48, which
information is incorporated herein by reference.
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE.
None.
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PART III
Certain information required by Part III is omitted from this report in
that the Company will file its definitive Proxy Statement for the Annual Meeting
of Stockholders for the Annual Meeting of Stockholders to be held on May 18,
2000, pursuant to Regulation 14A of the Securities Exchange Act of 1934 (the
"Proxy Statement"), not later than 120 days after the end of the fiscal year
covered by this report, and certain information included in the Proxy Statement
is incorporated herein by reference.
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT.
The information required by this Item is in the Proxy Statement under
the Section entitled "Election of Directors," which information is incorporated
herein by reference.
ITEM 11. EXECUTIVE COMPENSATION.
The information required by this Item is set forth in the Proxy
Statement under the Section entitled "Executive Compensation" which information
is incorporated herein by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT.
The information required by this Item is set forth in the Proxy
Statement under the Section entitled "Voting Security Ownership of Certain
Beneficial Owners and Management" which information is incorporated herein by
reference.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.
The information required by this Item is set forth in the Proxy
Statement under the Section entitled "Certain Transactions" which information is
incorporated herein by reference.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K.
(a)(1) The following financial statements of the Company included in
the Company's 1999 Annual Report to Stockholders, are
incorporated herein by reference:
Report of Independent Auditors
Consolidated Statements of Operations for the Years Ended
December 31, 1997, 1998 and 1999
Consolidated Balance Sheets as of December 31, 1998 and 1999
Consolidated Statements of Stockholders' Equity for the Years
Ended December 31, 1997, 1998 and 1999
Consolidated Statements of Cash Flows for the Years Ended
December 31, 1997, 1998 and 1999
Notes to Consolidated Financial Statements
(a)(2) The following financial statement schedule for the year ended
December 31, 1999 is submitted herewith:
Report of Independent Auditors on Financial Statement Schedule
For the three years ended December 31, 1999:
Schedule II - Valuation and Qualifying Accounts
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All other schedules are omitted because they are not
applicable or the required information is shown in the
financial statements or notes thereto.
(a)(3) Exhibits
EXHIBIT
NUMBER DESCRIPTION
- ------- -----------
3.1 Certificate of Incorporation of the Company, as amended (10)
3.2 Amended and Restated By-Laws of the Company (10)
3.3 Certificate of Merger of Brightpoint, Inc. into Wholesale
Cellular USA, Inc., effective September 15, 1995 (2)
4.1 Form of Common Stock Certificate (1)
4.3 Indenture between the Company and the Chase Manhattan Bank, as
Trustee (12)
10.1 1994 Stock Option Plan (19), as amended*
10.2 1996 Stock Option Plan (19), as amended*
10.3 Non-Employee Directors Stock Option Plan (1)
10.4 Employee Stock Purchase Plan (17)
10.5 Amended and Restated Agreement between the Company and Robert
J. Laikin dated July 1, 1999 (17)*
10.6 Amended and Restated Agreement between the Company and J. Mark
Howell dated July 1, 1999 (17)*
10.7 Amended and Restated Agreement between the Company and Phillip
A. Bounsall dated July 1, 1999 (17)*
10.8 Amended and Restated Agreement between the Company and Steven
E. Fivel dated July 1, 1999 (17)*
10.9 Lease Agreement between the Company and WRC Properties, Inc.,
as amended and Unconditional Guaranty of Lease by Century
Cellular Network, Inc. (1)
10.10 Lease Agreement between the Company and Park 100 Properties,
Inc. (2)
10.11 Lease Agreement between the Company and Industrial Affiliates,
Ltd. (2)
10.12 Lease Agreement between the Company and Airport Key
Corporation, dated November 30, 1995 (3)
10.13 Lease Agreement between the Company and Corporate Drive
Associates, LLC, dated June 6, 1995 (3)
