As filed with the
Securities and Exchange Commission on April 14, 2011
Registration
No. 333-
UNITED STATES SECURITIES AND
EXCHANGE COMMISSION
Washington, D.C.
20549
Form S-1
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933
BRIGHTSTAR CORP.
(Exact Name of Registrant as
Specified in Its Charter)
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Delaware
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5065
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33-0774267
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(State or Other Jurisdiction
of
Incorporation or Organization)
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(Primary Standard Industrial
Classification Code Number)
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(I.R.S. Employer
Identification Number)
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9725 N.W. 117th Ave.
Miami, Florida 33178
(305) 421-6000
(Address, Including
Zip Code, and Telephone Number, Including Area Code, of
Registrants Principal Executive Offices)
R. Marcelo Claure
Chairman and
Chief Executive Officer
Brightstar Corp.
9725 N.W. 117th Ave.
Miami, Florida 33178
(305) 421-6000
(Name, Address,
Including Zip Code, and Telephone Number, Including Area Code,
of Agent For Service)
Copies to:
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Michael Kaplan
Davis Polk & Wardwell LLP
450 Lexington Avenue
New York, New York 10017
(212) 450-4000
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Clayton E. Parker
K&L Gates LLP
200 South Biscayne Boulevard
Suite 3900
Miami, Florida 33131
(305) 539-3300
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Kris F. Heinzelman
William J. Whelan, III
Cravath, Swaine & Moore LLP
Worldwide Plaza
825 Eighth Avenue
New York, New York 10019
(212) 474-1000
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Approximate date of commencement of proposed sale to the
public: As soon as practicable after the
effective date of this Registration Statement.
If any of the securities being registered on this form are to be
offered on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act of 1933, check the
following
box. o
If this form is filed to register additional securities for an
offering pursuant to Rule 462(b) under the Securities Act,
check the following box and list the Securities Act registration
statement number of the earlier effective registration statement
for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(c) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
If this form is a post-effective amendment filed pursuant to
Rule 462(d) under the Securities Act, check the following
box and list the Securities Act registration statement number of
the earlier effective registration statement for the same
offering. o
Indicate by check mark whether the registrant is a large
accelerated filer, an accelerated filer, a non-accelerated
filer, or a smaller reporting company. See the definitions of
large accelerated filer, accelerated
filer and smaller reporting company in Rule
12b-2 of the
Exchange Act. (Check one):
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Large
accelerated
filer o
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Accelerated
filer o
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Non-accelerated
filer þ
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Smaller reporting
company o
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(Do not check if a smaller
reporting company)
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Proposed Maximum
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Title of Each Class
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Aggregate Offering
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Amount of
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of Securities to be Registered
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Price(1)
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Registration Fee
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Class A Common Stock, par value $0.0001 per share
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$
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300,000,000
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$
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34,830
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(1)
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Estimated solely for the purpose of
computing the amount of the registration fee pursuant to
Rule 457(o) under the Securities Act of 1933.
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The Registrant hereby amends this Registration Statement on
such date or dates as may be necessary to delay its effective
date until the Registrant shall file a further amendment which
specifically states that this Registration Statement shall
thereafter become effective in accordance with Section 8(a)
of the Securities Act of 1933 or until the Registration
Statement shall become effective on such date as the Commission,
acting pursuant to said Section 8(a), may determine.
The
information in this preliminary prospectus is not complete and
may be changed. We and the selling stockholders may not sell
these securities until the registration statement filed with the
Securities and Exchange Commission is effective. This
preliminary prospectus is not an offer to sell these securities,
and we and the selling stockholders are not soliciting offers to
buy these securities in any jurisdiction where the offer or sale
is not permitted.
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Subject to Completion, Dated
April 14, 2011
PRELIMINARY PROSPECTUS
Shares
Class A Common Stock
This is an initial public offering of Class A common stock
by Brightstar Corp. We are
selling shares
of our Class A common stock. The selling stockholders
identified in this prospectus, which include R. Marcelo Claure,
our Chairman and Chief Executive Officer, and Lindsay Goldberg
LLC (Lindsay Goldberg), our sponsor, are selling an
additional shares
of our Class A common stock. We will not receive any
proceeds from the sale of shares by the selling stockholders.
This is our initial public offering and no public market
currently exists for our shares. The estimated initial public
offering price is between $ and
$ per share.
Following this offering, we will have two classes of authorized
common stock, Class A common stock and Class B common
stock. The rights of the holders of Class A common stock
and Class B common stock will be identical, except with
respect to voting and conversion. Each share of Class A
common stock will be entitled to one vote per share. Each share
of Class B common stock will be entitled to 5 votes per
share, except in limited circumstances. Following the completion
of this offering, Mr. Claure will beneficially own 100% of
our outstanding Class B common stock, representing
approximately % of the combined
voting power of our outstanding common stock and
approximately % of our total equity
ownership assuming the underwriters option to purchase
additional shares is not exercised.
We intend to apply to have our Class A common stock listed
on The Nasdaq Stock Market under the symbol STAR.
Investing in our Class A common stock involves risks.
See Risk Factors beginning on page 15.
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Per Share
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Total
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Initial public offering price
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$
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$
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Underwriting discounts
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$
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$
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Proceeds, before expenses, to Brightstar Corp.
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$
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$
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Proceeds, before expenses, to selling stockholders
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$
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$
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To the extent that the underwriters sell more
than shares
of Class A common stock, the underwriters have the option
to purchase up to an
additional shares
from Brightstar Corp.
and shares
from the selling stockholders at the initial public offering
price less the underwriting discounts.
Neither the Securities and Exchange Commission nor any state
securities commission has approved or disapproved of these
securities or passed upon the adequacy or accuracy of this
prospectus. Any representation to the contrary is a criminal
offense.
The underwriters expect to deliver the shares against payment in
New York, New York
on ,
2011.
Joint Book-Running Managers
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Goldman,
Sachs & Co. |
J.P. Morgan
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Barclays
Capital |
Credit Suisse
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Jefferies
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Co-Managers
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RBC
Capital Markets |
Stifel Nicolaus Weisel |
,
2011
TABLE OF
CONTENTS
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Page
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1
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15
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34
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35
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36
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37
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39
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41
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43
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83
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102
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108
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130
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132
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134
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137
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139
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142
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147
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147
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147
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F-1
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EX-23.1 |
Unless the context indicates otherwise, Brightstar,
the company, we, us and
our in this prospectus refer to Brightstar Corp. and
its subsidiaries. We have not authorized anyone to provide any
information other than that contained in this prospectus or in
any free writing prospectus prepared by or on behalf of us or to
which we have referred you. We take no responsibility for, and
can provide no assurance as to the reliability of, any other
information that others may give you. We and the selling
stockholders have not authorized anyone to provide you with
additional or different information. We and the selling
stockholders are offering to sell, and seeking offers to buy,
shares of Class A common stock only in jurisdictions where
offers and sales are permitted. The information contained in
this prospectus is accurate only as of the date of this
prospectus, regardless of the time of delivery of this
prospectus or of any sale of the Class A common stock.
Until ,
2011 (25 days after the commencement of the offering), all
dealers that buy, sell or trade in our Class A common
stock, whether or not participating in this offering, may be
required to deliver a prospectus. This is in addition to the
dealers obligation to deliver a prospectus when acting as
underwriters and with respect to their unsold allotments or
subscriptions.
ii
PROSPECTUS
SUMMARY
This summary highlights information contained elsewhere in
this prospectus. This summary may not contain all of the
information that you should consider before deciding to invest
in our Class A common stock. You should read this entire
prospectus carefully, including our consolidated financial
statements and related notes thereto and the information set
forth under the sections Risk Factors and
Managements Discussion and Analysis of Financial
Condition and Results of Operations, in each case included
elsewhere in this prospectus.
Overview
We are a leading global services company focused on enhancing
the performance and profitability of the key participants in the
wireless device value chain: manufacturers, operators, retailers
and enterprises. We provide a comprehensive range of customized
services consisting of value-added distribution, supply chain,
retail and enterprise and consumer services. Our services help
our customers manage the growing complexity of the wireless
device value chain and allow them to increase product
availability, extend and expand their channel reach and drive
supply chain efficiencies by getting the right products to the
right place at the right time for a lower cost. In addition, our
services help our customers increase their wireless device sales
and drive velocity at the point of sale. The rapid growth of the
approximately $200 billion global wireless industry and
increasing number and type of wireless activatable devices have
resulted in a complex ecosystem where manufacturers, operators,
retailers and enterprises have differing priorities and are
burdened with tasks that are critical, but not core, to their
businesses. We believe that our global presence, scale and
strategic position at the center of the wireless ecosystem
provide us with unique insight into the entire wireless device
value chain and enhance our ability to offer differentiated,
value-added services to our customers. We currently offer over
100 individual services in 50 countries across six continents,
and we intend to continue innovating and adding services that
deliver value to our customers.
We offer the following service categories:
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Value-Added Distribution Services are provided to
manufacturers of wireless devices and related accessories. Our
services include product distribution, transportation and
delivery, order management, light manufacturing and assembly,
and marketing and demand generation.
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Supply Chain Services are provided to manufacturers,
operators and retailers. Our services include wireless device
management, strategic sourcing, and business intelligence and
supply chain optimization services, such as forward and reverse
logistics.
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Retail Services are provided to manufacturers, operators,
retailers and enterprises. Our services include retail
outsourcing, portfolio management with virtual inventory, and
sales force training and management.
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Enterprise and Consumer Services are provided to
manufacturers, operators, retailers and enterprises. Our
services include device activation, customized billing and
wireless administration software, and handset protection
insurance.
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We are a global organization supporting manufacturers,
operators, retailers and enterprises and enabling over 90,000
points of sale worldwide. Our customers are some of the leading
companies in the wireless device value chain. Among others, our
customers include manufacturers such as Apple, HTC, Huawei, LG,
Motorola, Nokia, RIM and Samsung; operators such as America
Movil, AT&T, Orange, Telecom New Zealand, Telefonica,
Telstra, TIM, Verizon Wireless and Vodafone; retailers such as
Best Buy, Radio Shack, Target, Tesco and Walmart; and
enterprises such as Dell, PC Connection and Tech Data.
Manufacturers, operators, retailers and enterprises choose us
because of our wireless expertise, global reach, scale and
extensive channel consisting of more than 33,000 customers,
including more than 150 manufacturers, 180 network operators,
15,000 mass retailers and 4,800 technology value-
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added resellers. Our customers also choose us because of our
track record of quality service and execution, proprietary tools
and systems, the strength and capability of our supply chain
professionals and our ability to tailor our solutions or
innovate new ones to meet their particular needs.
Our business is conducted in four geographic regions:
(i) U.S./Canada; (ii) Latin America; (iii) Asia
Pacific, Middle East and Africa (Asia Pacific); and
(iv) Europe, through Brightstar Europe, our 50% owned joint
venture with Tech Data. The first three regions are reported as
geographic operating segments in our consolidated financial
statements, and we include our share of income from Brightstar
Europe in other income (expenses), net. See note 17 to our
audited consolidated financial statements included elsewhere in
this prospectus.
For the year ended December 31, 2010, our revenue grew 70%
to $4.6 billion relative to the year ended
December 31, 2009, and we generated Adjusted EBITDA (as
defined below) of $141.2 million, net income of
$39.8 million and Adjusted net income (as defined below) of
$60.6 million.
Wireless
Industry Overview
The wireless industry is large and growing, and encompasses an
increasingly broad and complex array of wireless devices,
including feature phones, smartphones,
e-readers
and tablets, and their related accessories. The primary drivers
of growth and increasing complexity are higher global wireless
device penetration rates, a larger number of wireless ecosystem
participants, greater levels of demand for data applications and
mobile Internet access, and the emergence of a wide range of
feature-rich wireless and other activatable devices with a broad
mix of voice and data service plans and shortening product
lifecycles. There are more than 700 operators globally, multiple
network standards, various wireless device distribution channels
and an increasing number of wireless device models with tailored
application functionalities.
In recent years, a substantial portion of global subscriber
growth has been driven by the prepaid wireless segment, which
has become increasingly popular as customers are able to enjoy
the benefits of a regular mobile handset without needing to
commit to long-term network service contracts. Subscriber growth
is particularly strong in developing markets where penetration
rates of wireless devices have been accelerating given the
emergence of more cost-effective means for ownership, such as
prepaid wireless devices, which is making the purchase of
wireless devices more affordable to consumers in these
developing markets.
According to Gartner Inc. (Gartner), approximately
1.2 billion wireless phones were shipped in 2009, a number
which is expected to increase to approximately 2.4 billion
in 2015, representing a 11.9% compounded annual growth rate
(CAGR). The largest growth area is smartphones
which, according to Gartner, is expected to grow from
172.4 million devices sold in 2009 to 1,104.9 million
devices sold in 2015, representing a 36.3% CAGR. In addition,
tablets and
e-readers
are also becoming increasingly popular with consumers. According
to Gartner, tablet computer shipments are expected to grow from
17.6 million units in 2010, the first year for which
Gartner industry data is available for tablet computer
shipments, to 294.1 million units in 2015, representing a
75.6% CAGR.
The proliferation of new technologies and connected devices and
the increasing velocity of these new product introductions are
resulting in the following key trends:
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Manufacturers needing to achieve faster
time-to-market
with new wireless devices;
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Operators needing to meet customers demands for increased
choice;
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Retailers needing to navigate through an increasingly large and
rapidly changing set of available devices; and
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Enterprises needing to reduce the cost of and simplify the
management of their wireless devices and rate plan deployments.
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We believe each participant in the wireless ecosystem faces
differing challenges and priorities.
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Manufacturers are focused on selling devices to end users
through operators and retailers. They are faced with challenges
such as pricing pressure, forecasting accuracy, and the lack of
local importation and manufacturing expertise in certain markets.
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Operators are focused on maximizing their average revenue per
user (ARPU), minimizing churn and growing their
subscriber base. They are faced with challenges including the
growing complexity and rapid evolution of handset and
activatable device offerings, demand forecasting for particular
devices across markets and geographies, and inventory management.
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Retailers are focused on selling devices and plans to consumers.
They are faced with challenges such as the ability to
efficiently manage working capital, mitigate inventory
obsolescence and drive strong sales and profit per square foot.
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Enterprises are focused on getting the best device on the best
plan for their end users. They are faced with challenges such as
the ability to manage the activation of devices and selection of
plans and the ability to access a broad portfolio of wireless
devices at competitive rates.
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We believe that these differing challenges and priorities will
become more prominent given the accelerating pace of
technological innovation, the number of new market participants
and continued growth of the wireless ecosystem and that they
will translate into growing opportunities for specialized
providers of outsourced services who are positioned at the
center of the wireless device value chain.
Our Value
Proposition for the Key Participants in the Wireless
Ecosystem
We provide a broad portfolio of innovative services that help
our customers around the world optimize their wireless supply
chains and better manage the ongoing complexity in the wireless
ecosystem. Our ability to leverage our proprietary market
knowledge gives our customers valuable insight into their own
wireless supply chains as well as real-time trends throughout
the broader wireless device value chain. We believe that our
portfolio of services, which are designed to meet the needs of
wireless industry participants, coupled with our global
infrastructure and scale position us to successfully serve all
participants in the wireless ecosystem.
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Manufacturers. We offer manufacturers a
suite of services to help them move their products to market
faster and to more locations around the world. We primarily act
as a demand-generating distributor for manufacturers. Our global
infrastructure, scale, local expertise, wireless expertise and
business intelligence, channel and business relationships allow
us to develop customized
end-to-end
solutions for our manufacturer customers. Our services enable
them to focus on their core competencies and help extend their
channel reach, optimize their inventory levels and further drive
increased profitability and market share.
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Operators. We provide operators with a
comprehensive set of services to improve their ability to select
the right product, source it for the right price and deliver it
to the right place at the right time. Our tools and services
help operators improve the execution of their core business
strategy, which is centered on managing the wireless
customers experience and maximizing ARPU. Our solutions
also allow for greater pricing visibility and improved demand
forecasting, which help operators reduce the cost of device
acquisition, improve inventory supply planning and product
lifecycle management and ultimately enhance both profitability
and end-user satisfaction.
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Retailers. We provide retailers with
services that improve the profitability and performance of their
wireless category, both in-store and online. The wireless device
category is complex to manage, with high working capital
requirements, and increasingly short product lifecycles as new
devices are entering the space at an unprecedented rate. Our
services help retailers simplify management of this category,
analyze consumer habits and trends and ensure that the right
products are available at the right locations at the right
price, to maximize sales and
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profitability. We provide retail-centric demand planning,
inventory management and collaborative planning, forecasting and
replenishment processes that allow retailers to maintain low
inventory levels with high fill rates at the point of sale. We
also offer services that increase the velocity of sales for
wireless products.
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Enterprises. As master agent for
operators, we provide small and medium businesses, enterprises,
government organizations and each of their end users with
cost-effective wireless voice and data communication devices
through their preferred retailer or IT reseller. Our tools and
services assist enterprises (through their IT reseller service
providers) and consumers (through their retail environments) by
simplifying the procurement, activation and administration of
their wireless devices. Our tools allow organizations to view
and administer their bills in a consolidated multi-operator
portal to gain better insight into employee spend and behavior.
Our automated activation portals enable organizations and
consumers to seamlessly activate their devices quickly and
without hassle. Our enterprise and consumer services simplify
the mobile experience for end users by enabling small and medium
businesses, enterprises and government organizations to
outsource many critical, but non-core, functions to us.
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Our
Competitive Strengths
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Large, Global Services Provider for the Wireless
Ecosystem. We are present in 50 countries on
six continents and believe we have a leading global distribution
infrastructure platform to support the wireless device value
chain. Our extensive experience, infrastructure, scale and local
reach create a significant competitive advantage over regional
competitors because we are able to decrease
time-to-market
of wireless devices and provide our customers with increased
visibility into their supply chain. Our significant scale and
geographic reach, together with our extensive customer
relationships, would be difficult and costly to replicate.
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Strong Relationships with Manufacturers, Operators,
Retailers and Enterprises. We have
relationships with over 150 manufacturers, 180 network
operators, 15,000 mass retailers and 4,800 technology
value-added resellers, including some of the leading names in
the wireless ecosystem. Our position at the center of the
wireless device value chain and our extensive customer
relationships, coupled with our wireless expertise, global
footprint and scale, enable us to drive significant value for
our customers.
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Differentiated Services Offerings. We
have been successful at leveraging our unique position at the
center of the wireless device value chain, our global
infrastructure and our wireless industry knowledge and data to
provide customers with innovative, differentiated and targeted
solutions. By consistently delivering additional high-value
service offerings to our customers, we become part of our
customers supply chains, creating stronger customer
relationships. We work closely with our customers to create
differentiated value-added service offerings, which are tailored
to meet their particular needs. We believe this collaborative
approach and our track record of quality service and execution
creates loyal customer relationships.
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Innovative Technology-Based Service
Platform. Our innovative technology-based
service platform provides us with extensive real-time data
across the wireless device value chain and enables us to provide
consulting services and tools to our customers for better
decision making. Our technology has been developed in-house over
time and is designed to layer onto our customers own
technology infrastructure. Our information technology tools
allow us to initiate a relationship with a customer on a
targeted basis, with selected solutions, and enable us to expand
our services to the customer over time.
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Strategically Positioned to Anticipate Wireless Ecosystem
Opportunities. Our visibility into the
wireless device value chain allows us to anticipate and
capitalize on profitable growth opportunities. Our global
business model enables us to leverage our learning and
observations
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from one region to another to anticipate customer needs and
associated business opportunities.
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Innovative Culture and Management Team with a Successful
Track Record. Our management team, led by our
Chairman, Chief Executive Officer and largest stockholder, R.
Marcelo Claure, has extensive industry experience. Our
management team has developed a culture of innovation that has
enabled us to grow and diversify our business and enhance the
value proposition for our customers.
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Our
Strategy
We intend to be the leading global services provider for the
wireless device value chain. Key elements of our strategy
include:
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Continue to leverage our global infrastructure, scale and strong
customer relationships to expand our offering with higher value
services;
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Expand into additional high growth geographies;
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Increase the number of services we provide our existing
customers and enter into new customer relationships; and
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Continue to pursue strategic partnerships, investments and
acquisitions to expand our services offering as well as our
geographic footprint.
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Recent
Development
On April 11, 2011, we acquired eSecuritel, a leading
provider of cell phone and wireless products insurance services.
The acquisition will combine eSecuritels suite of cell
phone protection and replacement programs, proprietary IT
systems and processes with our global logistics, device sourcing
and IT customization capabilities. We expect eSecuritels
offerings will further enhance our robust platform of services
and drive growth in our business.
Risks Related to
Our Business
Please read the section entitled Risk Factors for a
discussion of some of the factors you should carefully consider
before deciding to invest in our Class A common stock. Some
of the important risks include:
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we depend on a limited number of manufacturer customers to
provide us with competitive products at reasonable prices and of
good quality,
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we may experience a loss of or reduction in orders from
principal customers or a reduction in the prices we are able to
charge these customers,
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our business depends on the continued tendency of manufacturers,
operators, retailers and enterprises to outsource aspects of
their business to us in the future,
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our business could be harmed by fluctuations in regional demand
patterns and economic factors,
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an economic downturn could negatively impact our business,
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we may have difficulty collecting our accounts receivable,
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we rely on our manufacturer customers to provide trade credit
terms to adequately fund our ongoing operations and product
purchases,
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we operate a global business that exposes us to risks associated
with international activities,
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we conduct a substantial amount of business in Venezuela,
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our operating results vary frequently and significantly in
response to seasonal purchasing pattern fluctuations,
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we are highly dependent on our Chairman and Chief Executive
Officer and management team and the loss of our executive
officers and key personnel could impede our ability to implement
our strategy,
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we have identified material weaknesses in our internal controls
over financial reporting which, if not successfully remediated,
could cause us to fail to timely report our financial results,
prevent fraud and avoid material misstatements in our financial
statements, and
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the voting power of our capital stock will be concentrated in
our Chairman and Chief Executive Officer, which will limit your
ability to influence corporate matters.
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Corporate
Information
Brightstar Corp. was founded by our Chairman and Chief Executive
Officer, R. Marcelo Claure, and David Peterson in October 1997.
In June 2007, Lindsay Goldberg acquired an interest in us by
purchasing shares of our Series D Redeemable Convertible
Preferred Stock.
Our principal executive offices are located at 9725 N.W.
117th Ave., Miami, Florida 33178, and our telephone number
is
(305) 421-6000.
Our website is www.brightstarcorp.com. The information
contained on our website or that can be accessed through our
website will not be deemed to be incorporated into this
prospectus or the registration statement of which this
prospectus forms a part, and investors should not rely on any
such information in deciding whether to purchase our
Class A common stock.
Industry and
Market Data
We obtained the industry, market and competitive position data
throughout this prospectus from our own internal estimates and
research as well as from industry and general publications and
research, surveys and studies conducted by third parties.
Industry publications, studies and surveys generally state that
they have been obtained from sources believed to be reliable,
although they do not guarantee the accuracy or completeness of
such information. While we believe that each of these studies,
surveys and publications is reliable, we have not independently
verified market and industry data from third-party sources.
While we believe our internal company estimates and research are
reliable and the market definitions are appropriate, neither
such research nor these definitions have been verified by any
independent source.
Some of the independent industry publications referred to in
this prospectus are copyrighted and, in such circumstances, we
have obtained permission from the copyright owners to refer to
such information in this prospectus. In particular, the reports
issued by Gartner described in this prospectus represent data,
research, opinions or viewpoints published by Gartner as part of
a syndicated subscription service available only to its clients
and are not representations of fact. We have been advised by
Gartner that each Gartner report speaks as of its original
publication date (and not as of the date of this prospectus) and
the opinions expressed in the Gartner reports are subject to
change without notice.
6
The
Offering
|
|
|
Class A common stock offered by us
|
|
shares |
|
Class A common stock offered by the selling stockholders
|
|
shares |
|
Total Class A common stock offered
|
|
shares |
|
Class A common stock to be outstanding after this offering
|
|
shares |
|
Option to purchase additional shares of Class A common stock
|
|
shares by us
and
shares by the selling stockholders |
|
Class B common stock to be outstanding after this offering
|
|
shares |
|
Total common stock to be outstanding after this offering
|
|
shares |
|
Voting rights
|
|
Following this offering, the holders of Class A common
stock will be entitled to one vote per share, and the holder of
Class B common stock will be entitled to 5 votes per share,
except with respect to the election of any director that is
intended by our board of directors to be designated as
independent. With respect to the election of such
independent directors, holders of Class A and Class B common
stock will be entitled to one vote per share and will vote
together as a single class. Upon the consummation of this
offering, we intend to have at least three independent
directors. In addition, in the event of (a) the merger or
sale of the company or all or substantially all of the assets of
the company, (b) the liquidation, dissolution or winding up
of the company or (c) any amendment to our certificate of
incorporation that would increase the authorized capital stock
of the company, Class B common stock will be entitled to
one vote per share. |
|
|
|
Shares of Class B common stock are convertible at any time
on a share-for-share basis into shares of Class A common
stock. In the event that (1) Mr. Claure beneficially
owns shares of our common stock representing less than 20% of
the total number of shares outstanding or (2) the company
is no longer certified as a minority business enterprise, the
Class B common stock will automatically convert to Class A
common stock. In addition, in the event Mr. Claure sells,
disposes or otherwise transfers his shares of Class B
common stock to a third party, such Class B common stock will
automatically convert to Class A common stock. |
|
|
|
Holders of our Class A common stock and our Class B
common stock will vote together as a single class on all matters
submitted to a vote of our stockholders. |
|
|
|
Following this offering, assuming no exercise of the
underwriters option to purchase additional shares,
(1) holders of Class A common stock will control
approximately % of the combined
voting power of our outstanding common stock and
approximately %
of our total equity ownership |
7
|
|
|
|
|
and (2) Mr. Claure, through his holding of 100% of our
outstanding Class B common stock, will control
approximately % of the combined
voting power of our outstanding common stock and
approximately % of our total equity
ownership. |
|
|
|
If the underwriters exercise their option to purchase additional
shares in full, (1) holders of Class A common stock
will control approximately % of the
combined voting power of our outstanding common stock and
approximately %
of our total equity ownership and (2) Mr. Claure,
through his holding of 100% of our outstanding Class B
common stock, will control
approximately % of the combined
voting power of our outstanding common stock and
approximately % of our total equity
ownership. See Description of Capital Stock
Voting Rights. |
|
|
|
With the exception of voting rights and the conversion features
of the Class B common stock, holders of Class A and
Class B common stock have identical rights. See
Description of Capital Stock Common
Stock for a description of the material terms of our
common stock. |
|
Use of proceeds
|
|
Our net proceeds from this offering will be approximately
$ million, or approximately
$ million if the underwriters
exercise their option to purchase additional shares in full,
assuming an initial offering price of
$ per share, the midpoint of the
range set forth on the cover page of this prospectus. We intend
to use $ million of the net
proceeds from this offering to pay accrued dividends on our
redeemable convertible preferred stock and will use the
remainder for general corporate purposes. We will not receive
any proceeds from the shares of Class A common stock being
sold by the selling stockholders identified in this prospectus,
which include Mr. Claure and Lindsay Goldberg. |
|
Dividend policy
|
|
We do not intend to pay dividends on our Class A or
Class B common stock. We plan to retain any earnings for
use in the operation of our business and to fund future growth. |
|
Risk factors
|
|
See Risk Factors for a discussion of factors you
should consider before investing in our Class A common
stock. |
|
Proposed Nasdaq Stock Market symbol
|
|
STAR |
Unless we specifically state otherwise, the share information in
this prospectus is as of December 31, 2010, and reflects or
assumes:
|
|
|
|
|
the conversion
of shares
of our common stock owned by Mr. Claure
into shares
of Class A common stock
and shares
of Class B common stock, and the conversion
of shares
of our common stock owned by other shareholders
into shares
of Class A common stock;
|
|
|
|
the conversion of all our redeemable convertible preferred stock
(at the conversion ratio of one to one)
into shares
of Class A common stock upon the completion of this
offering;
|
|
|
|
the shares
of Class A common stock issuable upon exercise of
outstanding options, at a weighted average exercise price of
$ per share, and an
additional shares
of Class A common stock received for issuance pursuant to
our compensation plans, are excluded; and
|
8
|
|
|
|
|
the underwriters option to purchase up to an
additional shares
of Class A common stock from us and up to an
additional shares
of Class A common stock from the selling stockholders is
not exercised.
|
Summary
Consolidated Financial and Other Data
The following is our summary consolidated financial and other
data, which should be read in conjunction with, and is qualified
by reference to, Use of Proceeds,
Capitalization, Managements Discussion
and Analysis of Financial Condition and Results of
Operations and our consolidated financial statements and
notes thereto included elsewhere in this prospectus. The
consolidated statements of operations data for the years ended
December 31, 2008, 2009 and 2010 and the consolidated
balance sheet data as of December 31, 2010 are derived
from, and qualified by reference to, our audited consolidated
financial statements and notes thereto included elsewhere in
this prospectus and should be read in conjunction with those
consolidated financial statements and notes thereto.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Consolidated Statements of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,550,165
|
|
|
$
|
2,718,652
|
|
|
$
|
4,612,863
|
|
Cost of revenue
|
|
|
3,254,167
|
|
|
|
2,354,016
|
|
|
|
4,218,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
295,998
|
|
|
|
364,636
|
|
|
|
393,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
174,287
|
|
|
|
161,806
|
|
|
|
235,239
|
|
Provision for bad debts
|
|
|
2,736
|
|
|
|
6,435
|
|
|
|
8,785
|
|
Depreciation and amortization
|
|
|
9,917
|
|
|
|
13,457
|
|
|
|
11,913
|
|
Public offering expenses
|
|
|
|
|
|
|
|
|
|
|
7,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
186,940
|
|
|
|
181,698
|
|
|
|
263,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
109,058
|
|
|
|
182,938
|
|
|
|
130,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
14,206
|
|
|
|
21,278
|
|
|
|
7,139
|
|
Interest expense
|
|
|
(34,746
|
)
|
|
|
(17,102
|
)
|
|
|
(29,025
|
)
|
Other income (expenses), net
|
|
|
(923
|
)
|
|
|
(3,459
|
)
|
|
|
2,159
|
|
Foreign exchange losses, net
|
|
|
(25,117
|
)
|
|
|
(80,915
|
)
|
|
|
(33,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(46,580
|
)
|
|
|
(80,198
|
)
|
|
|
(52,990
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income
taxes
|
|
|
62,478
|
|
|
|
102,740
|
|
|
|
77,624
|
|
Provision for income taxes
|
|
|
35,402
|
|
|
|
46,999
|
|
|
|
36,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
27,076
|
|
|
|
55,741
|
|
|
|
40,686
|
|
(Loss) income from discontinued operations, net of taxes
|
|
|
(14,304
|
)
|
|
|
2,595
|
|
|
|
(921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
12,772
|
|
|
|
58,336
|
|
|
|
39,765
|
|
Less: Net income attributable to non-controlling interest
|
|
|
18,107
|
|
|
|
4,095
|
|
|
|
2,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Brightstar Corp.
|
|
$
|
(5,335
|
)
|
|
$
|
54,241
|
|
|
$
|
37,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share for common stock(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Brightstar
Corp. common stockholders
|
|
$
|
0.50
|
|
|
$
|
0.83
|
|
|
$
|
0.35
|
|
(Loss) income from discontinued operations attributable to
Brightstar Corp. common stockholders
|
|
|
(0.79
|
)
|
|
|
0.07
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Brightstar Corp. common
stockholders
|
|
$
|
(0.29
|
)
|
|
$
|
0.90
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net (loss) income attributable to Brightstar Corp.
common stockholders(2)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Diluted earnings per share for common stock(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Brightstar
Corp. common stockholders
|
|
$
|
0.20
|
|
|
$
|
0.78
|
|
|
$
|
0.35
|
|
(Loss) income from discontinued operations attributable to
Brightstar Corp. common stockholders
|
|
|
(0.41
|
)
|
|
|
0.06
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Brightstar Corp. common
stockholders
|
|
$
|
(0.21
|
)
|
|
$
|
0.84
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Pro forma net (loss) income attributable to Brightstar Corp.
common stockholders(2)
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,134,166
|
|
|
|
18,163,037
|
|
|
|
18,181,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
35,046,068
|
|
|
|
20,863,930
|
|
|
|
18,586,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other Financial Data(3):
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted gross profit
|
|
$
|
295,998
|
|
|
$
|
279,040
|
|
|
$
|
382,680
|
|
Adjusted EBITDA
|
|
|
118,247
|
|
|
|
111,424
|
|
|
|
141,192
|
|
Adjusted net income
|
|
|
12,299
|
|
|
|
58,742
|
|
|
|
60,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2010
|
|
|
|
|
|
|
|
|
|
Pro Forma,
|
|
|
|
Actual
|
|
|
Pro Forma(4)
|
|
|
As Adjusted(5)
|
|
|
|
(In thousands)
|
|
|
|
|
|
|
(Unaudited)
|
|
|
Balance Sheet Data
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
159,161
|
|
|
$
|
|
|
|
$
|
|
|
Accounts receivable, net
|
|
|
1,376,445
|
|
|
|
|
|
|
|
|
|
Inventory
|
|
|
612,396
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
|
2,496,570
|
|
|
|
|
|
|
|
|
|
Total debt (including current portions)(6)
|
|
|
453,805
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,929,758
|
|
|
|
|
|
|
|
|
|
Total redeemable convertible preferred stock
|
|
|
409,090
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
157,722
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
We calculate basic earnings per share using the two-class method
in accordance with ASC 260 Earnings Per Share. This
requires the income per share for common stock and participating
securities to be calculated assuming 100% of our earnings are
distributed as dividends to holders of common stock and
participating securities based on their respective dividend
rights, even though we do not anticipate distributing 100% of
our earnings as dividends. For the basic earnings per share
calculation, income from continuing operations available to
Brightstar common stockholders, discontinued operations and net
income attributable to Brightstar common stockholders are
allocated pro rata between our weighted outstanding common stock
and our weighted outstanding participating securities. Net
losses are allocated completely to common stock since there is
no legal obligation for the participating securities to fund
losses. |
|
|
|
Basic earnings per share attributable to common stockholders is
computed by dividing earnings applicable to income from
continuing operations available to Brightstar common
stockholders, discontinued operations and net income
attributable to Brightstar common stockholders by the
weighted-average number of common shares. Income attributable to
common stockholders is net |
10
|
|
|
|
|
of the dividends relating to redeemable convertible preferred
stock. See Note 2 to our consolidated financial statements
included elsewhere in this prospectus. |
|
(2) |
|
Pro forma reflects (i) the conversion
of shares
of our common stock
into shares
of Class A common stock
and shares
of Class B common stock, (ii) the conversion of our
redeemable convertible preferred stock
into shares
of Class A common stock and (iii) the issuance and
sale
of shares
of Class A common stock by us in this offering at an
assumed initial public offering price of
$ per share, the midpoint of the
range set forth on the cover page of this prospectus, and the
application of the net proceeds of the offering, after deducting
estimated underwriting discounts and offering expenses payable
by us, as set forth under Use of Proceeds. |
|
(3) |
|
Adjusted gross profit is not a U.S. GAAP measurement. The
Adjusted gross profit measure presented consists of gross profit
adjusted for the impairment of upfront fee and the effect of
foreign exchange losses from Venezuela. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Significant Issues
Affecting Comparability from Period to Period Venezuela
Business. |
|
|
|
The following table presents a reconciliation of gross profit to
Adjusted gross profit: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Gross profit
|
|
$
|
295,998
|
|
|
$
|
364,636
|
|
|
$
|
393,884
|
|
Impairment of upfront fee(a)
|
|
|
|
|
|
|
|
|
|
|
11,005
|
|
Effect of foreign exchange loss from Venezuela(b)
|
|
|
|
|
|
|
(85,596
|
)
|
|
|
(22,209
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted gross profit
|
|
$
|
295,998
|
|
|
$
|
279,040
|
|
|
$
|
382,680
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted earnings before interest, taxes, depreciation and
amortization (EBITDA) is not a U.S. GAAP
measurement. The Adjusted EBITDA measure presented consists of
net income before provision for income taxes, interest income
and expense, depreciation and amortization, impairment of
upfront fee, public offering expenses, share-based compensation
expense, loss (income) from discontinued operations, net of
taxes, other (income) expenses, net and foreign exchange losses
(gains), net. |
11
|
|
|
|
|
The following table presents a reconciliation of net income to
Adjusted EBITDA: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
12,772
|
|
|
$
|
58,336
|
|
|
$
|
39,765
|
|
Provision for income taxes
|
|
|
35,402
|
|
|
|
46,999
|
|
|
|
36,938
|
|
Interest income
|
|
|
(14,206
|
)
|
|
|
(21,278
|
)
|
|
|
(7,139
|
)
|
Interest expense
|
|
|
34,746
|
|
|
|
17,102
|
|
|
|
29,025
|
|
Depreciation and amortization
|
|
|
9,917
|
|
|
|
13,457
|
|
|
|
11,913
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
EBITDA
|
|
|
78,631
|
|
|
|
114,616
|
|
|
|
110,502
|
|
Impairment of upfront fee(a)
|
|
|
|
|
|
|
|
|
|
|
11,005
|
|
Public offering expenses(c)
|
|
|
|
|
|
|
|
|
|
|
7,333
|
|
Share-based compensation expense(d)
|
|
|
(728
|
)
|
|
|
625
|
|
|
|
2,536
|
|
Loss (income) from discontinued operations, net of taxes(e)
|
|
|
14,304
|
|
|
|
(2,595
|
)
|
|
|
921
|
|
Other income (expenses), net(f)
|
|
|
923
|
|
|
|
3,459
|
|
|
|
(2,159
|
)
|
Foreign exchange losses (gains), net(g)
|
|
|
25,117
|
|
|
|
(4,681
|
)
|
|
|
11,054
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted EBITDA
|
|
$
|
118,247
|
|
|
$
|
111,424
|
|
|
$
|
141,192
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income is not a U.S. GAAP measurement. The
Adjusted net income measure presented consists of net income
adjusted for the impairment of upfront fee, public offering
expenses, share-based compensation expense, income tax
consequences of the foregoing adjustments and impact of the
devaluation of the Venezuelan currency. |
|
|
|
The following table presents a reconciliation of net income to
Adjusted net income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Net income
|
|
$
|
12,772
|
|
|
$
|
58,336
|
|
|
$
|
39,765
|
|
Impairment of upfront fee(a)
|
|
|
|
|
|
|
|
|
|
|
11,005
|
|
Public offering expenses(c)
|
|
|
|
|
|
|
|
|
|
|
7,333
|
|
Share-based compensation expense(d)
|
|
|
(728
|
)
|
|
|
625
|
|
|
|
2,536
|
|
Income tax benefit (expense) of net income adjustments of the
line items above at statutory federal rate of 35%
|
|
|
255
|
|
|
|
(219
|
)
|
|
|
(7,306
|
)
|
Venezuela devaluation(h)
|
|
|
|
|
|
|
|
|
|
|
7,228
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted net income
|
|
$
|
12,299
|
|
|
$
|
58,742
|
|
|
$
|
60,561
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
We believe Adjusted gross profit, Adjusted EBITDA and Adjusted
net income are useful in evaluating our operating performance
compared to that of other companies because the calculation
adjusts for items which we believe are not indicative of
operating performance. We use these measures to evaluate the
operating performance of our business and aid in
period-to-period
comparability. We also use these measures for planning and
forecasting, measuring results against our forecast, and in
certain cases, for bonus targets for certain employees. Using
several measures to evaluate the business allows us and
investors to assess our performance and ultimately monitor our
ability to generate returns for our stockholders. |
|
|
|
We believe Adjusted gross profit, Adjusted EBITDA and Adjusted
net income are also useful to investors because they are
frequently used by securities analysts, investors and other
interested parties in the evaluation of companies. Our Adjusted
gross profit, Adjusted EBITDA and Adjusted |
12
|
|
|
|
|
net income may not provide information that is directly
comparable to that provided by other companies, as other
companies may calculate these measures differently. |
|
|
|
Adjusted gross profit, Adjusted EBITDA and Adjusted net income
are not measures of financial performance under GAAP and should
not be considered as an alternative to gross profit, operating
income (loss) or net income (loss) or as an indication of
operating performance derived in accordance with GAAP. Adjusted
gross profit, Adjusted EBITDA and Adjusted net income have
limitations as analytical tools. These measures can exclude a
number of items, some of which are cash expenditures and some of
which may be recurring. Some of the limitations of these
measurements are: |
|
|
|
Adjusted gross profit, Adjusted EBITDA and Adjusted
net income do not reflect the non-cash upfront fee impairment in
2010;
|
|
|
|
Adjusted EBITDA does not reflect changes in, or cash
requirements for, our working capital needs;
|
|
|
|
Adjusted EBITDA does not reflect significant
interest expense or the cash requirements necessary to service
interest or principal payments on our debts; and
|
|
|
|
Although depreciation and amortization are non-cash
charges, the assets being depreciated and amortized will often
have to be replaced in the future, and Adjusted EBITDA does not
reflect any cash requirements for such replacements.
|
|
|
|
Because of these limitations, Adjusted gross profit, Adjusted
EBITDA and Adjusted net income should not be considered in
isolation or as a substitute for performance measures calculated
in accordance with GAAP. We compensate for these limitations by
relying primarily on our GAAP results and using Adjusted gross
profit, Adjusted EBITDA and Adjusted net income supplementally. |
|
|
|
(a) |
|
In 2010, revenue was affected by an $11.0 million
impairment charge. See Note 14 to our consolidated
financial statements included elsewhere in this prospectus. |
|
(b) |
|
Represents losses from foreign exchange associated with parallel
market transactions in Venezuela. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Significant Issues Affecting
Comparability from Period to Period Venezuela
Business. |
|
(c) |
|
During 2010, we incurred certain expenses in preparation for our
initial public offering. |
|
(d) |
|
Share-based compensation expense is composed of the fair value
of each of our incentive awards under our stock option plans.
See Note 15 to our consolidated financial statements
included elsewhere in this prospectus. |
|
(e) |
|
Represents the results of our discontinued operations for the
periods presented. See Managements Discussion and
Analysis of Financial Condition and Results of
OperationsKey Metrics. |
|
(f) |
|
Includes non-cash charges related to impairment of certain
investments, a loss on sale of subsidiary and a loss on sale of
property and equipment. Further, other (income) expenses, net
includes earnings and losses attributable to our 50% ownership
interest in Brightstar Europe, which we recognize using the
equity method of accounting. In 2008, we recognized
$4.7 million in losses from Brightstar Europe, including a
$2.1 million other than temporary impairment. In 2009 and
2010, we recognized $1.8 million and $2.4 million,
respectively, of income from Brightstar Europe. Since 2010,
other (income) expenses, net has included rental income and
depreciation related to investment properties acquired in
Venezuela during 2009 and 2010. See Note 13 to our
consolidated financial statements included elsewhere in this
prospectus. |
13
|
|
|
(g) |
|
Represents gain and loss from foreign exchange, but excludes
foreign exchange losses associated with parallel market
transactions in Venezuela. See Managements
Discussion and Analysis of Financial Condition and Results of
Operations Significant Issues Affecting
Comparability from Period to Period Venezuela
Business. |
|
(h) |
|
Represents the net income effect in 2010 related to currency
devaluation in Venezuela. See Managements Discussion
and Analysis of Financial Condition and Results of
Operations Significant Issues Affecting
Comparability from Period to Period Venezuela
Business. |
|
|
|
(4) |
|
Pro forma reflects (i) the conversion
of shares
of our common stock
into shares
of Class A common stock
and shares
of Class B common stock and (ii) the conversion of our
redeemable convertible preferred stock
into shares
of Class A common stock upon the consummation of this
offering. See Use of Proceeds and
Capitalization. |
|
(5) |
|
Pro Forma As Adjusted reflects the adjustments
described above in footnote (4) and further reflects the
issuance and sale
of shares
of Class A common stock by us in this offering at an
assumed initial public offering price of
$ per share, the midpoint of the
range set forth on the cover page of this prospectus, and the
application of the net proceeds of the offering, after deducting
estimated underwriting discounts and offering expenses payable
by us, as set forth under Use of Proceeds. |
|
(6) |
|
Total debt is defined as lines of credit, trade financing
facilities and the current portion of term debt, long-term debt
and convertible senior subordinated notes. |
14
RISK
FACTORS
Investing in our Class A common stock involves a high
degree of risk. You should carefully consider the following
risks and all of the other information set forth in this
prospectus before deciding to invest in shares of our
Class A common stock. If any of the following risks
actually occurs, our business, financial condition or results of
operations would likely suffer. In such case, the trading price
of our Class A common stock could decline, and you may lose
all or part of your investment.
Risks Related to
Our Business
We depend on a
limited number of manufacturer customers to provide us with
competitive products at reasonable prices and of good
quality.
As part of our value-added distribution services, we purchase
wireless devices and accessories from a limited number of
manufacturer customers. During the year ended December 31,
2010, sales of our top three manufacturer customers
products accounted for 38%, 19% and 12% of our revenue. Our top
five manufacturer customers are LG, Motorola, Nokia, RIM and
Samsung, which together represented 82% of our revenue in 2010.
We depend on our manufacturer customers to provide us with
adequate inventories of popular brand name products on a timely
basis and on favorable pricing and other terms.
Our agreements with our manufacturer customers are generally
non-exclusive, 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 manufacturer customers may not offer us
competitive products on favorable terms. From time to time we
have been unable to obtain sufficient product supplies from
manufacturers and operators in many markets in which we operate.
Any future failure or delay by our manufacturer customers 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 manufacturers, if these manufacturers consolidate,
if these manufacturers are unable to fulfill our product needs
or if any principal supplier imposes substantial price increases
and alternative sources of supply are not readily available, our
business would be materially adversely affected.
Even if our manufacturer customers provide us with wireless
devices on a timely basis, our manufacturer customers may not
produce the most popular products. For example, certain of our
manufacturer customers have suffered significant market share
losses in the past several years due to the popularity of other
manufacturers products. To the extent we do not have
access to the most popular products, our business would be
adversely affected.