10.14 Amendment to Lease Agreement between the Company and Corporate
Drive Associates, LLC, dated October 3, 1995 (3)
10.15 Second Amendment to Lease agreement between the Company and
Corporate Drive Associates, LLC, dated as of July 17, 1996
(10)
10.16 Lease Agreement (Building Expansion) between the Company and
Corporate Drive Associates, LLC, dated as of July 17, 1996
(10)
22
24
10.17 Lease Agreement between the Company and SCI North Carolina
Limited Partnership, dated October 21, 1997 (11)
10.18 Lease Extension Agreement between the Company and SCI North
Carolina Limited Partnership, dated January 14, 1998 (11)
10.19 Agreement and Plan of Merger, as amended on April 29, 1996, by
and among the Company, Brightpoint Acquisition, Inc., a
wholly-owned subsidiary of the Company, Allied Communications,
Inc., Allied Communications of Florida, Inc., Allied
Communications of Georgia, Inc., Allied Communications of
Illinois, Inc., Allied Communications of Puerto Rico, Inc.,
Robert Picow and Joseph Forer (5)
10.20 Stock Purchase Agreement, dated as of October 1, 1996, among
the Company, Brightpoint International Ltd., Technology
Resources International Ltd., Safkong Holdings Limited,
Marriott Investment & Trade Inc., John Maclean-Arnott and Dana
Marlin (6)
10.21 Rights Agreement, dated as of February 20, 1997, between the
Company and Continental Stock Transfer Trust Company, as
Rights Agent (7)
10.22 Lease Agreement between the Company and DP Operating
Partnership, L.P., dated as of March 1, 1997 (9)
10.23 Multicurrency Credit Agreement dated as of June 24, 1997 (the
"Credit Agreement") among the Company, Brightpoint
International Ltd., the Subsidiary Borrowers from time to time
party thereto, the Guarantors from time to time party thereto,
the Financial Institutions from time to time party thereto as
lenders, The First National Bank of Chicago as administrative
agent and Bank One, Indiana, N.A. as syndication agent (10)
10.24 Form of Waiver and Amendment No. 1 to Credit Agreement dated
as of November 15, 1997 (11)
10.25 Third Amendment to Multicurrency Credit Agreement dated March
20, 1998 (13)
10.26 Lease Agreement between the Company and Madonna Management
Company, Inc., dated March 17, 1998 (13)
10.27 Lease Agreement between the Company and SCI North Carolina
Limited Partnership, dated March 20, 1998 (13)
10.28 Lease Agreement between the Company and IP Properties, A
Wyoming Limited Liability Company, dated March 31, 1998 (13)
10.29 Fourth Amendment to Multicurrency Credit Agreement dated April
16, 1998 (14)
10.30 Amended and Restated Multicurrency Credit Agreement originally
dated June 24, 1997 and amended and restated as of May 13,
1998 (14)
10.31 Lease Expansion Agreement between the Company and SCI North
Carolina Limited Partnership dated June 9, 1998 (14)
10.32 Lease Agreement between the Company and New World Partners
Joint Venture Number Five, dated July 30, 1998 (15)
10.33 Lease Agreement between the Company and Airtech Parkway
Associates, LLC, dated September 18, 1998 (15)
10.34 Form of Indemnification Agreement of others (20)
23
25
10.35 Amendment No. 1 to Amended and Restated Multicurrency Credit
Agreement dated October 19, 1998 (16)
10.36 Amendment No. 2 to Amended and Restated Multicurrency Credit
Agreement dated September 30, 1998 (16)
10.37 Amendment No. 3 to Amended and Restated Multicurrency Credit
Agreement dated January 1, 1999 (16)
10.38 Fourth Amendment to Multicurrency Agreement dated May 13, 1998
(17)
10.39 Second Amended and Restated Multicurrency Credit Agreement
dated May 13, 1998 and amended and restated as of July 27,
1999 (18)
10.40 Amendment Number 1 to the Rights Agreement (the "Agreement")
by and between Brightpoint, Inc. (the "Company") and
Continental Stock Transfer & Trust Company, as Rights Agent,
dated as of January 4, 1999 (17)
11 Statement re: computation of per share earnings (20)
13 Specific portions of the Company's Annual Report to
Stockholders for the fiscal year ended December 31, 1998
incorporated by reference herein (20)
21 Subsidiaries (20)
23 Consent of Ernst & Young LLP (21)
27 Financial Data Schedule (20)
99 Cautionary Statements (20)
(1) Incorporated by reference to the exhibit filed with the Company's
Registration Statement (33-75148) effective April 7, 1994.