In addition, manufacturers typically provide limited warranties
directly to the end consumer or to us. If a line of products we
distribute for a manufacturer has quality or performance
problems, our ability to provide products to our customers could
be disrupted, causing a delay or reduction in our revenue.
We may
experience a loss of or reduction in orders from principal
customers or a reduction in the prices we are able to charge
these customers.
As part of our value-added distribution services, our customers
include retailers and operators. For example, in the United
States, a large portion of our value-added distribution services
is for devices that are used on the Verizon Wireless network. If
an operator such as Verizon Wireless decided not to permit us to
distribute devices for use on its network, our business would be
materially adversely affected. The loss of any of our principal
customers, a reduction in the amount of product or services our
principal customers order from us or our inability to maintain
current terms, including prices, with these or other customers,
could harm our results of operations and cash flows. During the
year ended December 31, 2010, sales to our top three
customers accounted for 38% of our
15
consolidated revenue, of which a group of companies affiliated
with America Movil in the aggregate accounted for 23% of our
consolidated revenue.
Although we have entered into contracts with certain of our
largest customers, we previously have experienced losses of
business with certain of these customers through expiration or
cancellation of our contracts with them. For example, between
2008 and 2009, we lost value-added distribution business with an
operator in Latin America that represented $340.3 million
of annual sales. There can be no assurance that any of our
customers will continue to purchase products or services from us
or that their purchases will be at the same or greater levels
than in prior periods. Many of our customers in the markets we
serve have experienced severe price competition and, for this
and other reasons, may seek to obtain products or services from
us at lower prices than we have historically charged.
Our business
depends on the continued tendency of manufacturers, operators,
retailers and enterprises to outsource aspects of their business
to us in the future.
We provide certain outsourced functions such as inventory
management, fulfillment, customized packaging, prepaid and
e-commerce
solutions, activation management, assembly, distribution and
other services for many manufacturers, operators, retailers and
enterprises. Certain participants in the wireless ecosystem have
elected, and others may elect, to undertake these services
internally. Additionally, our customer service levels, industry
consolidation, competition, deregulation, technological changes
or other developments could reduce the degree to which members
of the global wireless device industry rely on outsourced
services such as the services that we provide. Any significant
change in the market for our outsourced services could harm our
business. Although our outsourced services are generally
provided under multi-year renewable contractual arrangements,
these contracts can be terminated for a variety of reasons or
expire without renewal. See Business Suppliers
and Customers. Although we will actively pursue the
renegotiation, extension or replacement of our contracts, there
can be no assurance that we will be able to extend or replace
our contracts when they may be terminated or may expire without
renewal or that the terms of any renegotiated contracts will be
as favorable as our existing contracts. If we are unable to
renew, extend or replace these contracts, or if we renew them on
less favorable terms, our business could be adversely impacted.
Our business
could be harmed by fluctuations in regional demand patterns and
economic factors.
The demand for our products and services has fluctuated and may
continue to vary substantially within the regions served by us.
Economic slowdowns in regions served by us or changes in
consumer demand could result in lower than anticipated demand
for the products and services that we offer and lead to higher
levels of inventory in our distribution channels and could
decrease our profitability. In addition, consumer demand could
fluctuate as a result of changes in foreign currency rates
against the U.S. dollar. A prolonged economic slowdown in
any region in which we have significant operations could
negatively impact our business. For example, in 2009, demand for
wireless devices decreased, which negatively impacted our
revenue.
An economic
downturn could negatively impact our business.
Our business was negatively impacted by the global economic
downturn that began in late 2007, and would be harmed by any
future global or regional economic downturn. An economic
downturn generally has negative implications on our business,
which may exacerbate many of the risks associated with our
business, including, but not limited to, the following:
Liquidity. Economic downturns and
credit crises could reduce access to capital and liquidity and
this could have a negative impact on financial institutions and
the financial system, which would, in turn, have a negative
impact on us and our creditors. Reduced liquidity could cause
credit insurers to decrease coverage on our customers and
increase premiums, deductibles and co-insurance levels on our
remaining or prospective coverage. Our manufacturer customers
could tighten trade credit (in
16
certain cases, as a result of our inability to obtain credit
insurance), which could negatively impact our liquidity. We may
not be able to borrow additional funds under our existing credit
agreements if lenders become insolvent or their liquidity is
limited or impaired.
Prices and Demand. Economic downturns
may reduce demand for wireless devices and would negatively
impact the demand for our services. The recent economic downturn
resulted in severe job losses and lower consumer confidence, and
as a result, in 2009, worldwide wireless handset unit shipments
declined by 1%. In addition, certain markets could experience
deflation, which negatively impacts our average selling price
and revenue and can lead to inventory obsolescence.
Counterparty Risk. In an economic
downturn, our manufacturers, customers and their suppliers
(e.g., component manufacturers) may become insolvent, file for
bankruptcy or go out of business, which could negatively impact
our business. A perception of counterparty risk may also
negatively impact our ability to secure contracts with existing
and new customers.
We experienced these negative effects on the demand for our
services and on our revenue during 2008 and particularly in
2009. These negative effects or the negative effects of any
future economic downturn may adversely affect our business.
We may have
difficulty collecting our accounts receivable.
We currently offer and will continue to offer open account terms
to certain of our customers, which may subject us to credit
risks, particularly in the event that any receivables represent
sales to a limited number of customers or are concentrated in
particular geographic markets. The collection of our accounts
receivable and our ability to accelerate our collection cycle
through the sale of accounts receivable is affected by several
factors, including, but not limited to:
|
|
|
|
|
our credit granting policies;
|
|
|
|
contractual provisions;
|
|
|
|
geographic exposure;
|
|
|
|
our customers and our overall credit rating as determined
by various credit rating agencies;
|
|
|
|
industry and economic conditions;
|
|
|
|
the ability of our customers to provide security, collateral or
guarantees relative to credit granted by us;
|
|
|
|
our customers recent operating results, financial position
and cash flows; and
|
|
|
|
in certain cases, our ability to obtain credit insurance on
amounts that we are owed.
|
Adverse changes in any of these factors, certain of which are
not within our control, could create delays in collecting or an
inability to collect our accounts receivable, which in turn
could impair our cash flows and our financial position and cause
a reduction in our results of operations.
We rely on our
manufacturer customers to provide trade credit terms to
adequately fund our ongoing operations and product
purchases.
Our business is dependent on our ability to obtain adequate
supplies of popular products on favorable terms, including
payment terms. Our ability to fund our product purchases is
dependent on our principal manufacturer customers providing
favorable payment terms that allow us to maximize the efficiency
of our use of capital. The payment terms we receive from our
suppliers are dependent on several factors, including, but not
limited to:
|
|
|
|
|
our payment history with the manufacturer;
|
|
|
|
the manufacturers credit granting policies and contractual
provisions;
|
17
|
|
|
|
|
our overall credit rating as determined by various credit rating
agencies;
|
|
|
|
industry and economic conditions;
|
|
|
|
our recent operating results, financial position and cash
flows; and
|
|
|
|
the manufacturers ability to obtain credit insurance on
certain amounts that we owe them.
|
Adverse changes in any of these factors, some of which are not
within our control, could harm our operations and limit our
growth.
We operate a
global business that exposes us to risks associated with
international activities.
We maintain significant operations centers and sales offices in
territories and countries outside of the United States. As of
December 31, 2009 and 2010, 81% and 66%, respectively, of
our accounts receivable were from
non-U.S. customers.
In particular, as of December 31, 2009 and 2010, 73% and
57%, respectively, of our accounts receivable were from Latin
America. The fact that our business operations are conducted in
many countries exposes us to several additional risks,
including, but not limited to:
|
|
|
|
|
difficulty converting currency and delays in repatriating
profits and investments;
|
|
|
|
potentially significant increases in wireless device prices;
|
|
|
|
increased credit risks, customs duties, import quotas and other
trade restrictions;
|
|
|
|
potentially greater inflationary pressures;
|
|
|
|
shipping delays;
|
|
|
|
devaluation of foreign currencies;
|
|
|
|
possible nationalization of our customers in certain
markets; and
|
|
|
|
possible wireless device supply interruption.
|
As a result, our operating results and financial condition could
be significantly affected by these risks and other risks
associated with international activities, including
environmental and trade protection laws, policies and measures;
tariffs; export license requirements; enforcement of the Foreign
Corrupt Practices Act or similar laws of other jurisdictions on
our business activities outside the United States; other
regulatory requirements; economic and labor conditions;
political or social unrest; economic instability or natural
disasters in a specific country or region, such as hurricanes,
earthquakes and tsunamis; health or similar issues; tax laws in
various jurisdictions around the world; and difficulties in
staffing and managing international operations. In particular,
we are in and may in the future enter into certain developing
markets where the legal systems and infrastructures are not
fully developed. We have in the past entered into certain local
markets at significant cost only to subsequently withdraw from
such markets because our performance did not achieve the level
that we had anticipated. In the past, as a result of ineffective
internal controls, some of our subsidiaries made disbursements
to vendors that lacked adequate documentation. While we are not
aware of any Foreign Corrupt Practices Act or similar
violations, we cannot be certain that we have not or will not
violate such laws.
Although we generally negotiate our agreements with customers in
U.S. dollars, local legal restrictions may necessitate that
our agreements be denominated in foreign currencies. Where so
required, we are exposed to market risk primarily related to
foreign currencies and interest rates. In particular, we are
exposed to changes, over which we have no control, in the value
of the U.S. dollar versus the local currency in which the
products are sold and goods and services are purchased,
including devaluation and revaluation of local currencies. We
manage our exposure to fluctuations in the value of currencies
and interest rates using a variety of financial instruments.
Although we believe that our exposures are appropriately
diversified across counterparties and that these counterparties
18
are creditworthy financial institutions and although we monitor
the creditworthiness of our counterparties, we are exposed to
credit loss in the event of non-performance by our
counterparties in relation to foreign exchange contracts and we
may not be able to adequately mitigate all foreign currency
related risks. In addition, we may not execute our hedging
strategy successfully which may lead to future foreign exchange
losses.
We conduct a
substantial amount of business in Venezuela.
In the years ended December 31, 2008, 2009 and 2010, we
generated $654.8 million, $527.6 million and
$486.6 million of our sales to customers in Venezuela,
respectively. In addition, as of December 31, 2009 and
December 31, 2010, we had accounts receivable relating to
customers in Venezuela totaling $254.9 million and
$129.4 million, respectively. In recent years Venezuela has
experienced political challenges, difficult economic conditions,
relatively high levels of inflation and foreign exchange and
price controls. The president of Venezuela has the authority to
legislate certain areas by decree, and the government has
nationalized or announced plans to nationalize certain
industries and to expropriate certain companies and property.
These factors, however, none of which are within our control,
could affect our ability to conduct business in Venezuela,
collect our receivables or repatriate funds and may have a
negative impact on our business.
In 2003, Venezuela imposed currency controls and created the
Commission of Administration of Foreign Currency
(CADIVI) with the task of establishing detailed
rules and regulations and generally administering the exchange
control regime. These controls fix the exchange rate between the
Bolivar and the U.S. dollar and restrict the exchange of
Bolivars for U.S. dollars and vice versa. As a result, our
customers in Venezuela were required to obtain CADIVI approval
prior to the acquisition and importation of the goods that we
help distribute for them and CADIVI authorization for the
release of U.S. dollars for payment to us. Foreign currency
payments for invoices paid through the CADIVI process are
typically received between 90 to 240 days from the invoice
date; however, in some cases, the process has taken longer.
CADIVI has recently pronounced that certain commodities will
have priority to foreign currencies, which resulted in temporary
delays to our customers in obtaining CADIVI approval as the
CADIVI announcement was unclear. CADIVI clarified that the
telecommunications industry would have priority, which relieved
the delays. Any delays in receiving CADIVI approval and payment
from our Venezuela customers could have an adverse effect on our
business.
As of July 1, 2009, we determined that Venezuelas
economy met the definition of highly inflationary and changed
the functional currency of our Venezuelan subsidiary to our
reporting currency (U.S. dollars). As a consequence of this
change in functional currency, the effect of all Venezuelan
currency fluctuations are classified as foreign exchange gains
and losses and included in the determination of earnings,
beginning July 1, 2009. On January 8, 2010, the
Venezuelan government announced its intention to devalue its
currency and move to a two-tier exchange structure, effective
January 11, 2010: a 2.30 BsF rate to the USD for
transactions deemed priorities by the government and a 4.60 BsF
rate to the USD for other transactions. The latter rate is
applicable to our operations in Venezuela. In May 2010, the
Venezuelan government enacted reforms to its exchange
regulations to close the parallel market. In early June 2010,
the Venezuelan government introduced additional regulations
under a newly regulated system (the Sistema de Transacciones
con Titulos en Moneda Extranjera, or SITME),
which is controlled by the Central Bank of Venezuela
(BCV). The SITME imposes volume restrictions on an
entitys trading activity. Foreign exchange transactions
occurring after SITME began in June 2010 and which are not
conducted through CADIVI or SITME may not comply with the
amended exchange regulations. As a result, we curtailed our
parallel market activity in the first half of 2010 and no longer
conduct transactions through a parallel market in Venezuela. In
December 2010, the Venezuelan government announced a currency
devaluation, effective January 2011, wherein the Bolivar would
have one set government rate. For the years ended
December 31, 2009 and 2010, we incurred a foreign exchange
loss of $85.6 million and $22.2 million, respectively,
due to foreign currency transactions we executed in the parallel
market in Venezuela, primarily in the second and third quarters
of 2009. See Managements Discussion and Analysis of
19
Financial Condition and Results of Operations
Significant Issues Affecting Comparability from Period to
Period Venezuela Business.
Our operating
results vary frequently and significantly in response to
seasonal purchasing pattern fluctuations.
Our operating results may be influenced by a number of seasonal
factors in the different countries and markets in which we
operate. These factors may cause our revenue and operating
results to fluctuate on a quarterly basis. These fluctuations
are a result of several factors, including, but not limited to:
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promotions and subsidies by operators;
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rebates or price reductions offered by manufacturer customers;
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the timing of local holidays and other events affecting consumer
demand;
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the timing of the introduction of new products and services by
our manufacturer customers and their competitors;
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purchasing patterns of consumers in different markets;
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general and regional, economic, monetary and political
conditions;
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product availability and pricing; and
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increases in net working capital and resulting funding
requirements.
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Consumer electronics and retail sales in many geographic markets
tend to experience increased volumes of sales at the end of the
calendar year, largely because of gift-giving holidays. This and
other seasonal factors have contributed to increases in our
sales during the fourth quarter in certain markets. Conversely,
we have experienced decreases in demand in the first quarter
subsequent to the higher level of activity in the preceding
fourth quarter. Our operating results may continue to fluctuate
significantly in the future. If unanticipated events occur,
including delays in securing adequate inventories of competitive
products at times of peak demand or significant decreases in
sales during these periods, our business could be harmed. In
addition, as a result of seasonal factors, interim results may
not be indicative of annual results.
Our business
could be harmed by consolidation of operators.
The past several years have witnessed a consolidation within the
operator community, and this trend is expected to continue. This
trend could result in a reduction or elimination of promotional
activities by the remaining operators as they seek to reduce
their expenditures, which could, in turn, result in decreased
demand for our products or services. Moreover, consolidation of
operators reduces the number of potential contracts available to
us and other providers of supply chain, retail and enterprise
services. We could also lose business if operators that are our
customers are acquired by other operators that are not our
customers.
We are
dependent on a variety of information systems to process
transactions, summarize results and manage our
business.
Given the large number of individual transactions we conduct
each year, it is critical that we maintain uninterrupted
operation of our business critical information systems.
Disruptions in both our primary and secondary
(back-up)
systems could harm our ability to run our business. Although we
have independent and physically separate primary and secondary
data centers, we cannot be certain that our information systems
will not experience a significant interruption or failure.
We depend on a variety of information systems for our
operations, which support many of our operational functions such
as inventory management, order processing, shipping, receiving
and
20
accounting. Our information systems, including our
back-up
systems, are subject to damage or interruption from power
outages, computer and telecommunications failures, computer
viruses, security breaches, catastrophic events such as fires,
tornadoes, hurricanes, earthquakes and tsunamis, and usage
errors by our employees. If our primary and
back-up
systems are damaged or cease to function properly, we may have
to make a significant investment to fix or replace them, and we
may suffer interruptions in our operations in the interim. We
have not recently experienced material system-wide failures or
downtime for any of our information systems used around the
world; however, we cannot assure that such failures will not
occur in the future. Any material interruption in either or both
of our primary or
back-up
systems may have a material adverse effect on our business.
Failures or significant downtime for any of our information
systems could prevent us from placing product orders with
vendors or recording inventory received, taking customer orders,
printing product pick-lists, or shipping and invoicing for
products sold, or recording transactions. It could also prevent
customers from accessing our product information.
In order to support our future growth, we continue to review our
business needs and are making continuous improvements, including
standardization, where appropriate, of establishing common
business processes and controls across our lines of business,
and technology upgrades to our information systems, including
software applications and electronic interfaces with our
business partners. This can be a lengthy and expensive process
that may result in a significant diversion of resources from
other operations. The risk of system disruption is increased
when significant system changes are undertaken. In implementing
these enhancements, we may experience
greater-than-expected
difficulty or costs; and we may also experience significant
disruptions in our business, which could have a material adverse
effect on our business, particularly if we were to replace a
substantial portion of our current information systems and
processes. In addition, competitors may develop superior
information systems or we may not be able to meet evolving
market requirements by upgrading our current information systems
at a reasonable cost, or at all.
Finally, we also rely on the Internet for a significant
percentage of our orders and information exchanges with our
customers. The Internet and individual websites in general have
experienced a number of disruptions and slowdowns, some of which
were caused by organized attacks. In addition, some websites
associated with other companies have experienced security
breakdowns or breaches of confidential information. Although our
website has not experienced any material breakdowns, disruptions
or breaches in security, we cannot be assured that this will not
occur in the future. If we were to experience a security
breakdown, disruption or breach that compromised sensitive
information, our relationship with our customers could be
adversely affected. Disruption of our website or of the Internet
in general could impair our order processing or more generally
prevent our customers from accessing critical information. This
disruption could cause us to lose business.
Our future
operating results will depend on our ability to continue to
increase volumes and maintain margins as well as on the relative
mix of our services provided.
The majority of our revenue is derived from sales of wireless
devices, a part of our value-added distribution services that
operates on a high-volume, low-margin basis. Our ability to
generate these sales is based upon continued demand for wireless
devices and our having an adequate supply of these devices. The
gross margins that we realize on sales of wireless devices could
be reduced over time due to increased competition, which in turn
would lead to a decline in our overall margins. This margin
pressure may, however, be offset to some extent if we are able
to continue to increase the relative contribution of our higher
margin, fee-based supply chain, retail and enterprise services
to our overall business, a shift in product and services mix
which would have a positive impact on our margins. However, an
increased contribution of supply chain, retail and enterprise
services relative to our value-added distribution services may
lower the pace of revenue growth while having a positive impact
on our gross margins. Our future growth and margin profile will
depend on, among other things, our mix of value-added
distribution and other services.
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The natural lifecycle of certain of our supply chain, retail and
enterprise services arrangements where we are paid a percentage
of the savings we achieve for our customers, especially in the
case of strategic sourcing, will decline over time as savings
are fully realized, unless replaced by new contracts for
additional services. If we are unable to enter into new supply
chain, retail and enterprise services contracts, our revenue and
gross margin may decline and our operating results could be
adversely affected.
Our business
growth strategy includes strategic partnerships, investments and
acquisitions.
As part of our business strategy, we intend to pursue selected
strategic partnerships, investments and acquisitions in
complementary businesses. Our strategic partnership, investment
and acquisition strategy involves a number of risks, including:
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difficulty in identifying attractive strategic partnership,
investment or acquisition opportunities;
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difficulty in successfully integrating acquired operations,
information technology systems, customers, manufacturer
relationships, products and businesses with our operations;
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loss of key employees of acquired operations or inability to
hire key employees necessary for our expansion;
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diversion of our capital and management attention away from
other business issues;
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entering new markets or offering new products we are not
familiar with and competing with incumbents that have greater
expertise (such as our recent acquisition of eSecuritel through
which we plan to commence offering wireless handset insurance,
an area that is new to us);
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increase in our expenses and working capital requirements;
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in the case of acquisitions that we may make outside of the
United States, difficulty in operating in foreign countries and
over significant geographical distances; and
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other financial risks, such as potential liabilities of the
businesses we acquire.
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Our growth may be limited and our competitive position may be
harmed if we are unable to identify, finance, consummate and
integrate future acquisitions and investments. Future
acquisitions and investments may result in dilutive issuances of
equity securities, the incurrence of additional debt or large
write-offs. The incurrence of debt in connection with any future
acquisitions and investments could restrict our ability to
obtain working capital or other financing necessary to operate
our business. Our future acquisitions and investments may not be
successful, and if we fail to realize the anticipated benefits
of these acquisitions and investments, we may experience a
decrease in future profitability or increase in future losses
and our business could be adversely affected.
Our future
operating results may suffer if we do not effectively manage our
product inventories or are required to write down our
inventories due to rapid technological changes in the global
wireless device industry or changing market
demands.
The technology relating to wireless devices changes rapidly,
resulting in product obsolescence or short product lifecycles.
As a result, we need to manage our inventory effectively to meet
changing consumer demand and retailer volume requirements. Some
of the products we distribute have in the past and may in the
future become obsolete while in our inventory due to changing
consumer demands or slowdowns in demand for existing products
ahead of new product rollouts by our manufacturer customers or
their competitors. If we are not able to manage our inventory
effectively, we may need to write off unsaleable or obsolete
inventory, which would adversely affect our business.
Our success depends on accurately anticipating future
technological changes in our industry and on continually
identifying, obtaining and marketing new products in order to
satisfy evolving industry and customer requirements. Competitors
or manufacturers of wireless devices may market products that
have perceived or actual advantages over the products that we
handle or render those products
22
obsolete or less marketable. We have made and continue to make
significant working capital investments in accordance with
evolving industry and customer requirements, including
maintaining levels of inventories of currently popular products
that we believe are necessary based on current market
conditions. These concentrations of working capital increase our
risk of loss due to product obsolescence.
The global
wireless device industry is intensely competitive, and we may
not be able to continue to compete successfully in this
industry.
For our value-added distribution services, we compete for sales
of wireless devices, and expect that we will continue to
compete, with numerous well-established manufacturers, including
our own manufacturer customers. Furthermore, certain
manufacturers may choose to develop the capabilities to go
direct to customers and also implement extensive advertising and
promotional programs, minimizing the need for distributors. We
also compete with other distributors. The global wireless device
industry has generally had low barriers to entry for companies
with sufficient capital. As a result, additional competitors may
choose to enter our industry in the future. The markets for
wireless handsets and accessories are characterized by intense
price competition and significant price erosion over the life of
a product. Our ability to continue to compete successfully will
depend largely on our ability to maintain our current and enter
into new customer relationships, continuing to innovate our
service portfolio and establishing business relationships with
new entrants. We may not be successful in anticipating and
responding to competitive factors affecting our industry,
including 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 wireless communications industry matures 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 collaborate with manufacturers, operators, retailers and
enterprises to optimize their supply chains and, therefore, rely
on our customers to outsource or agree to collaborate with us
for parts of, or the entirety of, their supply chains. As such,
we compete with various parties, including our customers who may
choose to in-source, other supply chain solutions companies,
software companies, business process outsourcers, management and
information technology consultants and electronic manufacturing
services companies. Many of our competitors possess greater
financial and other resources than we do and may market similar
products or services directly to our customers. Furthermore, we
may not be successful in anticipating and responding to
competitive factors affecting our industry, including new or
changing outsourcing requirements or the introduction of new
technologies and services that can change the competitive
landscape.
We may have
higher than anticipated tax liabilities.
We conduct business globally and file income tax returns in
multiple jurisdictions. Our effective tax rate could be
adversely affected by several factors, including:
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changes in income before taxes in various jurisdictions in which
we operate that have differing statutory tax rates;
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changing tax laws, regulations and interpretations of such tax
laws in multiple jurisdictions; and
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the resolution of issues arising from tax audits or examinations
(including our ongoing U.S. federal income tax audit) and
any related interest or penalties.
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We report our results of operations based on our determination
of the amount of taxes owed in the various jurisdictions in
which we operate. The determination of our worldwide provision
for income taxes and other tax liabilities requires estimation,
judgment and calculations where the ultimate tax determination
may not be certain. Our determination of tax liability is always
subject to review or examination by authorities in various
jurisdictions. Any adverse outcome of such a review or
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examination and any proposed adjustments resulting therefrom
could have a negative impact on our business. The results from
tax examinations and audits (including our ongoing
U.S. federal income tax audit) may differ from the
liabilities recorded in our financial statements and may
adversely affect our business.
The Internal Revenue Service (the IRS) and other
taxing authorities regularly examine our income tax returns. In
connection with these examinations, we have received notices
from various taxing authorities alleging that we are liable for
underpayment of tax of $17.9 million, inclusive of
penalties and interest. We believe certain of the adjustments
proposed by the IRS are inconsistent with applicable tax laws,
and we intend to challenge the adjustments vigorously. We expect
to prevail in administrative or court proceedings and that any
resulting tax liabilities will not exceed amounts accrued for
income taxes in our financial statements. However, the final
outcome regarding these proceedings cannot be estimated with
certainty, and we cannot guarantee that the outcome will not
have a material effect on our operations.
We have
provided indemnities to Motorola Mobility and we may have
increased liabilities as a result of these
indemnities.
In connection with our operations in Tierra del Fuego,
Argentina, we entered into an agreement in July 2008 to
indemnify Motorola Mobility for up to $10.0 million for
reimbursement payments it may be obligated to make to a common
customer arising from the customers non-compliance with
the applicable Argentinean tax regime. We evaluate this
indemnification in accordance with ASC 460
Guarantees, which requires immediate recognition of a
liability for obligations under guarantees that impose an
ongoing obligation to stand ready to perform, even if it is not
probable that the specified triggering events or conditions will
occur. As a consequence of entering into this indemnity, we
recorded a liability of $2.0 million. A tax assessment for
2005 was filed against the common customer, and we are assisting
Motorola Mobilitys defense of the case in the Argentina
Tax Court. In addition, we have provided additional indemnities
to Motorola Mobility under our distribution and financing
agreements with Motorola Mobility. All of our obligations to
Motorola Mobility are secured by a second lien on assets
securing our credit agreement.
We may not be
able to grow at our historical rate or effectively manage future
growth.
We have experienced significant growth, both domestically and
internationally; however, we may not be able to continue to grow
at a similar rate in the future because our international
operations present significant management and organizational
challenges to future growth. We will need to execute our
strategy successfully, manage our expanding operations
efficiently and effectively integrate into our operations any
new businesses which we may acquire in order to continue our
desired growth. If we are unable to do so, particularly for
operations or transactions in which we have made significant
capital investments, it could materially harm our business. Our
inability to absorb the increasing operating costs that we have
incurred, and expect to continue to incur, in anticipation of
the growth we hope to achieve could cause our future earnings to
decline if we are not able to generate the growth we expect to
balance the increased operating costs. In addition, our growth
prospects could be harmed by circumstances outside our control
such as a decline in the demand for wireless devices globally or
in one of the regions we serve, either of which could result in
reduction or deferral of expenditures by existing or prospective
customers.
In addition, growth of our operations will place a significant
strain on our management, administrative and operational
infrastructure, and we may not be able to hire and train
additional personnel to manage such growth effectively.
Furthermore, it takes time for our newer employees to develop
the knowledge, skills and managerial and operational experience
that our business model requires. If we fail to successfully
manage our growth, we may be unable to successfully execute our
business plan.
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We are highly
dependent on our Chairman and Chief Executive Officer and
management team and the loss of our executive officers and key
personnel could impede our ability to implement our
strategy.
Our success depends in large part on the abilities and continued
service of our executive officers and other key employees. In
particular, we are highly dependent on the continued service of
our co-founder, Chairman and Chief Executive Officer, who has
developed extensive relationships with certain manufacturers,
operators and retailers throughout the world. If for any reason
our Chairman and Chief Executive Officer was no longer working
for us, his knowledge and relationships would be very difficult
to replace. We do not maintain key man life
insurance for our Chairman and Chief Executive Officer.
The loss of any of our executive officers or other key personnel
could impede our ability to fully and timely implement our
business plan and future growth strategy. Although we have
employment agreements with certain of our executive officers and
non-competition agreements with our executive officers and
certain key employees, our executive officers and key employees
can always terminate their employment with us and our
non-competition agreements are of limited scope and duration and
are not easily enforced.
In order to support our continued growth, we need to effectively
recruit, train and retain additional qualified employees,
including sales personnel. Competition for qualified personnel
is intense, and there can be no assurance that we will be able
to successfully attract, train or retain sufficiently qualified
personnel.
If we are
unable to manage the organizational challenges associated with
our size, we might be unable to achieve our business
objectives.
We have operations in 50 countries and approximately 3,600
employees worldwide. Our decentralized international operations
present management and organizational challenges, which will
only increase as we continue to grow and expand. It is difficult
to maintain common standards across a large enterprise and
effectively communicate our institutional knowledge. In
addition, it can be difficult to maintain our culture,
effectively manage our personnel and operations and effectively
communicate to our personnel worldwide our core values,
strategies and goals. Finally, the size and scope of our
operations increase the possibility that an employee will engage
in unlawful, unethical or fraudulent activity or otherwise
expose us to unacceptable business risks, despite our efforts to
properly train and educate our people and maintain appropriate
internal controls to prevent such instances. If we do not
continue to develop and implement the right processes, tools and
ethical behaviors to manage our enterprise, our ability to
compete successfully and achieve our business objectives could
be impaired.
We could have
liability or our reputation could be damaged if we do not
protect customer data or information systems or if our
information systems are breached.
We are dependent on information technology networks and systems
to process, transmit and store electronic information and to
communicate among our locations around the world and with our
customers. Security breaches of this infrastructure could lead
to shutdowns or disruptions of our systems and potential
unauthorized disclosure of confidential information. We are
required at times to manage, utilize and store sensitive or
confidential customer or employee data. We are subject to
numerous U.S. and foreign jurisdiction laws and regulations
designed to protect this information, such as the European Union
Directive on Data Protection and various U.S. federal and
state laws governing the protection of health or other
individually identifiable information. If any person, including
any of our employees, negligently disregards or intentionally
breaches our established controls with respect to such data or
otherwise mismanages or misappropriates that data, we could be
subject to monetary damages, fines or criminal prosecution.
Unauthorized disclosure of sensitive or confidential customer or
employee data, whether through systems failure, employee
negligence, fraud or misappropriation,
25
could damage our reputation and cause us to lose customers.
Similarly, unauthorized access to or through our information
systems or those we develop for our customers, whether by our
employees or third parties, could result in negative publicity,
legal liability and damage to our reputation.
We are
dependent on third parties for the delivery of our products and
services.
We rely almost entirely on arrangements with third-party
shipping and freight-forwarding companies for the delivery of
our products and services. The termination of our arrangements
with one or more of these third-party shipping companies, or the
failure or inability of one or more of these third-party
shipping companies to deliver products from our manufacturer
customers to us or products from us to our customers, could
disrupt our business and harm our reputation and operating
results.
We rely to a
great extent on our intellectual property 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. With respect to 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 third
parties and limit access to and distribution of our trade
secrets and other proprietary information. These measures may
not prove adequate to prevent misappropriation of our
technology. Our competitors could also independently develop
technologies that are substantially equivalent or superior to
our technology, thereby eliminating one of our competitive
advantages. We also have offices and conduct our operations in a
wide variety of countries outside the United States. The laws of
some other countries do not protect our proprietary rights to
the same extent as the 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 have
identified material weaknesses in our internal controls over
financial reporting which, if not successfully remediated, could
cause us to fail to timely report our financial results, prevent
fraud and avoid material misstatements in our financial
statements.
In connection with the preparation of our financial statements
for the years ended December 31, 2009 and 2010, we
identified several material weaknesses in our internal controls
over financial reporting, some of which were not properly
remedied from prior years. A deficiency in internal control over
financial reporting exists when the design or operation of a
control does not allow management or employees, in the normal
course of performing their assigned functions, to prevent or
detect misstatements on a timely basis. A material weakness is a
deficiency, or combination of deficiencies, in internal control
over financial reporting such that there is a reasonable
possibility that a material misstatement of a companys
annual or interim financial statements will not be prevented or
detected on a timely basis.
The material weaknesses that existed as of December 31,
2010 were identified in 2009 and were not properly remediated.
These material weaknesses included the following:
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At one of our foreign subsidiaries, we identified a lack of
controls over (i) the review and approval of journal
entries, (ii) the approval of and payments to vendors and
(iii) the issuance of vendor credits.
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At one of our U.S. subsidiaries, we identified (i) a
lack of segregation of duties and formal evidence of review and
approval of payments to vendors and account reconciliations and
(ii) a lack of sufficient and appropriate evidence
supporting vendor credits, and, at our corporate headquarters,
we identified a lack of approval of contracts.
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A remediation process designed to eliminate the identified
deficiencies is underway. See Managements Discussion
of Financial Condition and Results of Operations
Material Weaknesses and Remediation Efforts. However, we
do not expect the remediation plan to be completed until later
in 2011. Even though we have initiated and in some instances
implemented a number of remedial actions, there can be no
assurance that the measures we have taken, or will take, will be
on schedule or effective to address the issues identified or
that similar weaknesses or deficiencies will not recur in the
future. As a result of these and similar activities,
managements attention may be diverted from other business
concerns, which could have a material adverse effect on our
business.
If the remedial policies, procedures and systems we implement,
resources we add or personnel we hire are insufficient to
address the identified material weaknesses, or if additional
material weaknesses or significant deficiencies in our internal
controls are discovered in the future, we may be unable to
report our financial results on a timely basis or to prevent
fraud, our consolidated financial statements may contain
material misstatements or we may not be able to comply with
applicable financial reporting requirements and the requirements
of our various financing agreements. If any of these events
occur, our business and reputation may be significantly harmed
and investors may not want to own our securities. Failure to
comply with reporting requirements under our various financial
agreements could result in defaults thereunder and acceleration
of outstanding indebtedness.
We may not
have adequate liquidity or capital resources.
We require cash or committed liquidity facilities for general
corporate purposes, such as funding ongoing working capital,
acquisition and capital expenditure needs. For the twelve months
ended December 31, 2010, we used cash for operating
activities of $159.3 million. As of December 31, 2010,
we had cash and cash equivalents of $159.2 million. In
addition, we have access to credit lines of approximately
$1.1 billion, with a gross availability of approximately
$0.5 billion as of December 31, 2010. In November
2010, we raised $250.0 million through the sale of senior
unsecured notes (the 2016 Notes). In December 2010,
we increased our revolving credit facility to a total facility
size of $500.0 million, with an option for an additional
uncommitted $100.0 million financing. Our ability to
satisfy our cash needs will depend on our ability to generate
cash from operations and to access the financial markets, both
of which will be subject to general economic, financial,
competitive, legislative, regulatory and other factors beyond
our control. We may, in the future, need to access the financial
markets to satisfy our cash needs. Our ability to obtain
external financing will be affected by general financial market
conditions and our future debt ratings. Further, any increase in
our level of debt, change in status of our debt from unsecured
to secured debt, or deterioration of our operating results may
cause a reduction in our future debt ratings. Any downgrade in
our debt rating or tightening of credit availability could
impair our ability to obtain additional financing or renew
existing credit facilities on acceptable terms. Under the terms
of any future external financing, we may incur higher than
expected financing expenses. A lack of access to adequate
capital resources could have a material adverse effect on our
liquidity and our business.
We have a
substantial amount of indebtedness which may adversely affect
our cash flow and our ability to operate our business and to
fulfill our obligations under our indebtedness.
In the fourth quarter of 2010, we issued the 2016 Notes and
entered into an amended and restated $500.0 million
asset-based revolving credit facility (the ABL
Revolver). As of December 31, 2010, our total
indebtedness was $453.8 million. See
Managements Discussion and Analysis of Financial
Condition and Results of Operations Liquidity and
Capital Resources.
Our substantial indebtedness could have important consequences,
including the following:
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Increased difficulty for us in satisfying our obligations with
respect to our existing 2016 Notes, including any repurchase
obligations that may arise thereunder;
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Increased vulnerability to economic downturns and adverse
developments in our business;
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A requirement that a substantial portion of cash flow from
operations be allocated to the payment of principal and interest
on the 2016 Notes and, to the extent incurred, indebtedness
under the ABL Revolver and any other indebtedness, therefore
reducing our ability to use our cash flow to fund our operations
and capital expenditures and to invest in future business
opportunities;
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Exposure to the risk of increased interest rates as borrowings
under our ABL Revolver carry variable rates of interest;
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Restrictions on our ability to take advantage of strategic
opportunities or our ability to make non-strategic divestitures;
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Limitations on our ability to obtain additional financing for
working capital, capital expenditures, debt service
requirements, restructuring, acquisitions or general corporate
or other purposes, which could be exacerbated by further
volatility in the credit markets;
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Disadvantages compared to our competitors who have
proportionately less debt;
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Limited flexibility in planning for, or reacting to, changes in
our business and the industry in which we operate; and
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Failure to satisfy our obligations under the 2016 Notes or our
other indebtedness or failure to comply with the restrictive
covenants contained in the indenture that governs the 2016 Notes
and the credit agreement that governs our ABL Revolver or our
other indebtedness could result in an event of default which
could result in all of our indebtedness becoming immediately due
and payable and could permit the holders of the notes and our
other secured lenders to foreclosure on our assets securing such
indebtedness.
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Despite our current level of indebtedness, we and our
subsidiaries may incur significant additional indebtedness,
including secured indebtedness, in the future.
The terms of
our debt covenants could limit our flexibility in operating our
business and our ability to raise additional
funds.
The agreements that govern the terms of our debt, including the
indenture that governs the 2016 Notes and the credit agreement
that governs our ABL Revolver, contain, and the agreements that
govern our future indebtedness may contain, covenants that
restrict our ability and the ability of our subsidiaries to:
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incur additional debt;
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make certain payments, including dividends or other
distributions, with respect to our capital stock, or prepayments
of subordinated debt;
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make certain investments or sell assets;
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create certain liens or engage in sale and leaseback
transactions;
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provide guarantees for certain debt;
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enter into restrictions on the payment of dividends and other
amounts by subsidiaries;
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engage in certain transactions with affiliates;
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consolidate, merge or transfer all or substantially all our
assets; and
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enter into other lines of business.
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A breach of the covenants or restrictions under the indenture
that governs the 2016 Notes, the credit agreement that governs
the ABL Revolver or any agreement that governs any other
indebtedness could result in a default under the applicable
indebtedness. Such default or any payment default may allow the
creditors to accelerate the related debt and may result in the
acceleration of any other
28
debt to which a cross-acceleration or cross-default provision
applies. In addition, an event of default under our ABL Revolver
would permit the lenders under our ABL Revolver to terminate all
commitments to extend further credit under that facility.
Furthermore, if we were unable to repay the amounts due and
payable under our ABL Revolver, those lenders could proceed
against the collateral granted to them to secure that
indebtedness. In the event our lenders and holders of the 2016
Notes accelerate the repayment of our borrowings, we cannot
assure that we and our subsidiaries would have sufficient assets
to repay such indebtedness.
In the past, we have obtained waivers from our lenders for
non-compliance with certain of the covenants related to our
indebtedness. Although no waiver for non-compliance with any
covenant related to our indebtedness is currently required, we
cannot predict whether we will need future waivers or whether we
will be able to obtain them.
These restrictions may restrict our financial flexibility, limit
any strategic initiatives, restrict our ability to grow or limit
our ability to respond to competitive changes. As a result of
these covenants, we will be limited in the manner in which we
can conduct our business, and we may be unable to engage in
favorable business activities or finance future operations or
capital needs. Accordingly, these restrictions may limit our
ability to successfully execute our strategy and operate our
business. In addition, as a result of a default of any covenant
and any actions the lenders may take in response thereto, we
could be forced into bankruptcy or liquidation.
Risks Related to
This Offering
The voting
power of our capital stock will be concentrated in our Chairman
and Chief Executive Officer, which will limit your ability to
influence corporate matters.
Following the completion of this offering, our Class B
common stock will have 5 votes per share except in limited
circumstances, and our Class A common stock, which is the
stock we are selling in this offering, will have one vote per
share. Following the completion of this offering,
Mr. Claure will beneficially own 100% of our Class B
common stock, representing
approximately % of the combined
voting power of our outstanding common stock
and % of our total equity ownership
assuming the underwriters option to purchase additional
shares is not exercised. Mr. Claure will have the ability
to take stockholder action with respect to certain matters
without the vote of any other stockholder and without having to
call a stockholder meeting, and investors in this offering will
not be able to affect the outcome of those stockholder votes
during this period. Mr. Claure will continue to control
most matters submitted to our stockholders for approval even
though he will beneficially own less than 50% of the outstanding
shares of our common stock due to the fact that each share of
Class B common stock will entitle him to 5 votes, except in
limited circumstances. As a result, Mr. Claure may, through
our board of directors, influence all matters affecting us,
including:
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any determination with respect to our business plans and
policies (except for fundamental changes to our business);
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our financing activities; and
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other significant corporate transactions.
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This concentration of voting control will limit your ability to
influence corporate matters and, as a result, we may take
actions that our Class A common stockholders may not view
as beneficial. See Description of Capital
Stock Common Stock and Description of
Capital Stock Voting Rights for a more
detailed discussion of the relative rights of the Class A
and Class B common stock.
29
We will be a
controlled company within the meaning of the Nasdaq
Stock Market rules, and, as a result, will rely on exemptions
from certain corporate governance requirements that provide
protection to stockholders of other companies.
After the completion of this offering, Mr. Claure will
beneficially own more than 50% of the combined voting power of
our outstanding common stock, and we will be a controlled
company under the Nasdaq Stock Market corporate governance
standards. As a controlled company, certain exemptions under the
Nasdaq Stock Market corporate governance standards free us from
the obligation to comply with certain Nasdaq Stock Market
corporate governance standards, including that a majority of our
board of directors consist of independent directors.
As a result of our use of the controlled company
exemptions, you will not have the same protection afforded to
stockholders of companies that are subject to all of the Nasdaq
Stock Market corporate governance standards.
Lindsay
Goldbergs interests may conflict with those of other
stockholders.
Our stockholders agreement provides that Lindsay Goldberg
is not prohibited from investing or participating in competing
businesses. Lindsay Goldberg is in the business of making
investments in companies and may from time to time acquire and
hold interests in businesses that compete directly or indirectly
with us. Lindsay Goldberg may also pursue acquisition
opportunities that are complementary to our business and, as a
result, those acquisition opportunities may not be available to
us. To the extent they invest in such other businesses, Lindsay
Goldberg may have differing interests than our other
stockholders.
There has been
no public market for our Class A common stock; our stock
price could be volatile and could decline following this
offering, resulting in a substantial loss on your
investment.
Prior to this offering, there has been no public market for our
Class A common stock. We cannot predict the extent, if any,
to which an active trading market for our Class A common
stock will develop or be sustained. The absence of any active
trading market could adversely affect your ability to sell
shares that you own and could depress the market price of those
shares. The initial public offering price will be determined
through negotiations among us, the selling stockholders and the
representatives of the underwriters and may bear no relationship
to the price at which our Class A common stock will trade
following the completion of this offering. In general, the stock
market has been highly volatile and the market price of our
Class A common stock may also be volatile. Investors may
incur substantial losses as a result of decreases in the market
price of our Class A common stock, including decreases
unrelated to our financial condition, operating performance or
prospects. The market price of our Class A common stock
could fluctuate widely or decline as a result of a number of
factors, including those under Risks Related
to Our Business and the following:
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our short- and long-term operating performance and the operating
performance of other companies within the wireless device
industry;
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changes in our net sales or net income or in estimates of or
recommendations by securities analysts;
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speculation in the media or investment community;
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political, monetary, social and economic events and conditions
in our geographic markets, including in particular Latin America;
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currency fluctuations and devaluations;
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acts of God, hostilities and terrorist acts; and
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30
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general financial and economic conditions, including factors not
directly related to our performance.
|
In the past, securities class action litigation has often been
instituted against companies following periods of volatility in
their stock trading price. Any such litigation against us could
involve substantial costs and liability and significantly divert
our managements time, attention and resources regardless
of the merits of such litigation.
If securities
or industry analysts do not publish research or publish
inaccurate or unfavorable research about our business, our stock
price and trading volume could decline.
The trading market for our Class A common stock will depend
in part on the research and reports that securities or industry
analysts publish about us or our business. We do not currently
have and may never obtain research coverage by securities and
industry analysts. If no securities or industry analysts
commence coverage, the trading price for our Class A common
stock could be negatively impacted. If we obtain securities or
industry analyst coverage and if one or more of the analysts who
covers us downgrades our stock or publishes inaccurate or
unfavorable research about our business, our stock price would
likely decline. If one or more of these analysts ceases coverage
of us or fails to publish reports on us regularly, demand for
our Class A common stock could decrease, which could cause
our stock price and trading volume to decline.
Some
provisions of our certificate of incorporation and by-laws could
delay or prevent transactions that many stockholders may
favor.
Some provisions of our certificate of incorporation and by-laws,
to be effective upon completion of this offering, could have the
effect of delaying or preventing a tender offer or other
takeover attempt of our company that many of our stockholders
might consider favorable, including attempts that might result
in a premium over the prevailing market price of our
Class A common stock. These provisions are intended by us
to enhance the likelihood of stability in the composition of our
board of directors and in the policies of the board and to
discourage or delay certain transactions that involve a
potential change in control of our company. They are designed
also to reduce our vulnerability to an unsolicited acquisition
proposal and to discourage some tactics often used in proxy
contests. These provisions, however, could have the effect of
discouraging others from making tender offers for shares of our
Class A common stock. These provisions may also have the
effect of preventing or delaying changes in our management. See
Description of Capital Stock for a more detailed
discussion of these provisions.
The change in
control provisions of certain of our agreements with our
principal manufacturer customers, our amended and restated
credit facility and the indenture governing the 2016 Notes could
impede or prevent transactions that many of our stockholders
might favor.
Certain of our agreements with Motorola and our distribution
agreement with Samsung contain provisions that allow for the
immediate termination of such agreements in the event of a
change of control of our company (other than in connection with
this offering). Additionally, under the terms of our amended and
restated credit facility with PNC Bank (and other lenders), a
change in control of our company (other than in connection with
this offering) would constitute an event of default and our
obligations under such amended and restated credit facility
could be accelerated and under our indenture governing the 2016
Notes, upon a change of control, holders of the notes have the
right to require us to repurchase the notes. Such provisions
could have the effect of delaying or preventing a tender offer
or other takeover attempt of our company that many of our
stockholders might consider favorable, including offers or
attempts that might result in a premium over the prevailing
market price of our Class A common stock. They may also
have the effect of preventing or delaying changes in our
management.
31
Our management
may fail to effectively use the net proceeds of this
offering.
As described in Use of Proceeds, we intend to use
the net proceeds of this offering for general corporate
purposes. Our management will have discretion in applying the
net proceeds. Allocation of the net proceeds will be subject to
future economic conditions, changes in our business plan and our
responses to competitive pressures. Accordingly, our management
may ineffectively apply a portion of the net proceeds, or may
apply the net proceeds in ways that investors did not expect.
A substantial
number of shares will be eligible for resale in the near future,
which could cause our Class A common stock price to
decline.
Sales of our Class A common stock in the public market
after the completion of this offering, or even the perception
that such sales may occur, could cause the market price of our
Class A common stock to decline. Upon the completion of
this offering, we will
have shares
of Class A common stock outstanding, assuming no exercise
of the underwriters option to purchase additional shares
or any outstanding stock options.
The shares
to be sold in this offering will be freely tradable without
restriction or further registration under the Securities Act of
1933, as amended (the Securities Act). In addition,
there will
be shares
of our Class B common stock outstanding at the completion
of this offering held by Mr. Claure, which may be converted
into shares of Class A common stock at any time and, under
certain circumstances, will automatically be converted to shares
of Class A common stock. Substantially all of the shares of the
outstanding Class A common stock and the outstanding
Class B common stock owned by our existing stockholders
will be subject to
lock-up
agreements with the underwriters that restrict their ability to
transfer capital stock for a period of at least 180 days
from the date of this prospectus (or, as long as the company
remains certified as a minority business enterprise, at least
365 days in the case of Mr. Claure). For a more
detailed description of these agreements, see
Shares Eligible for Future Sale
Lock-up
Agreements and Underwriting. After the
lock-up
agreements expire, an aggregate
of shares
of Class A common stock (excluding the shares to be
redeemed by us or sold upon any exercise of the
underwriters option to purchase additional shares) and
Class B common stock will be eligible for resale in the public
market, subject to the applicable limitations of either
Rule 144 or Rule 701 under the Securities Act. For a
more detailed discussion of the shares eligible for future sale,
see Shares Eligible for Future Sale.
Goldman, Sachs & Co. and J.P. Morgan Securities
LLC, on behalf of all the underwriters, may in their discretion,
at any time and without notice, release all or any portion of
the shares subject to the
lock-up
agreements, which would result in shares being available for
sale in the public market at an earlier date. Conversion of
Class B common stock into Class A common stock and
sales of Class A common stock by existing stockholders in
the public market, the availability of these shares for resale
or our future issuance of additional securities could cause the
market price of our Class A common stock to decline,
perhaps significantly.
Following the completion of this offering and the expiration of
the lock-up
period, assuming the conversion of our redeemable convertible
preferred stock, the holders of an aggregate
of shares
of our Class A common stock (excluding the shares to be
sold upon any exercise of the underwriters option to
purchase additional shares) will be entitled to register their
shares of common stock under the Securities Act. We have also
granted demand and piggyback registration rights to the holders
of shares
of our Class A common stock. For a more detailed discussion
of these registration rights, see Certain Relationships
and Related TransactionsStockholders Agreement
and Shares Eligible for Future Sale.
Fulfilling our
public company financial reporting and other regulatory
obligations will be expensive and time consuming and may strain
our resources.
As a public company, we will be subject to the reporting
requirements of the Securities Exchange Act of 1934, as amended
(the Exchange Act), and will be required to
implement specific corporate
32
governance practices and adhere to a variety of reporting
requirements under the Sarbanes-Oxley Act of 2002
(Sarbanes-Oxley) and the related rules and
regulations of the Securities and Exchange Commission (the
SEC), as well as the rules of The Nasdaq Stock
Market.
In accordance with Section 404 of Sarbanes-Oxley, our
management will be required to conduct an annual assessment of
the effectiveness of our internal control over financial
reporting and include a report on these internal controls in the
annual reports we will file with the SEC on
Form 10-K
as required. In addition, we will be required to have our
independent registered public accounting firm provide an opinion
regarding the effectiveness of our internal controls. We are in
the process of reviewing our internal control over financial
reporting and are establishing formal policies, processes and
practices related to financial reporting and to the
identification of key financial reporting risks, assessment of
their potential impact and linkage of those risks to specific
areas and controls within our organization. If we are not able
to implement the requirements of Section 404 in a timely
manner or with adequate compliance, we may be subject to adverse
regulatory consequences and there could be a negative reaction
in the financial markets due to a loss of investor confidence in
us and the reliability of our financial statements. This could
have a material adverse effect on our business and lead to a
decline in the price of our Class A common stock.
The Exchange Act will require us to file annual, quarterly and
current reports with respect to our business and financial
condition. Compliance with these requirements will place
significant additional demands on our legal, accounting and
finance staff and on our accounting, financial and information
systems and will increase our legal and accounting compliance
costs as well as our compensation expense as we will be required
to hire additional accounting, finance, legal and internal audit
staff with the requisite technical knowledge.
As a public company we will also need to enhance our investor
relations, marketing and corporate communications functions.
These additional efforts may strain our resources and divert
managements attention from other business concerns, which
could have a material adverse effect on our business.
33
CAUTIONARY
STATEMENT CONCERNING FORWARD-LOOKING STATEMENTS
We have made statements under the captions Prospectus
Summary, Risk Factors, Managements
Discussion and Analysis of Financial Condition and Results of
Operations, Business and in other sections of
this prospectus that are forward-looking statements. In some
cases, you can identify these statements by forward-looking
words such as may, might,
will, should, expects,
plans, anticipates,
believes, estimates,
predicts, potential or
continue, the negative of these terms and other
comparable terminology. These forward-looking statements, which
are subject to risks, uncertainties and assumptions about us,
may include projections of our future financial performance, our
anticipated growth strategies and anticipated trends in our
business. These statements are predictions based on our current
expectations and projections about future events which we
believe are reasonable. There are important factors that could
cause our actual results, level of activity, performance or
achievements to differ materially from the results, level of
activity, performance or achievements expressed or implied by
the forward-looking statements, including those factors
discussed under the caption entitled Risk Factors.
You should specifically consider the numerous risks outlined
under Risk Factors.
Although we believe the expectations reflected in the
forward-looking statements are reasonable, we cannot guarantee
future results, level of activity, performance or achievements.
Moreover, neither we nor any other person assumes responsibility
for the accuracy and completeness of any of these
forward-looking statements. Except as required by law, we assume
no duty to update any of these forward-looking statements after
the date of this prospectus to conform our prior statements to
actual results or revised expectations.
34
USE OF
PROCEEDS
We will receive net proceeds from this offering of approximately
$ million, or approximately
$ million if the underwriters
exercise their option to purchase additional shares in full,
assuming an initial offering price of
$ per share, the midpoint of the
range set forth on the cover page of this prospectus. We intend
to use $ million of the net
proceeds from this offering to pay accrued dividends on our
redeemable convertible preferred stock and will use the
remainder for general corporate purposes. We will not receive
any proceeds from the shares of Class A common stock being
sold by the selling stockholders identified in this prospectus,
which include Mr. Claure and Lindsay Goldberg.
Assuming the number of shares offered by us, as set forth on the
cover page of this prospectus, remains the same, a $1.00 change
in the assumed initial public offering price of
$ per share of Class A common
stock (the midpoint of the range set forth on the cover page of
this prospectus) would increase or decrease the net proceeds to
us by $ million, or
approximately $ million if
the underwriters exercise their option to purchase additional
shares in full.
35
DIVIDEND
POLICY
We have a limited history of paying dividends to our common
stockholders. We currently anticipate that we will retain all
available funds for use in the operation and expansion of our
business and do not anticipate paying any dividends on our
Class A or Class B common stock in the foreseeable
future. During 2008, we paid a dividend of $0.30 per share to
our common stockholders. We will pay accrued dividends on our
redeemable convertible preferred stock in connection with this
offering. Our ability to pay dividends on our common stock is
limited by the covenants of our ABL Revolver and the indenture
governing the 2016 Notes.
36
CAPITALIZATION
The following table sets forth our cash and cash equivalents and
capitalization as of December 31, 2010:
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on an actual basis;
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on a pro forma basis to reflect (1) the conversion
of shares
of our common stock owned by Mr. Claure
into shares
of Class A common stock
and shares
of Class B common stock, and the conversion
of shares
of our common stock owned by other shareholders
into shares
of Class A common stock; and (2) the conversion of our
redeemable convertible preferred stock
into shares
of Class A common stock in connection with this
offering; and
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on a pro forma, as adjusted, basis to reflect the adjustments
described in the immediately preceding bullet point and to
further reflect the issuance and sale
of shares
of Class A common stock by us in this offering at an
assumed initial public offering price of
$ per share, the midpoint of the
range set forth on the cover page of this prospectus, and the
application of the net proceeds of the offering, after deducting
estimated underwriting discounts and offering expenses payable
by us, as set forth under Use of Proceeds.
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37
This table should be read in conjunction with
Managements Discussion and Analysis of Financial
Condition and Results of Operations and the consolidated
financial statements and the related notes thereto included
elsewhere in this prospectus.
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As of December 31, 2010
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|
|
|
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Pro Forma, as
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Actual
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Pro Forma
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Adjusted
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(In thousands, except per share data)
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Cash and cash equivalents(1)
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$
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159,161
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$
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$
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Debt:
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Revolving credit facility(2)
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$
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|
|
$
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$
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Senior notes
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250,000
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Trade facilities(3)
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64,200
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All other bank facilities
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|
139,605
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|
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Total debt
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453,805
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Redeemable convertible preferred stock
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409,090
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Stockholders equity:
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Common Stock, $0.0001 par value per share,
50,000,000 shares authorized, 18,182,267 shares issued
and outstanding, actual; no shares authorized, issued and
outstanding, on a pro forma and pro forma as adjusted basis
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2
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Class A common stock, $0.0001 par value per share, no
shares authorized, issued and outstanding, actual; shares
authorized, shares
issued and outstanding on a pro forma
basis; shares
authorized, shares
issued and outstanding on a pro forma, as adjusted basis
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|
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|
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Class B common stock, $0.0001 par value per share, no
shares authorized, issued and outstanding,
actual; shares
authorized, shares
issued and outstanding, on a pro forma and pro forma as adjusted
basis
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|
|
|
|
|
|
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Additional paid-in capital(1)
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|
50,535
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|
|
|
|
|
|
|
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Retained earnings
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|
85,521
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|
|
|
|
|
|
|
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Accumulated other comprehensive income
|
|
|
13,799
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|
|
|
|
|
|
|
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|
Non-controlling interest
|
|
|
7,865
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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|
Total stockholders equity(1)
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|
157,722
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|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total capitalization(1)
|
|
$
|
1,020,617
|
|
|
$
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
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Assuming the number of shares offered by us, as set forth on the
cover page of this prospectus, remains the same, a $1.00
increase or decrease in the assumed initial public offering
price of $ per share of
Class A common stock (the midpoint of the range set forth
on the cover page of this prospectus) would increase or decrease
the amount of cash and cash equivalents, additional paid-in
capital, total stockholders equity and total
capitalization by approximately
$ million. |
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(2) |
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We have $416.0 million available under our revolving credit
facility. |
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(3) |
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We have $36.3 million available in trade financing
facilities. |
38
DILUTION
Our pro forma net tangible book value as of December 31,
2010 was $ , or
$ per share of Class A and
Class B common stock. Pro forma net tangible book value per
share is determined by dividing our tangible net worth, total
assets less total liabilities, by the aggregate number of shares
of Class A and Class B common stock outstanding upon
the completion of this offering and reflecting conversion of our
redeemable convertible preferred stock
into shares
of Class A common stock. After giving effect to the sale by
us of
the shares
of Class A common stock in this offering, at an assumed
initial public offering price of $
per share, the midpoint of the range set forth on the cover page
of this prospectus, and the receipt and application of the net
proceeds, our pro forma net tangible book value as of
December 31, 2010 would have been
$ , or
$ per share of Class A and
Class B common stock. This represents an immediate increase
in pro forma net tangible book value to existing stockholders of
$ per share and an immediate
dilution to new investors of $ per
share. The following table illustrates this per share dilution:
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Assumed initial public offering price
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$
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|
|
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|
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|
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Pro forma net tangible book value per share as of
December 31, 2010
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$
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Increase in pro forma net tangible book value per share
attributable to new investors
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Pro forma net tangible book value per share after this offering
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Dilution per share to new investors
|
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|
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|
$
|
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|
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|
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Dilution is determined by subtracting pro forma net tangible
book value per share after this offering from the initial public
offering price per share.
Assuming the number of shares of Class A common stock
offered by us as set forth on the cover page of this prospectus
remains the same, a $1.00 increase (decrease) in the assumed
initial public offering price of $
per share of Class A common stock (the midpoint of the
price range set forth on the cover page of this prospectus)
would increase (decrease) the pro forma net tangible book value
per share attributable to new investors by
$ million, the pro forma net
tangible book value (deficit) per share after this offering by
$ per share and decrease
(increase) the dilution per share to new investors in this
offering by $ per share.
The following table sets forth, on a pro forma basis, as of
December 31, 2010, the number of shares of Class A
common stock purchased from us, the total consideration paid, or
to be paid, and the average price per share paid, or to be paid,
by existing stockholders and by the new investors, at an assumed
initial public offering price of $
per share, the midpoint of the range set forth on the cover page
of this prospectus, before deducting estimated underwriting
discounts and offering expenses payable by us:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased
|
|
|
Total Consideration
|
|
|
Average Price
|
|
|
|
Number
|
|
|
Percent
|
|
|
Amount
|
|
|
Percent
|
|
|
per Share
|
|
|
Existing common stockholders
|
|
|
|
|
|
|
|
%
|
|
$
|
|
|
|
|
|
%
|
|
$
|
|
|
Existing redeemable convertible preferred stockholders (as
converted)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
New investors
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
|
|
|
100
|
%
|
|
$
|
|
|
|
|
100
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39
Sales by the selling stockholders in this offering will reduce
the number of shares held by existing stockholders
to
or
approximately %, shares
or approximately % if the option to
purchase additional shares is exercised in full, and will
increase the number of shares to be purchased by new investors
to
or
approximately %, shares
or approximately % if the option to
purchase additional shares is exercised in full, of the total
number of shares of common stock outstanding after the offering.
The foregoing tables assume no exercise of the
underwriters option to purchase additional shares or of
outstanding stock options after December 31, 2010. As of
December 31,
2010, shares
of common stock were subject to outstanding options, which will
automatically become options to purchase shares of our
Class A common stock upon the completion of this offering,
at a weighted average exercise price of
$ . To the extent these options are
exercised there will be further dilution to new investors.
Assuming the number of shares of Class A common stock
offered by us, as set forth on the cover page of this
prospectus, remains the same, a $1.00 increase (decrease) in the
assumed initial public offering price of
$ per share of Class A common
stock (the midpoint of the price range set forth on the cover of
this prospectus), would increase (decrease) total consideration
paid by new investors in this offering and by all investors by
$ million, and would increase
(decrease) the average price per share paid by new investors by
$1.00, and would increase (decrease) pro forma net tangible book
value per share by $ .
40
SELECTED
CONSOLIDATED FINANCIAL AND OTHER DATA
The following is our selected consolidated financial and other
data, which should be read in conjunction with, and is qualified
by reference to, Managements Discussion and Analysis
of Financial Condition and Results of Operations and our
consolidated financial statements and notes thereto included
elsewhere in this prospectus. The consolidated statement of
operations data for the years ended December 31, 2008, 2009
and 2010 and the consolidated balance sheet data as of
December 31, 2009 and 2010 are derived from, and qualified
by reference to, our audited consolidated financial statements
and notes thereto included elsewhere in this prospectus and
should be read in conjunction with those consolidated financial
statements and notes thereto. The consolidated balance sheet
data as of December 31, 2008 is derived from our audited
consolidated financial statements not included in this
prospectus. The consolidated statement of operations data for
the years ended December 31, 2006 and 2007 and the
consolidated balance sheet data as of December 31, 2006 and
2007 are derived from our unaudited consolidated financial
statements not included in this prospectus.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,555,674
|
|
|
$
|
3,492,476
|
|
|
$
|
3,550,165
|
|
|
$
|
2,718,652
|
|
|
$
|
4,612,863
|
|
Cost of revenue
|
|
|
3,257,352
|
|
|
|
3,189,935
|
|
|
|
3,254,167
|
|
|
|
2,354,016
|
|
|
|
4,218,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
298,322
|
|
|
|
302,541
|
|
|
|
295,998
|
|
|
|
364,636
|
|
|
|
393,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
135,192
|
|
|
|
197,530
|
|
|
|
174,287
|
|
|
|
161,806
|
|
|
|
235,239
|
|
Provision for bad debts
|
|
|
7,776
|
|
|
|
1,956
|
|
|
|
2,736
|
|
|
|
6,435
|
|
|
|
8,785
|
|
Depreciation and amortization
|
|
|
4,800
|
|
|
|
6,820
|
|
|
|
9,917
|
|
|
|
13,457
|
|
|
|
11,913
|
|
Public offering expenses
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
147,768
|
|
|
|
206,306
|
|
|
|
186,940
|
|
|
|
181,698
|
|
|
|
263,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
150,554
|
|
|
|
96,235
|
|
|
|
109,058
|
|
|
|
182,938
|
|
|
|
130,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
1,794
|
|
|
|
9,746
|
|
|
|
14,206
|
|
|
|
21,278
|
|
|
|
7,139
|
|
Interest expense
|
|
|
(40,971
|
)
|
|
|
(46,366
|
)
|
|
|
(34,746
|
)
|
|
|
(17,102
|
)
|
|
|
(29,025
|
)
|
Other income (expenses), net(1)
|
|
|
(10,696
|
)
|
|
|
(4,543
|
)
|
|
|
(923
|
)
|
|
|
(3,459
|
)
|
|
|
2,159
|
|
Foreign exchange gains (losses), net
|
|
|
900
|
|
|
|
2,648
|
|
|
|
(25,117
|
)
|
|
|
(80,915
|
)
|
|
|
(33,263
|
)
|
Loss on early extinguishment of debt
|
|
|
|
|
|
|
(38,903
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(48,973
|
)
|
|
|
(77,418
|
)
|
|
|
(46,580
|
)
|
|
|
(80,198
|
)
|
|
|
(52,990
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income
taxes
|
|
|
101,581
|
|
|
|
18,817
|
|
|
|
62,478
|
|
|
|
102,740
|
|
|
|
77,624
|
|
Provision for income taxes
|
|
|
33,862
|
|
|
|
19,515
|
|
|
|
35,402
|
|
|
|
46,999
|
|
|
|
36,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations
|
|
|
67,719
|
|
|
|
(698
|
)
|
|
|
27,076
|
|
|
|
55,741
|
|
|
|
40,686
|
|
(Loss) income from discontinued operations, net of taxes
|
|
|
(2,840
|
)
|
|
|
(16,771
|
)
|
|
|
(14,304
|
)
|
|
|
2,595
|
|
|
|
(921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
|
64,879
|
|
|
|
(17,469
|
)
|
|
|
12,772
|
|
|
|
58,336
|
|
|
|
39,765
|
|
Less: Net income attributable to non-controlling interest
|
|
|
13,749
|
|
|
|
18,753
|
|
|
|
18,107
|
|
|
|
4,095
|
|
|
|
2,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Brightstar Corp.
|
|
$
|
51,130
|
|
|
$
|
(36,222
|
)
|
|
$
|
(5,335
|
)
|
|
$
|
54,241
|
|
|
$
|
37,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
41
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2006
|
|
|
2007
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except share and per share data)
|
|
|
Basic earnings per share for common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to
Brightstar Corp. common stockholders
|
|
$
|
1.85
|
|
|
$
|
(3.36
|
)
|
|
$
|
0.50
|
|
|
$
|
0.83
|
|
|
$
|
0.35
|
|
(Loss) income from discontinued operations attributable to
Brightstar Corp. common stockholders
|
|
|
(0.11
|
)
|
|
|
(0.85
|
)
|
|
|
(0.79
|
)
|
|
|
0.07
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Brightstar Corp. common
stockholders
|
|
$
|
1.74
|
|
|
$
|
(4.21
|
)
|
|
$
|
(0.29
|
)
|
|
$
|
0.90
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share for common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income (loss) from continuing operations attributable to
Brightstar Corp. common stockholders
|
|
$
|
1.65
|
|
|
$
|
(3.36
|
)
|
|
$
|
0.20
|
|
|
$
|
0.78
|
|
|
$
|
0.35
|
|
(Loss) income from discontinued operations attributable to
Brightstar Corp. common stockholders
|
|
|
(0.09
|
)
|
|
|
(0.85
|
)
|
|
|
(0.41
|
)
|
|
|
0.06
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss) attributable to Brightstar Corp. common
stockholders
|
|
$
|
1.56
|
|
|
$
|
(4.21
|
)
|
|
$
|
(0.21
|
)
|
|
$
|
0.84
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
21,454,431
|
|
|
|
19,714,092
|
|
|
|
18,134,166
|
|
|
|
18,163,037
|
|
|
|
18,181,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
25,589,280
|
|
|
|
19,714,092
|
|
|
|
35,046,068
|
|
|
|
20,863,930
|
|
|
|
18,586,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31,
|
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
|
(In thousands)
|
|
Consolidated Balance Sheet Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
64,803
|
|
|
$
|
89,491
|
|
|
$
|
122,057
|
|
|
$
|
239,859
|
|
|
$
|
159,161
|
|
Accounts receivable, net
|
|
|
810,219
|
|
|
|
972,062
|
|
|
|
864,222
|
|
|
|
969,184
|
|
|
|
1,376,445
|
|
Inventory
|
|
|
702,638
|
|
|
|
393,637
|
|
|
|
316,472
|
|
|
|
239,988
|
|
|
|
612,396
|
|
Total assets
|
|
|
1,695,728
|
|
|
|
1,651,517
|
|
|
|
1,574,140
|
|
|
|
1,813,839
|
|
|
|
2,496,570
|
|
Total debt(2)
|
|
|
542,937
|
|
|
|
569,950
|
|
|
|
445,408
|
|
|
|
401,848
|
|
|
|
453,805
|
|
Total liabilities
|
|
|
1,415,180
|
|
|
|
1,175,222
|
|
|
|
1,116,347
|
|
|
|
1,319,326
|
|
|
|
1,929,758
|
|
Total redeemable convertible preferred stock
|
|
|
76,292
|
|
|
|
329,742
|
|
|
|
329,742
|
|
|
|
362,377
|
|
|
|
409,090
|
|
Total stockholders equity
|
|
|
204,256
|
|
|
|
146,553
|
|
|
|
128,051
|
|
|
|
132,136
|
|
|
|
157,722
|
|
|
|
|
(1) |
|
The table below presents the consolidated other income
(expenses), net attributable to Brightstar Europe: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2006
|
|
2007
|
|
2008
|
|
2009
|
|
2010
|
|
|
(In thousands)
|
|
Other income (expenses), net attributable to Brightstar Europe
|
|
$
|
|
|
|
$
|
(2,806
|
)
|
|
$
|
(4,744
|
)
|
|
$
|
1,781
|
|
|
$
|
2,413
|
|
|
|
|
(2) |
|
Total debt is defined as lines of credit, trade financing
facilities and current portion of term debt, long-term debt and
convertible senior subordinated notes. |
42
MANAGEMENTS
DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The following discussion and analysis of our financial
condition and results of operations should be read in
conjunction with our consolidated financial statements and
related notes included elsewhere in this prospectus. This
discussion contains forward-looking statements that involve
various risks and uncertainties. Our actual results may differ
materially from those anticipated in these forward-looking
statements. For additional information regarding some of the
risks and uncertainties that affect our business and the
industry in which we operate, please read Risk
Factors and Special Note Regarding
Forward-Looking Statements.
Overview
We are a leading global services company focused on enhancing
the performance and profitability of the key participants in the
wireless device value chain: manufacturers, operators, retailers
and enterprises. We provide a comprehensive range of customized
services consisting of value-added distribution, supply chain,
retail and enterprise and consumer services. Our services help
our customers manage the growing complexity of the wireless
device value chain and allow them to increase product
availability, extend and expand their channel reach and drive
supply chain efficiencies by getting the right products to the
right place at the right time for a lower cost. In addition, our
services help our customers increase their wireless device sales
and drive velocity at the point of sale. The rapid growth of the
approximately $200 billion global wireless industry and
increasing number and type of wireless activatable devices have
resulted in a complex ecosystem where manufacturers, operators,
retailers and enterprises have differing priorities and are
burdened with tasks that are critical, but not core, to their
businesses. We believe that our global presence, scale and
strategic position at the center of the wireless ecosystem
provide us with unique insight into the entire wireless device
value chain and enhance our ability to offer differentiated,
value-added services to our customers.
We are a global organization supporting manufacturers,
operators, retailers and enterprises and enabling over 90,000
points of sale worldwide. Our customers are some of the leading
companies in the wireless device value chain. Among others, our
customers include manufacturers such as Apple, HTC, Huawei, LG,
Motorola, Nokia, RIM and Samsung; operators such as America
Movil, AT&T, Orange, Telecom New Zealand, Telefonica,
Telstra, TIM, Verizon Wireless and Vodafone; retailers such as
Best Buy, Radio Shack, Target, Tesco and Walmart; and
enterprises such as Dell, PC Connection and Tech Data.
For our value-added distribution services, and under the terms
of certain arrangements, we procure and take title to wireless
devices and re-sell them to our customers around the world; the
revenue we generate for these value-added distribution services
is transaction-based and includes the cost of the devices we
sell. For our other services, we primarily charge a contractual
fee for services provided or enter into gain-sharing
arrangements, whereby we earn a percentage of the savings we
generate for the customer.
Our business is conducted in four geographic regions:
(i) U.S./Canada; (ii) Latin America; (iii) Asia
Pacific, Middle East and Africa (Asia Pacific); and
(iv) Europe, through Brightstar Europe, our 50% owned joint
venture with Tech Data. The first three regions are reported as
geographic operating segments in our consolidated financial
statements, and we include our share of income from Brightstar
Europe in other income (expenses), net.
Regional
Highlights and Outlook
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U.S./Canada. For the year ended
December 31, 2010, revenue in our U.S./Canada region was
approximately $1.5 billion, which accounted for 31.9% of
our total revenue in 2010, compared to 26.6% in 2009 and 18.3%
in 2008. The growth in this region has been driven primarily by
the addition of new retailer customers and the rapid expansion
of our business in
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the retail and dealer agent channels. We have over 700 customers
in this region, including over 600 retailers. Our core services
in the region include value-added distribution, returns
management, category management, channel and supply chain
management, customization, expanded portfolio management,
activation services, in-store marketing, virtual inventory and
handset protection and replacement. In October 2010, we acquired
OTBT, Inc., a provider of enterprise services for small and
medium business and large enterprises in the U.S. and a core
component of our enterprise services offering. We operate over
450,000 square feet of facilities and serve over 60,000 points
of sale throughout the region. Following a period of rapid
expansion in this region, we intend to increasingly focus on
improving the margin profile, which we expect will result in
lower revenue over the short term but higher profitability.
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Latin America. For the year ended
December 31, 2010, revenue in our Latin America region was
approximately $2.7 billion, which accounted for 60.1% of
our total revenue in 2010, compared to 66.9% in 2009 and 76.1%
in 2008. Historically, our Latin America region contributed the
majority of our total revenue, but, in recent years, the
regions overall contribution to total revenue has been
decreasing due to the higher relative growth of our other
regions. We operate in 19 countries across this region,
including Argentina, Brazil, Colombia, Mexico and Venezuela. Our
core services in Latin America include value-added distribution,
product management, such as demand planning and forecasting, and
fulfillment and logistics, which includes freight management and
customs clearance. We operate over 600,000 square feet of
warehouse facilities serving this region, including our Miami
distribution center. We have 43 sales, distribution and assembly
facilities that together serve more than 90 operators and 25,000
customers in this region. Our assembly facility in Tierra del
Fuego, Argentina allows us to provide local production
capability for our customers. We expect our revenue to increase
in this region driven by continued growth in our services and
increased penetration of smartphones.
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Asia Pacific. For the year ended
December 31, 2010, revenue in our Asia Pacific region was
$367.2 million, which accounted for 8.0% of our total
revenue in 2010, compared to 6.5% in 2009 and 5.6% in 2008. The
growth in this region has been driven primarily by our efforts
to expand our service offerings and enter new markets. We
operate in 14 countries across this region, including Australia,
Hong Kong, Malaysia, New Zealand, Singapore, South Africa,
Thailand, Turkey and Vietnam. We have six distribution
facilities that together serve more than 24 manufacturers, 13
operators and 3,100 retailers at approximately 10,000 points of
sale. Our core services in the region include supply chain
planning, such as demand forecasting and inventory management,
and device management, which includes product lifecycle
management. We also offer a full range of strategic sourcing
services, channel management and value-added distribution
services. We operate more than 350,000 square feet of warehouse
facilities in the region. We expect our revenue to increase and
gross margins to decrease in this region as we expand our
value-added distribution services business at a faster rate than
our other services and as we expand into new markets.
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Europe. We own a 50% interest in
Brightstar Europe, a joint venture company formed in 2007, which
is owned equally and controlled jointly by Tech Data and us. The
growth in this region has been driven primarily by market
penetration, geographic expansion and, to a lesser extent,
impact from our recent acquisitions. Our income attributable to
Brightstar Europe operations increased from $1.8 million in
2009 to $2.4 million in 2010. We operate in 15 countries
across this region, including Spain, Germany and United Kingdom.
Brightstar Europe utilizes the distribution facilities
maintained by Tech Data. Brightstar Europes core services
in the region include value-added distribution and enterprise
services. In August 2010, Brightstar Europe acquired AKL
Telecommunications GmbH (AKL). AKL is one of
Austrias leading suppliers of mobile telephony devices and
fixed network telephony solutions to the wireless channels
including telecommunications dealers and consumer electronics
stores. In addition, in October 2010, Brightstar Europe acquired
Mobile Communication Company (MCC), a major
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supplier of mobile telephony and personal navigation devices in
the Netherlands and Belgium. Brightstar Europe has been growing
rapidly since its formation, as the joint venture increases its
presence in the region. We expect Brightstar Europes
revenue and gross profit to continue to grow organically and
from the full-year impact of its 2010 acquisitions of AKL and
MCC.
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We expect our business to grow in both revenue and profitability
as we expand into new markets, continue to leverage the scale of
our global infrastructure and grow our value-added distribution,
supply chain, retail and enterprise services.
Key
Metrics
We monitor key financial metrics, as set forth below, to help us
evaluate trends in our business, establish budgets, measure the
effectiveness of our sales and marketing efforts and assess
operational efficiencies. See Prospectus
Summary Summary Consolidated Financial and Other
Data for definitions and calculations related to Adjusted
gross profit, Adjusted EBITDA and Adjusted net income.
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Year Ended December 31,
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2008
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2009
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2010
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(In thousands, except percentages)
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Revenue
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$
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3,550,165
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$
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2,718,652
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$
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4,612,863
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Other Financial Data:
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Adjusted gross profit(1)
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295,998
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279,040
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382,680
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Adjusted gross margin(2)
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8.3
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%
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10.3
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%
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8.3
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%
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Adjusted EBITDA(1)
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118,247
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111,424
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141,192
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Adjusted EBITDA %(2)
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3.3
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%
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4.1
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%
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3.1
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%
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Adjusted net income(1)
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12,299
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58,742
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60,561
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Adjusted net income %(2)
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0.3
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%
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2.2
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%
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1.3
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%
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Net working capital(3)
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460,007
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392,844
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607,976
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Net working capital %(2)
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13.0
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%
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14.4
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%
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13.2
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%
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(1) |
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See Note (3) in Prospectus Summary
Summary Consolidated Financial and Other Data for
reconciliations of gross profit to Adjusted gross profit, net
income to Adjusted EBITDA and net income to Adjusted net income. |
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(2) |
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Expressed as a percentage of revenue. |
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Net working capital is calculated as total current assets minus
total current liabilities. |
We use the following financial metrics in monitoring our
business:
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Adjusted Gross Profit. While Adjusted
gross profit is not a U.S. GAAP measurement, we believe it is
useful in comparing our performance with our results in prior
periods, as well as with the performance of other companies, as
the items excluded to arrive at Adjusted gross profit are not
indicative of operating performance and therefore limit
comparability of our historical and current financial statements.
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Adjusted EBITDA. While Adjusted EBITDA
is not a U.S. GAAP measurement, we believe it is useful in
evaluating our operating performance compared to that of other
companies because the calculation of Adjusted EBITDA generally
eliminates the effects of financing and income taxes and the
accounting effects of capital spending and other discrete items,
which we believe are not indicative of overall operating
performance. We use Adjusted EBITDA to evaluate the operating
performance of our business and aid in the
period-to-period
comparability.
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Adjusted Net Income. While Adjusted net
income is not a U.S. GAAP measurement, we believe it is useful
in evaluating our operating performance compared to that of
other
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companies because its calculation adjusts for items which we
believe are not indicative of overall operating performance. We
use Adjusted net income to evaluate the operating performance of
our business and aid in
period-to-period
comparability.
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Net Working Capital. Net working
capital is a measure calculated as total current assets minus
total current liabilities. We believe it is useful in evaluating
our operating performance compared to that of other companies
because it is indicative of our ability to pay off our
short-term liabilities without having to raise additional
capital.
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The following items are excluded from the computation of
Adjusted EBITDA:
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Provision for Income Taxes. Our U.S.
GAAP financial results include a provision for income taxes.
Although we are subject to various federal, state and foreign
taxes and the payment of such taxes is a necessary element of
our operations, we exclude our provision for income taxes from
our Adjusted EBITDA financial measure to provide
period-to-period
comparability of our operating results unassociated with the
varying effective tax rates and uncertain tax position reserves
to which we are subject.
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Interest Income. Our U.S. GAAP
financial results include interest income. Although our
investing activities are elements of our cost structure and
provide us with the ability to generate returns for our owners,
we exclude interest income from our Adjusted EBITDA financial
measure to provide
period-to-period
comparability of our operating results unassociated with our
investing activities.
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Interest Expense. Our U.S. GAAP
financial results include interest expense. Although our
borrowing activities are key elements of our cost structure and
provide us with the ability to generate revenue and returns for
our stockholders, we exclude interest expense from our Adjusted
EBITDA financial measure to provide
period-to-period
comparability of our operating results unassociated with our
capital structure or borrowing activities.
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Depreciation and Amortization. Our U.S.
GAAP financial results include depreciation and amortization
expense associated with capital expenditures and intangible
assets acquired in transactions accounted for as business
combinations. While the use of the capital equipment and
intangible assets enable us to generate revenue for our
business, we exclude depreciation and amortization expense from
our Adjusted EBITDA financial measure to evaluate our operating
results and to enable us to compare our financial results with
other companies in our industry without regard to the historical
acquisition costs of our assets.
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Impairment of Upfront Fee. Our U.S.
GAAP financial results include an impairment of an upfront fee.
Since the impairment of an upfront fee is not a normal,
recurring part of our business, we exclude it from our Adjusted
EBITDA financial measure to provide
period-to-period
comparability of our operating results. See Note 14 to our
consolidated financial statements included elsewhere in this
prospectus.
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Public Offering Expenses. Our U.S. GAAP
financial results include public offering expenses. Since public
offering expenses are not a normal, recurring part of our
business, we exclude them from our Adjusted EBITDA financial
measure to provide
period-to-period
comparability of our operating results.
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Share-Based Compensation Expense. Our
U.S. GAAP financial results include share-based compensation
expense which is composed of the fair value of each of our
incentive awards under our stock option plans. While share-based
compensation expense is required under the provisions of ASC
718, we exclude share-based compensation expense from our
Adjusted EBITDA financial measure to enable us to compare our
financial results with other companies in our industry.
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Loss (income) from Discontinued Operations, Net of
Taxes. Our U.S. GAAP financial results
include a loss from discontinued operations associated with
businesses we no longer
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own and operate. While discontinued operations may arise in
future periods, we exclude our gain or loss from discontinued
operations from our Adjusted EBITDA financial measure to provide
period-to-period
comparability of our operating results unassociated with
discontinued operations.
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Other Income (Expenses), Net. Our U.S.
GAAP financial results include other income (expenses), net.
Although we earn other income and incur other expenses in each
period, we exclude other income (expenses), net from our
Adjusted EBITDA financial measure, as we believe they are not
indicative of our operating performance.
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Foreign Exchange Gains (Losses),
Net. Our U.S. GAAP financial results include
foreign exchange gains (losses), net. We exclude these from our
Adjusted EBITDA financial measure, with the exception of our
foreign currency losses incurred in Venezuela in 2009 and early
2010 related to specific transactions executed through the
parallel market. These are reflected as a reduction of revenue
in our Adjusted EBITDA as we believe this presentation is more
indicative of our operating performance.
See Significant Issues Affecting
Comparability from Period to Period Venezuela
Business for further discussion of foreign currency losses
and parallel market transactions in Venezuela.
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Key Components of
Operating Results
Revenue
Revenue is derived primarily from the following models:
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value-added distribution services revenue from sales of wireless
devices to operators and retailers, net of returns, allowances
and early payment discounts, and generally including the cost of
devices we resell;
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fixed or variable fee arrangements that contain contingent
incentive compensation based on performance, designed to link a
portion of our revenue to our performance relative to both
qualitative and quantitative goals;
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a cost plus margin arrangement for specific services
performed under a contract; and
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a gain-sharing arrangement, under which we typically
earn a percentage of savings we generate for our customers.
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Our value-added distribution services revenue from sales of
wireless devices is subject to product availability and seasonal
fluctuations as a result of holidays, manufacturer and operator
promotions and other events affecting customer demand, including
the introduction of new products and general economic
conditions, and represents the majority of our revenue,
including the cost of devices we resell. As a result, we
generally experience higher revenue in the second half of the
year, particularly in the fourth quarter due to the holiday
season, and weaker sales in the first half of the year.
Our revenue generated by fixed or variable fee or cost plus
margin arrangements is dependent on our ability to perform and
maintain service contracts and less dependent on seasonality
fluctuations or other cost savings cycles. The fees earned under
gain-sharing arrangements depend on the level of savings we
achieve for our customers and typically decrease over the term
of the contract as cost savings opportunities are identified and
remaining opportunities for cost savings diminish.
Cost of
Revenue
Cost of revenue for sales of wireless devices consists of direct
costs incurred for services rendered. Our cost of revenue also
includes the cost of the wireless devices and accessories that
we sell, net of any discounts that we receive from our
manufacturer customers, commissions to direct
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sales agents, freight, insurance, import duties, warranty costs,
royalties, provisions for excess and obsolete inventories.
Gross
Profit
Gross profit is driven by revenue and the margins we earn on
that revenue. Margins fluctuate based on the mix of products
sold and services rendered, variations in other costs of revenue
and fluctuations in gain-sharing revenue. Our overall gross
profits may vary from period to period depending largely on mix
of services provided and products distributed, seasonality and
the lifecycle of our various contracts with our customers. Our
value-added distribution services are lower margin relative to
our other services and vary with the type of device that we
distribute, with higher value devices such as smartphones
generating higher margins for us relative to basic phones.
In certain distribution contracts for large customers, the
prices of the wireless devices that we sell are generally
negotiated directly between the manufacturers and our operator
customers. In such cases, we earn an
agreed-upon
margin, and, in some instances, we are guaranteed minimum
payments from our manufacturer customers (even where the
purchase price payable by the customer is subsequently reduced).
In other cases, we play an active role in negotiating the sales
prices or fees that determine our margins. In our other,
non-distribution services, the margins we earn on these services
vary depending on the nature of the service and the fee
arrangement in place which are negotiated directly between us
and our customers. With the exception of services under gain
sharing arrangements where the gross margins decline over the
lifecycle of the contract, our gross margins for our other
services are typically relatively stable over the term of the
contract.
As discussed further in Significant Issues Affecting
Comparability from Period to Period Venezuela
Business, our gross profits and gross margins were
affected in 2009 and early 2010 by the highly inflationary
economy in Venezuela.
Selling,
General and Administrative
Our selling, general and administrative expenses consist
primarily of personnel costs, benefits, facility expenses,
administrative costs, information technology costs, professional
fees and selling and marketing costs. Selling, general and
administrative expenses also include share-based compensation
expense. The selling, general and administrative expenses that
are directly attributable to a regions operations are
recorded by that region, and corporate selling, general and
administrative expenses relating to our corporate headquarters
are allocated to our regions based on a combination of factors,
including revenue and earnings.
We expect selling, general and administrative expenses to
increase as we expand our business and hire additional
personnel. To the extent that our revenue grows, we expect our
selling, general and administrative expenses as a percentage of
our revenue to decrease as we continue to leverage our fixed and
discretionary selling, general and administrative expenses. As
with most of our operations, we can adjust our cost structure
related to our business based on the actual amount of services
contracted.
Provision for
Bad Debts
Historically, our bad debt provision has been low, at less than
0.25% of our revenue in each of the last three years.
Depreciation
and Amortization
Depreciation and amortization expense relates primarily to
leasehold improvements, computer equipment and software,
furniture, fixtures, equipment and warehouse handling and
storage equipment. We also record amortization expense related
to intangible assets.
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Public
Offering Expenses
Public offering expenses are comprised of certain expenses
incurred in preparation for our initial public offering.
Interest
Income
Interest income is comprised of interest earned on bank deposits
and interest we collect from customers for past due payments on
accounts receivable.
Interest
Expense
Interest expense consists primarily of the costs of our
borrowings under our ABL Revolver and other credit facilities,
the costs associated with letters of credit and the amortization
of loan costs. In addition, starting in December 2010, we
had a fixed interest expense related to our 2016 Notes.
Other Income
(Expenses), Net
Other income (expenses), net includes non-operating gains and
losses, including our share of income (loss) from Brightstar
Europe and investment gains, losses and other than temporary
impairments. Since 2010, other income (expenses), net has also
included rental income and depreciation related to investment
property acquired in Venezuela during 2009 and 2010.
Foreign
Exchange Gains (Losses), Net
We operate in many countries where the exchange rates of local
currencies for U.S. dollars fluctuate. In countries where our
foreign subsidiaries use the local currency as their functional
currency, foreign exchange gains and losses arise in connection
with transactions denominated in a currency other than that
functional currency. Additionally, in countries where our
foreign subsidiaries use the U.S. dollar as their functional
currency, foreign exchange gains and losses arise when monetary
assets and liabilities denominated in foreign currencies are
re-measured into U.S. dollars for consolidated financial
reporting purposes. Foreign exchange gains and losses are
included in our consolidated statement of operations, net of
gains (losses) from forward contracts used to hedge currency
risks. See Significant Issues Affecting
Comparability from Period to Period Worldwide
Currency Fluctuations for a discussion regarding the
effect of currency devaluations in 2008 on our business.
Provision for
Income Taxes
The provision for income taxes includes federal, state, local
and foreign taxes. Income taxes are accounted for under the
asset and liability method. Under this method, deferred tax
assets and liabilities are recognized for the expected future
tax consequences of temporary differences between the financial
statement carrying values and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which the temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date. We evaluate the realizability of
our deferred tax assets and establish a valuation allowance when
it is more likely than not that all or a portion of the deferred
tax assets will not be realized.
Non-Controlling
Interest
Non-controlling interest reflects the portion of our
consolidated earnings attributable to investors that hold
non-controlling ownership interests in certain of our
consolidated subsidiaries.
Prior to March 31, 2009, a third party held a 40.0%
interest in our Australian operations and a 30.0% interest in
our Singapore operations. On March 31, 2009, pursuant to a
conversion agreement,
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this investor elected to convert the non-controlling interest in
our Singapore operations into shares of our Series C
Redeemable Convertible Preferred Stock and concurrently we
repurchased the investors 40.0% interest in our Australian
operations for $40.0 million in cash. Also, on
March 31, 2009, we acquired an additional 9.8% interest in
one of our subsidiaries, decreasing the holdings of the
non-controlling stockholder in that subsidiary to 39.2%.
Significant
Issues Affecting Comparability from Period to Period
Certain significant items or events should be considered to
better understand differences in our results of operations from
period to period. We believe that the following items or events
have significantly affected our financial results for prior
periods and the results we may achieve in the future:
Venezuela
Business
We have a significant presence in Venezuela. While
Venezuelas political and economic environment has been
challenging, our operations in Venezuela have been profitable to
date, and we have not been required to record any asset
impairments for our Venezuela operations. However, the economic
situation in Venezuela and related accounting treatment has
caused significant variability in our reported results, as
described below.
Venezuelas economy was deemed to meet the definition of
highly inflationary as of July 1, 2009. As a result of this
determination, we changed the functional currency of our
Venezuelan subsidiary to the U.S. dollar, the reporting currency
of the parent, Brightstar Corp., effective July 1, 2009. As
a consequence of this change in functional currency, the effect
of all Venezuelan currency fluctuations are classified as
foreign exchange gains and losses and included in the
determination of earnings, beginning July 1, 2009.
Pursuant to certain foreign currency exchange control
regulations in Venezuela, BCV centralizes the purchase and sale
of foreign currency within the country. Under these regulations,
the purchase and sale of foreign currency were required to be
made at an official rate of exchange that is fixed from time to
time by the Executive Branch and the BCV (the Official
Rate). As of December 31, 2009, the exchange rate was
BsF 2.150 per U.S. dollar. Prior to June 2010, we utilized an
exemption from the Venezuelan legal prohibition against
exchanging Venezuelan currency with other foreign currency that
permitted certain transactions under an indirect
parallel market of foreign currency exchange. The
average rate of exchange in the parallel market was variable and
at times differed significantly from the Official Rate.