(2) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1994.
(3) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1995.
(4) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-3 (33-97084) effective October 24,
1995.
(5) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K, dated June 12, 1996.
(6) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K, dated December 31, 1996.
(7) Incorporated by reference to the exhibit filed with the Company's
Current Report on Form 8-K, dated March 28, 1997.
(8) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1996.
(9) Incorporated by reference to the exhibit filed with the Company's
Quarterly Report on Form 10-Q for the quarter ended March 31, 1997.
(10) Incorporated by reference to the exhibit filed with the Company's
Registration Statement on Form S-3 (333-29533) effective August 6,
1997.
(11) Incorporated by reference to the exhibit filed with the Company's
Annual Report on Form 10-K for the fiscal year ended December 31, 1997.
24
26
(12) Incorporated by reference to the exhibit filed with the
exhibit filed with the Company's Current Report on Form 8-K
dated April 1, 1998 for the event dated March 5, 1998.
(13) Incorporated by reference to the exhibit filed with the
exhibit filed with the Company's Quarterly Report on Form 10-Q
for the quarter ended March 31, 1998.
(14) Incorporated by reference to the exhibit filed with the
exhibit filed with the Company's Quarterly Report on Form 10-Q
for the quarter ended June 30, 1998.
(15) Incorporated by reference to the exhibit filed with the
Company's Quarterly Report on Form 10-Q for the quarter ended
September 30, 1998.
(16) Incorporated by reference to the exhibit filed with the
Company's Form 10-K for the fiscal year ended December 31,
1998.
(17) Incorporated by reference to Appendix A filed with the
Company's Proxy Statement dated April 15, 2000 relating to its
Annual Stockholders meeting held May 18, 2000.
(18) Incorporated by reference to the exhibit filed with the
Company's Quarterly report on Form 10-Q for the quarter ended
June 30, 1999.
(19) Incorporated by reference to the exhibit filed with the
Company's Registration Statement on Form S-8 (33-97084) dated
September 27, 1999.
(20) Filed herewith.
(21) Filed as page F-1 of this report.
* Denotes management compensation plan or arrangement.
(b) Reports on Form 8-K:
No reports on Form 8-K were filed in the quarter ended
December 31, 1999.
25
27
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
BRIGHTPOINT, INC.
Dated: March 29, 2000 /s/ Robert J. Laikin
---------------------------------------
By: Robert J. Laikin
Chairman of the Board and
Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated:
SIGNATURE TITLE DATE
- --------- ----- ----
/s/ Robert J. Laikin Chairman of the Board,
- ----------------------- Chief Executive Officer and
Robert J. Laikin Director (Principal Executive Officer) March 29, 2000
/s/ J. Mark Howell President, Chief Operating Officer and
- -----------------------
J. Mark Howell Director March 29, 2000
/s/ Phillip A. Bounsall Executive Vice President and Chief
- -----------------------
Phillip A. Bounsall Financial Officer (Principal
Financial Officer) March 29, 2000
/s/ John P. Delaney Vice President and Chief Accounting
- ----------------------- Officer (Principal Accounting Officer) March 29, 2000
John P. Delaney
/s/ John W. Adams Director March 29, 2000
- -----------------------
John W. Adams
/s/ Rollin M. Dick Director March 29, 2000
- -----------------------
Rollin M. Dick
Director
- -----------------------
Steven B. Sands
/s/ Stephen H. Simon Director March 29, 2000
- -----------------------
Stephen H. Simon
/s/ Todd H. Stuart Director March 29, 2000
- -----------------------
Todd H. Stuart
/s/ Robert F. Wagner Director March 29, 2000
- -----------------------
Robert F. Wagner
28
BRIGHTPOINT, INC.