We are required to measure all transactions in Venezuela using
the Official Rate, including those actually settled using the
parallel market, as we expect future dividends remitted from our
Venezuelan subsidiary will be settled using the Official Rate.
Accordingly, if we sold a handset for BsF 2.150, and had costs
of BsF 1.075 on December 31, 2009, we accounted for such
sale as $1 of revenue and $0.50 of gross profit (based on the
Official Rate), even though our actual realization in U.S.
dollars under the parallel market would reflect much lower
revenue and lower gross profits in U.S. dollars. The higher
reported revenue and gross profit in this example would be
partially offset by foreign exchange losses resulting from
execution of the trades in the parallel market. In 2009 and
2010, our reported gross profit and gross margin benefited
significantly from the impact of recording Venezuelan sales at
the Official Rate as opposed to the realized rate in the
parallel market, primarily in the second and third quarters of
2009. The impact of this was a $85.6 million and
$22.2 million increase in revenue in 2009 and 2010,
respectively, offset by a corresponding foreign exchange loss.
For management and region reporting purposes, we classify these
losses as reductions in revenue in our Latin America region
because we believe doing so provides a more meaningful measure
of actual performance in Venezuela.
In the fourth quarter of 2009, we curtailed the use of the
parallel market and began to require letters of credit from the
customers banks confirmed by banks in the United States as
guarantee of
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payment for our product sales to our Venezuelan customers. In
addition to this form of sales transaction, we continued to
occasionally execute transactions through the parallel market
through early 2010.
On January 8, 2010, the Venezuelan government announced its
intention to devalue its currency and move to a two-tier
exchange structure, effective January 11, 2010: a 4.30 BsF
rate to the USD for transactions deemed priorities by the
government and a 2.60 BsF rate to the USD for other
transactions. The latter rate was applicable to our operations
in Venezuela. In May 2010, the Venezuelan government enacted
reforms to its exchange regulations to close the parallel
market. In early June 2010, the Venezuelan government introduced
additional foreign exchange regulations under SITME, a newly
regulated system, which is controlled by the BCV. The SITME
imposes volume restrictions on an entitys foreign trading
activity. Foreign exchange transactions occurring after SITME
began in June 2010 and which are not conducted through CADIVI or
SITME may not comply with the amended exchange regulations. As a
result, we further curtailed our parallel market activity in the
first half of 2010 and no longer conduct transactions through a
parallel market in Venezuela.
In December 2010, the Venezuelan government announced a currency
devaluation, effective January 2011, wherein the Bolivar would
have one set government rate, eliminating the previously
existing BsF 2.60 rate to the USD for transactions deemed
priorities by the government. This announcement resulted in one
official rate of BsF 4.30 to the USD for all transactions. This
change had no impact on our operations as the BsF 4.30 rate to
the USD was the existing rate applicable to our operations in
Venezuela. As a result of such change, we expect that our
revenue and gross profits in Venezuela on a reported basis
(prior to any offset for foreign currency gains and losses) will
more accurately reflect our actual results.
In 2010, our sales to customers in Venezuela represented 10.5%
of our consolidated revenue compared to 19.4% in 2009 and 18.4%
in 2008. The decrease in revenue share in 2010 relative to 2009
was primarily attributable to higher growth in our other
geographic regions and, to a lesser extent, to the Venezuelan
government revising its foreign exchange laws to prohibit
private trading of foreign currency. The increase in revenue in
2009 relative to 2008 was mainly attributable to the pricing
effect of the highly inflationary economy in Venezuela, as
further discussed above.
Worldwide
Currency Fluctuations
In 2008, when the major currencies around the world devalued in
relation to the U.S. dollar, our operations were exposed and we
suffered realized and unrealized foreign exchange losses, which
were reflected in 2008, principally as a result of transactions
denominated in U.S. dollars. We recognized net foreign exchange
losses of $25.1 million in 2008 in connection with these
currency fluctuations. The major losses were reflected in the
Brazilian real, Mexican peso and Chilean peso.
We now use a hedging strategy to protect against an increase in
the cost of forecasted foreign currency denominated transactions
where markets exist for hedging instruments. Our objective is to
minimize our exposure to these risks through a combination of
normal operating activities, or natural hedges, and the
utilization of foreign currency contracts to manage our exposure
on the transactions denominated in currencies other than the
applicable functional currency. Contracts are executed with
creditworthy banks and other institutions and are denominated in
currencies of major industrial countries. In certain cases,
including Venezuela, derivative hedging instruments are not
available. In those circumstances, we use a combination of
strategies to the extent feasible, including but not limited to,
natural hedges and adjustments to our business model, in order
to partially mitigate our exposure to currency fluctuations.
Change in
Non-Controlling Interest
On March 31, 2009, pursuant to a conversion agreement, an
investor elected to convert a 30.0% interest in our Singapore
operations into 493,828 shares of our Series C
Redeemable Convertible Preferred Stock. Concurrently, we
repurchased the same investors 40.0% interest in our
Australia
51
operations for $40.0 million in cash. In addition, on
March 31, 2009, we acquired an additional 9.8% interest in
one of our subsidiaries, decreasing the holdings of the
non-controlling stockholder in that subsidiary to 39.2%.
Results of
Operations
The following tables set forth our consolidated statements of
operations and regional data for the years ended
December 31, 2008, 2009 and 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008 Compared to 2009
|
|
|
2009 Compared to 2010
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Variance
|
|
|
%
|
|
|
Variance
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
Consolidated Statement of Operations Data:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,550,165
|
|
|
$
|
2,718,652
|
|
|
$
|
4,612,863
|
|
|
$
|
(831,513
|
)
|
|
|
(23.4
|
)%
|
|
$
|
1,894,211
|
|
|
|
69.7
|
%
|
Cost of revenue
|
|
|
3,254,167
|
|
|
|
2,354,016
|
|
|
|
4,218,979
|
|
|
|
(900,151
|
)
|
|
|
(27.7
|
)%
|
|
|
1,864,963
|
|
|
|
79.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
295,998
|
|
|
|
364,636
|
|
|
|
393,884
|
|
|
|
68,638
|
|
|
|
23.2
|
%
|
|
|
29,248
|
|
|
|
8.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
174,287
|
|
|
|
161,806
|
|
|
|
235,239
|
|
|
|
(12,481
|
)
|
|
|
(7.2
|
)%
|
|
|
73,433
|
|
|
|
45.4
|
%
|
Provision for bad debts
|
|
|
2,736
|
|
|
|
6,435
|
|
|
|
8,785
|
|
|
|
3,699
|
|
|
|
135.2
|
%
|
|
|
2,350
|
|
|
|
36.5
|
%
|
Depreciation and amortization
|
|
|
9,917
|
|
|
|
13,457
|
|
|
|
11,913
|
|
|
|
3,540
|
|
|
|
35.7
|
%
|
|
|
(1,544
|
)
|
|
|
(11.5
|
)%
|
Public offering expenses
|
|
|
|
|
|
|
|
|
|
|
7,333
|
|
|
|
|
|
|
|
*
|
|
|
|
7,333
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
186,940
|
|
|
|
181,698
|
|
|
|
263,270
|
|
|
|
(5,242
|
)
|
|
|
(2.8
|
)%
|
|
|
81,572
|
|
|
|
44.9
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
109,058
|
|
|
|
182,938
|
|
|
|
130,614
|
|
|
|
73,880
|
|
|
|
67.7
|
%
|
|
|
(52,324
|
)
|
|
|
(28.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
14,206
|
|
|
|
21,278
|
|
|
|
7,139
|
|
|
|
7,072
|
|
|
|
49.8
|
%
|
|
|
(14,139
|
)
|
|
|
(66.5
|
)%
|
Interest expense
|
|
|
(34,746
|
)
|
|
|
(17,102
|
)
|
|
|
(29,025
|
)
|
|
|
17,644
|
|
|
|
(50.8
|
)%
|
|
|
(11,923
|
)
|
|
|
69.7
|
%
|
Other income (expenses), net
|
|
|
(923
|
)
|
|
|
(3,459
|
)
|
|
|
2,159
|
|
|
|
(2,536
|
)
|
|
|
274.8
|
%
|
|
|
5,618
|
|
|
|
(162.4
|
)%
|
Foreign exchange losses, net
|
|
|
(25,117
|
)
|
|
|
(80,915
|
)
|
|
|
(33,263
|
)
|
|
|
(55,798
|
)
|
|
|
222.2
|
%
|
|
|
47,652
|
|
|
|
(58.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(46,580
|
)
|
|
|
(80,198
|
)
|
|
|
(52,990
|
)
|
|
|
(33,618
|
)
|
|
|
72.2
|
%
|
|
|
27,208
|
|
|
|
(33.9
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income
taxes
|
|
|
62,478
|
|
|
|
102,740
|
|
|
|
77,624
|
|
|
|
40,262
|
|
|
|
64.4
|
%
|
|
|
(25,116
|
)
|
|
|
(24.4
|
)%
|
Provision for income taxes
|
|
|
35,402
|
|
|
|
46,999
|
|
|
|
36,938
|
|
|
|
11,597
|
|
|
|
32.8
|
%
|
|
|
(10,061
|
)
|
|
|
(21.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
27,076
|
|
|
|
55,741
|
|
|
|
40,686
|
|
|
|
28,665
|
|
|
|
105.9
|
%
|
|
|
(15,055
|
)
|
|
|
(27.0
|
)%
|
(Loss) income from discontinued operations, net of taxes
|
|
|
(14,304
|
)
|
|
|
2,595
|
|
|
|
(921
|
)
|
|
|
16,899
|
|
|
|
(118.1
|
)%
|
|
|
(3,516
|
)
|
|
|
(135.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
12,772
|
|
|
|
58,336
|
|
|
|
39,765
|
|
|
|
45,564
|
|
|
|
356.8
|
%
|
|
|
(18,571
|
)
|
|
|
(31.8
|
)%
|
Less: Net income attributable to non-controlling interest
|
|
|
18,107
|
|
|
|
4,095
|
|
|
|
2,385
|
|
|
|
(14,012
|
)
|
|
|
(77.4
|
)%
|
|
|
(1,710
|
)
|
|
|
(41.8
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Brightstar Corp.
|
|
$
|
(5,335
|
)
|
|
$
|
54,241
|
|
|
$
|
37,380
|
|
|
$
|
59,576
|
|
|
|
*
|
|
|
$
|
(16,861
|
)
|
|
|
(31.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage change not meaningful. |
52
Regional
Highlights
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2009
|
|
2010
|
|
|
(In thousands, except percentages)
|
|
U.S./Canada:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
650,611
|
|
|
$
|
724,161
|
|
|
$
|
1,472,593
|
|
Gross profit
|
|
|
44,752
|
|
|
|
58,769
|
|
|
|
85,350
|
|
Gross margin
|
|
|
6.9
|
%
|
|
|
8.1
|
%
|
|
|
5.8
|
%
|
Operating income
|
|
|
16,050
|
|
|
|
26,504
|
|
|
|
31,438
|
|
Latin America(1):
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
2,700,279
|
|
|
$
|
1,733,522
|
|
|
$
|
2,749,695
|
|
Gross profit
|
|
|
174,284
|
|
|
|
140,014
|
|
|
|
197,635
|
|
Gross margin
|
|
|
6.5
|
%
|
|
|
8.1
|
%
|
|
|
7.2
|
%
|
Operating income
|
|
|
56,486
|
|
|
|
38,383
|
|
|
|
63,665
|
|
Asia Pacific:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
199,275
|
|
|
$
|
175,373
|
|
|
$
|
367,185
|
|
Gross profit
|
|
|
76,962
|
|
|
|
80,257
|
|
|
|
92,360
|
|
Gross margin
|
|
|
38.6
|
%
|
|
|
45.8
|
%
|
|
|
25.2
|
%
|
Operating income
|
|
|
37,083
|
|
|
|
35,455
|
|
|
|
39,662
|
|
Unallocated Corporate & Other:
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
|
|
|
$
|
|
|
|
$
|
1,181
|
|
Gross profit
|
|
|
|
|
|
|
|
|
|
|
(3,670
|
)
|
Operating income
|
|
|
(561
|
)
|
|
|
(3,000
|
)
|
|
|
(26,360
|
)
|
Consolidated Total(2):
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
3,550,165
|
|
|
$
|
2,718,652
|
|
|
$
|
4,612,863
|
|
Gross profit
|
|
|
295,998
|
|
|
|
364,636
|
|
|
|
393,884
|
|
Gross margin
|
|
|
8.3
|
%
|
|
|
13.4
|
%
|
|
|
8.5
|
%
|
Operating income
|
|
|
109,058
|
|
|
|
182,938
|
|
|
|
130,614
|
|
|
|
|
(1)
|
|
Excludes the effect of the
Venezuela increase in revenue in 2009 and early 2010 related to
specific transactions executed through the parallel market.
See Significant Issues Affecting Comparability from
Period to PeriodVenezuela Business.
|
|
(2)
|
|
Includes the effect of the
Venezuela increase in revenue related to specific transactions
executed through the parallel market.
|
Segment Reporting
Reconciliation
As discussed in Note 17, Segment Reporting, to
our consolidated financial statements located elsewhere in this
prospectus and Significant Issues Affecting
Comparability from Period to Period Venezuela
Business, we entered into transactions that were settled
in a parallel market active in 2009 and early 2010 in Venezuela,
all of which were translated into U.S. dollars using the
Official Rate of Venezuela. As a result, our consolidated
results of operations reflect higher gross margins in 2009 and
early 2010 than comparable periods, the effect of which was
partially offset by foreign exchange losses. For management and
segment reporting purposes, we classify the foreign exchange
loss on these transactions as a reduction in revenue, which we
believe provides a more comparable measure of revenue, gross
profit, gross margins and operating income on a segment basis.
We believe this approach is the most consistent with the
underlying economics of these transactions and provides the most
meaningful measures to assess the results of operations and
business trends in our Latin America region. As a result of the
foregoing, our revenue, gross profit, gross margin and operating
income included in our consolidated results of operations will
differ from the aggregate revenue, gross profit and operating
income for our regions, as follows.
53
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
U.S./Canada region
|
|
$
|
650,611
|
|
|
$
|
724,161
|
|
|
$
|
1,472,593
|
|
Latin America region
|
|
|
2,700,279
|
|
|
|
1,733,522
|
|
|
|
2,749,695
|
|
Asia Pacific region
|
|
|
199,275
|
|
|
|
175,373
|
|
|
|
367,185
|
|
Corporate and other
|
|
|
|
|
|
|
|
|
|
|
1,181
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Region total
|
|
|
3,550,165
|
|
|
|
2,633,056
|
|
|
|
4,590,654
|
|
Effect of foreign exchange loss from Venezuela(1)
|
|
|
|
|
|
|
85,596
|
|
|
|
22,209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
3,550,165
|
|
|
$
|
2,718,652
|
|
|
$
|
4,612,863
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
See Significant Issues Affecting
Comparability from Period to Period Venezuela
Business. |
Year Ended
December 31, 2010 Compared to Year Ended December 31,
2009
Revenue
Consolidated revenue increased 69.7% from $2.7 billion in
2009 to $4.6 billion in 2010 driven by strong revenue
growth in all regions.
Revenue by
Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Variance
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
U.S./Canada region
|
|
$
|
724,161
|
|
|
$
|
1,472,593
|
|
|
$
|
748,432
|
|
|
|
103.4
|
%
|
Latin America region
|
|
|
1,733,522
|
|
|
|
2,749,695
|
|
|
|
1,016,173
|
|
|
|
58.6
|
%
|
Asia Pacific region
|
|
|
175,373
|
|
|
|
367,185
|
|
|
|
191,812
|
|
|
|
109.4
|
%
|
Corporate and other
|
|
|
|
|
|
|
1,181
|
|
|
|
1,181
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Region total
|
|
|
2,633,056
|
|
|
|
4,590,654
|
|
|
|
1,957,598
|
|
|
|
74.4
|
%
|
Effect of foreign exchange loss from Venezuela(1)
|
|
|
85,596
|
|
|
|
22,209
|
|
|
|
(63,387
|
)
|
|
|
(74.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
2,718,652
|
|
|
$
|
4,612,863
|
|
|
$
|
1,894,211
|
|
|
|
69.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage change not meaningful. |
|
(1) |
|
See Significant Issues Affecting Comparability from
Period to Period Venezuela Business. |
Revenue in our U.S./Canada region increased 103.4% from
$724.2 million in 2009 to $1.5 billion in 2010,
primarily as a result of the growth of our value-added
distribution services with new and existing customers and in
particular by further penetration into the retail channel with
significant sales to a new retailer.
Revenue in our Latin America region increased by 58.6% from
$1.7 billion in 2009 to $2.7 billion in 2010, driven
by increased demand generated as a result of the overall
economic recovery, including increased demand driven by the
recovery of local currencies relative to the U.S. dollar which
makes wireless devices more affordable. Growth in our sales
through our assembly facility in Tierra Del Fuego, Argentina,
was particularly strong, as was the revenue growth in Mexico.
Revenue in this region for the year ended December 31, 2010
was affected by an $11.0 million impairment charge of
upfront fees related to the sale of information technology
devices to one of our customers in Latin America, offset by
$10.4 million in revenue related to a sale of software
licenses to an unrelated party
54
under a distribution and referral agreement with a supplier in
Latin America. See Note 14 to our consolidated financial
statements included elsewhere in this prospectus.
Revenue in our Asia Pacific region increased 109.4% from
$175.4 million in 2009 to $367.2 million in 2010,
primarily as a result of our expansion into new countries in
this region and the high growth of our value-added distribution
services, which was particularly strong in Turkey, Malaysia and
Hong Kong.
Gross
Profit
Consolidated gross profit increased 8.0% from
$364.6 million in 2009 to $393.9 million in 2010,
driven by an increase in consolidated revenue which included the
effect of the Venezuela foreign currency related increase in
revenue. The impact was significantly lower in 2010 compared to
2009 due to the decrease in the volume of our parallel market
transactions in Venezuela in 2010. See
Significant Issues Affecting Comparability from Period to
Period Venezuela Business. The increase in
consolidated revenue was offset by a decrease in consolidated
gross margin. Consolidated Adjusted gross profit increased by
37.1% from $279.0 million in 2009 to $382.7 million in
2010, driven by increase in consolidated revenue, offset by
lower margins as a result of the relative higher growth of our
value-added distribution services compared to our other services
in this period. For a reconciliation of Adjusted gross profit to
gross profit, see Note (3) in Prospectus
Summary Summary Consolidated Financial and Other
Data. Our Adjusted consolidated gross margin was 10.3% in
2009 and 8.3% in 2010.
Gross Profit by
Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009 Gross
|
|
|
2009 Gross
|
|
|
2010 Gross
|
|
|
2010 Gross
|
|
|
|
|
|
|
|
|
|
Profit
|
|
|
Margin
|
|
|
Profit
|
|
|
Margin
|
|
|
Variance
|
|
|
%
|
|
|
|
|
|
|
(In thousands, except percentages)
|
|
|
|
|
|
|
|
|
U.S./Canada region
|
|
|
58,769
|
|
|
|
8.1
|
%
|
|
|
85,350
|
|
|
|
5.8
|
%
|
|
|
26,581
|
|
|
|
45.2
|
%
|
Latin America region
|
|
|
140,014
|
|
|
|
8.1
|
%
|
|
|
197,635
|
|
|
|
7.2
|
%
|
|
|
57,621
|
|
|
|
41.2
|
%
|
Asia Pacific region
|
|
|
80,257
|
|
|
|
45.8
|
%
|
|
|
92,360
|
|
|
|
25.2
|
%
|
|
|
12,103
|
|
|
|
15.1
|
%
|
Corporate and other
|
|
|
|
|
|
|
*
|
|
|
|
(3,670
|
)
|
|
|
*
|
|
|
|
(3,670
|
)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Region total
|
|
|
279,040
|
|
|
|
10.6
|
%
|
|
|
371,675
|
|
|
|
8.1
|
%
|
|
|
92,635
|
|
|
|
33.2
|
%
|
Effect of foreign exchange
loss from Venezuela
|
|
|
85,596
|
|
|
|
*
|
|
|
|
22,209
|
|
|
|
*
|
|
|
|
(63,387
|
)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
|
364,636
|
|
|
|
13.4
|
%
|
|
|
393,884
|
|
|
|
8.5
|
%
|
|
|
29,248
|
|
|
|
8.0
|
%
|
Effect of foreign exchange
loss from Venezuela
|
|
|
(85,596
|
)
|
|
|
*
|
|
|
|
(22,209
|
)
|
|
|
*
|
|
|
|
63,387
|
|
|
|
*
|
|
Impairment of upfront fee
|
|
|
|
|
|
|
*
|
|
|
|
11,005
|
|
|
|
*
|
|
|
|
11,005
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Adjusted gross profit
|
|
$
|
279,040
|
|
|
|
10.3
|
%
|
|
$
|
382,680
|
|
|
|
8.3
|
%
|
|
$
|
103,640
|
|
|
|
37.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage change not meaningful. |
U.S./Canada region gross profit increased 45.2% from
$58.8 million in 2009 to $85.4 million in 2010,
primarily as a result of increased revenue, partially offset by
decreased gross margin. U.S./Canada gross margin decreased from
8.1% in 2009 to 5.8% in 2010 as a result of increased business
with a retailer that yielded significant revenue but lower
margins as compared to business with other customers.
Additionally, gross margin was impacted by certain reserves
booked in 2010, part of which we expect to recover in 2011.
Latin America region gross profit increased 41.2% from
$140.0 million in 2009 to $197.6 million in 2010,
primarily as a result of strong revenue growth. Latin America
gross margin decreased from 8.1% in 2009 to 7.2% in 2010,
primarily as a result of our value-added distribution services
growing
55
faster than our other services, as well as due to the effect of
the $11.0 million impairment charge of upfront fees in
2010. Our 2010 Adjusted gross margin in Latin America, which
excludes the impact of the impairment charge of upfront fees,
was 7.6%.
Asia Pacific region gross profit increased 15.1% from
$80.3 million in 2009 to $92.4 million in 2010, driven
primarily by increased revenue, partially offset by decreased
gross margin. Asia Pacific gross margin decreased from 45.8% in
2009 to 25.2% in 2010, driven primarily by a significant
increase in revenue derived from value-added distribution
services, which carries a lower margin relative to the average
margin derived from other services in the Asia Pacific region.
The gross margin decline was also driven by the normal lifecycle
of certain revenue derived under gain sharing arrangements where
gross margins decline over the life of the contract as the
savings realized for our customers are achieved. We expect the
gross margin for the Asia Pacific region will decrease as
revenue from our value-added distribution services continues to
grow faster than revenue from our other services throughout the
region.
Selling,
General and Administrative
Consolidated selling, general and administrative expenses
increased 45.4% from $161.8 million in 2009 to
$235.2 million in 2010, primarily as a result of the costs
of increased staffing to support our growth, including payroll,
benefits and training. This increase was primarily due to the
growth of certain subsidiaries, particularly the U.S., Tierra
del Fuego and Mexico subsidiaries, all of which experienced
significant year-over-year growth. Additionally, we invested in
our global supply chain services organization headquartered in
Cambridge, Massachusetts which was formed in late 2009.
Consolidated selling, general and administrative expenses as a
percent of revenue decreased from 6.0% of consolidated revenue
in 2009 to 5.1% in 2010. This decrease was driven by our
improved leverage of fixed and discretionary selling, general
and administrative expenses over a higher revenue base.
We expect selling, general and administrative expenses to
increase as we expand our business. However, to the extent that
our revenue grows, we expect our selling, general and
administrative as a percentage of revenue to decrease as we
continue to leverage our fixed and discretionary selling,
general and administrative expenses over a higher revenue base.
Selling, General
and Administrative by Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Variance
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
U.S./Canada region
|
|
$
|
23,268
|
|
|
$
|
38,885
|
|
|
$
|
15,617
|
|
|
|
67.1
|
%
|
Latin America region
|
|
|
69,551
|
|
|
|
99,696
|
|
|
|
30,145
|
|
|
|
43.3
|
%
|
Asia Pacific region
|
|
|
31,118
|
|
|
|
38,100
|
|
|
|
6,982
|
|
|
|
22.4
|
%
|
Corporate and other
|
|
|
37,869
|
|
|
|
58,558
|
|
|
|
20,689
|
|
|
|
54.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
161,806
|
|
|
$
|
235,239
|
|
|
$
|
73,433
|
|
|
|
45.4
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses in our U.S./Canada
region increased 67.1% from $23.3 million in 2009 to
$38.9 million in 2010, primarily as a result of increased
staffing to support business growth. U.S./Canada region selling,
general and administrative expenses as a percentage of revenue
decreased from 3.2% of region revenue in 2009 to 2.6% in 2010,
primarily due to our increased sales and resulting operating
leverage as we started to benefit from our investment in
selling, general and administrative expenses which are being
used to support higher revenues.
Selling, general and administrative expenses in our Latin
America region increased 43.3% from $69.6 million in 2009
to $99.7 million in 2010, primarily as a result of
increased staffing to support
56
business growth, particularly in our Tierra del Fuego and Mexico
subsidiaries. As a percentage of region revenue, Latin America
region selling, general and administrative expenses as a
percentage of revenue decreased from 4.0% in 2009 to 3.6% in
2010.
Selling, general and administrative expenses in our Asia Pacific
region increased 22.4% from $31.1 million in 2009 to
$38.1 million in 2010, primarily as a result of increased
staffing to support business growth, particularly in Turkey.
Asia Pacific region selling, general and administrative expenses
as a percentage of revenue decreased from 17.7% of region
revenue in 2009 to 10.4% in 2010, due to improved leveraging of
fixed and discretionary selling, general and administrative
expenses, but also as a result of the effect of our value-added
distribution services growing faster than our other services.
Corporate and other general and administrative expenses
increased 54.6% from $37.9 million in 2009 to
$58.6 million in 2010. The increase in 2010 was driven
primarily by costs of increased staffing, professional fees and
travel to support business growth, as well as the investment in
our global supply chain services organization headquartered in
Cambridge, Massachusetts. Corporate and other selling, general
and administrative expenses were allocated to our regions, based
on a combination of factors, including revenue and earnings, as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Variance
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
U.S./Canada region
|
|
$
|
5,528
|
|
|
$
|
10,753
|
|
|
$
|
5,225
|
|
|
|
94.5
|
%
|
Latin America region
|
|
|
18,485
|
|
|
|
21,342
|
|
|
|
2,857
|
|
|
|
15.5
|
%
|
Asia Pacific region
|
|
|
10,856
|
|
|
|
11,390
|
|
|
|
534
|
|
|
|
4.9
|
%
|
Unallocated Corporate and other(a)
|
|
|
3,000
|
|
|
|
15,073
|
|
|
|
12,073
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other
|
|
$
|
37,869
|
|
|
$
|
58,558
|
|
|
$
|
20,689
|
|
|
|
54.6
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage change not meaningful. |
|
(a) |
|
Unallocated Corporate and other expenses in 2010 consisted
primarily of investments in our global supply chain services
organization, including payroll, consulting and travel costs. |
Provision for
Bad Debts
Our consolidated provision for bad debts increased from
$6.4 million in 2009 to $8.8 million in 2010. This
increase is attributable to a $7.5 million provision
recorded against sales made to a distributor in Mexico in 2010
due to the distributors financial condition. No additional
sales have been made to the distributor since April 2010, and we
continue to pursue recoverability of these receivables based on
guarantees and collateral pledges that we hold. There is no
guarantee, however, that we will recover on all of our claims.
As a percentage of consolidated revenue, our consolidated
provision for bad debts was less than 0.25% in 2009 and 2010.
57
Provision for Bad
Debts by Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Variance
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
U.S./Canada region
|
|
$
|
964
|
|
|
$
|
1,298
|
|
|
$
|
334
|
|
|
|
34.7
|
%
|
Latin America region
|
|
|
5,281
|
|
|
|
7,338
|
|
|
|
2,057
|
|
|
|
39.0
|
%
|
Asia Pacific region
|
|
|
190
|
|
|
|
19
|
|
|
|
(171
|
)
|
|
|
*
|
|
Corporate and other
|
|
|
|
|
|
|
130
|
|
|
|
130
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
6,435
|
|
|
$
|
8,785
|
|
|
$
|
2,350
|
|
|
|
36.5
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage change not meaningful. |
Depreciation
and Amortization
Consolidated depreciation and amortization expense decreased
11.5% from $13.5 million in 2009 to $11.9 million in
2010, principally as a result of certain adjustments made to the
depreciation lives resulting in accelerated depreciation
recorded in Mexico in 2009, which did not recur in 2010.
Depreciation and amortization expense is consistent as a
percentage of revenue at less than 0.5% for both periods.
Depreciation and
Amortization by Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Variance
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
U.S./Canada region
|
|
$
|
2,505
|
|
|
$
|
2,976
|
|
|
$
|
471
|
|
|
|
18.8
|
%
|
Latin America region
|
|
|
8,314
|
|
|
|
5,594
|
|
|
|
(2,720
|
)
|
|
|
(32.7
|
)%
|
Asia Pacific region
|
|
|
2,638
|
|
|
|
3,189
|
|
|
|
551
|
|
|
|
20.9
|
%
|
Corporate and other
|
|
|
|
|
|
|
154
|
|
|
|
154
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
13,457
|
|
|
$
|
11,913
|
|
|
$
|
(1,544
|
)
|
|
|
(11.5
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage change not meaningful. |
Public
Offering Expenses
During 2010, we incurred certain expenses in preparation for our
initial public offering.
Operating
Income
For the reasons described above, and including the impact of
parallel market transactions in Venezuela, which increase our
revenue, consolidated operating income decreased 28.6% from
$182.9 million in 2009 to $130.6 million in 2010.
Excluding these effects amounting to $85.6 million in 2009
and $22.2 million in 2010, operating income was
$97.3 million and $108.4 million in 2009 and 2010,
respectively.
58
Operating Income
by Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Variance
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
U.S./Canada region
|
|
$
|
26,504
|
|
|
$
|
31,438
|
|
|
$
|
4,934
|
|
|
|
18.6
|
%
|
Latin America region
|
|
|
38,383
|
|
|
|
63,665
|
|
|
|
25,282
|
|
|
|
65.9
|
%
|
Asia Pacific region
|
|
|
35,455
|
|
|
|
39,662
|
|
|
|
4,207
|
|
|
|
11.9
|
%
|
Corporate and other
|
|
|
(3,000
|
)
|
|
|
(26,360
|
)
|
|
|
(23,360
|
)
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Region total
|
|
|
97,342
|
|
|
|
108,405
|
|
|
|
11,063
|
|
|
|
11.4
|
%
|
Effect of foreign currency loss from Venezuela
|
|
|
85,596
|
|
|
|
22,209
|
|
|
|
(63,387
|
)
|
|
|
(74.1
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
182,938
|
|
|
$
|
130,614
|
|
|
$
|
(52,324
|
)
|
|
|
(28.6
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage change not meaningful. |
Operating income in all regions increased primarily as a result
of increased gross profit driven by increased revenue offset by
lower gross margins and higher selling, general and
administrative expenses.
Operating income for our U.S./Canada region increased 18.6% from
$26.5 million in 2009 to $31.4 million in 2010.
Operating income for our Latin America region increased 65.9%
from $38.4 million in 2009 to $63.7 million in 2010.
In addition to the revenue, gross margin and selling, general
and administrative expense drivers, operating income was
affected by an increase in the regions provision for bad
debts, offset by the decrease in depreciation and amortization.
Operating income for our Asia Pacific region increased 11.9%
from $35.5 million in 2009 to $39.7 million in 2010.
Interest
Income
Consolidated interest income is generated primarily from cash
deposits, principally located outside of the United States, and
decreased from $21.3 million in 2009 to $7.1 million
in 2010. This decrease was attributable primarily to a decrease
of interest bearing deposits in Venezuela from cash provided by
several major customers as guarantee. Such deposits were
returned as accounts receivable were collected.
Interest
Expense
Interest expense increased from $17.1 million in 2009 to
$29.0 million in 2010, primarily as a result of increased
borrowings to fund working capital and investing requirements.
Other Income
(Expenses), Net
Other income (expenses), net increased from $(3.5) million in
2009 to $2.1 million in 2010, primarily as a result of a
$3.7 million write-off of equity and cost method
investments in 2009 and a $1.1 million write-off of certain
equipment in connection with a contract termination in 2009,
which did not recur in 2010. Additionally, increased other
income resulted from higher earnings in 2010 for Brightstar
Europe, which we account for under the equity method, with our
share of income increasing from $1.8 million in 2009 to
$2.4 million in 2010.
59
Foreign
Exchange Losses, Net
Our net foreign exchange loss decreased from $80.9 million
in 2009 to $33.3 million in 2010, primarily as a result of
the decrease in parallel market transactions in Venezuela.
Provision for
Income Taxes
Our provision for income taxes decreased from $47.0 million
in 2009 to $36.9 million in 2010, representing effective
tax rates of 45.7% for 2009 and 47.6% for 2010. The effective
income tax rate differed from the statutory federal tax rate of
35% primarily due to (a) a discrete item related to a
non-tax deductible book hyperinflationary currency deduction,
(b) an increase in the valuation allowance recorded for
additional deferred tax assets and (c) a discrete item
related to changes in the foreign exchange rates used in the
calculation of the underlying foreign tax credits
effective rate, which related to a deemed foreign dividend of
our Australian subsidiary that arose pursuant to a U.S. income
tax election we made. We are currently reviewing different
strategies which we believe could result in our effective tax
rate approximating the statutory federal tax rate.
Income taxes are provided based upon our anticipated underlying
annual effective federal, state and foreign income tax rates,
adjusted, as necessary, for any other tax matters occurring
during the period. As we operate in various tax jurisdictions,
our effective tax rate is also dependent upon our geographic
earnings mix. See Note 12, Income Taxes, to our
consolidated financial statements included elsewhere in this
prospectus.
Income from
Continuing Operations
For the reasons described above, income from continuing
operations decreased 27.0% from $55.7 million in 2009 to
$40.7 million in 2010.
(Loss) Income
from Discontinued Operations, Net of Taxes
(Loss) income from discontinued operations decreased from
$2.6 million in 2009 to $(0.9) million in 2010.
Non-Controlling
Interest
Consolidated earnings attributable to non-controlling interests
decreased from $4.1 million in 2009 to $2.4 million in
2010, primarily as a result of the redemption of non-controlling
interests in our Australian and Singapore operations on
March 31, 2009.
Year Ended
December 31, 2009 Compared to Year Ended December 31,
2008
Revenue
Consolidated revenue decreased 23.4% from $3.6 billion in
2008 to $2.7 billion in 2009, driven by adverse effects
from global economic conditions in 2009 which impacted the
demand for wireless devices globally. The decline was due to the
market share decline of one of our manufacturer customers, which
formerly made up a large portion of our revenue, particularly in
Latin America. Partially offsetting these factors were the
expansion of our business into new countries, such as Turkey,
the addition of a significant new retail customer in the United
States and new service contracts with customers in New Zealand
and Hong Kong.
60
Revenue by
Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
Variance
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
U.S./Canada region
|
|
$
|
650,611
|
|
|
$
|
724,161
|
|
|
$
|
73,550
|
|
|
|
11.3
|
%
|
Latin America region
|
|
|
2,700,279
|
|
|
|
1,733,521
|
|
|
|
(966,758
|
)
|
|
|
(35.8
|
)%
|
Asia Pacific region
|
|
|
199,275
|
|
|
|
175,373
|
|
|
|
(23,902
|
)
|
|
|
(12.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Region total
|
|
|
3,550,165
|
|
|
|
2,633,055
|
|
|
|
(917,110
|
)
|
|
|
(25.8
|
)%
|
Effect of foreign exchange loss from Venezuela
|
|
|
|
|
|
|
85,597
|
|
|
|
85,597
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
3,550,165
|
|
|
$
|
2,718,652
|
|
|
$
|
(831,513
|
)
|
|
|
(23.4
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage change not meaningful. |
Revenue in our U.S./Canada region increased 11.3% from
$650.6 million in 2008 to $724.2 million in 2009,
primarily as a result of the addition of new retailer customers
and the expansion of our business in the retail and dealer agent
channels.
Revenue in our Latin America region decreased 35.8% from
$2.7 billion in 2008 to $1.7 billion in 2009, driven
primarily by the effects of global economic conditions and the
market share decline of one of our manufacturer customers. We
also lost value-added distribution services business with an
operator that reduced our sales by $340.3 million year over
year. In addition, the weakening of certain currencies in this
region relative to the U.S. dollar further contributed to the
decline in revenue as it made wireless devices less affordable
to end users in this region. The increased sales of smartphones
and other devices we added to our distribution portfolio
partially mitigated these adverse effects.
Revenue in our Asia Pacific region decreased 12.0% from
$199.3 million in 2008 to $175.4 million in 2009,
primarily as a result of a decline in our value-added
distribution services revenue in the region as we exited certain
geographies which did not meet our return requirements,
partially offset by our expansion into Turkey and the
implementation of new service contracts with customers in New
Zealand and Hong Kong.
Gross
Profit
Consolidated gross profit increased 23.2% from
$296.0 million in 2008 to $364.6 million in 2009, as
the revenue from parallel market transactions in Venezuela in
2009 substantially increased margins offsetting the effect of a
23.4% decrease in consolidated revenue. See
Significant Issues Affecting Comparability from Period to
Period Venezuela Business. Consolidated
Adjusted gross profit decreased by 5.7% from $296.0 million
in 2008 to $279.0 million in 2009, primarily due to the
decrease in our consolidated revenue, partially offset by
increasing margins as a result of our value-added distribution
services decreasing at a much higher rate relative to our other
services during this period. For a reconciliation of Adjusted
gross profit to gross profit, see Note (3) in
Prospectus Summary Summary Consolidated
Financial and Other Data.
61
Gross Profit by
Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008 Gross
|
|
|
2008 Gross
|
|
|
2009 Gross
|
|
|
2009 Gross
|
|
|
Gross Profit
|
|
|
|
|
|
|
Profit
|
|
|
Margin
|
|
|
Profit
|
|
|
Margin
|
|
|
Variance
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
|
|
|
U.S./Canada region
|
|
$
|
44,752
|
|
|
|
6.9
|
%
|
|
$
|
58,769
|
|
|
|
8.1
|
%
|
|
$
|
14,017
|
|
|
|
31.3
|
%
|
Latin America region
|
|
|
174,284
|
|
|
|
6.5
|
%
|
|
|
140,014
|
|
|
|
8.1
|
%
|
|
|
(34,270
|
)
|
|
|
(19.7
|
)%
|
Asia Pacific region
|
|
|
76,962
|
|
|
|
38.6
|
%
|
|
|
80,257
|
|
|
|
45.8
|
%
|
|
|
3,295
|
|
|
|
4.3
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Region total
|
|
|
295,998
|
|
|
|
8.3
|
%
|
|
|
279,040
|
|
|
|
10.6
|
%
|
|
|
(16,958
|
)
|
|
|
(5.7
|
)%
|
Effect of foreign exchange loss from Venezuela
|
|
|
|
|
|
|
|
|
|
|
85,596
|
|
|
|
|
|
|
|
85,596
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
295,998
|
|
|
|
8.3
|
%
|
|
$
|
364,636
|
|
|
|
13.4
|
%
|
|
$
|
68,638
|
|
|
|
23.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage change not meaningful. |
U.S./Canada region gross profit increased 31.3% from
$44.8 million in 2008 to $58.8 million in 2009,
primarily as a result of an increase in region revenue and an
increase in region gross margin from 6.9% in 2008 to 8.1% in
2009. U.S./Canada region gross margin increased primarily as a
result of a higher product mix of smartphones sales via certain
retailers as well as growth of prepaid phones.
Latin America region gross profit decreased 19.7% from
$174.3 million in 2008 to $140.0 million in 2009,
primarily as a result of the decrease in Latin America region
revenue. Latin America region gross margin increased from 6.5%
in 2008 to 8.1% in 2009, driven primarily by a shift in sales
from lower margin cell phones to higher margin smartphones, as
well as a result of the decrease in the contribution of our
value-added distribution services relative to our other services
during this period.
Asia Pacific region gross profit increased 4.3% from
$77.0 million in 2008 to $80.3 million in 2009, driven
primarily by an increase in region gross margin from 38.6% in
2008 to 45.8% in 2009, partially offset by a decrease in region
revenue. Asia Pacific gross margin increased in 2009 primarily
due to the mix of services provided in the region.
Selling,
General and Administrative
Consolidated selling, general and administrative expenses
decreased 7.2% from $174.3 million in 2008 to
$161.8 million in 2009, primarily as a result of decreases
in variable expenses related to our response to decreased
revenue resulting from the global economic conditions.
Consolidated selling, general and administrative expenses as a
percent of revenue increased from 4.9% of consolidated revenue
in 2008 to 6.0% in 2009, primarily as a result of the magnitude
of the decrease in revenue being greater than the reduction in
selling, general and administrative expenses.
62
Selling, General
and Administrative by Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
Variance
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
U.S./Canada region
|
|
$
|
22,141
|
|
|
$
|
23,268
|
|
|
$
|
1,127
|
|
|
|
5.1
|
%
|
Latin America region
|
|
|
90,629
|
|
|
|
69,551
|
|
|
|
(21,078
|
)
|
|
|
(23.3
|
)%
|
Asia Pacific region
|
|
|
28,334
|
|
|
|
31,118
|
|
|
|
2,784
|
|
|
|
9.8
|
%
|
Corporate and other
|
|
|
33,183
|
|
|
|
37,869
|
|
|
|
4,686
|
|
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
174,287
|
|
|
$
|
161,806
|
|
|
$
|
(12,481
|
)
|
|
|
(7.2
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative expenses in our U.S./Canada
region increased 5.1% from $22.1 million in 2008 to
$23.3 million in 2009, primarily as a result of increased
selling, general and administrative expenses to support the
growth in this region. U.S./Canada region selling, general and
administrative expenses as a percent of revenue decreased from
3.4% of region revenue in 2008 to 3.2% in 2009, primarily due to
greater leveraging of fixed and discretionary region selling,
general and administrative expenses.
Selling, general and administrative expenses in our Latin
America region decreased 23.3% from $90.6 million in 2008
to $69.6 million in 2009, primarily as a result of our
efforts to adjust to the overall economic conditions and the
resulting revenue reduction experienced in this region. Latin
America region selling, general and administrative expenses as a
percent of revenue increased from 3.4% of region revenue in 2008
to 4.0% in 2009, primarily as a result of the de-leveraging of
the Latin America region selling, general and administrative
cost structure in 2009 due to considerable decreased region
revenue.
Selling, general and administrative expenses in our Asia Pacific
region increased 9.8% from $28.3 million in 2008 to
$31.1 million in 2009, primarily as a result of
administrative costs associated with the implementation of new
service contracts and geographic expansion in the region. Asia
Pacific region selling, general and administrative expenses as a
percent of revenue increased from 14.2% of region revenue in
2008 to 17.7% in 2009 in anticipation of continued expansion in
this region.
Corporate and other selling, general and administrative expenses
increased 14.1% from $33.2 million in 2008 to
$37.9 million in 2009. The increase in 2009 was driven
primarily by professional fees related to public company
readiness activities. Corporate and other selling, general and
administrative expenses were allocated to our regions based on a
combination of factors, including revenue and earnings, as
follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
Variance
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
U.S./Canada region
|
|
$
|
4,659
|
|
|
$
|
5,528
|
|
|
$
|
869
|
|
|
|
18.7
|
%
|
Latin America region
|
|
|
19,176
|
|
|
|
18,485
|
|
|
|
(691
|
)
|
|
|
(3.6
|
)%
|
Asia Pacific region
|
|
|
9,348
|
|
|
|
10,856
|
|
|
|
1,508
|
|
|
|
16.1
|
%
|
Unallocated Corporate and other(a)
|
|
|
|
|
|
|
3,000
|
|
|
|
3,000
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and other
|
|
$
|
33,183
|
|
|
$
|
37,869
|
|
|
$
|
4,686
|
|
|
|
14.1
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage change not meaningful. |
|
(a) |
|
Unallocated Corporate and other expenses in 2009 consisted of
expenses incurred with our initiative of public company
readiness, which are not allocated to our regions. |
63
Provision for
Bad Debts
Our consolidated provision for bad debts increased 135.2% from
$2.7 million in 2008 to $6.4 million in 2009. As a
percentage of consolidated revenue, our consolidated provision
for bad debt was less than 0.25% in 2008 and 2009.
Provision for Bad
Debts by Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
Variance
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
U.S./Canada region
|
|
$
|
652
|
|
|
$
|
964
|
|
|
$
|
312
|
|
|
|
47.9
|
%
|
Latin America region
|
|
|
1,934
|
|
|
|
5,281
|
|
|
|
3,347
|
|
|
|
173.1
|
%
|
Asia Pacific region
|
|
|
150
|
|
|
|
190
|
|
|
|
40
|
|
|
|
26.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
2,736
|
|
|
$
|
6,435
|
|
|
$
|
3,699
|
|
|
|
135.2
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Depreciation
and Amortization
Consolidated depreciation and amortization expense increased
35.7% from $9.9 million in 2008 to $13.5 million in
2009, driven primarily by leasehold improvements, computer
equipment, software and furniture and fixtures placed in service
for our new Miami headquarters location, which we commenced
occupying in the second half of 2008, as well as certain
adjustments made to the depreciation lives resulting in
accelerated depreciation in Mexico.
Depreciation and
Amortization by Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
Variance
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
U.S./Canada region
|
|
$
|
1,251
|
|
|
$
|
2,505
|
|
|
$
|
1,254
|
|
|
|
100.2
|
%
|
Latin America region
|
|
|
6,058
|
|
|
|
8,314
|
|
|
|
2,256
|
|
|
|
37.2
|
%
|
Asia Pacific region
|
|
|
2,047
|
|
|
|
2,638
|
|
|
|
591
|
|
|
|
28.9
|
%
|
Corporate and other
|
|
|
561
|
|
|
|
|
|
|
|
(561
|
)
|
|
|
(100.0
|
)%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
9,917
|
|
|
$
|
13,457
|
|
|
$
|
3,540
|
|
|
|
35.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating
Income
For the reasons described above, and including the impact of
parallel market transactions in Venezuela, which increased our
revenue, consolidated operating income increased 67.7% from
$109.1 million in 2008 to $182.9 million in 2009.
Excluding these effects amounting to $85.6 million in 2009,
operating income was $109.1 million and $97.3 million
in 2008 and 2009, respectively.
64
Operating Income
by Region
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
|
|
|
|
|
|
2008
|
|
|
2009
|
|
|
Variance
|
|
|
%
|
|
|
|
(In thousands, except percentages)
|
|
|
U.S./Canada region
|
|
$
|
16,049
|
|
|
$
|
26,504
|
|
|
$
|
10,455
|
|
|
|
65.1
|
%
|
Latin America region
|
|
|
56,487
|
|
|
|
38,383
|
|
|
|
(18,104
|
)
|
|
|
(32.1
|
)%
|
Asia Pacific region
|
|
|
37,083
|
|
|
|
35,455
|
|
|
|
(1,628
|
)
|
|
|
(4.4
|
)%
|
Corporate and other
|
|
|
(561
|
)
|
|
|
(3,000
|
)
|
|
|
(2,439
|
)
|
|
|
434.8
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Region total
|
|
|
109,058
|
|
|
|
97,342
|
|
|
|
(11,716
|
)
|
|
|
(10.7
|
)%
|
Effect of foreign currency loss from Venezuela
|
|
|
|
|
|
|
85,596
|
|
|
|
85,596
|
|
|
|
*
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated total
|
|
$
|
109,058
|
|
|
$
|
182,938
|
|
|
$
|
73,880
|
|
|
|
67.7
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* |
|
Percentage change not meaningful. |
Operating income for our U.S./Canada region increased 65.1% from
$16.1 million in 2008 to $26.5 million in 2009,
primarily as a result of increased gross profit, driven by
revenue increases and gross margin improvements, slightly offset
by increased selling, general and administrative expenses to
support growth in the region.
Operating income for our Latin America region decreased 32.1%
from $56.5 million in 2008 to $38.4 million in 2009,
driven by the decrease in the regions revenue, partially
offset by increased margins and decreased selling, general and
administrative expenses.
Operating income for our Asia Pacific region decreased 4.4% from
$37.1 million in 2008 to $35.5 million in 2009, driven
primarily by a decrease in revenue, increases in selling,
general and administration expense and depreciation expense,
offset by an increase in gross margin.
Interest
Income
Consolidated interest income is generated primarily from cash
deposits and increased 49.8% from $14.2 million in 2008 to
$21.3 million in 2009. This increase was attributable
primarily to interest bearing deposits in Venezuela from cash
provided by several major customers as guarantee for future
accounts receivable collections, partially offset by a decrease
in interest bearing time deposits following the use of cash to
complete the redemption of non-controlling interests in
Australia in March 2009.
Interest
Expense
Interest expense decreased 50.8% from $34.7 million in 2008
to $17.1 million in 2009, primarily as a result of a
reduction in total outstanding debt and a decrease in LIBOR.
Other Income
(Expenses), Net
Other income (expenses), net decreased from $(0.9) million in
2008 to $(3.5) million in 2009, principally as a result of a
$4.0 million gain realized on the sale of investments in
2008, which did not recur in 2009, a $3.7 million write-off
of equity and cost method investments in 2009 and a
$1.1 million write-off of certain equipment in connection
with a contract termination in 2009. Partially offsetting these
factors were improved earnings in 2009 for Brightstar Europe,
which we account for under the equity method, and a
$2.1 million impairment of our investment in Brightstar
Europe recognized in 2008, which did not recur in 2009.
Foreign
Exchange Losses, Net
Our net foreign exchange loss increased $55.8 million from
$25.1 million in 2008 to $80.9 million in 2009,
primarily as a result of the effect of the highly inflationary
economy in Venezuela in 2009,
65
partially offset by net gains generated in 2009 by transactions
denominated in other currencies, mainly in Brazil which
experienced a recovery of the Brazilian real during 2009. See
Significant Issues Affecting Comparability from
Period to Period Venezuela Business.
Provision for
Income Taxes
Our provision for income taxes increased from $35.4 million
in 2008 to $47.0 million in 2009, representing effective
tax rates of 56.7% in 2008 and 45.7% in 2009. The primary reason
our effective tax rate exceeded the U.S. federal statutory rate
in 2009 was the partial modification of our non-distribution
policy in 2009, which we expect will be repatriated to the U.S.
in the future. The 2009 provision for taxes includes a
$6.2 million deferred tax charge relating to undistributed
earnings in Australia. The primary reason our effective tax rate
exceeded the U.S. federal statutory rate in 2008 was foreign
operating losses that did not benefit our effective tax rate due
to the establishment of valuation reserves against them. As we
operate in various tax jurisdictions, our effective tax rate is
also dependent upon our geographic earnings mix.
Income from
Continuing Operations
For the reasons described above, income from continuing
operations increased 105.9% from $27.1 million in 2008 to
$55.7 million in 2009.
(Loss) Income
from Discontinued Operations, Net of Taxes
Income from discontinued operations increased from a loss of
($14.3) million in 2008 to income of $2.6 million in
2009, driven primarily by a subsidiary that was disposed of in
2009 following large operating losses in 2008 and the benefit of
a $7.3 million insurance recovery in 2009 related to a
disposed operation.
Non-Controlling
Interest
Consolidated earnings attributable to non-controlling interests
decreased from $18.1 million in 2008 to $4.1 million
in 2009, primarily as a result of the redemption of
non-controlling interests in our Australian and Singapore
operations on March 31, 2009.
Quarterly
Financial Data
The following table presents our unaudited condensed
consolidated quarterly results of operations for the eight
quarters ended December 31, 2010. The quarterly results of
operations for each of the quarters in the years ended
December 31, 2009 and 2010 have not been subjected to a SAS
100 review by our independent registered public accounting firm
in accordance with Statement of Auditing Standards No. 100,
Interim Financial Information. This table includes
all adjustments, consisting only of normal recurring adjustments
that we consider necessary for fair presentations of our
financial position and operating results for the quarters
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Mar 31,
|
|
|
Jun 30,
|
|
|
Sep 30,
|
|
|
Dec 31,
|
|
|
Mar 31,
|
|
|
Jun 30,
|
|
|
Sep 30,
|
|
|
Dec 31,
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
|
(In thousands, except per share data)
|
|
|
|
|
|
|
|
|
|
|
|
|
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
Revenue(1)
|
|
$
|
625,132
|
|
|
$
|
598,505
|
|
|
$
|
646,122
|
|
|
$
|
848,893
|
|
|
$
|
767,377
|
|
|
$
|
1,049,794
|
|
|
$
|
1,136,315
|
|
|
$
|
1,659,377
|
|
Gross profit
|
|
|
60,316
|
|
|
|
87,624
|
|
|
|
120,976
|
|
|
|
95,720
|
|
|
|
84,699
|
|
|
|
94,424
|
|
|
|
97,207
|
|
|
|
117,554
|
|
Net income (loss) from continuing operations
|
|
|
6,130
|
|
|
|
25,265
|
|
|
|
18,442
|
|
|
|
5,904
|
|
|
|
(4,100
|
)
|
|
|
19,440
|
|
|
|
13,273
|
|
|
|
12,073
|
|
(Loss) income from discontinued operations, net of income taxes
|
|
|
(1,109
|
)
|
|
|
3,998
|
|
|
|
(294
|
)
|
|
|
|
|
|
|
(9
|
)
|
|
|
(532
|
)
|
|
|
(380
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income (loss)
|
|
$
|
5,021
|
|
|
$
|
29,263
|
|
|
$
|
18,148
|
|
|
$
|
5,904
|
|
|
$
|
(4,109
|
)
|
|
$
|
18,908
|
|
|
$
|
12,893
|
|
|
$
|
12,073
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
|
Sales of wireless devices are
seasonal with demand normally being highest in the fourth
quarter.
|
66
Liquidity and
Capital Resources
Comparative
Cash Flows
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
2008
|
|
2009
|
|
2010
|
|
|
(In thousands)
|
|
Cash and cash equivalents at end of period
|
|
$
|
122,057
|
|
|
$
|
239,859
|
|
|
$
|
159,161
|
|
Net cash provided by (used in) operating activities
|
|
|
229,866
|
|
|
|
248,201
|
|
|
|
(159,307
|
)
|
Net cash used in investing activities
|
|
|
(7,530
|
)
|
|
|
(84,338
|
)
|
|
|
(37,747
|
)
|
Net cash (used in) provided by financing activities
|
|
|
(194,583
|
)
|
|
|
(41,927
|
)
|
|
|
109,484
|
|
Net Cash Provided
by (Used in) Operating Activities
During the year ended December 31, 2010, we used
$159.3 million in net cash for operating activities,
compared to $248.2 million of net cash provided by
operating activities in 2009, primarily to fund working capital
requirements to support business growth.
During the year ended December 31, 2009, we had
$248.2 million in net cash provided by operating
activities, compared to $229.9 million provided during the
year ended December 31, 2008. The increase in cash provided
by operating activities was primarily due to decreased working
capital requirements as a result of decreased revenue in light
of adverse economic conditions and our initiatives to reduce
working capital requirements.
Historically, we have used cash as a result of increased working
capital requirements driven by revenue growth. In the future, we
will continue to adjust our growth and expansion plans based on
our available working capital and market opportunities.
Net Cash Used in
Investing Activities
Investing activities primarily reflect our equity and cost
method investments, capital expenditures and proceeds from (or
purchases of) short-term investments.
During the year ended December 31, 2010, we used
$37.7 million in net cash in investing activities, compared
to net cash used in investing activities of $84.3 million
during the year ended December 31, 2009, reflecting equity
and cost method investments in 2009 and 2010 of
$26.1 million and $32.8 million, respectively, and an
investment in office properties in Venezuela in 2009 and 2010 of
$13.8 million and $27.8 million, respectively.
During the year ended December 31, 2009, we used net cash
of $84.3 million in our investing activities compared to
$7.5 million in 2008.
Capital expenditures, typically required for leasehold
improvements, computer equipment and software and furniture,
fixtures and warehouse equipment used in our operations, were
$9.3 million during 2008 compared to $6.4 million
during 2009 and $15.5 million during 2010. The increase in
2010 was driven primarily by investments in the U.S. and at our
assembly facility in Tierra del Fuego, Argentina, to support our
business growth. Capital expenditures are expected to range from
$25 million to $30 million in 2011, principally to
fund investments in infrastructure and applications. Additional
capital expenditures include information technology upgrades or
other special initiatives.
Net Cash (Used
in) Provided by Financing Activities
During the year ended December 31, 2010, we generated
$109.5 million in net cash from financing activities,
compared to net cash used in financing activities of
$41.9 million during 2009, reflecting net borrowings of
$72.7 million in 2010 to fund working capital and
investment requirements, including the issuance of our
$250.0 million senior subordinated notes in November 2010
and net repayments of $176.0 million under our revolving
credit facility.
67
During the year ended December 31, 2009, net cash used in
financing activities was $41.9 million, including
$49.9 million, net used to repay outstanding indebtedness
under our existing revolving lines of credit and term loan, and
$40.0 million used for the redemption of non-controlling
interests in a subsidiary in the Asia Pacific region, partially
offset by a decrease in restricted cash of $50.0 million.
During the year ended December 31, 2008, net cash used in
financing activities was $194.6 million, including
$127.9 million, net used to repay outstanding indebtedness
under our then existing revolving lines of credit and term loan,
an increase in restricted cash of $58.4 million and
dividends of $5.4 million to our common stockholders.
Liquidity
Overview
As of December 31, 2009, we had $239.9 million in
unrestricted cash and cash equivalents. As of December 31,
2010, we had $159.2 million in unrestricted cash and cash
equivalents.
Additionally, as of December 31, 2010, we had a gross
borrowing capacity of $559.8 million under various credit
facilities, based on facility credit lines less usage and
reserves for letters of credit.
On November 30, 2010, we issued an aggregate of
$250.0 million of 9.50% senior notes due December 1,
2016.
On December 23, 2010, we amended and restated our revolving
credit facility and increased the facility size by
$100.0 million to a total facility size of
$500.0 million with an option to increase it to
$600.0 million on an uncommitted basis.
Indebtedness
The following table sets forth our existing debt as of
December 31, 2010:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross
|
|
Debt
|
|
Country
|
|
Total Size
|
|
|
Outstanding
|
|
|
Availability(a)
|
|
|
|
|
|
(In millions)
|
|
|
Revolving credit facility
|
|
United States
|
|
$
|
500.0
|
|
|
$
|
|
|
|
$
|
416.1
|
|
Senior notes
|
|
United States
|
|
|
250.0
|
|
|
|
250.0
|
|
|
|
|
|
Trade facilities
|
|
United States
|
|
|
100.0
|
|
|
|
64.2
|
|
|
|
36.3
|
|
Bank facilities U.S. operations
|
|
United States
|
|
|
5.1
|
|
|
|
5.1
|
|
|
|
|
|
Bank facilities foreign operations(b)
|
|
Various
|
|
|
254.4
|
|
|
|
134.5
|
|
|
|
107.4
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
|
$
|
1,109.5
|
|
|
$
|
453.8
|
|
|
$
|
559.8
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
Gross availability is calculated based on total facility size
less outstanding balance and reserves for letters of credit. |
|
(b) |
|
Includes Argentina, Australia, Brazil, Dominican Republic,
Malaysia, Mexico, Peru, Singapore and Turkey bank facilities,
but excludes United States bank facilities. |
Revolving Credit
Facility
As of December 31, 2010, we had a $500.0 million
senior secured asset-based revolving credit facility with a
syndicate of financial institutions as lenders, and PNC Bank,
National Association (PNC Bank), as administrative
agent. The borrowers are Brightstar Corp. and Brightstar US,
Inc. and the ABL Revolver is guaranteed, jointly and severally,
by our wholly owned existing and future domestic subsidiaries.
The revolving facility funds working capital advances, letters
of credit and general corporate purposes and is collateralized
by the receivables, inventories, fixed assets and general
intangibles of our U.S. subsidiaries and operations. The
borrowing base consists primarily of 85% to 90% of eligible
receivables plus 60% to 75% of eligible inventories. The
facility was amended and restated on December 23, 2010,
when we incorporated all executed amendments and included newly
negotiated terms into one credit facility. The amendment
increased the revolving credit facility to
68
$500.0 million and included an option to increase it to
$600.0 million on an uncommitted basis. The ABL Revolver
was further amended on April 8, 2011 to provide flexibility
in respect of certain covenants relating to loans and
investments and also included a waiver to raise additional
capital through a future potential notes offering.
The ABL Revolver bears interest at the domestic rate plus 1.00%
to 1.50% or Eurodollar Rate/LIBOR plus 2.00% to 2.50% (as
defined in the ABL Revolver), depending on the average
availability. We are also required to pay an unused facility fee
ranging from 0.375% to 0.50% per annum, depending on the average
undrawn availability. As of December 31, 2010, the ABL
Revolvers weighted average interest rate was 2.70%, there
was $83.7 million in outstanding letters of credit, the
balance of the ABL Revolver was $0.0 million.
The ABL Revolver contains customary events of default and
covenants that restrict, among other things, making investments,
incurring additional indebtedness or making capital expenditures
in excess of specified amounts, creating liens and engaging in
certain mergers or combinations without the prior written
consent of the lenders. Many of the negative covenants,
including dividend payments and loans and investments to foreign
subsidiaries, are subject to a Fixed Charge Coverage Ratio
incurrence test and minimum undrawn availability target. The ABL
Revolver does not contain financial maintenance covenants, as
long as we exceed a minimum average undrawn availability ratio
for the reporting period.
Senior Notes due
2016
In November 2010, we issued and sold $250.0 million
aggregate principal amount of 9.5% Senior Notes due
December 1, 2016. Interest is payable in cash on each of
June 1 and December 1, beginning on June 1, 2011.
Prior to December 1, 2014, we may redeem all or a portion
of the notes, plus accrued and unpaid interest, if any, to the
redemption date, at a price of 100% of the principal amount of
the notes redeemed plus an applicable make-whole
premium. On or after December 1, 2014 we may redeem all or
a portion of the notes, plus accrued and unpaid interest, if
any, to the redemption date, at the prices set forth in the
notes. In addition, prior to December 1, 2014, we may
redeem up to 35% of the aggregate principal amount of the notes
at a redemption price of 109.5% of the principal amount of the
notes, plus accrued and unpaid interest, if any, to the
redemption date, with the net cash proceeds of one or more
equity offerings. As of December 31, 2010,
$250.0 million was outstanding.
The indenture contains certain covenants that, among other
things, limit our ability to:
|
|
|
|
|
incur additional debt;
|
|
|
|
make certain payments, including dividends or other
distributions, with respect to our capital stock, or prepayments
of subordinated debt;
|
|
|
|
make certain investments or sell assets;
|
|
|
|
create certain liens or engage in sale and leaseback
transactions;
|
|
|
|
provide guarantees for certain debt;
|
|
|
|
enter into restrictions on the payment of dividends and other
amounts by subsidiaries;
|
|
|
|
engage in certain transactions with affiliates;
|
|
|
|
consolidate, merge or transfer all or substantially all our
assets; and
|
|
|
|
enter into other lines of business.
|
These covenants are subject to a number of important limitations
and exceptions.
69
The notes include customary events of default, including failure
to pay principal and interest on the notes, a failure to comply
with covenants, a failure to pay material judgments or
indebtedness and bankruptcy and insolvency events.
Trade Financing
Facilities
Our U.S. trade financing facilities consist of a U.S. Bank
facility, Export Development Canada facility, Sabadell Bank
facility and Bank Promissory Notes.
U.S.
Bank
In October 2009, we renewed two trade facilities with U.S. Bank
and decreased our borrowing limit from $30.0 million to
$20.0 million. This facility bears an interest rate of
LIBOR plus 1.0% to 2.0% per annum with a maturity date of
October 2010. The payment terms are up to 120 days from the
disbursement date. The lines are secured by credit insurance
policies and the cost of the credit insurance is paid by us. We
also pay a quarterly undrawn facility fee of 0.25% per annum. As
of December 31, 2009, the outstanding balance was
$25.3 million and the interest rate ranged from 1.28% to
2.32%. In June 2010, we increased our borrowing limit from
$20.0 million to $30.0 million. In October 2010, we
renewed the facilities, extending the maturity date to October
2011. As of December 31, 2010, there was no outstanding
balance.
Export
Development Canada
In October 2008, we entered into a loan agreement with Export
Development Canada which finances purchase of goods with a
borrowing limit of $50.0 million. The loan is unsecured and
matures annually and is automatically renewed unless either
party notifies within 60 days of the maturity date. We most
recently renewed in October 2010. We also pay a quarterly unused
commitment fee of 0.50% per annum and an annual administration
fee of 0.35% per annum at the maturity date and every
anniversary thereafter. This agreement generally has payment
terms of no more than 120 days from the date of
disbursement and with a borrowing rate of LIBOR plus 1.5% per
annum. As of December 31, 2009 and 2010, the outstanding
balance was $50.0 million and $43.7 million,
respectively, and the interest rate under this facility ranged
from 1.75% to 1.80% and 1.75% to 2.03%, respectively. In
December 2010, we notified the lender of our intent to terminate
the facility upon maturity in March 2011.
Sabadell
Bank
In June 2010, we entered into a $5.0 million factoring
agreement with a bank to finance vendor invoices which we
amended in August 2010 to $20.0 million. The line bears
interest at LIBOR plus 4.4% plus fees as stated in the
agreement. The outstanding balance as of December 31, 2010
for this agreement amounted to $20.5 million and the
interest rate under this agreement ranged from 4.69% to 4.94%.
Bank Promissory
Notes
In April and May 2009, we issued two separate promissory notes
with a bank to facilitate the financing of our account
receivables to customers located in Venezuela. The promissory
notes have no stated maturity dates and bear interest at LIBOR
plus 1.0% which is paid by the customers. The capacity of the
line is up to $30.0 million. The outstanding balance as of
December 31, 2009 for these promissory notes amounted to
$21.5 million. These promissory notes were repaid in
October 2010.
Bank
Facilities
As of December 31, 2009 and 2010, we had entered into
various financing arrangements with local banks at some of our
subsidiaries, primarily consisting of factoring agreements,
revolving lines of credit, trade facilities, term loans and
capital leases. The terms of the credit facilities range from
70
12 months to 30 months and are guaranteed with the
pledge of local Brightstar assets and/or with a corporate
guarantee. As to capital leases, each individual lease is
evaluated and accounted for in accordance with its merits as a
capital or operating lease. Payments are made in accordance with
the given banks amortization schedules. The term of the
capital lease agreements generally range between 36 months
to 60 months from the commencement date.
As of December 31, 2009 and 2010, we had foreign operations
bank facilities outstanding of $41.8 million and
$134.5 million, respectively. These facilities bear
interest at the agreements stated interest rate,
predominantly LIBOR, plus a margin of 0.35% to 5.50%. These
interest rates ranged from 1.0% to 10.5% and 1.0% to 13.7% per
annum in 2009 and 2010, respectively. Additionally, some
facilities bear fees related to unused availability, commitment
amounts or other basis, as stated in the agreement, these range
from 0.05% to 0.50% and are generally paid annually.
Capital
Leases
During 2007, we entered into a master lease agreement with a
bank for the purpose of financing certain purchases of equipment
and services for up to $12.0 million. At the inception,
each individual lease is evaluated and accounted for in
accordance with its merits as a capital or operating lease.
Payments are made in accordance with the banks
amortization schedules. The terms of the lease agreements
generally range between 36 months to 60 months from
the commencement date. We also have lease-financing arrangements
with other third parties. As of December 31, 2009 and 2010,
we had $8.7 million and $5.1 million outstanding,
respectively.
Interest Rate
Swap Agreements
In 2008, we entered into interest rate swap agreements for an
aggregate notional amount of $100.0 million with an average
fixed interest rate of 2.1%. The interest rate swap agreements
serve as an economic hedge against increases in variable
interest rates but have not been designated as hedges for
accounting purposes. Accordingly, we account for these interest
rate swap agreements on a fair value basis and adjust the
carrying amounts of these instruments to fair value with changes
in fair value reflected as a component of interest expenses in
our consolidated statements of operations.
In November 2009, an interest rate swap with a notional amount
of $20.0 million matured and was not renewed. As a result,
the notional amount outstanding was $80.0 million as of
December 31, 2009. In November 2010, our remaining two
$40.0 million interest rate swap agreements matured and
were not renewed, and, as a result, there was no notional amount
outstanding as of December 31, 2010.
Convertible
Subordinated Senior Notes and Redeemable Convertible Preferred
Stock
In 2003, we obtained private financing of $31.8 million in
convertible subordinated senior notes. During 2007, in
connection with the issuance of our Series D Redeemable
Convertible Preferred Stock, we repaid a portion of the
convertible subordinated senior notes and concurrently extended
the maturity date to December 2010 (the Modified
Notes).
The Modified Notes were convertible into common stock at any
time at the election of the holders at a conversion price of
$8.00 per share. The Modified Notes accrued interest at 10.5%
per annum, payable quarterly.
In October 2008, we amended the Modified Notes to modify the
conversion feature so that in addition to the right to convert
the Modified Notes into shares of our common stock, the Modified
Notes were convertible into shares of a new series of redeemable
convertible preferred stock designated as Series E
Redeemable Convertible Preferred Stock (Series E
Preferred Stock), that with respect to rights upon
liquidation, winding up and dissolution, rank pari passu to our
Series B Redeemable Convertible Preferred Stock,
Series C Redeemable Convertible Preferred Stock and
Series D Redeemable Convertible Preferred Stock. The
Series E Preferred Stock has the right to vote
71
on an as-converted basis as a class with the holders of our
common stock on matters submitted to the holders of our common
stock. The Series E Preferred Stock also has participating
rights and yields no stated dividends. The Series E
Preferred Stock is convertible into common stock at any time at
the election of the holders at an initial conversion price of
$8.00 per share. The Series E Preferred Stock has no stated
maturity and provides for the redemption of these securities at
the election of the holders in the event of a change of control,
at an offer price in cash equal to 101% of the liquidation
amount. In December 2010, the holders of the Modified Notes
elected to convert all of the Modified Notes to Series E
Preferred Stock. See Note 10, Redeemable Convertible
Preferred Stock, to our consolidated financial statements
included elsewhere in this prospectus for additional information
about our redeemable convertible preferred stock.
We have the right to require the conversion of the Series E
Preferred Stock in whole, but not in part, if we complete an
initial public offering, which results in gross proceeds of at
least $50.0 million and the common stock sold in such
offering is sold to the public at a price of at least $16.00 per
share, or upon the occurrence of a liquidation event (as defined
in the Series E Preferred Stock documents), as long as the
cash consideration is at least 200% of the Series E
Preferred Stock conversion price.
The holders of Series B Redeemable Convertible Preferred
Stock are entitled to receive quarterly dividends on each share
at a rate per annum equal to 6.4% of the Liquidation Amount,
which is $20.00 per share, and one-half of such dividends must
be paid in cash, otherwise the dividend rate increases to 10.0%.
These dividends are cumulative, whether or not earned or
declared, accruing on a daily basis, and unpaid dividends will
compound on a quarterly basis. The holders of Series C
Redeemable Convertible Preferred Stock and Series D
Redeemable Convertible Preferred Stock are entitled to receive
quarterly dividends on each share at a rate per annum equal to
6.4% of the Liquidation Amount, which is $20.25 per share.
One-half of the Series C dividends must be paid in cash,
otherwise the dividend rate increase to 10.0%. Similar to
Series B Redeemable Convertible Preferred Stock, these
dividends are cumulative, whether or not earned or declared,
accruing on a daily basis and unpaid dividends compound on a
quarterly basis. The Series B, Series C and
Series D Redeemable Convertible Preferred Stock have no
stated maturity and provide for the redemption of such
securities at the election of the holders in the event of a
change of control, at an offer price in cash equal to 101% of
the liquidation amount.
We also have other conditions which apply to our outstanding
redeemable convertible preferred stock. If any shares of
Series B, Series C or Series D are outstanding on
September 30, 2011, the dividend rate on each share of
Series B, Series C or Series D Redeemable
Convertible Preferred Stock (whichever is outstanding) shall
increase by 1.0% per annum on such date and shall increase by an
additional 1.0% per annum on September 30 of every year
thereafter up to a maximum dividend rate of 15.0% per annum
until such time as no shares of redeemable convertible preferred
stock shall remain outstanding.
We are permitted to pay up to half of the dividends on the
redeemable convertible preferred stock in kind and our ability
to pay such dividends in cash is restricted by the terms of the
ABL Revolver and the Indenture. See Note 9,
Debt, to our consolidated financial statements
included elsewhere in this prospectus for additional information
about our debt and credit facilities
In 2009 and 2010, we obtained waivers from the holders of the
Modified Notes for non-compliance with the minimum required
$100.0 million EBITDA for the last twelve-month period for
each of the five quarters ended March 31, 2010.
Additionally, we obtained waivers in 2007, 2009 and 2010 from
the redeemable convertible preferred stockholders for
non-compliance with certain financial covenants.
We have the right to require the conversion of the
Series B, Series C and Series D Redeemable
Convertible Preferred Stock in whole, but not in part, if we
complete an initial public offering which results in gross
proceeds of at least $100.0 million and the common stock in
such offering is sold to the public at a price of at least 130%
of the Conversion Price then in effect.
72
Cash
Requirements
Historically, we have had significant cash requirements as we
organically expanded our business into new geographic and
product markets. Our requirements for cash include the costs
related to increased working capital, primarily accounts
receivable and inventory, offset partially by accounts payable.
Our working capital needs are driven by the seasonality and
growth of our business with our cash requirements being greater
in periods of growth. Additional cash requirements resulting
from our growth include the costs of additional personnel,
production and distribution facilities, enhancing our
information systems and, in the future, our integration of any
acquisitions and our compliance with laws and rules applicable
to a public company.
We have historically relied on available lines of revolving
credit (and, to a lesser degree, factoring arrangements), cash
from our operations and trade credit provided by our suppliers
to finance our working capital requirements and to support our
growth.
Historically, our capital structure consisted of redeemable
convertible preferred stock, common stock and various debt
instruments, including convertible subordinated senior notes.
Accordingly, our cash requirements have included the payment of
preferred dividends to redeemable convertible preferred
stockholders and interest on our debt.
Our cash availability is dependent in part on our foreign
subsidiaries ability to collect their receivables on a
timely basis and may be negatively affected by local currency
and conversion restrictions, such as those in Venezuela, and our
ability to negotiate favorable payment terms with our suppliers.
As a result of our cash and cash equivalents on hand, existing
credit facilities, cash generated from operations and the net
proceeds from this offering, we anticipate that we will be able
to meet our anticipated cash requirements for at least the next
twelve months.
In the event that the sources of cash described above are not
sufficient to meet our future cash requirements, we will seek
additional funding or reduce certain planned expenditures. If
debt financing is not available on favorable terms, we may seek
to raise funds through the issuance of additional bonds or
equity securities. If such actions are not sufficient, we intend
to limit our growth and reduce or curtail some of our operations
to levels consistent with the constraints imposed by our
available cash flow. Our ability to seek additional debt or
equity financing may be limited by our existing and any future
financing arrangements or economic and financial conditions.
73
Contractual
Obligations
The following table summarizes our estimated contractual cash
obligations and commitments as of December 31, 2010, before
giving effect to the offering and the application of proceeds
therefrom, and their effect on our liquidity and cash flow in
future periods:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Periods
|
|
|
|
|
|
|
Within One
|
|
|
One to Three
|
|
|
Three to Five
|
|
|
More Than
|
|
|
|
Total
|
|
|
Year
|
|
|
Years
|
|
|
Years
|
|
|
Five Years
|
|
|
|
(In thousands)
|
|
|
Revolving credit facility(1)
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Trade and other bank facilities, including capital leases
|
|
|
203,805
|
|
|
|
201,219
|
|
|
|
2,111
|
|
|
|
180
|
|
|
|
295
|
|
Senior notes
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Contractual debt repayment(2)
|
|
|
453,805
|
|
|
|
201,219
|
|
|
|
2,111
|
|
|
|
180
|
|
|
|
250,295
|
|
Upfront fees(3)
|
|
|
4,015
|
|
|
|
4,015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-cancelable operating lease(4)
|
|
|
38,907
|
|
|
|
10,685
|
|
|
|
15,905
|
|
|
|
8,135
|
|
|
|
4,182
|
|
Interest on senior notes and capital leases(5)
|
|
|
141,008
|
|
|
|
24,010
|
|
|
|
47,669
|
|
|
|
47,544
|
|
|
|
21,785
|
|
Uncertain tax positions(6)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
637,735
|
|
|
|
239,929
|
|
|
|
65,685
|
|
|
|
55,859
|
|
|
|
276,262
|
|
Redeemable convertible preferred stock(7)
|
|
|
409,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
1,046,825
|
|
|
$
|
239,929
|
|
|
$
|
65,685
|
|
|
$
|
55,859
|
|
|
$
|
276,262
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1) |
|
As of December 31, 2010, there was $83.7 million in
outstanding letters of credit under our revolving credit
facility. |
|
(2) |
|
See Note 9, Debt, to our consolidated financial
statements includes elsewhere in this prospectus. |
|
(3) |
|
Represents upfront fees related to our exclusive distribution
and service agreements with Telefonica International, S.A.U.,
and subsidiaries. The agreement gives us the exclusive rights to
sell netbooks (smaller and less expensive version of laptop) and
provide other logistics services throughout Latin America to
Telefonica subsidiaries. Amounts are based upon the payment
schedule within the distribution and services agreement. |
|
(4) |
|
Represents future lease payments associated with vehicles,
equipment and properties under operating leases. Amounts are
based upon the general assumption that the leased asset will
remain on lease for the length of time specified by the
respective lease agreements. No effect has been given to
renewals, cancellations, contingent rentals or future rate
changes. |
|
(5) |
|
Total debt matures at various dates through 2016 and bears
interest at various interest rates. We have reflected interest
that is attributable to existing capital leases and our senior
notes, all of which have fixed interest rates. The interest
reflected does not consider potential refinancing of expiring
debt obligations, or prepayments. We have not reflected interest
attributable to our revolving credit facility or other trade and
bank facilities, as the amounts due under these facilities vary
by period. |
|
(6) |
|
We have excluded liabilities related to uncertain tax positions
recognized under ASC 740 Income Taxes, as we are unable
to reasonably estimate the ultimate amount or timing of
settlement. See Note 12 to our consolidated financial
statements included elsewhere in this prospectus for further
information. |
|
(7) |
|
The liquidation value of our Series B, C, D and E
Redeemable Convertible Preferred Stock includes accrued but
unpaid dividends. Our redeemable convertible preferred stock has
no stated maturity and may be redeemed at the option of the
holder upon change of control. As such, as of |
74
|
|
|
|
|
December 31, 2010, the redemption date was unknown and
payment is not reflected in a particular period and additional
dividend accruals are not reflected through the redemption date,
since such date was unknown as of December 31, 2010.
Dividends on our Series B, C and D Redeemable Convertible
Preferred Stock are calculated based on the liquidation value of
the redeemable convertible preferred stock and dividend rates,
which will increase by 1.0% annually, commencing
September 30, 2011, to a maximum of 15.0%. |
Other
Contractual Commitments
In connection with the shareholders agreement entered into
in connection with the establishment and operation of Brightstar
Europe in April 2007, we agreed to make available a loan
facility to fund the operations of Brightstar Europe for
$40.0 million and each of the two parties to the
shareholders agreement also agreed to provide 50% of the
future funding of the company. Through December 31, 2010,
we had funded $40.0 million of the loans. Brightstar Europe
became profitable in 2009. We continue to evaluate the
operations of Brightstar Europe and a change in its
profitability may result in further discussion with our partner
that may lead to modification of the business plans, current
commitments under the shareholders agreement, or other
available remedies, if any. During 2010, Brightstar Europe
acquired certain operations that were funded through cash from
operations and additional funding provided by its shareholders
and third-party financing.
In September 2009, we amended and restated our payment terms
agreement (the PTA) with Motorola and its
subsidiaries (collectively, Motorola). The PTA sets
forth the terms for repayment of the credit lines established
for us and our subsidiaries in our distribution agreements with
Motorola and also sets forth the collateral requirements for the
credit line. The credit line, and all our other obligations to
Motorola, including our indemnity obligations, is collateralized
by a second priority security interest on all of our domestic
assets and those of our domestic subsidiaries (each of our
domestic subsidiaries is a guarantor of Brightstar Corp.s
obligations under the PTA). However, equity interests in
subsidiaries held by a party to the PTA are not part of the
collateral. The PTA incorporates the affirmative and negative
covenants from our ABL Revolver. We are subject to certain
events of default under the PTA, including defaults based on
bankruptcy and insolvency events, non-payment, cross-defaults on
other indebtedness, a change of control in our company and any
material inaccuracy of our representations and warranties. The
outstanding balance under the PTA is included on our balance
sheet as part of accounts payable.
Off-Balance Sheet
Arrangements
As of December 31, 2009 and 2010, we had no off-balance
sheet arrangements.
Impact of
Inflation and Changing Prices
A portion of our business is conducted in countries in which
inflation can have a material effect on the relative purchasing
power of money over time. However, other than the effects of
foreign currency exchange rate fluctuations that may be affected
by inflation, we believe that our results of operations are not
materially affected by moderate changes in the inflation rate.
Seasonality and
Fluctuations in Operating Results
Our revenue is subject to product availability and seasonal
fluctuations as a result of holidays, manufacturer and operator
promotions and other events affecting customer demands,
including the introduction of new products and general economic
conditions. As a result, we generally experience higher revenue
and earnings in the second half of the year, particularly in the
fourth quarter due to the holiday season, and weaker sales and
earnings in the first half of the year.
75
Material
Weaknesses and Remediation Efforts
In connection with the preparation of our financial statements
for the years ended December 31, 2009 and 2010, we
identified several material weaknesses in our internal controls
over financial reporting. However, these material weaknesses
have not resulted in a qualified opinion on our audited
financial statements for the years ended December 31, 2009
and 2010. Over the course of 2010, we were successful in
remediating several material weaknesses indentified in 2009, and
the ones that remained at December 31, 2010 were weaknesses
not remediated from the prior year due to the short time cycle
available to get all 2009 material weaknesses remediated. A
material weakness is a deficiency, or combination of
deficiencies, in internal control over financial reporting such
that there is a reasonable possibility that a material
misstatement of a companys annual or interim financial
statements will not be prevented or detected on a timely basis.
A deficiency in internal control over financial reporting exists
when the design or operation of a control does not allow
management or employees, in the normal course of performing
their assigned functions, to prevent or detect misstatements on
a timely basis. These material weaknesses are described in
detail in Risk Factors Risks Related to Our
Business We have identified material weaknesses in
our internal control over financial reporting which, if not
successfully remediated, could cause us to fail to timely report
our financial results, prevent fraud and avoid material
misstatements in our financial statements.
We are committed to remediating the deficiencies constituting
material weaknesses by implementing changes to our internal
control over financial reporting. Our Chief Executive Officer
and our Chief Financial Officer are responsible for implementing
changes and improvements to the internal controls that resulted
in these material weaknesses.
Management believes we will complete our remediation plan in
2011. We cannot guarantee that we will be able to complete these
actions on schedule or effectively and, even if we do
successfully complete them, there is no guarantee that these
measures will effectively address our material weaknesses. In
addition, it is possible that we could discover additional
material weaknesses in our internal control over financial
reporting in the future.
Critical
Accounting Policies and Estimates
The discussion of our financial condition and results of
operations is based upon our consolidated financial statements,
which have been prepared in accordance with generally accepted
accounting principles in the United States. The preparation of
these financial statements requires us to make estimates and
judgments that affect the reported amounts of assets,
liabilities, revenue, costs and expenses. On an ongoing basis,
we evaluate our estimates and assumptions, which we base on
third-party data, historical experience and on various other
assumptions that we believe are reasonable under the
circumstances. The results of our analysis form the basis for
making assumptions about the carrying values of assets and
liabilities that are not readily apparent from other sources.
Actual results may differ from these estimates under different
assumptions or conditions and the impact of such differences may
be material to our consolidated financial statements.
Critical accounting policies are those policies that, in
managements view, are most important in the portrayal of
our financial condition and results of operations. The footnotes
to the consolidated financial statements also include disclosure
of significant accounting policies. The methods, estimates and
judgments that we use in applying our accounting policies have a
significant impact on the results that we report in our
financial statements. These critical accounting policies require
us to make difficult and subjective judgments, often as a result
of the need to make estimates regarding matters that are
inherently uncertain. Our most critical accounting policies and
estimates include those involved in the recognition of revenue
and provision for income taxes. Those critical accounting
policies and estimates that require the most significant
judgment are discussed further below.
76
Revenue
Recognition
Revenue is primarily derived from the sale of wireless
communications equipment and related accessories, and to a
lesser extent from our customer services and solutions. Product
and service revenue is recognized in accordance with ASC 605,
specifically ASC
605-10, when
all of the following criteria are satisfied: (i) persuasive
evidence of an arrangement exists; (ii) the price is fixed
or determinable; (iii) collectability is reasonably
assured; and (iv) delivery of products has occurred or
services have been performed. Our arrangements for product sales
with our customers do not contain customer acceptance provisions
that would preclude recognition of revenue upon delivery of the
product or when services are rendered. We do not have any
substantial obligations after delivery of the product or after
services are rendered.
Revenue derived under certain contractual arrangements may take
the form of agreements that contain multiple elements, including
warehouse logistic services, implementation of technology
enablers, and ongoing supply chain, retail and enterprise
services. These arrangements may have both fixed and variable
components as well as contingent performance incentive
compensation, designed to link a portion of our revenue to our
performance relative to both qualitative and quantitative goals.
Performance incentives are recognized as revenue for
quantitative targets when the target has been achieved and for
qualitative targets when confirmation of the incentive is
received from the client. These arrangements may also provide
for other strategic services where revenue earned is based on
the achievement of cost savings to the customer. We allocate
revenue between the elements based on acceptable fair value
allocation methodologies, provided that each element meets the
criteria for treatment as a separate unit of accounting as
outlined in ASC
605-25.
In applying the allocation criteria within ASC
605-25, we
must apply considerable judgment when considering a variety of
factors in determining the appropriate method of revenue
recognition under these arrangements, such as whether the
elements are separable, whether there are determinable fair
values and whether there is a unique earnings process associated
with each element of a contract. The judgments we make can have
a significant effect on the timing and amount of revenue we
recognize.
In compliance with ASC
605-45 we
assess whether we or the third-party supplier is the primary
obligor in sales transactions. We evaluate the terms of our
customer arrangements as part of this assessment and apply
significant judgment when determining if we are the primary
obligor in the arrangement. In addition, we give appropriate
consideration to other key indicators such as general inventory
risk, latitude in establishing price, discretion in supplier
selection and credit risk to the vendor. Accordingly, we
generally record revenue on a gross basis when we believe the
key indicators of the business suggest we generally act as
principal on behalf of our clients. Where the key indicators
suggest we act as an agent, we record revenue on a net basis.
Allowance for
Doubtful Accounts
We provide credit terms to nearly all of our customers in the
ordinary course of business. We try to mitigate the risks
associated with providing credit by performing credit
evaluations and obtaining credit insurance. In determining the
adequacy of the allowance for doubtful accounts, our management
considers a number of highly subjective factors, including
creditworthiness of our customers and general economic
conditions in the countries in which we operate, the aging of
our accounts receivable and customer payment trends. Although we
have not historically experienced a significant level of bad
debt expense, future events or changes in circumstances could
result in changes to our estimates that could have a material
adverse effect on our results of operations, financial position
or cash flows.
Inventory
Valuation
We value our inventory at the lower of cost or its estimated
current market value, which requires us to make significant
judgments related to current market values, expected future
sales volumes and
77
supplier incentives earned through purchases but unrealized
pending the sale of the related products. We record provisions
for estimated excess and obsolete inventories that consider a
number of factors, including the aging of the inventory, recent
sales trends and industry, market and economic conditions. In
assessing inventory write-downs, management also considers any
price protection credits or other incentives that we expect to
receive from our suppliers. Variations in the estimates we use
could result in a material adverse effect on our results of
operations, financial position or cash flow, if we determine
additional provisions are required in a future period.
Value Added
Tax
Our international subsidiaries may be subject to Value Added Tax
(VAT), which is typically applied to goods and services
purchased in countries where VAT is applied. We are required to
remit the VAT we collect to tax authorities, but may deduct the
VAT we have paid on eligible purchases. In certain
circumstances, the collection of the VAT receivable may extend
over a period of years. We review our VAT receivable for
impairment whenever events or changes in circumstances indicate
the carrying amount of our VAT receivable may not be recoverable.
Share Based
Payments and Other Equity Transactions
Our Stock Plans are administered by a committee of our Directors
(the Committee). The Committee generally sets stock
option exercise prices at 100% or above of the estimated fair
market value of the underlying common stock on the date of
grant. Historically, the Committee established exercise prices
based on independent third party valuations.
Prior to this offering, there has not been an established market
for our shares. While we have issued new equity to unrelated
parties and we use such facts in the determination of the fair
value of our shares, we believe that the lack of a secondary
market for our common stock and our limited history issuing
stock to unrelated parties make it impracticable to estimate our
common stocks expected volatility. Therefore, it is not
possible to reasonably estimate the grant-date fair value of our
options using our own historical price data. Accordingly, we
applied the provisions of ASC 718 in accounting for the share
options under the calculated value method.
78
A summary of stock option activity during the years ended
December 31, 2008, 2009 and 2010 follows:
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Weighted-
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Average
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Weighted-
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Remaining
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Aggregate
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Average
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Contractual
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Intrinsic
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Shares
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Exercise Price
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Term
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Value(a)
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(In thousands)
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Outstanding as of January 1, 2008
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1,639,992
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$
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13.46
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Granted
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1,510,250
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14.83
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Exercised
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Forfeited
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(846,587
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)
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13.99
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Outstanding as of December 31, 2008
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2,303,655
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$
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14.17
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8.34
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|
$
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Exercisable as of December 31, 2008
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877,833
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$
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12.00
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6.39
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$
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Outstanding as of January 1, 2009
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2,303,655
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$
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14.17
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Granted
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975,000
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15.00
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Exercised
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|
(2,000
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)
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8.00
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Forfeited
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(956,885
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)
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14.66
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|
Outstanding as of December 31, 2009
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2,319,770
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$
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14.32
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7.96
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|
$
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69
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Exercisable as of December 31, 2009
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919,145
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$
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12.94
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6.14
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$
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69
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|
|
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|
Outstanding as of January 1, 2010
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|
2,319,770
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|
$
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14.32
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|
|
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|
|
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|
Granted
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852,500
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30.00
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Exercised
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(6,100
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)
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12.92
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|
|
|
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Forfeited
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(242,225
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)
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|
15.09
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|
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|
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|
|
|
|
|
|
|
|
|
|
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|
Outstanding as of December 31, 2010
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2,923,945
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|
$
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18.83
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7.90
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|
$
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32,660
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Exercisable as of December 31, 2010
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1,348,945
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$
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15.45
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6.69
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$
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19,628
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(a) |
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The aggregate intrinsic value represents the amount by which the
fair value of underlying stock exceeds the option exercise price
for the periods presented. |
The calculated fair value of each incentive award was estimated
on the date of grant using the Black-Scholes option-pricing
model, using the following considerations:
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We have elected to calculate the average expected life based on
the simplified method described in ASC 718 for all
at-the-money
grants, as we believe it will be a better representation of the
estimated life than our actual limited historical exercise
behavior. For grants where the exercise price is significantly
higher than the estimated fair value of the common stock at
grant date, we use the Monte Carlo Simulation method to estimate
expected option life.
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We use an expected dividend yield of zero, since we do not
intend to pay dividends on our common stock for the foreseeable
future.
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The risk-free interest rate is based in U.S. Treasury
zero-coupon issues with a remaining term equal to the expected
option life assumed at the date of grant.