INDEX TO FINANCIAL STATEMENT SCHEDULE
PAGE
----
Report of Independent Auditors on Financial Statement Schedule F-1
Consent of Ernst & Young LLP F-1
Financial Statement Schedule for the years 1999, 1998 and 1997:
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS F-2
29
REPORT OF INDEPENDENT AUDITORS
Board of Directors and Stockholders
Brightpoint, Inc.
We have audited the consolidated financial statements of Brightpoint, Inc. as of
December 31, 1999 and 1998 and for each of the three years in the period ended
December 31, 1999, and have issued our report thereon dated January 24, 2000.
Our audits also included the financial statement schedule listed in Item 14(a)
of this Form 10-K. This schedule is the responsibility of the Company's
management. Our responsibility is to express an opinion based on our audits.
In our opinion, the financial statement schedule referred to above, when
considered in relation to the basic financial statements taken as a whole,
presents fairly in all material respects the information set forth therein.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
January 24, 2000
CONSENT OF ERNST & YOUNG LLP
We consent to the incorporation by reference in the Registration Statement (Form
S-8 No. 333-87863) pertaining to the Brightpoint, Inc. 1994 Stock Option Plan,
as amended, the 1996 Brightpoint, Inc. Stock Option Plan, as amended, the
Brightpoint, Inc. Non-employee Director Stock Option Plan, and the Brightpoint,
Inc. Employee Stock Purchase Plan, in the Registration Statement (Form S-8 No.
333-2242) pertaining to the Brightpoint, Inc. 401(k) Plan, in the Registration
Statement (Form S-3 No. 33-91112) pertaining to certain options and warrants of
Brightpoint, Inc., in the Registration Statement (Form S-3 No. 333-3569)
pertaining to certain warrants of Brightpoint, Inc., and in the Registration
Statements (Form S-3 No. 333-15663, 333-29533, 333-07892, 333-37587, 333-55945,
and 333-58863) pertaining to certain common stock of Brightpoint, Inc. of our
report dated January 24, 2000 with respect to the consolidated financial
statements incorporated by reference and our report dated January 24, 2000 with
respect to the financial statement schedule included in this Annual Report (Form
10-K) of Brightpoint, Inc.
/s/ ERNST & YOUNG LLP
Indianapolis, Indiana
March 27, 2000
F-1
30
BRIGHTPOINT, INC.
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Col. A Col. B Col. C Col. D Col. E
---------- ----------- ---------- ----------- ----------
Balance at Charged to Charged to Balance at
Beginning Costs and Other End
Description of Period Expenses (1) Accounts Deductions of Period
----------- ---------- ----------- ---------- ----------- ----------
Year ended December 31, 1999:
Deducted from asset
accounts:
Allowance for
doubtful accounts $6,045,000 $10,906,000 $ -- $10,731,000(2) $6,220,000
---------- ----------- ---------- ----------- ----------
Total $6,045,000 $10,906,000 $ -- $10,731,000 $6,220,000
========== =========== ========== =========== ==========
Year ended December 31, 1998:
Deducted from asset
accounts:
Allowance for
doubtful accounts $3,394,000 $ 5,601,000 $ -- $ 2,950,000(2) $6,045,000
---------- ----------- ---------- ----------- ----------
Total $3,394,000 $ 5,601,000 $ -- $ 2,950,000 $6,045,000
========== =========== ========== =========== ==========
Year ended December 31, 1997:
Deducted from asset
accounts:
Allowance for
doubtful accounts $1,115,000 $ 3,317,000 $ -- $ 1,038,000(2) $3,394,000
---------- ----------- ---------- ----------- ----------
Total $1,115,000 $ 3,317,000 $ -- $ 1,038,000 $3,394,000
========== =========== ========== =========== ==========
(1) Does not include impairments of accounts receivable recognized in connection
with the Company's trading, restructuring and other unusual charges. See notes
to Consolidated Financial Statements.
(2) Uncollectible accounts written off.
F-2