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In 2010, the expected volatility is based on the average
volatility of up to 19 companies within various SIC industries
as management believes that we fit the profile of the companies
selected. In 2008 and 2009, the expected volatility was based on
a weighting of the volatility of 10 companies within the SIC
Industry 5065, Electronic Parts and Equipment, not Elsewhere
Classified, as management believed we fit the profile of the
companies selected. The group of companies selected was then
divided in two groups, and each group was given a different
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79
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weight based on what management believed was appropriate, using
each groups past financial history.
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Forfeitures are estimates using historical experience and
projected employee turnover.
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These estimates require a considerable degree of judgment and
affect the amount of compensation expense we recognize. If we
determine that another method to estimate expected volatility or
expected term is more reasonable than our current methods, or if
another method for calculating fair value is prescribed by
authoritative guidance, the fair value calculated for future
stock-based awards could change significantly from past awards,
even if the principal terms of the awards are similar. Higher
volatility and longer expected terms result in an increase to
stock-based compensation determined at the date of grant. The
expected dividend rate and expected risk-free interest rate are
not as significant to the calculation of fair value. A
hypothetical 10% increase or decrease to any of the above
assumptions would not have had a material impact on the amount
of stock-based compensation expense we recognized in any of the
periods presented. However, although changes in assumptions
relative to our 2010 expense would be considered immaterial to
us, future years could result in a more significant difference
if we were to grant additional stock options, the value of our
Class A common stock increases significantly or our
estimated volatility is higher.
Fair Value of
Financial Instruments
We are also required to apply complex accounting principles with
respect to accounting for financing transactions that we have
consummated in order to finance the growth of our business.
These transactions, which consist of debt and redeemable
convertible preferred stock, require us to use significant
judgment in order to assess the fair values of these instruments
at the dates of issuance. We have historically estimated these
fair values based on independent transactions with third parties
and independent valuations. These fair values are critical to
our determination of financing costs and presentation of how we
finance our business.
Income
Taxes
We utilize the asset and liability method of accounting for
income taxes, which requires significant judgments in
determining the consolidated provision for income taxes. During
the ordinary course of business, there are many transactions and
calculations for which the ultimate tax settlement is uncertain.
Under ASC 740, we are required to evaluate the realizability of
our deferred tax assets. The realization of our deferred tax
assets is dependent on future earnings. ASC 740 requires that a
valuation allowance be recognized when, based on available
evidence, it is more likely than not that all or a portion of
deferred tax assets will not be realized due to the inability to
generate sufficient taxable income in future periods. In
circumstances where there is significant negative evidence,
establishment of a valuation allowance must be considered. A
pattern of sustained profitability is considered significant
positive evidence when evaluating a decision to reverse a
valuation allowance. Further, in those cases where a pattern of
sustained profitability exists, projected future taxable income
may also represent positive evidence, to the extent that such
projections are determined to be reliable given the current
economic environment. Accordingly, the increase and decrease of
valuation allowances requires considerable judgment and could
have a significant negative or positive impact on our current
and future earnings.
On January 1, 2009, we were required to adopt a provision
within ASC 740, which prescribes a recognition threshold and
measurement process for recording in our consolidated financial
statements uncertain tax positions taken, or expected to be
taken by the Company. Additionally, ASC 740 provides guidance on
the derecognition, classification, accounting in interim periods
and disclosure requirements for uncertain tax positions. The
standard requires us to accrue for the estimated amount of taxes
for uncertain tax positions if it is more likely than not that
we would be required to pay such additional taxes, which
requires considerable judgment. An uncertain tax position will
not be recognized if it has a less than 50% likelihood of being
sustained. Although we believe we have adequately
80
reserved for our uncertain tax positions, the ultimate outcome
of these tax matters may differ from our expectations, which
could have a material effect on our provision for income taxes
at the time such determination is made.
Recently Issued
Accounting Pronouncements Not Yet Adopted
In September 2009, the FASB ratified Accounting Standards Update
2009-13,
codified within ASC 605 which addresses criteria for separating
the consideration in multiple element arrangements. ASC 605
requires companies allocate the overall consideration to each
deliverable by using a best estimate of the selling price of
individual deliverables in the arrangement in the absence of
vendor-specific objective evidence or other third-party evidence
of the selling price. ASC 605 will be effective prospectively
for revenue arrangements entered into or materially modified in
fiscal years beginning on or after June 15, 2010 and early
adoption will be permitted. We anticipate that there will be no
material impact on our consolidated financial statements upon
adoption.
Quantitative and
Qualitative Disclosures about Market Risk
Concentration
of Credit Risk
We are exposed to market risk relating to our operations due to
changes in foreign currency exchange rates and interest rates.
We manage the exposure to these risks through a combination of
normal operating and financing activities and derivative
financial instruments such as foreign currency derivative
contracts and interest rate swaps. It is our policy not to enter
into derivative financial instruments for speculative purposes.
Exchange Rate
Risk Management
We are exposed to foreign currency risks that arise from normal
business operations. These risks include the translation of
local currency balances of foreign subsidiaries, intercompany
loans with foreign subsidiaries and transactions denominated in
foreign currencies. Our objective is to minimize our exposure to
these risks through a combination of normal operating activities
and the utilization of foreign currency contracts to manage our
exposure on the transactions denominated in currencies other
than the applicable functional currency. Contracts are executed
with creditworthy banks and other institutions and are
denominated in currencies of major industrial countries. At
times we also hedge our exposure to the translation of reported
results of foreign subsidiaries from local currency to U.S.
dollars.
We use a cash hedging strategy to protect against an increase in
the cost of forecasted foreign currency denominated
transactions. As of December 31, 2009 and 2010, we had
outstanding forward contracts in the notional amounts of
$86.6 million and $164.0 million, respectively, buying
(selling) U.S. dollars to fix the future cash outflows in local
currency (U.S. dollars) on certain payables denominated in U.S.
dollars (local currencies). The fair values of the outstanding
forward contracts in the aggregate as of December 31, 2009
and 2010 were liabilities of $1.5 million and
$0.2 million, respectively.
A hypothetical 10% adverse change in all exchange rates relative
to the U.S. dollar would have reduced our income from continuing
operations by $15.5 million in 2010.
Interest Rate
Risk Management
We are exposed to interest rate risk on certain of our
short-term and long-term debt obligations used to finance our
operations and acquisitions. We have LIBOR-based and prime-based
floating rate borrowings, which expose us to variability in
interest payments due to changes in the reference interest
rates. From time to time we use derivative instruments as hedges
against the impact of interest rate changes on future earnings
and cash flow.
81
In November 2008, we entered into pay fixed/receive LIBOR-based
floating interest rate swaps to manage fluctuations in cash
flows resulting from interest rate risk. In November 2010, our
remaining interest rate swap agreements matured and were not
renewed, such that there was no notional amount outstanding as
of December 31, 2010.
As of December 31, 2010, we had $198.4 million of
variable rate borrowings outstanding. Holding other factors
constant, a hypothetical 1% increase in our borrowing rates
would result in a $2.0 million increase in our annual
interest expense based on our variable rate debt as of
December 31, 2010.
82
BUSINESS
Overview
We are a leading global services company focused on enhancing
the performance and profitability of the key participants in the
wireless device value chain: manufacturers, operators, retailers
and enterprises. We provide a comprehensive range of customized
services consisting of value-added distribution, supply chain,
retail and enterprise and consumer services. Our services help
our customers manage the growing complexity of the wireless
device value chain and allow them to increase product
availability, extend and expand their channel reach and drive
supply chain efficiencies by getting the right products to the
right place at the right time for a lower cost. In addition, our
services help our customers increase their wireless device sales
and drive velocity at the point of sale. The rapid growth of the
approximately $200 billion global wireless industry
(Source:
Gartner)1
and increasing number and type of wireless activatable devices
have resulted in a complex ecosystem where manufacturers,
operators, retailers and enterprises have differing priorities
and are burdened with tasks that are critical, but not core, to
their businesses. We believe that our global presence, scale and
strategic position at the center of the wireless ecosystem
provide us with unique insight into the entire wireless device
value chain and enhance our ability to offer differentiated,
value-added services to our customers. We currently offer over
100 individual services in 50 countries across six continents,
and we intend to continue innovating and adding services that
deliver value to our customers.
We offer the following service categories:
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Value-Added Distribution Services are provided to
manufacturers of wireless devices and related accessories. Our
services include product distribution, transportation and
delivery, order management, light manufacturing and assembly,
and marketing and demand generation. Some examples of these
services include selling wireless devices to operator and
retailer customers; transporting wireless devices from a
manufacturing facility in Asia to wireless specialized stores in
Latin America, managing the customs and importation process;
kitting, packing and programming of wireless devices in
different languages; and managing sales and marketing activities
for wireless devices at the point of sale.
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|
Supply Chain Services are provided to
manufacturers, operators and retailers. Our services include
wireless device management, strategic sourcing, and business
intelligence and supply chain optimization services, such as
forward and reverse logistics. An example of these services is a
network operator utilizing our tools to select its wireless
portfolio and procure devices using our sourcing and business
intelligence database and portal.
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Retail Services are provided to manufacturers,
operators, retailers and enterprises. Our services include
retail outsourcing, portfolio management with virtual inventory,
and sales force training and management. Some examples of these
services include operators using our services to run and staff
stores and kiosks, and mass retailers outsourcing the management
of the wireless device category to us.
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Enterprise and Consumer Services are provided to
manufacturers, operators, retailers and enterprises. Our
services include device activation, customized billing and
wireless administration software, and handset protection
insurance. An example of these services is a network operator
who offers our handset insurance services and extended warranty
products to its customers.
|
We are a global organization supporting manufacturers,
operators, retailers and enterprises and enabling over 90,000
points of sale worldwide. Our customers are some of the leading
companies in
1
Gartner Inc.: Forecast: Mobile Devices, Worldwide, 2008-2015,
1Q11 Update. By Carolina Milanesi, Annette Zimmermann,
Roberta Cozza, Anshul Gupta, Atsuro Sato, CK Lu, Tuong Nguyen
and Hugues de la Vergne. 17 March 2011.
83
the wireless device value chain. Among others, our customers
include manufacturers such as Apple, HTC, Huawei, LG, Motorola,
Nokia, RIM and Samsung; operators such as America Movil,
AT&T, Orange, Telecom New Zealand, Telefonica, Telstra,
TIM, Verizon Wireless and Vodafone; retailers such as Best Buy,
Radio Shack, Target, Tesco and Walmart; and enterprises such as
Dell, PC Connection and Tech Data.
Manufacturers, operators, retailers and enterprises choose us
because of our wireless expertise, global reach, scale and
extensive channel consisting of more than 33,000 customers,
including more than 150 manufacturers, 180 network operators,
15,000 mass retailers and 4,800 technology value-added
resellers. Our customers also choose us because of our track
record of quality service and execution, proprietary tools and
systems, the strength and capability of our supply chain
professionals and our ability to tailor our solutions or
innovate new ones to meet their particular needs.
Our business is conducted in four geographic regions:
(i) U.S./Canada; (ii) Latin America; (iii) Asia
Pacific, Middle East and Africa (Asia Pacific); and
(iv) Europe, through Brightstar Europe, our 50% owned joint
venture with Tech Data. The first three regions are reported as
geographic operating segments in our consolidated financial
statements, and we include our share of income from Brightstar
Europe in other income (expenses), net. See note 17 to our
audited consolidated financial statements included elsewhere in
this prospectus.
For the year ended December 31, 2010, our revenue grew 70%
to $4.6 billion relative to the year ended
December 31, 2009, and we generated Adjusted EBITDA of
$141.2 million, net income of $39.8 million and
Adjusted net income of $60.6 million.
Wireless Industry
Overview
The wireless industry is large and growing, and encompasses an
increasingly broad and complex array of wireless devices,
including feature phones, smartphones,
e-readers
and tablets, and their related accessories. According to
Gartner, mobile device revenue is estimated to grow from
$168.1 billion in 2009 to $285.6 billion in
2015,1
representing a 9.2% CAGR, an estimate which excludes potential
incremental growth from the increasing number of wirelessly
connected or activatable devices, such as tablets,
e-readers,
or gaming devices. The primary drivers of growth and increasing
complexity are higher global wireless device penetration rates,
a larger number of wireless ecosystem participants, greater
levels of demand for data applications and mobile Internet
access, and the emergence of a wide range of feature-rich
wireless and other activatable devices with a broad mix of voice
and data service plans and shortening product lifecycles. There
are more than 700 operators globally, multiple network
standards, various wireless device distribution channels and an
increasing number of wireless device models with tailored
application functionalities.
According to Gartner, approximately 1.2 billion wireless
phones were shipped in 2009, a number which is expected to
increase to approximately 2.4 billion in
2015,1
representing a 11.9% CAGR. The largest growth area is
smartphones which, according to Gartner, is expected to grow
from 172.4 million devices sold in 2009 to
1,104.9 million devices sold in
2015,1
representing a 36.3% CAGR. In addition, the number of
activatable devices has increased significantly over the last
few years with the introduction of tablets and e-readers.
According to Gartner, tablet computer shipments are expected to
grow from 17.6 million units in 2010, the first year for
which Gartner industry data is available for tablet computer
shipments, to 294.1 million units in
2015,2
representing a 75.6% CAGR. Moreover, the number of connected
devices, such as consumer electronic products, are expected to
grow from 65.5 million devices in 2009 to
409.3 million devices in 2015, representing a 35.7% CAGR,
according to
Gartner2.
2 Gartner
Inc.: Forecast: Connected Mobile Consumer Electronics,
2008-2015, 1Q11 Update. By Carolina Milanesi; Roberta Cozza,
Annette Zimmermann, Tuong Nguyen, Hugues de la Vergne and Jon
Erensen. 1 April 2011.
84
A substantial portion of global subscriber growth has been
driven by the prepaid wireless segment, which has become
increasingly popular as customers are able to enjoy the benefits
of a regular mobile handset without needing to commit to
long-term network service contracts. The increased size and
growth of the prepaid wireless segment has led to an increased
use of retailers such as Best Buy and Walmart, as a more
prevalent means for distribution to consumers in the U.S./Canada
and Europe. We believe that this trend is likely to accelerate
since retailers view wireless devices as an attractive product
category that provides them with higher margin products.
Within developing markets such as Africa, Eastern Europe, Latin
America, the Middle East and Southeast Asia, growth in the
wireless industry has been driven primarily by growth in new
wireless subscribers. Given the emergence of more cost-effective
means for ownership, such as prepaid wireless devices, consumers
in developing markets are now able to purchase wireless devices
more easily than before. As penetration levels of wireless
devices within developing markets continue to rise, the market
for value-added distribution, supply chain, retail and
enterprise services will continue to increase given the
challenges associated with reaching these markets.
The proliferation of new technologies and connected devices and
the increasing velocity of these new product introductions are
resulting in the following key trends:
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Manufacturers needing to achieve faster
time-to-market
with new wireless devices;
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Operators needing to meet customers demands for increased
choice;
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Retailers needing to navigate through an increasingly large and
rapidly changing set of available devices; and
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Enterprises needing to reduce the cost of and simplify the
management of their wireless devices and rate plan deployments.
|
As new technologies are introduced, we believe manufacturers
will look to companies with outsourced distribution, supply
chain, retail and enterprise services for assistance with
scaling their products and services globally. The market growth
opportunity is therefore multifaceted and driven partly by
overall industry growth and in part by the growing need of
service providers within the wireless industry.
Challenges Faced
by Wireless Ecosystem Participants
We believe each participant in the wireless ecosystem faces
differing challenges and priorities. For example, manufacturers
focus on selling devices to operators; operators focus on
maximizing their ARPU, minimizing churn and growing their
subscriber base; retailers focus on selling devices and plans to
consumers; and enterprises focus on getting the best device on
the best plan for their end users. We also believe that these
differing challenges and priorities will become more prominent
given the accelerating pace of technological innovation, the
number of new market participants and continued growth of the
wireless ecosystem. We believe these challenges include:
Challenges
faced by Manufacturers
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|
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Increasing need for faster product
time-to-market;
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Increasing number of channels through which products are sold;
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|
|
|
Increasing pressure on average selling price and wireless device
margins;
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Ability to accurately forecast demand drivers;
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Ability to reach a broadening set of consumers on a global basis;
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Difficulties and costs associated with customization for
specific markets;
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Lack of local importation and manufacturing expertise in certain
markets and geographies;
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Ability to manage reverse logistics and high return
rates; and
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Ability to efficiently manage working capital.
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Challenges
faced by Operators
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Ability to increase ARPU and minimize churn;
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Ability to forecast demand for particular devices in different
markets and geographies;
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Higher subscriber retention costs arising from increasing
handset subsidies and declining contract prices;
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Complexity of distributing devices to customers in developing
markets;
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Growing complexity and rapid evolution of handset and
activatable device offerings;
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High degree of bargaining power of manufacturers, especially for
smaller operators;
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Ability to manage inventory levels and availability;
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Ability to manage high product return rates; and
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Need to achieve or maintain a high degree of customer
satisfaction.
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Challenges
faced by Retailers
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Ability to manage the increasingly complex wireless device
category, which has not traditionally been a core segment and
which includes a broad array of wireless devices and multiple
operator plans;
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Need to efficiently manage working capital to mitigate inventory
obsolescence;
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Ability to drive strong sales and profit per square foot;
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Ability to effectively manage retail in-stock rates;
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Capacity to have updated information technology systems that are
optimized for wireless activations;
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Ability to accurately forecast consumer buying trends and
determine the optimal overall product mix;
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Need to react quickly to changing consumer preferences;
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Need to offer differentiated products in the wireless category
in a highly competitive market;
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Ability to hire, train and incentivize staff to sell and
implement highly complex services like activation, particularly
in low service retail environments; and
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Need to execute retail strategy for the wireless category, down
to individual points of sale.
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Challenges
faced by Enterprises
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Ability to manage the increasingly complex wireless device
category, which includes a broad array of wireless devices and
multiple operator plans;
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Ability to manage activation of devices and selection of plans;
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Ability to reconcile commissions and oversee commission
management with operators;
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Ability to manage subsidies;
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Capacity to integrate systems into operator systems; and
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Opportunity to access a broad portfolio of wireless devices at a
competitive price.
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The unmet needs and differing interests of these wireless
industry participants translate into growing opportunities for
specialized providers of outsourced services who are positioned
at the center of the wireless device value chain.
Our Value
Proposition for the Key Participants in the Wireless
Ecosystem
We provide a broad portfolio of innovative services that help
our customers around the world optimize their wireless supply
chains and better manage the ongoing complexity in the wireless
ecosystem. Our ability to leverage our proprietary market
knowledge gives our customers valuable insight into their own
wireless supply chains as well as real-time trends throughout
the broader wireless device value chain. We believe that our
portfolio of services, which are designed to meet the needs of
wireless industry participants, coupled with our global
infrastructure and scale position us to successfully serve all
participants in the wireless ecosystem.
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Manufacturers. We offer manufacturers a suite
of services to help them move their products to market faster
and to more locations around the world. We primarily act as a
demand-generating distributor for manufacturers. Our global
infrastructure, scale, local expertise, wireless expertise and
business intelligence, channel and business relationships allow
us to develop customized
end-to-end
solutions for our manufacturer customers. Our services enable
them to focus on their core competencies and help extend their
channel reach, optimize their inventory levels and further drive
increased profitability and market share.
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Operators. We provide operators with a
comprehensive set of services to improve their ability to select
the right product, source it for the right price and deliver it
to the right place at the right time. Our tools and services
help operators improve the execution of their core business
strategy, which is centered on managing the wireless
customers experience and maximizing ARPU. This is
particularly important as the driver for operator success shifts
from customer acquisition to value maximization during the
course of the customer relationship. For example, our tools
allow operators to see contribution margin per device in
real-time, and allow them to make informed decisions about which
products to subsidize, which products to market and which
products to discontinue. Our solutions also allow for greater
pricing visibility and improved demand forecasting, which help
operators reduce the cost of device acquisition, improve
inventory supply planning and product lifecycle management and
ultimately enhance both profitability and end-user satisfaction.
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Retailers. We provide retailers with services
that improve the profitability and performance of their wireless
category, both in-store and online. The wireless device category
is complex to manage, with high working capital requirements,
and increasingly short product lifecycles as new devices are
entering the space at an unprecedented rate. Our services help
retailers simplify management of this category, analyze consumer
habits and trends and ensure that the right products are
available at the right locations at the right price, to maximize
sales and profitability. We provide retail-centric demand
planning, inventory management and collaborative planning,
forecasting and replenishment processes that allow retailers to
maintain low inventory levels with high fill rates at the point
of sale. We also offer services that increase the velocity of
sales for wireless products. An example of the services we offer
retailers is our virtual inventory program where retailers stock
a small number of devices in-store but are provided access to a
broad range of products through an in-store portal that
facilitates orders being delivered within 24 hours to the
end user or retailer.
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Enterprises. As master agent for operators, we
provide small and medium businesses, enterprises, government
organizations and each of their end users with cost-effective
wireless voice and data communication devices through their
preferred retailer or IT reseller. Our tools and services assist
enterprises (through their IT reseller service providers) and
consumers (through their retail environments) by simplifying the
procurement, activation and administration of their wireless
devices. Our tools allow organizations to view and administer
their bills in a
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consolidated multi-operator portal to gain better insight into
employee spend and behavior. Our automated activation portals
enable organizations and consumers to seamlessly activate their
devices quickly and without hassle. Our enterprise and consumer
services simplify the mobile experience for end users by
enabling small and medium businesses, enterprises and government
organizations to outsource many critical, but non-core,
functions to us. In addition, our recent acquisition of
eSecuritel, a leading provider of wireless handset protection
and replacement services, will allow Brightstars operator
and retailer customers to offer insurance and extended
warranties to their customers thereby helping them increase
customer satisfaction, driving customer loyalty and reducing
churn.
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Our Competitive
Strengths
Our key competitive strengths include:
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Large, Global Services Provider for the Wireless
Ecosystem. We are present in 50 countries on
six continents and believe we have a leading global distribution
infrastructure platform to support the wireless device value
chain. Our extensive experience, infrastructure, scale and local
reach create a significant competitive advantage over regional
competitors because we are able to decrease
time-to-market
of wireless devices and provide our customers with increased
visibility into their supply chain. Our significant scale and
geographic reach, together with our extensive customer
relationships, would be difficult and costly to replicate.
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Strong Relationships with Manufacturers, Operators,
Retailers and Enterprises. We have
relationships with over 150 manufacturers, 180 network
operators, 15,000 mass retailers and 4,800 technology
value-added resellers, including some of the leading names in
the wireless ecosystem. Some of our customers have been with us
for over 10 years and we have been successful at both
growing our customer base and growing the number of services we
provide each of our customers. For example, we started offering
value-added distribution services to one manufacturer in Latin
America four years ago and now provide that manufacturer with
services in the U.S., Europe and over 30 markets in the Asia
Pacific region. Initially we offered only value-added
distribution services to operators and retailers and now we
provide a full suite of
end-to-end
services and solutions. Our position at the center of the
wireless device value chain and our extensive customer
relationships, coupled with our wireless expertise, global
footprint and scale, enable us to drive significant value for
our customers.
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Differentiated Services Offerings. We
have been successful at leveraging our unique position at the
center of the wireless device value chain, our global
infrastructure and our wireless industry knowledge and data to
provide customers with innovative, differentiated and targeted
solutions. We launched our supply chain, retail and enterprise
services based on key insight and knowledge from our
distribution business. As we add additional service offerings,
we gain additional data and insight, thereby further increasing
the value of our services to all the participants in the
wireless ecosystem. By consistently delivering additional
high-value service offerings to our customers, we become part of
our customers supply chains, creating stronger customer
relationships. We work closely with our customers to create
differentiated value-added service offerings, which are tailored
to meet their particular needs. We believe this collaborative
approach and our track record of quality service and execution
creates loyal customer relationships.
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Innovative Technology-Based Service
Platform. Our innovative technology-based
service platform provides us with extensive real-time data
across the wireless device value chain and enables us to provide
consulting services and tools to our customers for better
decision making. Our technology has been developed in-house over
time and is designed to layer onto our customers own
technology infrastructure. For example, our platform captures
real-time supply chain data and device contribution margins,
which enables our customers to make
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better marketing and production decisions. Our information
technology tools allow us to initiate a relationship with a
customer on a targeted basis, with selected solutions, and
enable us to expand our services to the customer over time. In
addition to being highly scalable, our information technology
platform layers on top of our customers existing
information technology infrastructure, which not only
facilitates ease of implementation but also creates a fixture
within that customers information technology organization.
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Strategically Positioned to Anticipate Wireless Ecosystem
Opportunities. Our visibility into the
wireless device value chain allows us to anticipate and
capitalize on profitable growth opportunities. Since our
inception, we have successfully leveraged our platform to be
aligned with attractive growth opportunities. Our distribution
platform enabled us to identify and execute on a services
opportunity in Asia Pacific, which allowed us to provide
innovative services to operators in that region and subsequently
across all our regions. Furthermore, we anticipated growth in
the smartphone market and aligned ourselves with key
manufacturers to take advantage of this growth. Our global
business model enables us to leverage our learning and
observations from one region to another to anticipate customer
needs and associated business opportunities. Additionally, our
participation across the wireless device value chain and our
diverse relationships within the wireless ecosystem, coupled
with our global footprint, make us less dependent on any one
wireless segment in any particular geography.
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Innovative Culture and Management Team with a Successful
Track Record. Our management team, led by our
Chairman, Chief Executive Officer and largest stockholder, R.
Marcelo Claure, has extensive industry experience. Our
management team has developed a culture of innovation that has
enabled us to grow and diversify our business and enhance the
value proposition for our customers.
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Our
Strategy
We intend to be the leading global services provider for the
wireless device value chain. Key elements of our strategy
include:
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Continue to Expand our Services
Offering. We intend to continue to leverage
our global infrastructure, scale and strong customer
relationships to expand our offering with higher value services.
For example, we recently acquired eSecuritel, which provides
handset protection and replacement services. We intend to
continue to utilize the visibility we have into the wireless
device value chain to identify challenges faced by existing and
new customers and provide them with solutions that address their
needs. We see significant opportunity for new services which we
believe will provide significant value for our customers.
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Expand into New Geographies. We intend
to continue our disciplined approach to entering and penetrating
new markets. We believe we are uniquely positioned to evaluate
and pursue additional high growth geographies to further drive
our growth and profitability. For example, we recently launched
our services in Vietnam and Thailand and we are exploring
opportunities in India and China.
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Continue to Expand our Business with New and Existing
Customers. We intend to leverage our broad
array of services and expertise to continue to grow our business
by increasing the number of services we provide our existing
customers. Furthermore, we believe there are many opportunities
for us to develop new relationships with existing industry
players whom we do not yet serve. Our industry is fragmented,
which we believe presents us with many opportunities to expand
our business and capture not only growth from underlying
wireless industry fundamentals, but also growth from increased
market share.
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Pursue Strategic Partnerships, Investments and
Acquisitions. In addition to organic growth,
we plan to pursue strategic partnerships, investments and
acquisitions to expand our
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services offering as well as our geographic footprint. We will
continue to evaluate investments and will pursue those that meet
our specific criteria for size, growth and profit potential.
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Our Geographic
Footprint
We operate a large, global distribution infrastructure. We have
operations in 50 countries on six continents, and our business
is conducted in four geographic regions: (i) U.S./Canada;
(ii) Latin America; (iii) Asia Pacific; and
(iv) Europe, through Brightstar Europe, our 50% owned joint
venture with Tech Data. The first three regions are reported as
geographic operating segments in our consolidated financial
statements.
U.S./Canada
Our core services in U.S./Canada include value-added
distribution, returns management, category management, channel
and supply chain management, customization, expanded portfolio
management, activation services, in-store marketing, virtual
inventory and handset protection and replacement. Our
U.S./Canada operations are headquartered in Libertyville,
Illinois. We also have a supply chain center of excellence in
Cambridge, Massachusetts, and our newly acquired insurance
services business is located in Alpharetta, Georgia. We continue
to expand our capabilities and service offerings through our
innovative technology, which supports automated serialized
inventory management, thereby enabling web and business to
business fulfillment. We operate over 450,000 square feet
of facilities and serve over 60,000 points of sale throughout
the region.
Latin
America
We operate in 19 countries across this region, including
Argentina, Brazil, Colombia, Mexico and Venezuela and we have 43
sales, distribution and assembly facilities that together serve
more than 90 operators and 25,000 customers. Our core services
in Latin America include value-added distribution, product
management, such as demand planning and forecasting, and
fulfillment and logistics, which includes freight management and
customs clearance. We also provide financing, marketing, new
product introduction, reverse logistics and assembly services.
We operate more than 600,000 square feet of facilities
across or serving Latin America, and we have an assembly
facility in Tierra del Fuego, Argentina which allows us to
provide local production capability for our customers.
Asia
Pacific
We operate in 14 countries and six distribution centers in the
Asia Pacific serving countries including Australia, Hong Kong,
Malaysia, New Zealand, Singapore, South Africa, Thailand, Turkey
and Vietnam. We serve operators, retailers, dealers and agents
at approximately 10,000 points of sale. Our core services in the
region include supply chain planning, such as demand forecasting
and inventory management, and device management, which includes
product lifecycle management. We also offer a full range of
value-added distribution services, strategic sourcing services
and channel operations services. We operate more than
350,000 square feet of facilities in the region and provide
support to more than 4,000 customers, including 24
manufacturers. Our facilities are highly automated and our
information technology capabilities include forecasting,
supplier collaboration, procurement and supply chain planning.
Europe
We are a joint venture partner in Brightstar Europe, a joint
venture company formed in 2007 and owned equally and controlled
jointly by Tech Data and us. Brightstar Europe was formed for
the purpose of directing and controlling the joint
ventures business, including the joint venture-related
activities of Azlan Logistics Limited (Azlan), a
wholly owned indirect subsidiary of Tech Data. Brightstar Europe
directs the joint venture-related business undertaken by Azlan
and compensates Azlan in respect of all costs incurred in
carrying out the business of the joint venture. Brightstar
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Europe bears all commercial and financial risks that arise for
any Tech Data subsidiary or affiliate, to the extent that such
commercial and financial risks relate to the business of the
joint venture. In exchange for Brightstar Europe bearing all of
the commercial and financial risks in relation to the joint
ventures business, Azlan pays Brightstar Europe an amount
equal to the net profits arising from the operations of the
joint ventures business.
Brightstar Europe serves device manufacturers, operators and
retailers in 15 countries, providing value-added distribution,
supply chain, retail and enterprise services. In addition,
Brightstar Europe has handset programming capabilities. Tech
Data, on behalf of Brightstar Europe, has supply relationships
with manufacturers including Acer, HP, LG and Samsung and key
relationships with operators including O2, Telefonica and
T-Mobile.
In addition to services for manufacturers, operators and
retailers, Brightstar Europe recently launched enterprise
services in Europe that enable value-added resellers to sell
mobility to small and medium businesses and consumers.
Brightstar Europe leverages its knowledge and relationships with
key participants in the wireless ecosystem to simplify the
purchase, provisioning and fulfillment of wireless devices for
value-added resellers. The services that Brightstar Europe
provides to value-added resellers include (i) operator
management services; (ii) channel and merchandising
services; and (iii) back office services.
Our
Services
We are an innovative global services company offering a broad
range of services to our customers. Our services are categorized
into value-added distribution, supply chain, retail and
enterprise and consumer services. The table below highlights the
sub-categories
of services included within each of these main categories.
Value-Added
Distribution Services
We primarily act as a value-added distribution services provider
for manufacturers, bringing their products closer to the point
of sale and helping them generate demand. Our value-added
distribution services fall into three main categories:
(i) traditional distribution services such as product
distribution, transportation and delivery services, importation
management and
just-in-time
delivery; (ii) light manufacturing and assembly services
such as consulting and guidance, planning, coordination and
execution of all
start-up
activities, semi-knocked down manufacturing and product
customization; and (iii) sales, marketing and demand
generation services, such as local marketing intelligence,
product
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portfolio management, marketing activation, and sales and
channel management. Wireless phones constitute over 90% of the
products we distribute.
Traditional Distribution Services include:
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Product Distribution We have over one
million square feet of product distribution capacity, including
primary facilities in Auckland, Hong Kong, Libertyville,
Melbourne, Mexico City, Miami and Singapore. In addition, we
have access to facilities in Europe through our joint venture
with Tech Data, but we do not own or lease any of these
properties. Our inventory management is centralized, we
distribute inventory through our local distribution facilities
and we have real-time data on product shipments and inventory
worldwide.
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Transportation and Delivery Services
As a result of the large volume of business that we conduct with
major transportation operators, and our established global
infrastructure, we can provide a wide array of flexible and
cost-effective shipping options. We are also able to customize
our transportation and delivery arrangements to meet our
customer needs. For example, in many emerging markets such as
Latin America, we are able to mitigate their security concerns
around the transportation of valuable electronic devices by
arranging specialized secure transportation of products.
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Importation Management Our experience
in operating in various markets has provided us with extensive
knowledge of local customs and import control requirements. As a
result, we are able to manage the process of exporting and
importing wireless devices, which reduces logistical challenges
and expenses for our customers.
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Just-In-Time
Delivery We ship on a
just-in-time
basis to our customers warehouse locations and various
points of sale throughout the regions where we operate. We are
able to provide this service by generally maintaining 10 to
15 days of inventory in the local markets that we serve and
approximately 20 to 30 days of inventory at our primary
distribution centers in Auckland, Hong Kong, Libertyville,
Melbourne, Mexico City, Miami and Singapore.
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Light Manufacturing and Assembly Services include:
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Contract Manufacturing We offer
contract manufacturing capabilities to dramatically increase our
customers competitiveness in countries offering tax
advantages for local production.
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Consulting and Guidance We offer
consulting and guidance concerning local tax structures,
regulations and requirements for tax advantages through local
manufacturing. We provide full assistance on the preparation,
submission and approval of projects for tax benefits, when
applicable.
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Planning, Coordination and Execution of All Startup
Activities Our services include assistance
to manufacturers on setting up their internal processes for the
support of external manufacturing.
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Semi-Knocked Down Manufacturing We
provide full management of the production cycle from materials
planning to final invoicing. Examples of processes are:
components receiving and incoming quality control, hardware
assembly, hardware functional testing and verification,
in-process and outgoing quality control, supplier development
and quality management, product engineering, final
customization, software control and inbound and outbound
logistics.
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Product Customization We provide
kitting, programming, packing and labeling for a wide variety of
wireless phones and accessories. We tailor these services to
meet our customers specific requirements. For example, we
are able to program and upload software and customize the
hardware on products to create unique products for operators and
retailers that allow them to differentiate their offerings to
end users.
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Sales, Marketing and Demand Generation Services include:
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Local Marketing Intelligence We offer
market profiling, market data trends and competitor intelligence
services.
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Product Portfolio Management We
provide product roadmap planning, portfolio rationalization,
product introduction/product sell-ins and product management.
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Marketing Activation Our services
include agency management, consumer promotions, promotional
material, point of sale support, sales promoters and channel
trainings, channel incentives and loyalty programs.
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Sales and Channel Management We
provide operator sales, retail sales, dealers and agent sales,
consumer retail sales, channel strategy, operator/retail account
management and forecast management.
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Our specialized wireless market knowledge and business
relationships and global infrastructure enable our manufacturing
customers to focus on their core competencies and help them
extend their channel reach, optimize their inventory levels and
rotations and ultimately drive increased profitability and
market share by outsourcing non-core activities to us.
Supply Chain
Services
We provide manufacturers, operators and retailers with a
comprehensive set of supply chain services and solutions that
improve their ability to get the right product to the right
place at the right price. We offer these supply chain services
on an integrated basis or through targeted modules that address
specific needs of our operator and retail customers. Examples of
our supply chain services include:
Device Management Services consist of a comprehensive suite of
solutions across the entire device lifecycle to simplify and
optimize device management for operators and retailers. The
objective of device lifecycle management is to maximize device
contribution margin by minimizing costs and determining where
further investments will generate higher profit. For example,
our lifecycle management services allow operators to identify
what devices generate high ARPU for the operator and therefore
allow them to adjust their pricing, promotions and /or order
levels and hence maximize profitability. These services also
allow retailers to identify what devices are in high demand in
order to maximize profits. This type of service requires
extensive information technology systems that generate the data
needed to facilitate rapid decision making. For operators, we
believe we increase device profitability by advising on the
positioning of the right devices, with the right plan, at the
right price and at the right place. For retailers, we believe we
improve profitability by increasing sales velocity. We offer
three modules in the device management area:
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Device Strategy and Ranging We
provided a structured process and business intelligence to
support operators and retailers in selecting a range that aligns
with their core strategic objectives and has an explicit
business case for each device.
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Product Lifecycle Management Our
product lifecycle management tool provides contribution margin
per device in real time, enabling fast, accurate marketing
decisions that maximize the profitability of the portfolio.
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New Product Introduction Our new
product introduction process and tool align manufacturer,
operator, and channel stakeholders to drive the fastest possible
speed to market for new devices.
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Strategic Sourcing and Business Intelligence leverages our
global scale, strong relationships with leading manufacturers
and extensive global market intelligence on device
commercialization to provide our customers with valuable insight
into the global wireless device value chain. As a global leader
in the distribution of mobile devices, we believe we have a deep
understanding of the wireless
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ecosystem, supplier base and market dynamics which we leverage
to customize information technology tools when acting as the
procurement agent for our supply chain, retail and enterprise
services customers. We offer three modules in the sourcing and
business intelligence area:
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Strategic Procurement We leverage our
global pricing benchmarks and product business intelligence to
procure devices competitively on behalf of our customers.
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Vendor Management We manage vendors to
drive optimal performance for our customers supply chain.
Our teams organize and lead collaborative planning and
forecasting meetings and manufacturer performance reviews and
use our proprietary supplier collaboration portal to track
manufacturer performance on supply metrics (e.g., delivery to
commit).
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New Vendor Introduction We manage new
relationships with vendors including product roadmap, marketing,
packaging, and other activities and also serve as an original
design manufacturer for new products.
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Supply Chain Optimization Services provide tools and processes
which we believe help our customers reduce product obsolescence,
working capital consumption and stock outs, while increasing the
customers ability to respond quickly to changing market
conditions. We offer three modules in the supply chain
optimization area:
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Distribution and Logistics Using our
proprietary serialized inventory management technology, we
assemble, warehouse, pack, kit and ship wireless devices on
behalf of our customers.
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Supply Chain Management Our supply
chain management services provide inventory forecast and
management solutions, including vendor performance management,
supplier collaboration, reporting and analytics, forecasting and
demand planning and sales and operations planning.
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Reverse Logistics Our reverse
logistics services enable the efficient management of device
returns. Reverse logistics solutions can be designed for asset
recovery, exchange management, refurbishment and repair or
disposal, all of which help our customers to reduce their costs.
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Channel Management Services ensure that sales channels and
agents are well positioned and well educated to sell the right
devices to customers and optimize the service experience. We
offer three modules in the channel management area:
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Channel Relationship Management
Dedicated account representatives that actively promote and
drive sales through store visitation, online support, and
product commercialization.
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Order Management Our unified order
management portal provides real-time information on stock
orders, availability and estimated arrival times, credit limits,
payables, and tracking/tracing of back orders to stores and
stakeholders.
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Vendor Managed Inventory Our system
provides automatic replenishment functionality that drives
availability to optimize
point-of-sale
inventory.
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Our supply chain services allow for greater pricing visibility
and improved demand forecasting, which we believe help
operators, retailers and manufacturers reduce their cost of
device acquisition and improve their inventory supply planning
and lifecycle management, and ultimately enhance both
profitability and end-user satisfaction.
Retail
Services
The increasing interest by retailers to expand and enhance their
wireless category has simultaneously increased the services that
manufacturers, operators and retailers need to support the
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marketing, sales and differentiation of their products and
services at the point of sale. Our retail services are organized
into three practices: In-store services, retail outsourcing
services and expanded portfolio management.
In-Store Services help retailers enhance the profitability of
the wireless category by offering the following services:
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Merchandising Services we provide
retail store product placement diagrams (planograms), packaging,
promotional displays and shippers as well consulting services
for the wireless category.
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Sales Force Training we work with
manufacturers and operators to create training programs and
modules that can be delivered to help educate the sales teams at
the point of sale and site visits from field staff teams.
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Field Services compliance at
individual points of sale is an ongoing challenge for retailers
so we offer services to audit individual stores to assess
product availability, merchandising set up and compliance, sales
knowledge and education as well as provide in-store staffing of
events or programs.
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Retail Outsourcing Services help our customers manage the
increased complexity of the wireless category which is often
difficult for retailers due to low service staffing models or
lack of expertise in the category. In addition, the large number
of points of sale offering wireless devices makes the execution
of a wireless strategy exceptionally difficult to maintain for
non-specialized participants. Increasingly, customers are
seeking to outsource components of the management of the
wireless category at retail which we can offer through a variety
of services ranging from category management to
Store-Within-a-Store services.
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Category Management many retailers
outsource some or all of their category management to us,
seeking our expertise in defining the product mix, promotions
and even pricing management to optimize the category performance.
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Labor Optimization our services
combine in-store training with performance incentives to achieve
results by driving sales force accountability and improved
selling behaviors.
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Store-Within-a-Store (SWAS) in some
countries, retailers or operators ask us to manage the complete
wireless offering within a store. In this model, Brightstar is
the retailer and activating agent, sourcing product, activating
and receiving commission for wireless services, and staffing and
merchandising within a retailers store, but the store
itself is either owned or leased by the retailer.
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Expanded Portfolio Management Services provide innovative
solutions that bridge the gap between the assortment available
online and the service and immediacy of shopping in a retail
environment. Brightstar is able to expand the breadth and depth
of the wireless portfolio for our customers through a number of
technologically advanced and highly automated operational
solutions that include: virtual inventory, online training and
recommendation, online integration and direct to consumer
management.
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Virtual inventory Our proprietary
solution allows the retailer to offer an endless
aisle of products by providing the choice of an online
catalog in-store. This is commercialized through a number of
patent pending technology solutions that we have including
Serial on Demand technology and our automation systems designed
to select, reserve, pick and ship unique and serialized devices
in real time.
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Online integration in order to serve
retailers multi-channel strategy, we offer a complete technology
and operations solution that allows them to manage the front end
of their online stores while integrating directly with our
back-end solutions. This allows them access to a greater
portfolio of products and ensures a low risk inventory model.
The demand for this tool
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is growing as operators and manufacturers are increasingly
seeking to create their own online stores.
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Our retail services allow our customers to more efficiently and
profitably manage the sale of wireless devices across their
footprint. We believe our retail services provide significant
value to our customers in the form of increased profitability,
increased confidence in their wireless device offering, higher
customer satisfaction and more streamlined interactions with
other wireless industry participants.
Enterprise and
Consumer Services
We enable end users, small and medium businesses, enterprises
and government organizations to access cost-effective wireless
voice and data communication anytime, anywhere. Our tools and
services help enterprises, through their IT reseller service
providers, and consumers, through their retail environments,
simplify the procurement, activation and administration of their
wireless devices and productivity tools. Our enterprise and
consumer services are categorized as: (i) activation
services; (ii) customized billing and wireless
administration software; and (iii) handset insurance
services.
Activation Services enable our IT reseller and retailer
customers the ability to participate as wireless agents. We have
a large IT reseller addressable footprint via joint ventures and
commercial relationships with IT distributors, such as Tech
Data, in Europe and the Americas. Within our activation
services, we perform critical functions with process and
technology including:
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Activation Gateway We provide
connectivity into operator activation systems for our channel
partners to use their agent activation code to sell wireless
services.
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Agent Services Agent services include
activation code, credit and fraud check, commissions
reconciliations,
serialized-on-demand
services, virtual inventory and online and
e-commerce
services.
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Carrier Management Carrier management
services include activation, network agent agreements, billing
management and rate plan management.
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Merchandising Services Merchandising
services include online ordering, order management, catalog and
content management and sales training.
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Customized Billing and Wireless Administration Software:
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CellManage Our web-based platform
provides multi-operator billing administration and software
renewal technology that can help organizations better manage
their wireless deployments and spend while reducing network
operator churn.
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Customized IT Services Our development
of front-end order management portals and back-office billing
solutions allows network operators and manufacturers to meet
their customers fulfillment and billing needs.
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Handset Protection and Replacement Services protect new, used or
prepaid wireless devices against loss, theft and accidental
damage as well as mechanical/electronic failure and malfunction:
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Lost-Stolen-Damaged Services Covers handsets
from loss, theft and accidental damage.
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Malfunction-Failure Services Covers
malfunction and mechanical/electronic failure after the
manufacturers warranty ends
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Comprehensive Coverage Services Addresses all
the conditions of both lost-stolen-damaged and
malfunction-failure.
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Our solutions for the Enterprise and Consumer space make selling
wireless services easier and allow IT resellers the ability to
capitalize on a lucrative and important technology, while
expanding
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vendor and operator reach allowing organizations to gain more
control over their wireless deployments. Additionally, our
services allow them to participate in innovative programs like
handset replace to ensure they can always have the latest device
with a lower total cost of ownership. While our enterprise and
consumer services business is small today, we believe the
business provides potential for considerable growth and that our
service offering, which simplifies and enhances the customer
activation experience, adds significant value to our customers
and complements our existing suite of services.
Other Services
and Products
In addition to our four main categories of services, we
periodically develop what we refer to as our Idea to
Consumer products, which are consumer products designed to
take advantage of new product opportunities that we identify.
For example, we have developed the Avvio brand under which we
design and manufacture wireless devices with an average selling
price of under $50. We have developed a range of wireless
telephones under both our proprietary Avvio brand (which are
designed and manufactured to operate in regions for which
fixed-line telephone service connectivity is prohibitively
expensive or nonexistent) and under the Motorola brand pursuant
to a licensing agreement.
Suppliers and
Customers
Our suppliers and customers include some of the most recognized
names in the wireless ecosystem. We view manufacturers,
operators, retailers and enterprises as our customers. We
generally take asset ownership of devices on behalf of
manufacturers and sell to operators, retailers and enterprises.
Among others, our customers include:
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Manufacturers such as Apple, HTC, Huawei, LG, Motorola, Nokia,
RIM and Samsung.
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Operators such as America Movil, AT&T, Orange, Telecom New
Zealand, Telefonica, Telstra, TIM, Verizon Wireless and Vodafone.
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Retailers such as Best Buy, Radio Shack, Target, Tesco and
Walmart.
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Enterprises such as Dell, PC Connection and Tech Data.
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As part of providing services to participants in the wireless
ecosystem, we generally develop contractual relationships with a
manufacturer, operator, retailer or enterprise customer for a
multi-year period to provide services that are intended to lower
the cost of the customers existing supply chains improve
working capital efficiency, among others. We have key contracts
for the provision of services with Telstra in Australia,
Claró and TIM Celular in Brazil, Comcel in Colombia, Porta
in Ecuador, CSL in Hong Kong, Iusacell and Telcel in Mexico,
Telecom New Zealand,
T-Mobile
Puerto Rico, Telefonica in Latin America and Tracfone in the
U.S., among others. Our services contracts typically have terms
between one and five years and may be terminated by either party
subject to a reasonable notice period. We have also established
long-term distribution relationships with many leading
manufacturers of wireless devices and equipment. Our
manufacturer relationships enable us to procure wireless phones,
related accessories and data products and to market and resell
these products to operators and our other customers. In some
cases, we have entered into exclusive and non-exclusive master
agreements with our manufacturer customers.
We generally distribute wireless devices either through global
distribution agreements, tailored to a specific region by
regional amendments, or directly through regional agreements.
Typically, our distribution agreements grant us the
non-exclusive right to distribute the manufacturer
customers products and are subject to termination by the
manufacturer subject to a short notice period. Most of our
distribution agreements terminate on or before December 31,
2011, but automatically renew for successive one-year terms
until the manufacturer customer gives notice within the
applicable notice period. Our manufacturer customers typically
have the right to immediately terminate our agreements
97
if we fail to comply with certain obligations, such as
compliance with local laws and the manufacturer customers
code of ethics or if we experience bankruptcy, insolvency or a
change of control. These agreements may also be immediately
terminated if, after notice, we fail to make payment of our
obligations to the manufacturer customer or if there is a
default under any of our agreements with them (including the
occurrence of an event or condition that would have a material
adverse effect on our financial condition, business, assets or
operations). Many of our distribution agreements grant us the
right to purchase goods on trade credit, however our trade
credit limit may be unilaterally reduced by the manufacturer
customer if our financial condition deteriorates.
Our distribution agreements often include territorial
restrictions and limitations on the accounts we are permitted to
serve. These agreements often include provisions concerning
indemnification of the manufacturer, pricing, price protection,
minimum volume purchase requirements, forecasting, funding for
marketing and returns management procedures. Most of our
distribution agreements require us to pay in U.S. dollars;
however, some of these agreements require us, due to local legal
requirements, to purchase in the currency of the country in
which the manufacturers manufacturing facility or
invoicing entity is located.
Our manufacturer customers generally provide product warranties
for the products that we purchase, which permit returns of
defective products, including those returned to us by our
customers. We do not independently warrant the products that we
distribute, although we do provide warranties for the fixed
wireless devices that we contract for manufacture and distribute
as part of our Idea to Consumer business. We record a reserve
for estimated warranty costs (related to fixed wireless devices)
at the time of sale and periodically review and, if necessary,
adjust this reserve to reflect actual experience. Historically,
our warranty costs have not been significant.
During the year ended December 31, 2010, sales of our top
three manufacturer customers products accounted for
approximately 38%, 19% and 12% of our revenue. Our top five
manufacturer customers are LG, Motorola, Nokia, RIM and Samsung,
which together represented 82% of our revenue in 2010. See
Risk Factors Risks Related to Our
Business We depend on a limited number of
manufacturer customers to provide us with competitive products
at reasonable prices and of good quality.
Sales and
Marketing
As of December 31, 2010, we had approximately
350 employees dedicated to sales and marketing activities.
As a general matter, we have local operations teams dedicated to
particular geographic regions and customers. In Latin America, a
substantial majority of our sales and marketing activities are
conducted through our local offices in order to maintain direct
relationships with our customers. We augment our local sales
forces with a centralized sales and marketing team that works
out of our Miami headquarters. Our Miami-based sales and
marketing team also serves customers in locations outside of the
United States where we do not have a local presence.
In the United States, our sales and marketing teams are
organized to support the designated channels we serve,
specifically operators, retailers, independent agents, local
operators, dealers and resellers. Our sales teams consist of
employees with specific, relevant experience in the channels
they serve. Sales resources for operators are generally
decentralized and located regionally across the United States in
order to maintain closer contacts with their customers. Sales
resources for retailers and enterprises are generally centrally
staffed in order to facilitate customer service and increase
operating efficiencies. Our marketing staff supports sales
channels as well as new business activities and corporate
branding initiatives.
We regularly develop and implement marketing programs and
strategies in order to support our sales associates and to
assist them in differentiating our product and service offerings
and facilitating their sales. Most of our new sales are
generated through direct sales efforts. However, we also conduct
marketing activities on a regional basis, enabling our efforts
to be tailored to the customers on which we focus. We market our
products and services through a variety of methods, including:
98
market research, advertising, customer events, trade shows and
conventions, public relations, direct mail, electronic
communications and customer relationship management programs
that serve as loyalty programs, rewarding customers for
maintaining relationships with us. A large portion of our
marketing activities are funded through marketing development
programs or cooperative advertising funds that we receive from
certain manufacturers in order to support sales of their
products. We use these funds for our marketing initiatives and
to procure and distribute product support materials for use at
our customers various points of sale.
Competition
Due to the diversified nature of our services offerings, we face
competition from different companies in different parts of our
business and in our different geographies. For example,
companies that offer services to the participants of the
wireless ecosystem include management consulting firms such as
Accenture, which provide advice on improving their
customers supply chain management; information services
businesses such as IBM, whose products are integrated into their
customers supply chain; software companies such as Oracle,
which develop software for mass use; and logistics services
providers, such as UPS, DHL and FedEx. We compete on the basis
of market expertise, visibility into the supply chain,
customized technology, geographic coverage and price.
For distribution services, most handset deliveries are made by
manufacturers selling directly to operators. However, we expect
the trend among most large manufacturers to increase their use
of distribution partners to continue, especially when entering
emerging markets. We believe that our market is highly
fragmented due to: (i) manufacturers going direct in many
large developed markets and (ii) the non-concentrated
nature of distribution in most developing markets (outside of
Latin America) where smaller distributors collectively control
significant volume.
While our main competitors for distribution services are
manufacturers that sell their products directly to operators or
retailers, our most significant direct competitor in the
distribution services market is Brightpoint, Inc. We also
compete with local distributors in many of the regions in which
we operate, such as 20/20, a regional distributor in Europe.
As we enter new service categories we will encounter new
competitors. For example, with the addition of our handset
protection and replacement services we now compete with Asurion
and Assurant in the United States.
Information
Systems
We have developed and implemented information systems designed
to increase the efficiency of our operations and to provide
information across all areas of our business. We use web-based
solutions for purchasing, inventory, returns management and
customer reporting through a combination of
off-the-shelf
software and internally developed applications. Our systems are
designed to deliver business-critical and time-sensitive
commercial, financial and market information that help provide
transparency internally and allows the efficient information
exchange between our customers and us.
We currently operate on two operating platforms, one based on
Oracles EnterpriseOne ERP and one on Microsoft Dynamics
SL. In addition, we have proprietary applications that are
integrated into our enterprise platform via proprietary and
Microsoft middleware. Hyperion is used as our central financial
reporting business intelligence application and is integrated
with all of our operations worldwide. A critical component of
our information system infrastructure is our serialization
technology which we use to track serialized inventory across our
supply chain. This technology significantly reduces data errors
associated with serialized inventory, enables us to efficiently
move millions of serialized components with greater accuracy,
and also delivers real-time information relating to sales,
inventory and fulfillment activities.
We employ various security measures and backup procedures to
protect our internal and our customers data against
unauthorized access, use, or loss. Information access is
controlled through the
99
use of passwords, firewalls and virtual private networks.
Additionally, we have implemented long-term data survivability
for our corporate headquarters operations by relocating
our data center and managed
back-up
processes to off-site facilities. As of December 31, 2010,
we had approximately 230 full-time employees providing
information technology services for all aspects of our business
operations.
Intellectual
Property
We do not rely significantly on any intellectual property,
particularly not on any registered intellectual property items.
We do, however, rely on certain trade secret and copyright laws
to protect our proprietary knowledge, particularly our business
methods, database of customers and manufacturers, and business
terms such as pricing. We regularly enter into non-disclosure
and non-competition agreements with our key employees and seek,
to the extent practicable, to restrict access to our trade
secrets and other proprietary information. Brightstar and its
logo are our trademark and service mark, and we market certain
products and services under such marks. Brightstar and its logo
are registered in the United States and in various Latin
American countries, including Argentina, Dominican Republic,
Ecuador, El Salvador, Peru and Venezuela. We have other
trademarks, such as Avvio and Brightime that are registered in
Latin American countries but are not registered in the United
States. We cannot give any assurance when, or if, such marks
will become registered in the United States. We possess two
patents relating to packaging and tracking of wireless devices.
Employees
As of December 31, 2010, we had approximately
3,500 employees, of which
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17% were located in the United States and Canada;
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62% were located in Latin America;
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18% were located in Asia Pacific; and
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3% were located in Europe.
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In some of our operations, we from time to time use a temporary
workforce hired through employment agencies to perform
principally light assembly, kitting and similar tasks. While our
work force generally has had low turnover, the use of temporary
labor provides us with staffing flexibility that supports peak
demand periods.
We are subject to various regulatory and contractual
restrictions governing our relationships with employees in the
United States and in other countries throughout the Americas. We
are generally not subject to collective bargaining or labor
agreements, except that in Argentina, Brazil, Ecuador, Mexico
and Venezuela, we have labor agreements with our employees as
required by local law. We believe that our relations with our
employees are satisfactory.
Properties
We lease most properties that we presently use, except for a
parcel of real property in Tierra del Fuego, Argentina purchased
in 2005 where we maintain an assembly facility. In addition, we
recently purchased properties in Venezuela that we lease to
tenants as a hedge against our exposure to the political and
financial risks of operating in Venezuela. See Risk
Factors Risks Related to Our Business We
conduct a substantial amount of business in Venezuela. Our
corporate headquarters, located in Miami, Florida occupy
61,053 square feet of office space. Our facilities in
Libertyville, Illinois are certified under ISO 9001:2000, which
is a set of standards published by the International
Standardization Organization used to document, implement and
demonstrate quality management and assurance systems. As of
December 31, 2010, we operated over 90 offices and
facilities in 48 countries.
100
The following table summarizes our leased properties as of
December 31, 2010:
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Region
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Location
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Square Feet
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U.S./Canada
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6 facilities in the United States (Libertyville, Miami and
Cambridge)
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457,540
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Latin America
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43 facilities in or serving Latin America, including Miami
Distribution Center
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631,163
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(Argentina, Bolivia, Brazil, Chile, Colombia, Dominican
Republic, Ecuador, Guatemala, Mexico, Paraguay, Peru, Puerto
Rico, Uruguay and Venezuela)
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Asia Pacific
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48 facilities in the Asia Pacific Region
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366,662
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(Australia, Hong Kong, Malaysia, New Zealand, Nigeria, South
Africa, Vietnam, Thailand and Singapore)
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Environmental
Matters
Our properties and operations are subject to various foreign,
federal, state and local environmental, health and safety laws
and regulations, which overall have become more stringent over
time. Under some environmental laws, current or previous owners
or operators of real property can be held liable for
contamination even if they did not know of and did not cause the
contamination. Environmental laws may also impose liability on
any person who disposes of, or arranges for the disposal of,
hazardous substances, regardless of whether the disposal site is
owned or operated by such person. Although we do not currently
anticipate that the costs of complying with environmental laws
and regulations will materially adversely affect us, we could
incur significant costs or liabilities in the future due to the
discovery of new facts or conditions at our properties or at
third-party locations, changes in environmental laws or other
developments.
Legal
Proceedings
We are from time to time a party to various litigation matters
incidental to the conduct of our business. See Note 14 to
our consolidated financial statements and notes thereto included
elsewhere in this prospectus.
Corporate
History
Brightstar Corp. was founded by our Chairman and Chief Executive
Officer, R. Marcelo Claure, and David Peterson in October 1997.
In June 2007, Lindsay Goldberg LLC acquired an interest in us by
purchasing shares of our Series D Redeemable Convertible
Preferred Stock.
101
MANAGEMENT
Executive
Officers and Directors
The following table sets forth information regarding our
executive officers and directors as of March 31, 2011:
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Name
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Age
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Position
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R. Marcelo Claure
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40
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Chairman and Chief Executive Officer
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Dennis J. Strand
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50
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Executive Vice President, Chief Financial Officer and Director
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Michael J. Cost
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46
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Global Chief Operating Officer and Director
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Oscar J. Fumagali
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57
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Chief Treasury Officer and Director
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Denise W. Gibson
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51
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President, Brightstar U.S. and Canada and Director
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Rod J. Millar
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41
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President, Brightstar Europe
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Arturo A. Osorio
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41
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President, Brightstar Asia Pacific
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Oscar A. Rojas
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44
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President, Brightstar Latin America
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Rafael M. de Guzman III
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38
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Vice President of Strategy and Director
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Steven I. Bandel
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58
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Director
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Charles H. Fine
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54
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Director
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Alan E. Goldberg
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56
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Director
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Lance L. Hirt
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43
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Director
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Robert D. Lindsay
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56
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Director
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Thomas J. Meredith
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60
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Director
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Andrew S. Weinberg
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36
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Director
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R. Marcelo Claure became our Chairman and Chief
Executive Officer in 1997. Prior to launching Brightstar,
Mr. Claure was active in the expansion of the
U.S. telecommunications market through a number of
entrepreneurial endeavors. He held an executive position at
Unplugged Communications, a company engaged in the distribution
and activation of wireless products. He also served as President
of Small World Communications, and was President of Cellular
Solutions, a successful wireless retailer in the northeastern
United States. Mr. Claure holds a B.S. in economics and
finance from Bentley College in Massachusetts. He also received
an honorary doctorate degree in commercial science from Bentley
University, and an honorary doctorate degree from the
Universidad Tecnica Privada de Santa Cruz (UTEPSA).
Dennis J. Strand became our Executive Vice President,
Chief Financial Officer and director in November 2007. Prior to
joining Brightstar, Mr. Strand spent more than
20 years in corporate finance during his tenure at
Motorola, having served most recently as Senior Vice President
of Finance for Motorolas Mobile Device Business from 2002
to 2007. Prior to this role, Mr. Strand lived in Europe and
was Vice President of Finance in Motorolas Mobile Device
Business in EMEA (Europe, Middle East, and Africa), and prior to
that he was Vice President of Finance for the Americas.
Mr. Strand holds an M.B.A. in international finance from
DePaul University and a B.S. in business administration from the
University of Wisconsin Whitewater.
Michael J. Cost became our Global Chief Operating Officer
in September 2009, having previously served as the President and
Chief Operating Officer of Brightstar U.S. from 2007 to
2009. Mr. Cost became a director in 2007. Prior to joining
Brightstar, Mr. Cost was the Chief Operating Officer of
Pantech Wireless, Inc. for the U.S. and Canada from 2006 to
2007. Prior to joining Pantech Wireless, Mr. Cost served in
leadership roles in product and supply chain management for
Cingular
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Wireless from 2000 to 2006. Mr. Cost holds a B.S. in law,
criminal justice, and psychology from Middle Tennessee State
University.
Oscar J. Fumagali became our Chief Corporate Treasurer in
November 2007, having previously served as our Chief Financial
Officer from 2001 to 2007. Mr. Fumagali became a director
in 2003. Prior to joining Brightstar, Mr. Fumagali served
for five years as Chief Financial Officer for a major division
of Watsco, Inc. Prior to that, Mr. Fumagali was the
Controller and Director of Business Planning with a division of
PepsiCo. Mr. Fumagali holds a B.S. in industrial and
systems engineering from Georgia Institute of Technology and an
M.B.A. from Florida Atlantic University.
Denise W. Gibson became our President of Brightstar
U.S. and Canada in January 2011, having previously served
as the President and Chief Operating Officer of Brightstar
U.S. from 2001 to 2007. Ms. Gibson became a director
in 2001. Prior to joining Brightstar, Ms. Gibson spent
17 years at Motorola in various positions, including Vice
President and Director of North America Customer Technical
Solutions, Vice President and General Manager of
U.S. Markets and Director of Product Business Operations.
Ms. Gibson currently serves on the executive board for the
Consumer Electronics Association (CEA) and is a founding member
of its Green Project. She has served as chair for the CEAs
Wireless Communications Division, and vice chair of the CTIA
Wireless Foundation. Ms. Gibson holds a Masters of
Management from the Kellogg School of Business at Northwestern
University and a B.S. degree in business administration from
Drexel University.
Rod J. Millar became our President of Brightstar Europe
in April 2007. Prior to joining Brightstar Europe,
Mr. Millar was managing director for the largest mobile
distributor in the UK, 20:20. Prior to his role at 20:20,
Mr. Millar spent eight years at Thomson Directories, a
yellow page directory company in various progressive roles
including general management.
Arturo A. Osorio became our President of Brightstar Asia
Pacific in June 2009, having previously served as our Chief
Financial Officer for Asia Pacific from 2007 to 2009. In August
2010, Mr. Osorios region was expanded to include the
Middle East and Africa. Mr. Osorio has over twenty years of
experience in the information technology and telecommunications
industries, and extensive international experience through
previously held positions in Europe, the United States and Latin
America. Prior to joining Brightstar, Mr. Osorio was Vice
President for the Latin American division of Intershop, a German
software company. Mr. Osorio holds an Executive M.B.A. from
the University of Melbourne in partnership with the Kellogg
School of Management from Northwestern University.
Oscar A. Rojas became our President of Brightstar Latin
America in August 2010. Prior to joining Brightstar,
Mr. Rojas spent more than 17 years at Motorola, having
most recently served as the Corporate Vice President of
Motorolas Enterprise Mobility Solutions for the Latin
America and Caribbean region. Prior to this role, Mr. Rojas
served as Vice President and General Manager of Motorolas
Government & Commercial Markets Division for the Latin
America and Caribbean region, and prior to that he held the role
of Director & General Manager of Motorolas
Mobile Devices business for Latin America North covering the
Andean, Caribbean and Central America regions. Mr. Rojas
holds a Bachelors degree in computer science from
Universidad Simon Bolivar in Caracas, Venezuela, and an M.B.A.
from Carnegie Mellon University.
Rafael M. de Guzman III became our Vice President of
Strategy in June 2010 and has served as our Chief of Staff since
April 2007, having previously served as the business manager of
our high growth markets business development team from 2006 to
2007. Mr. de Guzman became a director in 2008. Prior to joining
Brightstar, Mr. de Guzman completed his J.D. at the University
of Miami in December 2005. From April 2002 to August 2003, Mr.
de Guzman was Business Development Manager at Desgrippes Gobe,
now Desgrippes & Laga, a global brand strategy and
design firm. Prior to working at Desgrippes Gobe, Mr. de Guzman
spent approximately four years working at a number of brand and
communications firms in various roles, including management. In
addition to his J.D. from the University of Miami, Mr. de Guzman
holds a B.A. in history from Princeton University.
Steven I. Bandel became a director in 2006.
Mr. Bandel is the Co-Chairman and Chief Executive Officer
of the Cisneros Group of Companies, a privately held media,
entertainment, telecommunications and consumer products
organization, since 2009. Prior to that, Mr. Bandel served
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as the Executive President and Chief Operating Officer of
Cisneros from 2000 to 2009. Prior to 2000, Mr. Bandel
served in various other positions within Cisneros, including
Chief Financial Officer, President of Multimarket, the
Groups former investment bank, Vice President of Finance
for the Communications Division, Director Assistant to the
Chairman and Chief Executive Officer, Vice President of Finance
for the Information Technology Division and New Business
Development Manager. Mr. Bandel currently serves as a
director of Claxson Interactive Group, and previously he served
as a director of Directv Latin America, LLC from 2003 to 2007
and of America Online Latin America, Inc. from 2000 to 2005.
Mr. Bandel holds an M.B.A. from the Institute of Advanced
Management Studies in Venezuela and received his B.S. in
electronic and electrical engineering from Stevens Institute of
Technology.
Charles H. Fine became a director in 2008. Professor Fine
teaches operations strategy and supply chain management at the
Sloan School of Management of the Massachusetts Institute of
Technology (MIT). He has taught at MIT since 1983 and received
tenure in 1991. Professor Fine also serves as
co-director
of a new executive education program, Driving Strategic
Innovation, which is a joint venture between the MIT Sloan
School of Management and IMD in Lausanne, Switzerland. Professor
Fine holds a Ph.D. in business administration (decision
sciences) from Stanford University, an M.S. in operations
research from Stanford University, and an A.B. in mathematics
and management science from Duke University.
Alan E. Goldberg became a director in 2007.
Mr. Goldberg co-founded Lindsay Goldberg in 2001.
Previously, he served as Chairman and Chief Executive Officer of
Morgan Stanley Private Equity from 1998 to 2001.
Mr. Goldberg joined Morgan Stanley in 1978 and played an
integral role in founding its Private Equity business in 1984
and building the firms highly successful global private
equity business. Mr. Goldberg holds a J.D. from Yeshiva
University, an M.B.A. from the New York University Graduate
School of Business, and a B.A. in philosophy and economics from
New York University. Mr. Goldberg is a director of FAPS
Holdings, Inc., Maine Beverage Company, LLC, PL Olefins LLC,
Continental Energy Systems LLC, Intermex Holdings, Inc., The
Brock Group, Inc., Rosetta LLC, PL Propylene LLC, RECON
Holdings III Inc., Ambulatory Services of America, Inc.,
Crane & Co., Inc., Scandza AS, PSC, LLC, Panadero
Aggregates Holdings, LLC, Aviv REIT, Inc. and Pacific Architects
and Engineers Incorporated. He also serves as a Trustee of
Yeshiva University.
Lance L. Hirt became a director in 2007 and is the
compensation committee chairman. Mr. Hirt is a partner at
Lindsay Goldberg. Prior to joining Lindsay Goldberg in 2003,
Mr. Hirt was a Managing Director at Morgan Stanley where he
spent nine years in the mergers and acquisitions department
advising a broad range of general industrial clients.
Mr. Hirt began his career practicing law at
Sullivan & Cromwell in New York and was subsequently a
management consultant at Touche Ross & Co.
Mr. Hirt received his M.B.A. and J.D. from Harvard
University and graduated from Yeshiva College with a B.A. in
economics. He currently serves as a Director of PL Olefins LLC,
Brock Holdings, Inc., PL Propylene LLC, RECON Holdings III
Inc., Scandza AS, PSC, LLC, Trygg Pharma Holding AS and Panadero
Aggregates Holdings, LLC. He also serves as a Trustee of Yeshiva
University in New York City.
Robert D. Lindsay became a director in 2007.
Mr. Lindsay co-founded Lindsay Goldberg in 2001.
Previously, he was the managing general partner of Bessemer
Holdings and, prior to joining Bessemer Holdings in 1991, he was
a managing director at Morgan Stanley Private Equity, where he
played an integral role in founding the business in 1984.
Mr. Lindsay holds a B.A. in English and American literature
and language from Harvard College and an M.B.A. from Stanford
University. He is President and Chief Executive Officer of
Bessemer Securities LLC as well as a director of The Bessemer
Group, Incorporated and its subsidiary banks, including Bessemer
Trust Company, N.A. Mr. Lindsay serves as a director
of Pike Electric Corporation, FAPS Holdings, Inc., Maine
Beverage Company, LLC, PL Olefins LLC, Continental Energy
Systems LLC, Intermex Holdings, Inc., The Brock Group, Inc.,
Bell Nursery Holdings, LLC, Rosetta LLC, PL Propylene LLC,
Ambulatory Services of America, Inc., Crane & Co.,
Inc., Scandza AS, PSC, LLC, Panadero Aggregates Holdings, LLC,
Aviv REIT, Inc. and Pacific Architects and Engineers
Incorporated. He also serves as a Trustee of the Cold Spring
Harbor Biological Laboratory and St. Pauls School in
Concord, New Hampshire.
104
Thomas J. Meredith became a director in 2010 and is the
audit committee chairman. Mr. Meredith is a co-founder and
general partner of Meritage Capital, L.P., an investment
management firm specializing in multi-manager hedge funds. He is
the chief executive officer of MFI Capital, the Meredith
familys private investment arm. Mr. Meredith has
served as acting Executive Vice President and Chief Financial
Officer of Motorola, Inc. from 2007 to 2008, and he was Managing
Director of Dell Ventures and Senior Vice President of business
development and strategy of Dell Inc. from 2000 to 2001, and
Senior Vice President and Chief Financial Officer of Dell from
1992 to 2000. Prior to joining Dell, Mr. Meredith served as
a Vice President and Treasurer at Sun Microsystems, Inc. He
currently serves on the board of directors of Motorola Mobility,
Bazaarvoice, and The Nature Conservancy. Mr. Meredith is an
adjunct professor at the McCombs School of Business at the
University of Texas. He also serves on the advisory board of the
LBJ School of Public Affairs at the University of Texas.
Mr. Meredith holds a J.D. from Duquesne University, an
LL.M. in taxation from Georgetown University, and a B.A. in
political science from St. Francis University.
Andrew S. Weinberg became a director in 2007 and is the
strategy committee chairman. Mr. Weinberg served as our
Chief Strategy Officer from 2009 to 2011 and as our Chief
Operating Officer from 2008 to 2009. Mr. Weinberg is a
partner at Lindsay Goldberg, which he joined in 2003.
Previously, he was an associate at Goldman, Sachs &
Co. in the Principal Investment Area. Mr. Weinberg began
his career at Morgan Stanley in the mergers and acquisitions
department in New York and in the leveraged finance group
in London. Mr. Weinberg holds an M.B.A. from Stanford
University, and an A.B. in Economics and History from Dartmouth
College. He currently serves as a Director of PL Olefins LLC,
The Brock Group, Inc., PL Propylene LLC, RECON Holdings III
Inc., Scandza AS, PSC, LLC, and Trygg Pharma Holding AS.
Experience of
Directors
Our directors were selected to join our board of directors based
upon the following as to each director: such persons
character and integrity; such persons service as a board
member of other boards of directors; and such persons
willingness to serve and willingness and ability to commit the
time necessary to perform the duties of a director. No factor,
by itself, was controlling.
Board
Composition
Our board of directors currently consists of 13 members, and we
have two vacancies. Pursuant to our Fourth Amended and Restated
Stockholders Agreement, and subject to certain
limitations, Mitsui & Co., Ltd. is entitled to
designate one director for election to the board, Lindsay
Goldberg is entitled to designate four directors for election to
the board and N&P Holdings, Limited Partnership, is
entitled to designate the remainder of the directors for
election to the board, provided that the board shall consist of
no more than 15 members. Messrs. Weinberg, Goldberg, Hirt
and Lindsay are designees of Lindsay Goldberg. No designee of
Mitsui & Co., Ltd. currently sits on the board.
Following this offering, these provisions of the Fourth Amended
and Restated Stockholders Agreement will no longer be in
effect. See Certain Relationships and Related
Transactions Stockholders Agreement.
We will avail ourselves of the controlled company exception
provided under the Nasdaq Stock Market rules. A controlled
company need not comply with the applicable Nasdaq Stock Market
rules requiring its board of directors to be comprised of a
majority of independent directors. A controlled
company under the Nasdaq rules is a company of which more
than 50% of the voting power for the election of directors is
held by a single stockholder or group of stockholders. Upon
completion of this offering, Mr. Claure will beneficially
own all of our outstanding Class B common stock,
representing % of the voting power
for directors and % of the total
economic ownership. Because Mr. Claure will beneficially
own more than 50% of the voting power for the election of our
directors immediately following this offering, we will qualify
as a controlled company under the Nasdaq Stock
Market rules. Following the consummation of this offering, we
intend to have at least three independent directors. In the
event that we are no longer a controlled company, we will be
required to
105
have a majority of independent directors on our board of
directors, subject to a phase-in period during the first year we
cease to be a controlled company.
Following this offering, we anticipate that the board will be
divided into three classes, with each class having a staggered
three-year
term.
and
are our Class I directors and their term expires in
2012.
and
are our Class II directors and their term expires in
2013.
and
are our Class III directors and their term expires in 2014.
The
additional independent directors will be Class II
and III directors, respectively. One class of directors
will be elected annually. Each of our directors will hold office
until his or her successor has been duly elected and qualified.
Each of our officers serves at the discretion of the board,
subject to the terms of any applicable employment agreement.
Board
Committees
Audit
Committee
Our Audit Committee will assist our board of directors in its
oversight of our internal audit function, the integrity of our
financial statements, our independent registered public
accounting firms qualifications and independence, and the
performance of our independent registered public accounting firm.
Our Audit Committees responsibilities will include, among
others:
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reviewing the audit plans and findings of our independent
registered public accounting firm and our internal audit and
risk review staff, as well as the results of regulatory
examinations, and tracking managements corrective action
plans where necessary;
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reviewing our financial statements, including any significant
financial items
and/or
changes in accounting policies, with our senior management and
an independent registered public accounting firm;
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reviewing our financial risk and control procedures, compliance
programs and significant tax, legal and regulatory
matters; and
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appointing annually our independent registered public accounting
firm, evaluating its independence and performance, determining
its compensation and setting clear hiring policies for employees
or former employees of the independent registered public
accounting firm.
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The members of the Audit Committee are expected to
be ,
and .
We expect our board of directors to
determine
to be independent under the SEC and Nasdaq Stock Market rules.
The SEC and Nasdaq Stock Market rules require that each issuer
has an audit committee of at least three independent members.
The SEC and Nasdaq Stock Market rules allow an issuer to
phase-in, in connection with an initial public offering, the
number of directors on the audit committee as well as the
independence of such directors. Under the initial public
offering phase-in, at the time of listing, the audit committee
must have at least one member, and that member must be an
independent director (as defined in the SEC and Nasdaq Stock
Market rules) and must meet the Nasdaq audit committee financial
expert requirement at the time of the listing. Within
90 days after listing, the audit committee must have at
least two members, and a majority of the members of the audit
committee must be independent. Within one year after listing,
the audit committee must have at least three members, all of
whom must be independent. In addition, each member of the audit
committee is required to be financially literate at the time
such member is appointed and at least one member of the audit
committee must meet the requirements for an audit committee
financial expert under SEC
rules.
qualifies as an audit committee financial expert as
term is defined under the SEC rules. We will modify the
composition of our audit committee as required to comply with
the Nasdaq Stock Market and SEC rules.
Nominating and
Corporate Governance Committee
We anticipate
that ,
and
will serve on the Nominating and Corporate Governance Committee.
As long as we are a controlled company, we are not required to
maintain a
106
nominating and corporate governance committee comprised of
independent directors, however, we expect that all members of
the Nominating and Corporate Governance Committee will be
independent upon the consummation of this offering. Our
Nominating and Corporate Governance Committees
responsibilities will include, among others:
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making recommendations to the board regarding the selection of
candidates, qualification and competency requirements for
service on the board and the suitability of proposed nominees as
directors;
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advising the board with respect to the corporate governance
principles applicable to us;
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overseeing the evaluation of the board and management;
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reviewing and approving in advance any related party
transaction, other than those that are pre-approved pursuant to
pre-approval guidelines or rules established by the
committee; and
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establishing guidelines or rules to cover specific categories of
transactions.
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Compensation
Committee
The members of the Compensation Committee are Lance L. Hirt
(Chair), R. Marcelo Claure, Steven I. Bandel, Thomas J.
Meredith, and Andrew S. Weinberg. As long as we are a controlled
company, we are not required to maintain a nominating and
corporate governance committee comprised of independent
directors, however, we expect that all members of the
compensation committee will be independent upon the consummation
of this offering. Our Compensation Committee will assist our
board of directors in the discharge of its responsibilities with
respect to the compensation and benefit plans and programs of
the Corporations executive officers.
Our Compensation Committees responsibilities will include,
among others:
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Review and approve corporate goals and objectives relevant to
the compensation of our Chief Executive Officer and other
executive officers, evaluate our performance in light of those
goals and objectives, and set the compensation of the Chief
Executive Officer and other executive officers based on such
evaluations.
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Review and make recommendations to the board of directors with
respect to director compensation.
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Administer the issuance of stock options and other awards under
our equity plans.
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Review and evaluate, at least annually, the performance of the
compensation committee and its members, including compliance of
the compensation committee with its charter.
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Strategy
Committee
The Strategy Committee participates with management in the
development of the Companys strategy and monitors the
implementation of the Companys strategy. In addition, this
Committee provides advice and counsel to management on mergers
and acquisitions, capital management, and financial risk
tolerance. Andrew S. Weinberg, Thomas J. Meredith and Steven I.
Bandel will serve on the committee.
Compensation
Committee Interlocks and Insider Participation
During fiscal 2010, our Chairman and Chief Executive Officer,
Mr. Claure, served on our compensation committee.
Mr. Weinberg has served as our Chief Strategy Officer from
2009 to 2011 and served as our Chief Operating Officer from 2008
to 2009. None of our executive officers currently serves or in
the past year has served as a member of the board of directors
or compensation committee of another entity whose executive
officers served on our board of directors or compensation
committee.
107
COMPENSATION
DISCUSSION AND ANALYSIS
Named Executive
Officer Compensation
This compensation discussion and analysis describes the key
elements of our executive compensation program for 2010. For our
2010 fiscal year, our named executive officers
(NEOs) were:
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Name
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Title
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R. Marcelo Claure
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Chairman and Chief Executive Officer
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Dennis J. Strand
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Executive Vice President and Chief Financial Officer
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Oscar A. Rojas
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President Brightstar, Latin America
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Arturo A. Osorio
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President Brightstar, Asia Pacific
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Michael J. Cost
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Global Chief Operating Officer
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This compensation discussion and analysis, as well as the tables
following this narrative, are based on our current plans and
expectations regarding our future. Actual compensation programs
that we adopt following this offering may differ from the
programs summarized below.
Executive
Summary
Our compensation programs in 2010 consisted of base salary,
annual incentives and other benefits. Although we have
historically awarded long-term equity-based incentives to our
executives and key employees, only Mr. Rojas, who joined
the company on August 23, 2010, received a long-term
incentive award in 2010. In connection with the commencement of
his employment, Mr. Rojas was granted a long-term incentive
award consisting of 220,000 stock options.
We are in the process of reviewing, and making enhancements to,
the design and governance of our compensation programs. These
enhancements include identifying a peer group to be used for
benchmarking purposes, articulating our compensation philosophy,
re-designing our annual incentive program, and developing a
long-term incentive program to deliver equity upon this offering
and for future awards. In early 2011, the Compensation Committee
engaged a third-party consulting firm, Towers Watson (the
Consultant), to assist with this process.
Overall
Compensation Philosophy
We have implemented a compensation program designed to support
our philosophy. At its core, the program will be market-based
and performance-oriented. We believe compensation should be
based on quantitative factors, such as how well we have attained
our net income goals, the operating income of our divisions, and
other financial and operational metrics. We also believe
compensation should be based on qualitative factors, such as how
well an individual supports and enhances our company culture,
how well he or she helps us achieve our strategic goals, and his
or her ability to support the other members of our team.
We intend for our policies to support the achievement of our
strategic objectives by aligning the interests of our executive
officers with those of our stockholders through financial and
operational performance goals and equity-based compensation. The
principles of our compensation philosophy are as follows:
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Support a one-company culture, providing consistency and equity
but with the flexibility to manage locally.
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Drive performance outcomes in support of our business strategy.
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108
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Ensure that the contributions of both individuals and teams are
recognized and rewarded through performance-based assessment and
compensation.
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Consider external market trends and best practices for
market-driven, competitive compensation practices.
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Orient compensation policies towards total remuneration,
offering a full spectrum of cash and non-cash rewards focused on
building a high-performance workforce.
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Administer our compensation policies and practices on a fair and
consistent basis, in a manner that is transparent and builds
awareness, understanding and appreciation, based on a foundation
of good governance, ethics and compliance and risk management.
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This philosophy was developed through discussions with our
senior leadership and the Consultant and has been reviewed and
approved by our Compensation Committee.
Role of
Management, Consultants and Others in Determining
Compensation
Our Compensation Committee is responsible for the oversight of
executive compensation. Prior to this offering, our compensation
programs and levels were primarily driven by the market via
published survey data and internal equity comparisons to similar
positions in level and scope.
Following this offering, the Compensation Committee will be
comprised of independent members and will be responsible for
determining compensation for our executives with input from
management and the Consultant. We anticipate the Chief Executive
Officer and management will prepare recommendations for
compensation (other than for themselves) which the Compensation
Committee will utilize in making its determinations. The
Compensation Committee will have sole responsibility for
determining the compensation of our Chief Executive Officer. In
addition, the Compensation Committee may engage the services of
outside advisers, experts and others as it deems necessary.
In 2009, an independent consulting firm, Hewitt Associates
(Hewitt), was engaged by management to
(1) advise on the design of our long-term incentive plan,
(2) prepare a market analysis of executive positions,
including the development of a peer group to be utilized in
external benchmarking and a market summary of typical long-term
incentive award sizes and total compensation and (3) design
a compensation plan for members of our board of directors.
In early 2011, the Compensation Committee engaged the Consultant
to build on the foundation established by Hewitt, support this
offering and assist in developing our future compensation
programs. We have also engaged the Consultant in 2011 to review
and assess our sales compensation plans and to provide
recommendations for compensation plan improvements that will
align more effectively with our business strategy.
Benchmarking
Although we have not historically utilized peer groups in
determining competitive compensation for our NEOs, we have
implemented a process to analyze the compensation of our peer
group executives based on industry, size, business model and
other performance measures. Generally, such comparisons will
focus on peer group compensation data published in their filed
proxy statements and results of their financial performance
reported in their other public reports. To that end, the
Compensation Committee and the Consultant identified the
following peer group to be used in future review of
109
our compensation levels and programs. We anticipate that this
peer group will continue to evolve as the characteristics and
profile of the company change.
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Peer Group
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Arrow Electronics, Inc.
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Manhattan Associates, Inc.
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Avnet Inc.
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ScanSource, Inc.
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Brightpoint Inc.
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Synchronoss Technologies, Inc.
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CACI International Inc.
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SYNNEX Corp.
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CH Robinson Worldwide Inc.
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Tech Data Corp.
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DST Systems Inc.
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United Stationers Inc.
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Genpact Ltd.
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UTi Worldwide Inc.
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Ingram Micro Inc.
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Elements of our
Compensation Program
We currently provide the following elements of compensation to
some or all of our NEOs:
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Base salary;
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Annual performance bonus;
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Long-term incentive (stock options); and
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Other benefits and perquisites.
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Each compensation element fulfills one or more of our
compensation program objectives. We assess each of these
elements independently and collectively to ensure that the
amount paid to each NEO for each compensation element and
overall is reasonable.
Base
Salary
Base salaries are intended to provide a base level of
compensation and are paid in recognition of the skills,
experience and
day-to-day
contributions that our NEOs make to the company. We review the
salaries of our NEOs, both as a group and individually, on an
annual basis. When establishing the base salary for each NEO, we
consider the following factors: the individuals
performance, relevant experience, prior changes to the
NEOs overall compensation, role and corresponding
responsibilities and contribution level. We also consider the
pay of our other executives. Based on our philosophy, we expect
to target base salary levels to align with the market median
salaries as benchmarked against our peer group.
In 2010, in consideration of the factors set forth above, the
salaries for our NEOs were set as follows:
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Name
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2010 Base Salary
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R. Marcelo Claure
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$
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1,500,000
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Dennis J. Strand
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$
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375,000
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Oscar A. Rojas(1)
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$
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350,000
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Arturo A. Osorio(2)
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$
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366,880
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Michael J. Cost
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$
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375,000
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(1)
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Mr. Rojas joined the company on August 23, 2010. The
salary presented above reflects his annualized pay.
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(2)
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Mr. Osorio is paid in Australian dollars and
Mr. Osorios base salary has been converted to
U.S. dollars using a conversion rate of 1AUD:USD0.9172.
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Annual
Performance Bonus
Our annual incentive plan is designed to support our current
business needs and drive consistent focus throughout the year.
For 2010, our NEOs, with the exception of Mr. Osorio,
participated in our 2010 Bonus Plan. Mr. Osorio
participated in an Annual Discretionary Bonus Plan that awards
him for the business performance of our Asia Pacific region
based primarily on EBITDA for such region, with other key
performance indicators considered, including Cash Conversion
Cycle (CCC), Return on Invested Capital
(ROIC) and Net Profit after Taxes
(NPAT). CCC measures the length of time in days that
it takes us to convert resource inputs (cash utilized for
production and sales processes) into cash flows. This plan was
amended effective as of August 1, 2010 to reflect an
expansion of Mr. Osorios region to include the Middle
East and Africa. The revised plan rewards him for achieving
financial objectives of the Asia Pacific region based on EBITDA,
Gross Revenue, Net Revenue, ROIC and CCC performance. If Asia
Pacific region EBITDA for Mr. Osorios region is
between $0 and $40 million, he is eligible to receive a
bonus of 1.5% of Asia Pacific region EBITDA. If Asia Pacific
region EBITDA exceeds $40 million for the region, he is
eligible to receive a bonus of 2.0% of Asia Pacific region
EBITDA.
For 2010, Mr. Rojas is eligible to receive an additional
annual incentive bonus based on certain growth in Latin America
region EBITDA as follows: $100,000 for $79.2 million in
Latin America region EBITDA, $200,000 for $91.1 million in
Latin America region EBITDA, $300,000 for $100.2 million in
Latin America region EBITDA and $400,000 for $110.2 million
in Latin America region EBITDA. For purposes of determining
Mr. Rojas additional annual incentive bonus, Latin
America region EBITDA is defined as income or loss from
operations before (i) interest expense, (ii) tax
expense, (iii) depreciation and amortization expense and
(iv) stock-based compensation expense, for the Latin
America region. For 2010, Mr. Rojas minimum incentive
bonus was $140,000 pursuant to his employment agreement.
Our 2010 Bonus Plan uses a scorecard approach to determine each
NEOs annual incentive award. The scorecards translate our
business strategy into pre-established, specific and
quantifiable goals that monitor the organizations
performance in terms of achieving these goals. The key metric
components for our 2010 Bonus Plan are financial and operational
metrics, including EBITDA, ROIC and CCC as well as key
objectives. The financial and operational metric component is
weighted at 80% and the key objectives component is weighted at
20%. The key objectives component is discretionary and
determined at the end of the year by the Compensation Committee
with recommendations from the Chairman and Chief Executive
Officer (for all NEOs other than himself) based on individual
performance. The Compensation Committee determines the
appropriate payout level under the key corporate objectives for
the Chairman and Chief Executive Officer.
In 2010, the NEOs that participated in our 2010 Bonus Plan had
an annual incentive target of 100% of base salary. For
Mr. Osorio, the maximum payment he is eligible to receive
under his revised plan is three times his annual salary of
AUD400,000, or AUD1,200,000 (converts to USD1,100,640).
The annual incentive payout under our 2010 Bonus Plan is
determined by performance under each component of the scorecard,
with 50% payout for 90% of goal achievement at minimum, and 100%
payout for 100% achievement at target. Above-target payout is
awarded for above target
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achievement determined on a linear basis and capped at 200%. The
2010 pre-established targets and actual performance levels for
each component are as follows:
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2010 Bonus Plan Payout Structure
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Actual 2010
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Scorecard
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Minimum
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Target
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Maximum
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Performance
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Component
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Weighting
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Performance
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Performance
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Performance
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($ / % Payout)
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Financial / Operational Measures
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EBITDA
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32
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%
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$
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107.1M
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$
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119.0M
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$
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238.0M
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$120.3M / 101.1%
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ROIC
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32
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%
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11
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%
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12.5
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%
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24
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%
|
|
12.4% / 99.2%
|
CCC
|
|
|
16
|
%
|
|
|
57
|
|
|
|
51
|
|
|
|
26
|
|
|
42.0 / 117.6%
|
Key Objectives
|
|
|
20
|
%
|
|
|
|
|
|
|
100
|
%
|
|
|
|
|
|
Varies
|
Based on our actual 2010 performance, we provided payout levels
for our NEOs as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total 2010
|
|
|
2010 Bonus
|
|
Payout Level: Financial/Operational Metrics
|
|
Payout Level Key
|
|
Incentive
|
Name
|
|
Target(3)
|
|
EBITDA
|
|
ROIC
|
|
CCC
|
|
Objectives
|
|
Payout
|
|
R. Marcelo Claure
|
|
$
|
1,125,000
|
|
|
$
|
363,946
|
|
|
$
|
345,600
|
|
|
$
|
211,765
|
|
|
$
|
202,500
|
|
|
$
|
1,123,811
|
|
Dennis J. Strand
|
|
$
|
375,000
|
|
|
$
|
121,315
|
|
|
$
|
115,200
|
|
|
$
|
70,588
|
|
|
$
|
60,000
|
|
|
$
|
367,103
|
|
Oscar A. Rojas(1)
|
|
$
|
126,090
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
140,000
|
(5)
|
|
$
|
140,000
|
|
Arturo A. Osorio(2)
|
|
|
|
|
|
$
|
838,000
|
(4)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
838,000
|
|
Michael J. Cost
|
|
$
|
375,000
|
|
|
$
|
121,315
|
|
|
$
|
115,200
|
|
|
$
|
70,589
|
|
|
$
|
52,500
|
|
|
$
|
359,604
|
|
|
|
|
|
(1)
|
In connection with Mr. Rojas employment agreement, he
is also eligible to receive a special bonus for achieving
certain Latin America region EBITDA milestones for his region.
In 2010, the Latin America region did not generate sufficient
earnings for Mr. Rojas to earn this bonus.
|
|
|
(2)
|
Mr. Osorio is paid in Australian dollars and his bonus
amount will be converted to Australian dollars at the time of
payment.
|
|
|
(3)
|
The 2010 Bonus Target has been prorated for a salary adjustment
for Mr. Claure in 2010 and to account for the portion of
2010 during which Mr. Rojas was actually employed by the
company.
|
|
|
(4)
|
Reflects Asia Pacific region EBITDA payout in conjunction with
performance of the Asia Pacific region.
|
|
|
(5)
|
Mr. Rojas incentive payout reflects his minimum
guaranteed bonus for 2010 in connection with his employment
agreement.
|
For 2011, and in conjunction with this offering, we have revised
our annual incentive program applicable to all of the NEOs to
drive corporate performance, regional performance (if
applicable), product/service performance (if applicable) and
individual performance. The plan will continue to measure both
financial and operational metrics, and all eligible employees,
including our NEOs, will have a portion of their bonus linked to
corporate performance. The corporate and regional performance
components will be driven by a pre-established net income and
ROIC goal, with a corresponding modifier (upwards or downwards)
depending on the quality of net income delivered. The
product/service performance component will be driven by a
pre-established EBITDA and ROIC goal, with a corresponding
modifier (upwards or downwards) depending on the quality of
EBITDA delivered. Aligned with our compensation philosophy, our
NEOs compensation will be tied to their performance and
their contribution to our success. We believe these enhancements
will help continue to drive our growth and profitability
following our IPO and provide value to both our stockholders and
employees.
112
Long-Term
Incentive Plan
In the past, we have granted long-term equity compensation under
our 2004 Stock Incentive Plan and 2006 Executive Stock Incentive
Plan (the Existing Plans), which were approved by
the Compensation Committee and our stockholders. The Existing
Plans provide an incentive to our executives and other employees
to achieve long-term corporate objectives and to align the
interests of such executives and employees closely with those of
our stockholders. The long-term incentive component of our
executive compensation program is designed to ensure commonality
of interests between management and our investors. Our
Compensation Committee has determined that the grant of stock
options pursuant to the Existing Plans serves as an effective
means of achieving these goals. Historically, long-term equity
compensation has not been granted on an annual basis but instead
has been granted in connection with commencement of employment
or upon a significant promotion within the company.
With the exception of a new-hire grant awarded to Oscar A.
Rojas, our President of the Latin America region, no long-term
incentive awards were granted to our NEOs in 2010.
We intend to implement a formal program for delivering equity
compensation to executives and other members of management for
both an ongoing basis and in connection with this offering. To
that end, the board has adopted, and we will submit to our
stockholders for approval prior to the offering, the 2011 Stock
Incentive Plan, which will permit us to grant several types of
equity-based compensation awards, including incentive stock
options, non-qualified stock options, stock appreciation rights,
restricted stock and restricted stock units. The determination
of the types of equity-based compensation to be awarded, the
overall grant pool and the allocation of awards will be
determined by the Compensation Committee, in its sole
discretion, based upon competitive market data and best practice.
Equity Grants
and Stock Options
The Compensation Committee believes stock option grants are the
most appropriate tool to motivate our NEOs to focus on overall
corporate performance over the long-term and to align their
interests with those of our stockholders. To that end, we have
historically granted stock options to our executives. Our stock
option grants typically have a four-year ratable vesting
schedule and a ten-year term.
Other Benefits
and Perquisites
Our benefits are designed to optimize the health, quality of
life, productivity and long-term wealth creation of our
employees. Each of our NEOs is entitled to participate in our
employee benefit plans (including our 401(k) retirement program
and medical, dental and life insurance benefits) on the same
basis as our other employees.
In connection with his role as Chief Executive Officer and
founder, we have historically provided certain fringe benefits
and perquisites to Mr. Claure. Mr. Claure receives a
monthly car allowance of $2,000, and we provide for his travel
expenses and the use of a chartered aircraft for business
travel. We also reimburse Mr. Claure for certain personal
expenses. For Mr. Osorio, we reimburse him for 100% of his
medical insurance premiums.
Description of
Employment Agreements
Each of our NEOs is covered by an employment agreement that
determines the terms of his employment with Brightstar. Certain
material terms of each employment agreement are summarized below.
113
R. Marcelo
Claure
Brightstar Corp. entered into an employment agreement with
Mr. R. Marcelo Claure (the Claure Agreement) in
August 2004. The Claure Agreement provides that Mr. Claure
will serve as our Chief Executive Officer. The Claure Agreement
had an initial term of three years, with automatic one-year
renewal periods thereafter (unless terminated in writing
90 days prior to the end of the current term). Under the
Claure Agreement, Mr. Claure will receive (i) an
annual base salary of at least $500,000 (which has since been
increased to $1,500,000), (ii) an opportunity to earn a
performance-based annual incentive with a possible payout of up
to 200% of his base salary at target (in accordance with an
increase of the percentage by the Compensation Committee in
2010), (iii) monthly automobile allowance of $2,000 (gross)
per month plus reimbursement for all automobile related
maintenance, repairs, gas and insurance expenses,
(iv) payment and maintenance of a term life insurance
policy with a $5 million death benefit covering the life of
Mr. Claure and naming Mr. Claures children as
sole beneficiaries and (v) four weeks of paid time off per
calendar year plus paid holidays and authorized leave (paid or
unpaid) in accordance with policies for senior executives. As an
executive of the company, Mr. Claure is entitled to
indemnification provided by our charter and by-laws. In
addition, prior to an initial public offering of our common
stock, Brightstar Corp. is required to purchase and maintain
directors and officers liability insurance in an
amount not less than $2 million or in such amount
reasonably agreed upon by Mr. Claure and Brightstar Corp.
If Brightstar Corp. terminates Mr. Claures employment
without cause or Mr. Claure terminates his employment for
good reason, he is entitled to (i) a single-lump sum cash
amount equal to three times Mr. Claures then current
annual base salary plus the larger incentive bonus compensation
for the two most recently completed fiscal years, (ii) all
legal fees and expenses incurred by him as a result of such
termination, (iii) relocation expenses if Mr. Claure
elects to relocate within one year after such termination,
(iv) automatic acceleration of all of
Mr. Claures outstanding stock options, and (v) a
gross-up
payment for any excise taxes Mr. Claure is required
to pay for amounts received pursuant to clauses (i) through
(iv) above.
If Mr. Claure voluntarily terminates his employment without
good reason or if Brightstar terminates Mr. Claures
employment for cause, he is not entitled to any severance,
pro-rated annual incentive or any other post-termination
payments except for accrued but unpaid salary or bonus.
For termination due to disability, Mr. Claure or his
respective estate will receive (i) his annual base salary
as of the date of termination for 12 months following the
termination date, (ii) any declared but unpaid incentive
compensation and (iii) any expenses incurred by
Mr. Claure in connection with the termination. In the event
of Mr. Claures death, his estate is entitled to
(i) any unpaid salary and declared but unpaid incentive
compensation and (ii) any expenses incurred by
Mr. Claures estate in connection with the termination.
Oscar A.
Rojas
Brightstar Corp. entered into an employment agreement with
Mr. Oscar A. Rojas (the Rojas Agreement). The
Rojas Agreement provides that Mr. Rojas will serve as
President, Latin America. The Rojas Agreement became effective
on August 23, 2010 and will expire on August 23, 2013.
Under the Rojas Agreement, Mr. Rojas will receive
(i) an annual base salary of at least $350,000, (ii) a
one-time sign-on bonus of $150,000 paid in fifteen equal monthly
installments (but only if he remains employed by the company on
the applicable payment date), (iii) eligibility to earn a
performance-based annual incentive with a possible payout that
ranges from 0% to 200% of his base salary, (iv) a grant of
220,000 stock options with an exercise price of $30.00,
(v) five weeks of paid time off per calendar year plus paid
holidays and authorized leaves (paid or unpaid) in accordance
with policies for senior executives and (vi) in addition to
the potential performance-based annual incentive mentioned
above, Mr. Rojas is eligible to receive an additional
annual incentive bonus based on certain earnings growth in the
Latin America region (for further discussion see
Elements of our Compensation ProgramAnnual
Performance Bonus).
114
If Brightstar terminates Mr. Rojas employment without
cause within his first year of employment, he is entitled to a
continuation of his base salary for 18 months. If
Brightstar terminates Mr. Rojas employment without
cause after a year of employment, he is entitled to a
continuation of his base salary for 12 months. If
Brightstar Corp. terminates Mr. Rojas employment
without cause as a result of a change in control, he is entitled
to a continuation of his base salary for the remaining term of
his agreement. In all the above scenarios, Mr. Rojas is
also entitled to receive a pro-rata annual incentive (if
Brightstar awards annual incentives that year) and a pro-rata
portion of his additional annual incentive bonus for the year of
termination.
For termination due to death and disability, Mr. Rojas or
his estate will receive a cash lump sum payment equal to three
months of base salary. Upon such termination, neither
Mr. Rojas nor his estate are entitled to any additional
severance, pro-rated annual incentive or any other
post-termination payments, except for accrued but unpaid
payments, such as base salary and vacation pay.
If Mr. Rojas voluntarily terminates his employment for any
reason, or if Brightstar Corp. terminates Mr. Rojas
employment for cause, he is not entitled to any severance,
pro-rated annual incentive or any other post-termination
payments except for accrued but unpaid payments, such as base
salary. If termination occurs within the first year of the
agreement for any reason, Mr. Rojas must repay all portions
of the sign-on bonus paid before termination.
Following Mr. Rojas termination for any reason, all
unvested stock options are forfeited. If Mr. Rojas
employment is terminated due to death, disability, voluntarily,
or involuntarily (other than for cause), all of his vested stock
options will remain exercisable for 30 days following the
termination date. In the event of a change in control of
Brightstar Corp., all of Mr. Rojas unvested stock
options shall immediately vest, regardless of whether or not
Mr. Rojas is terminated.
Dennis J.
Strand
Brightstar Corp. entered into an employment agreement with
Mr. Dennis J. Strand (the Strand Agreement).
The Strand Agreement provides that Mr. Strand will serve as
our Executive Vice President and Chief Financial Officer. The
Strand Agreement became effective on November 7, 2007 for
an initial term of five years with automatic one-year renewal
periods thereafter (unless written notice is provided at least
180 days prior to the expiration of the term). Under the
Strand Agreement, Mr. Strand will receive (i) an
annual base salary of at least $375,000, (ii) relocation
expenses, (iii) a one-time sign-on bonus of $50,000 paid in
equal installments on the start date and the one-year
anniversary of the start date, (iv) an opportunity to earn
a performance-based annual incentive with a possible payout of
up to 200% of his base salary at target (in accordance with an
increase of the percentage by the Compensation Committee in
2010), (v) a grant of 500,000 stock options with an
exercise price of $15.00 (with a vesting commencement date of
November 7, 2007) and (vi) four weeks of paid time off
per calendar year plus paid holidays and leave for illness or
temporary disability in accordance with policies for senior
executives.
If Brightstar Corp. terminates Mr. Strands employment
without cause or Mr. Strand terminates his employment for
good reason, in each case other than in connection with a change
in control, he is entitled to receive (i) a lump sum
payment equal to his base salary and a pro-rata payment of the
greater of his current annual incentive at target or his
previous actual annual incentive payment prorated based upon the
termination date in the then current year, (ii) automatic
acceleration of all Mr. Strands unvested stock
options and (iii) for a period of 12 months after the
date of termination, his company benefits in effect at the time
of termination. If Brightstar Corp. terminates
Mr. Strands employment without cause or
Mr. Strand terminates his employment for good reason within
two years following a change in control or the consummation of
an initial public offering, he is entitled to two times the
applicable severance payment, his regular benefits for a period
of 24 months and automatic acceleration of his unvested
stock options. In all termination events that include
post-termination payments, Brightstar Corp. will reimburse
Mr. Strand for the additional federal income tax liability
in
115
the year of termination if the marginal rate in the year of
termination is above Mr. Strands three-year average
marginal rate.
If Mr. Strand voluntarily terminates his employment without
good reason or if Brightstar Corp. terminates
Mr. Strands employment for cause, he is not entitled
to any severance, pro-rated annual incentive or any other
post-termination payments except for accrued but unpaid
payments, such as base salary.
For termination due to death and disability, Mr. Strand or
his estate will receive a cash lump sum payment equal to three
months of base salary and a prorated amount of his incentive
bonus target. Upon such termination, neither Mr. Strand nor
his estate is entitled to any additional severance or any other
post-termination payments, except for accrued but unpaid
payments, such as base salary and vacation pay.
In the event Mr. Strand is terminated without cause or
Mr. Strand terminates his employment for good reason, all
of his stock options would become immediately vested and
exercisable until November 13, 2018. In the event of a
change in control (including an initial public offering of our
common stock), all of Mr. Strands unvested stock
options shall immediately vest, regardless of whether or not
Mr. Strand is terminated. If Mr. Strands
employment is terminated due to death, disability, retirement,
or involuntarily (other than for cause), all of his vested stock
options will remain exercisable for 90 days following the
termination date. Under a termination for cause by Brightstar
Corp. or voluntary termination by Mr. Strand, his vested
stock options will remain exercisable for 30 days following
the termination date.
Michael J.
Cost
Brightstar Corp. entered into an employment agreement with
Michael J. Cost (the Cost Agreement). The Cost
Agreement provides that Mr. Cost will serve as our Chief
Operating Officer. The Cost Agreement became effective on
September 16, 2009, for an initial term that ends on
September 15, 2011, with automatic one-year renewal periods
thereafter (unless written notice is provided 60 days
before the expiration of the term). Under the Cost Agreement,
Mr. Cost will receive (i) an annual base salary of at
least $375,000, (ii) an opportunity to earn a
performance-based annual incentive with a possible payout of up
to 200% of his base salary at target (in accordance with an
increase of the percentage by the Compensation Committee in
2010), (iii) a grant of 100,000 stock options (at the
effective date of the agreement Mr. Cost had already been
awarded a grant of 100,000 stock options for a total of 200,000
stock options) and (iv) four weeks of paid time off per
calendar year plus paid holidays and authorized leaves (paid or
unpaid) in accordance with policies for senior executives. As an
executive of the company, Mr. Cost is entitled to
indemnification provided by Brightstars charter and
by-laws. In addition, the Cost Agreement provides Mr. Cost
with indemnification for five years following termination of his
employment.
If Brightstar Corp. terminates Mr. Costs employment
without cause or Mr. Cost terminates his employment for
good reason, he is entitled to 12 months continuation of
base salary, a lump sum payment of any accrued annual bonus and
automatic acceleration of his unvested stock options. Brightstar
Corp. agrees to pay any and all federal, state and local income
taxes on the severance payment, as well as the tax liability on
that tax reimbursement.
If Mr. Cost voluntarily terminates his employment without
good reason or if Brightstar Corp. terminates
Mr. Costs employment for cause, he is not entitled to
any severance, pro-rated annual incentive or any other
post-termination payments except for accrued but unpaid
payments, such as base salary.
For termination due to death and disability, Mr. Cost or
his estate will receive a cash lump sum payment equal to three
months of base salary. Upon such termination, neither
Mr. Cost nor his estate is entitled to any additional
severance, pro-rated annual incentive or any other
post-termination payments, except for accrued but unpaid
payments, such as base salary and vacation pay.
116
In the event of a change in control, all of Mr. Costs
unvested stock options shall immediately vest, regardless of
whether or not Mr. Costs employment is terminated.
Following Mr. Costs termination for any reason, all
unvested stock options are forfeited. If Mr. Costs
employment is terminated due to death, disability, retirement,
or involuntarily (other than for cause), all of his vested stock
options will remain exercisable for 90 days following the
termination date. Under a termination for cause by Brightstar
Corp. or voluntary termination by Mr. Cost, his vested
stock options will remain exercisable for 30 days following
the termination date.
Arturo A.
Osorio
Brightstar Logistics Pty Limited, Brightstars Australian
subsidiary, entered into an employment agreement and amendment
thereto with Arturo A. Osorio (the Osorio
Agreement). The Osorio Agreement provides that
Mr. Osorio will serve as President, Asia Pacific. The
Osorio Agreement became effective on February 25, 2010 and
its amendment was effective as of August 1, 2010 and has no
fixed termination date. Under the Osorio Agreement,
Mr. Osorio will receive (i) an initial base salary of
at least AUD350,000 (which has been increased to AUD400,000),
(ii) participation in the companys stock option plan,
(iii) paid time off, long service leave and personal (sick
and carers) leave in accordance with local laws,
(iv) reimbursement for all medical insurance expenses for
him and his family and (v) effective August 1, 2010,
Mr. Osorio is eligible to receive an annual incentive
payment based on total earnings before interest, taxes,
depreciation and amortization for the Asia Pacific region and
other financial measures (for further discussion see
Elements of our Compensation
Program Annual Performance Bonus).
Brightstar Logistics PTY Limited may terminate
Mr. Osorios employment without cause only by giving
him six months written notice. Brightstar Logistics
PTY Limited may elect to pay Mr. Osorio an amount in lieu
of providing all or part of the period of notice of termination.
The Osorio Agreement does not include the concept of good reason
or change in control. If Brightstar Logistics PTY Limited
terminates Mr. Osorios employment in the event of
redundancy of Mr. Osorios position, he is entitled to
two months redundancy payment (calculated on base salary
plus any car allowances) for each year of service with
Brightstar Logistics PTY Limited in any capacity since
September 9, 2004.
If Mr. Osorio voluntarily terminates employment for any
reason, or if Brightstar Logistics PTY Limited terminates
Mr. Osorios employment for cause, he is not entitled
to any severance, pro-rated annual incentive or any other
post-termination payments except for accrued but unpaid
payments, such as base salary.
Following Mr. Osorios termination for any reason, all
unvested stock options are forfeited. If Mr. Osorios
employment is terminated due to death, disability, retirement,
or involuntarily (other than for cause), all of his vested stock
options will remain exercisable for 90 days following the
termination date. Under a termination for cause by Brightstar
Logistics PTY Limited or voluntary termination by
Mr. Osorio, his vested stock options will remain
exercisable for 30 days following the termination date.
New Employment Agreements. We are
currently negotiating either new or amended employment
agreements with each of the NEOs and expect such new or amended
employment agreements to be executed prior to the offering. We
intend these agreements to provide a greater degree of
uniformity with respect to rights and benefits among the NEOs.
Stock Option
Plans and Other Benefits
Each of the Claure Agreement, the Rojas Agreement, the Strand
Agreement, the Cost Agreement and the Osorio Agreement
(together, the Employment Agreements) provide that
the NEOs are entitled to participate in our employee and
executive benefit plans, programs or arrangements implemented by
Brightstar (including medical, dental, short- and long-term
disability and life insurance), as well as reimbursement for
reasonable and customary business expenses. The Employment
Agreements also provide for participation in our equity
incentive plans and our annual bonus plan. The stock options
granted to each executive have the following features:
(i) exercise price equal to the
117
closing stock price on the grant date, (ii) ratable vesting
in four installments on each of the first four anniversaries of
the grant date and (iii) ability to exercise vested
portions of the award until the earlier of the expiration of the
grant date or upon certain termination scenarios. Certain of the
Employment Agreements contain different terms than those
outlined in each executives stock option agreements. The
Rojas Agreement and the Cost Agreement each state that the terms
of any stock awards granted to the executive will be governed by
the terms of any stock option plans and will not be amended or
superseded by the executives employment agreement. The
Strand Agreement has similar language, but, in addition, states
that any express terms in the Strand Agreement which relate to
the grant of stock options will govern. The Osorio Agreement
does not address the terms of any stock option grants. Under the
terms of the Existing Plans, the stock options do not have
accelerated vesting upon a change in control of the company.
Conclusion
We believe that the compensation changes made and actions taken
are aligned with the goals and principles of our compensation
programs and reflect our pay philosophy. As we move forward, we
fully expect that our programs will evolve to further align with
the requirements of our growing company and to reflect any
necessary compliance as a publicly-traded company.
EXECUTIVE
COMPENSATION
The following table sets forth information concerning the
compensation that we paid during the fiscal year ended
December 31, 2010 to our principal executive officer,
principal financial officer and our three other most highly
compensated executive officers.
SUMMARY
COMPENSATION TABLE FISCAL YEAR 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non Equity
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Incentive Plan
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
Compensation
|
|
All Other
|
|
|
|
|
|
|
Salary(1)
|
|
Bonus(2)
|
|
Awards(4)
|
|
(6)
|
|
Compensation
|
|
Total
|
Name and Principal
Position
|
|
Year
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
($)
|
|
R. Marcelo Claure
|
|
|
2010
|
|
|
|
1,245,000
|
|
|
|
202,500
|
|
|
|
|
|
|
|
921,311
|
|
|
|
239,066
|
(7)
|
|
|
2,607,877
|
|
Chairman and Chief Executive Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis J. Strand
|
|
|
2010
|
|
|
|
375,000
|
|
|
|
60,000
|
|
|
|
|
|
|
|
307,103
|
|
|
|
3,675
|
|
|
|
745,778
|
|
Executive Vice President and Chief Financial Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oscar A. Rojas
|
|
|
2010
|
|
|
|
126,090
|
|
|
|
190,000
|
(3)
|
|
|
3,079,758
|
(5)
|
|
|
|
|
|
|
|
|
|
|
3,395,848
|
|
President, Brightstar Latin America
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arturo A. Osorio
|
|
|
2010
|
|
|
|
374,905
|
|
|
|
|
|
|
|
|
|
|
|
838,000
|
|
|
|
6,977
|
|
|
|
1,219,882
|
|
President, Brightstar Asia Pacific
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Cost
|
|
|
2010
|
|
|
|
375,000
|
|
|
|
52,500
|
|
|
|
|
|
|
|
307,103
|
|
|
|
3,675
|
|
|
|
738,278
|
|
Global Chief Operating Officer
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1)
|
Salary column represents compensation actually received in 2010.
Mr. Osorio is paid in Australian dollars and all
compensation has been converted to US dollars using an exchange
rate of 1AUD:USD0.9172. Mr. Rojas joined our company on
August 23, 2010 with an annualized salary of $350,000.
|
|
|
(2)
|
For Messrs. Claure, Strand and Cost, this column represents
payments under the key corporate objectives component of the
companys annual incentive plan.
|
118
|
|
|
|
(3)
|
Mr. Rojas received a sign-on bonus of $50,000 and a
$140,000 minimum guaranteed bonus in 2010 in connection with his
commencement of employment with the company.
|
|
|
(4)
|
The amounts reported in this column reflect the aggregate grant
date fair value of option awards granted to the named executive
officer during each year, computed in accordance with ASC Topic
718. These amounts reflect our calculation of the value of these
awards on the grant date and do not necessarily correspond to
the actual value that may ultimately be realized by the officer.
For accounting purposes, we use the Black-Scholes option pricing
model to calculate the grant date fair value of stock options.
See Note 2 to our consolidated financial statements
included elsewhere in this prospectus for a discussion of our
assumptions in determining the ASC Topic 718
Compensation Stock Compensation value of our
stock options and see the Grants of Plan-Based Awards In
Fiscal 2010 table for information regarding stock option
awards to the NEOs during 2010.
|
|
|
(5)
|
Mr. Rojas received a sign-on grant of stock options in 2010
in connection with his commencement of employment with the
company. The fair value of this award has been calculated as
outlined in footnote 4.
|
|
|
(6)
|
Reflects cash payouts, if any, under our 2010 Bonus Plan for
achievement of performance objectives (for further discussion of
the fiscal 2010 Bonus Plan, see Elements of
our Compensation Program Annual Performance
Bonus above). Mr. Osorio is covered under a separate
annual incentive plan based on the Asia Pacific region that is
outlined in his employment agreement amended as of
August 1, 2010 (for further discussion of
Mr. Osorios annual incentive plan, see
Elements of our Compensation
Program Annual Performance Bonus above).
|
|
|
(7)
|
The amounts in this column include matching contributions of
$3,675 made to the companys 401(k) plan; a car allowance
provided to Mr. Claure of $2,000 per month; travel expenses
of $66,817, which includes personal use of a chartered aircraft
of $34,460 (based on the allocation conducted by a third party
between business and personal use based on each leg that is
flown and who is on the plane); automobile expenses and
transportation costs of $33,178; meals and entertainment
expenses of $28,225 not otherwise characterized as a business
expense; other personal expenses of $23,706 not otherwise
characterized as a business expense; and
gross-up
payments of $87,140.
|
Grants of
Plan-Based Awards
The following table provides information regarding grants of
plan-based awards to the named executive officers in the fiscal
year ended December 31, 2010.
GRANTS OF
PLAN-BASED AWARDS IN FISCAL YEAR 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option
|
|
|
|
Grant
|
|
|
|
|
|
|
|
|
|
|
Awards:
|
|
Exercise or
|
|
Date
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
Base
|
|
Fair Value
|
|
|
|
|
Estimated Future Payouts Under Non-Equity
|
|
Securities
|
|
Price of
|
|
of Stock
|
|
|
|
|
Incentive Plan Awards(1)
|
|
Underlying
|
|
Option
|
|
and Option
|
|
|
Grant
|
|
Threshold
|
|
Target
|
|
Maximum
|
|
Options
|
|
Awards
|
|
Awards(2)
|
Name
|
|
Date
|
|
($)
|
|
($)
|
|
($)
|
|
(#)
|
|
($/Sh)
|
|
($)
|
|
R. Marcelo Claure
|
|
|
|
|
|
|
450,000
|
|
|
|
900,000
|
|
|
|
1,800,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis J. Strand
|
|
|
|
|
|
|
150,000
|
|
|
|
300,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oscar A. Rojas(3)
|
|
|
|
|
|
|
49,863
|
|
|
|
99,726
|
|
|
|
199,452
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
7/27/2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
220,000
|
|
|
|
30.00
|
|
|
|
3,079,758
|
|
Arturo A. Osorio(4)
|
|
|
|
|
|
|
|
|
|
|
1,100,640
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Cost
|
|
|
|
|
|
|
150,000
|
|
|
|
300,000
|
|
|
|
600,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
119
|
|
|
|
(1)
|
Under the terms of the 2010 Bonus Plan, payments are awarded
based on the achievement of specified financial/operational
measures. Awards are earned at threshold, target and maximum
opportunity levels based on the companys performance
against its goals.
|
|
|
(2)
|
The amounts reported in these columns reflect the aggregate
grant date fair value of stock option awards granted to the
named executive officer during each year, computed in accordance
with ASC Topic 718. These amounts reflect our calculation of the
value of these awards on the grant date and do not necessarily
correspond to the actual value that may ultimately be realized
by the officer. For accounting purposes, we use the
Black-Scholes option pricing model to calculate the grant date
fair value of stock options.
|
|
|
(3)
|
Mr. Rojas received a special one-time award of stock
options in connection with the commencement of his employment
with the company. Stock options were granted with a ten-year
term and vest ratably over four years.
|
|
|
(4)
|
Mr. Osorio is eligible for an annual incentive award up to
three times his annual base salary based on the financial
performance of the Asia Pacific region per his employment
agreement.
|
Outstanding
Equity Awards at 2010 Fiscal Year-End
The following table provides information regarding all
outstanding equity awards held by each of the named executive
officers as of December 31, 2010.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Option Awards
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
|
|
|
Number of
|
|
Securities
|
|
|
|
|
|
|
|
|
Securities
|
|
Underlying
|
|
|
|
|
|
|
Option
|
|
Underlying
|
|
Unexercised
|
|
|
|
|
|
|
Vesting
|
|
Unexercised
|
|
Options -
|
|
Option
|
|
Option
|
|
|
Commencement
|
|
Options
|
|
Unexercisable
|
|
Exercise
|
|
Expiration
|
Name
|
|
Date
|
|
Exercisable (#)
|
|
(#)(1)
|
|
Price ($)
|
|
Date
|
|
R. Marcelo Claure
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis J. Strand
|
|
|
11/07/2007
|
|
|
|
375,000
|
|
|
|
125,000
|
|
|
|
15.00
|
|
|
|
11/13/2018
|
|
Oscar A. Rojas
|
|
|
8/16/2010
|
|
|
|
|
|
|
|
220,000
|
|
|
|
30.00
|
|
|
|
8/16/2020
|
|
Arturo A. Osorio
|
|
|
12/15/2004
|
|
|
|
2,833
|
|
|
|
|
|
|
|
12.00
|
|
|
|
12/15/2014
|
|
|
|
|
1/01/2005
|
|
|
|
3,334
|
|
|
|
|
|
|
|
12.00
|
|
|
|
1/01/2015
|
|
|
|
|
4/21/2009
|
|
|
|
12,500
|
|
|
|
37,500
|
|
|
|
15.00
|
|
|
|
4/21/2019
|
|
Michael J. Cost
|
|
|
6/1/2007
|
|
|
|
37,500
|
|
|
|
12,500
|
|
|
|
20.00
|
|
|
|
7/25/2017
|
|
|
|
|
4/21/2009
|
|
|
|
12,500
|
|
|
|
37,500
|
|
|
|
15.00
|
|
|
|
4/21/2019
|
|
|
|
|
9/16/2009
|
|
|
|
25,000
|
|
|
|
75,000
|
|
|
|
15.00
|
|
|
|
9/16/2019
|
|
|
|
|
|
(1)
|
Grants of stock options vest in equal installments over a
four-year period on each anniversary of the vesting commencement
date. Stock options are granted with a ten-year term.
|
Option
Exercises
As of the year ended December 31, 2010, none of the named
executive officers exercised any of their stock options.
120
Potential
Payments Upon Termination or Change in Control
The table below shows the amounts that the following individuals
would be eligible to receive upon termination of their
employment with the company, including death or disability, for
cause and following a change in control, assuming that
termination occurred on December 31, 2010, the last day of
our 2010 fiscal year. Detailed descriptions of the agreements
providing for compensation upon a termination of employment are
provided under the section titled Description of
Employment Agreements.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
w/o Cause or
|
|
|
Termination
|
|
|
|
|
|
|
|
|
|
|
|
Executive
|
|
|
following
|
|
|
|
|
|
|
|
|
Death or
|
|
|
Termination for
|
|
|
Change in
|
|
|
Change in
|
|
Name
|
|
Benefit
|
|
Disability($) (1)
|
|
|
Good Reason ($)
|
|
|
Control ($)
|
|
|
Control ($)
|
|
|
R. Marcelo Claure
|
|
Severance Payment
|
|
|
1,500,000
|
|
|
|
4,500,000
|
|
|
|
4,500,000
|
|
|
|
|
|
|
|
Settlement Outstanding Annual Bonus Award
|
|
|
|
|
|
|
1,123,811
|
|
|
|
1,123,811
|
|
|
|
|
|
|
|
Settlement Outstanding LTIP Equity Award (Stock
Options)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical and Dental Benefits Continuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outplacement Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
1,500,000
|
|
|
|
5,623,811
|
|
|
|
5,623,811
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dennis J. Strand
|
|
Severance Payment
|
|
|
93,750
|
|
|
|
375,000
|
|
|
|
750,000
|
|
|
|
|
|
|
|
Settlement Outstanding Annual Bonus Award
|
|
|
375,000
|
|
|
|
375,000
|
|
|
|
750,000
|
|
|
|
|
|
|
|
Settlement Outstanding LTIP Equity Award (Stock
Options)(2)
|
|
|
|
|
|
|
|
|
|
|
1,875,000
|
|
|
|
1,875,000
|
|
|
|
Medical and Dental Benefits Continuation(3)
|
|
|
|
|
|
|
12,474
|
|
|
|
28,426
|
|
|
|
|
|
|
|
Outplacement Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
468,750
|
|
|
|
762,474
|
|
|
|
3,403,426
|
|
|
|
1,875,000
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Oscar A. Rojas
|
|
Severance Payment(4)
|
|
|
87,500
|
|
|
|
525,000
|
|
|
|
925,808
|
|
|
|
|
|
|
|
Settlement Outstanding Annual Bonus Award
|
|
|
|
|
|
|
140,000
|
|
|
|
140,000
|
|
|
|
|
|
|
|
Settlement Outstanding LTIP Equity Award (Stock
Options)(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical and Dental Benefits Continuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outplacement Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
87,500
|
|
|
|
665,000
|
|
|
|
1,065,808
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Arturo A. Osorio
|
|
Severance Payment(5)
|
|
|
|
|
|
|
385,732
|
|
|
|
|
|
|
|
|
|
|
|
Settlement Outstanding Annual Bonus Award
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Settlement Outstanding LTIP Equity Award (Stock
Options)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Medical and Dental Benefits Continuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outplacement Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
|
|
|
|
385,732
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Michael J. Cost
|
|
Severance Payment
|
|
|
93,750
|
|
|
|
375,000
|
|
|
|
|
|
|
|
|
|
|
|
Settlement Outstanding Annual Bonus Award
|
|
|
|
|
|
|
359,604
|
|
|
|
|
|
|
|
|
|
|
|
Settlement Outstanding LTIP Equity Award (Stock
Options)(6)
|
|
|
|
|
|
|
1,812,500
|
|
|
|
|
|
|
|
1,812,500
|
|
|
|
Medical and Dental Benefits Continuation
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outplacement Services
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
TOTAL
|
|
|
93,750
|
|
|
|
2,547,104
|
|
|
|
|
|
|
|
1,812,500
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
121
|
|
|
|
(1)
|
Termination of employment due to death or long-term disability
will result in a lump-sum payment of 3 months of salary for
Messrs. Strand, Rojas and Cost. Termination of employment
due to long-term disability will result in 12 additional months
of continued salary for Mr. Claure (but he will not receive
a severance payment in the event of death). For Mr. Strand,
termination upon death or disability also provides for a
one-time target bonus.
|
|
|
(2)
|
Following a change in control, all of
Messrs. Strands and Rojas outstanding stock
options become immediately vested and exercisable.
|
|
|
(3)
|
In the event of a termination without cause or termination
following a change in control, Mr. Strand is
entitled to receive one or two years continuation of
medical benefits, respectively.
|
|
|
(4)
|
Mr. Rojas severance payment will only be paid in the
event his position becomes redundant and consists of his
continued base salary until the term of his employment agreement
ends on August 23, 2013.
|
|
|
(5)
|
Mr. Osorios severance payment consists of a lump sum
payment equal to two months of base salary for every one year of
service from the commencement of his employment agreement on
September 9, 2004 to the assumed termination date of
December 31, 2010. Compensation has been converted from
Australian dollars using a conversion rate of AUD1: USD0.9172.
|
|
|
(6)
|
Following a termination without cause or following a
change in control, all of Mr. Costs
outstanding stock options become immediately vested and
exercisable.
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2011 Stock
Incentive Plan
Our board of directors has adopted, and we will submit to our
stockholders for approval prior to the closing of this offering,
the 2011 Stock Incentive Plan, referred to as the 2011 Plan,
under which we expect to grant equity-based incentive awards to
eligible service providers in order to attract, motivate and
retain the talent for which we compete. The material terms of
the 2011 Plan are summarized below.
Eligibility and Administration. We
expect that our employees, consultants and directors will be
eligible to receive awards under the 2011 Plan. We expect that
the 2011 Plan will be administered by the Compensation Committee
of our board of directors (or such other committee appointed by
our board) which may delegate its duties and responsibilities to
our directors
and/or
officers (referred to collectively as the plan administrator),
subject to certain limitations that may be imposed under
Section 162(m) of the Internal Revenue Code,
Section 16 of the Exchange Act
and/or stock
exchange rules, as applicable. The plan administrator will have
the authority to make all determinations and interpretations
under, prescribe all forms for use with, and adopt rules for the
administration of, the 2011 Plan, subject to its express terms
and conditions. The plan administrator is also expected to set
the terms and conditions of all awards under the 2011 Plan,
including any vesting and vesting acceleration conditions.
Limitation on Awards and
Shares Available. Assuming the common
stock is converted into Class A and Class B common
stock, the aggregate number of shares of our Class A common
stock that will be available for issuance under awards granted
pursuant to the 2011 Plan is equal to 5,000,000 Class A
shares. Upon effectiveness of the 2011 Plan, we do not expect to
grant any additional awards under the Existing Plans. Shares of
our Class A common stock granted under the 2011 Plan may be
authorized but unissued shares, or shares reacquired by us.
Shares tendered or withheld to satisfy any grant or exercise
price or tax withholding obligations, and shares subject to an
award that is forfeited, expires or is settled for cash, or any
shares reacquired by us on exercise of a repurchase right may be
used again for new grants under the 2011 Plan.
Awards granted under the 2011 Plan upon the assumption of, or in
substitution for, awards authorized or outstanding under a
qualifying equity plan maintained by an entity with which we
enter into a merger or similar corporate transaction will not
reduce the shares available for issuance under
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the 2011 Plan. After a transition period that may apply
following the effective date of the offering or otherwise to the
extent that an award is intended to qualify as
performance-based compensation exempt from the
deduction limits of Section 162(m) of the Internal Revenue
Code, the maximum number of shares of our common stock that may
be subject to one or more awards granted to any one participant
pursuant to the 2011 Plan (i) in the form of stock options
or stock appreciation rights during any calendar year is
1,000,000 and (ii) in the form of restricted stock,
deferred stock or other stock-based awards during any three-year
period is 1,000,000.
Awards. The 2011 Plan will provide for
the grant of stock options, including incentive stock options
(ISOs) and non-qualified stock options
(NSOs), restricted stock, deferred stock, dividend
equivalents, other stock-based awards and stock appreciation
rights (SARs). Certain awards under the 2011 Plan
may constitute or provide for a deferral of compensation,
subject to Section 409A of the Internal Revenue Code, which
may impose additional requirements on the terms and conditions
of such awards. We expect that all awards under the 2011 Plan
will be set forth in award agreements, which will detail the
terms and conditions of the awards, including any applicable
vesting and payment terms and post-termination exercise
limitations. We expect that awards will generally be settled in
shares of our Class A common stock, but the plan
administrator generally may provide for cash settlement of any
award. A brief description of each award type follows.
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Stock Options. Stock options provide
for the purchase of shares of our Class A common stock in the
future at an exercise price set on the grant date. ISOs, by
contrast to NSOs, may provide tax deferral beyond exercise and
favorable capital gains tax treatment to the grantee if certain
holding period and other requirements of the Internal Revenue
Code are satisfied. The exercise price of a stock option may not
be less than 100% of the fair market value of the underlying
share on the date of grant (or 110% in the case of ISOs granted
to certain significant stockholders), except with respect to
certain substitute options granted in connection with a
corporate transaction. The term of a stock option may not be
longer than ten years (or five years in the case of ISOs granted
to certain significant stockholders). Vesting conditions
determined by the plan administrator may apply to stock options
and may include continued service, performance
and/or other
conditions.
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Stock Appreciation Rights. SARs entitle
their holder, upon exercise, to receive from us an amount equal
to the appreciation of the shares subject to the award between
the grant date and the exercise date. The exercise price of a
SAR may not be less than 100% of the fair market value of the
underlying share on the date of grant (except with respect to
certain substitute SARs granted in connection with a corporate
transaction) and the term of a SAR may not be longer than ten
years. Vesting conditions determined by the plan administrator
may apply to SARs and may include continued service, performance
and/or other
conditions.
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Restricted Stock and Deferred
Stock. Restricted stock is an award of
nontransferable shares of our Class A common stock that remain
forfeitable unless and until specified conditions are met, and
which may be subject to a purchase price. Deferred stock is a
contractual promise to deliver shares of our Class A common
stock in the future, which may also remain forfeitable unless
and until specified conditions are met. Delivery of the shares
underlying deferred stock awards may be deferred beyond the
vesting date under the terms of the award or at the election of
the participant if the plan administrator permits such a
deferral. Conditions applicable to restricted stock and deferred
stock may be based on continuing service with us or our
affiliates, the attainment of performance goals
and/or such
other conditions as the plan administrator may determine.
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Other Stock-Based Awards. Other
stock-based awards are awards other than those enumerated in
this summary that are valued in whole or in part by reference
to, linked to or derived from shares of our Class A common stock
or value metrics related to our Class A common stock, and
may remain forfeitable unless and until specified conditions are
met.
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Dividend Equivalents. Dividend
equivalents represent the right to receive the equivalent value
of dividends paid on shares of our common stock and may be
granted alone or in tandem with other awards. Dividend
equivalents are credited as of dividend payment dates during the
period between the date an award is granted and the date such
award vests, is exercised, is distributed or expires, as
determined by the plan administrator. Dividend equivalents may
not be paid on awards granted under the 2011 Plan unless and
until such awards have vested.
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Performance-based
Awards. Performance-based awards include any
of the awards that are granted subject to vesting
and/or
payment based on the attainment of specified performance goals.
The plan administrator will determine whether performance awards
are intended to constitute qualified performance-based
compensation within the meaning of Section 162(m) of
the Internal Revenue Code, in which case the applicable
performance criteria will be selected from the list below in
accordance with the requirements of Section 162(m) of the
Internal Revenue Code. Section 162(m) of the Internal
Revenue Code imposes a $1,000,000 cap on the compensation
deduction that we may take in respect of compensation paid to
our covered employees (which would include our chief
executive officer and our next three most highly compensated
employees other than our chief financial officer), but excludes
from the calculation of amounts subject to this limitation any
amounts that constitute qualified performance-based
compensation. We do not expect Section 162(m) of the
Internal Revenue Code to apply to awards granted under the 2011
Plan until the earliest to occur of (1) our annual
stockholders meeting in 2015, (2) a material
modification of the 2011 Plan or (3) exhaustion of the
share supply under the 2011 Plan. However, such performance
criteria may be used with respect to performance awards that are
not intended to constitute qualified performance-based
compensation.
In order to constitute qualified performance-based compensation
under Section 162(m) of the Internal Revenue Code, in
addition to certain other requirements, the relevant amounts
must be payable only upon the attainment of pre-established,
objective performance goals set by our Compensation Committee
and linked to stockholder-approved performance criteria. For
purposes of the 2011 Plan, we expect that one or more of the
following performance criteria will be used in setting
performance goals applicable to qualified performance-based
compensation, and may be used in setting performance goals
applicable to other performance awards: earnings before
interest, taxes, depreciation and amortization, net income
(loss) (either before or after interest, taxes, depreciation
and/or
amortization), changes in the market price of the Class A
common stock, economic value-added, funds from operations or
similar measure, sales or revenue, acquisitions or strategic
transactions, net or operating income (loss), cash flow
(including, but not limited to, cash conversion cycle, operating
cash flow and free cash flow), return on capital, assets,
equity, or investment, stockholder returns, return on sales,
gross or net profit levels, productivity, expense, margins,
operating efficiency, customer satisfaction, working capital,
earnings (loss) per share of stock, sales or market shares and
number of customers, any of which may be measured either in
absolute terms for us or any operating unit of our company or as
compared to any incremental increase or decrease or as compared
to results of a peer group or to market performance indicators
or indices. We expect that the 2011 Plan will also permit the
plan administrator to provide for objectively determinable
adjustments to the applicable performance criteria in setting
performance goals for qualified performance-based compensation
awards.
Certain Transactions. The plan
administrator will have broad discretion to equitably adjust the
provisions of the 2011 Plan, as well as the terms and conditions
of existing and future awards, to prevent the dilution or
enlargement of intended benefits and facilitate necessary or
desirable changes in the event of certain transactions and
events affecting our common stock, such as stock dividends,
stock splits, mergers, acquisitions, consolidations and other
corporate transactions. In addition, in the event of certain
non-reciprocal transactions with our stockholders known as
equity restructurings, the plan administrator will
be able to make equitable adjustments to the 2011 Plan and
outstanding awards. We expect that in the event of a change in
control of our company (as defined in the 2011
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Plan), the surviving entity must assume outstanding awards or
substitute economically equivalent awards for such outstanding
awards; however, if the surviving entity declines to assume or
substitute for some or all outstanding awards, then we expect
all such awards will vest in full and be deemed exercised (as
applicable) upon the transaction or the grantee will be given an
opportunity to exercise the award. Individual award agreements
may provide for additional accelerated vesting and payment
provisions.
Transferability of Awards; Repricing and Participant
Payments. With limited exceptions for estate
planning, domestic relations orders, certain beneficiary
designations and the laws of descent and distribution, awards
under the 2011 Plan are expected to generally be
non-transferable prior to vesting and exercisable only by the
participant. The 2011 Plan specifically prohibits the repricing
of stock options or SARs without shareholder approval. For this
purpose, a repricing means any of the following:
(i) changing the terms of a stock option or SAR to lower
its exercise price, (ii) any other action that is treated
as a repricing under generally accepted accounting
principles and (iii) repurchasing for cash or canceling a
stock option or SAR at a time when its exercise price is greater
than the fair market value of the underlying stock in exchange
for another award, unless the cancellation and exchange occurs
in connection with a change in capitalization or similar change.
With regard to tax withholding, exercise price and purchase
price obligations arising in connection with awards under the
2011 Plan, the plan administrator may, in its discretion, accept
cash or check, shares of our common stock that meet specified
conditions, a market sell order or other
consideration as it deems suitable.
Plan Amendment and Termination. Our
board of directors will be able to amend or terminate the 2011
Plan at any time; however, except in connection with certain
changes in our capital structure, stockholder approval will be
required for any amendment that increases the number of shares
available under the 2011 Plan or in the event of any
repricing of an option or SAR. The 2011 Plan will
automatically terminate on the tenth anniversary of the date on
which the 2011 Plan is approved by our shareholders, but awards
outstanding under the 2011 Plan at that time will continue to be
administered in accordance with their terms.
2006 Executive
Stock Incentive Plan and 2004 Stock Incentive Plan
This summary is not intended to be complete and is subject, and
qualified in its entirety by reference, to the complete text of
the Existing Plans, as amended, copies of which are filed as an
exhibit to the registration statement of which this prospectus
forms a part.
Purpose of the Existing Plans. Our
board of directors and stockholders approved our companys
2006 Executive Stock Incentive Plan, or the 2006 Plan, as of
January 2006. The 2006 Plan was amended by our board and
stockholders in July 2006. The 2006 Plan is intended to attract
and retain executive officers and other key executives to
motivate them to achieve long-term corporate objectives and to
align their interests with those of our stockholders. Our board
of directors and stockholders approved our companys 2004
Stock Incentive Plan, or the 2004 Plan, as of January 2004. The
2004 Plan was amended by our board and stockholders in July
2004. The 2004 Plan is intended to attract and retain senior
management, key employees, directors and selected consultants,
to motivate them to achieve long-term corporate objectives and
to align their interests with those of our stockholders. The
following summarizes material provisions of the Existing Plans.
Unless otherwise noted, the provisions in the 2006 Plan and the
2004 Plan are the same.
Administration. Our board of directors
has appointed the Compensation Committee to administer the
Existing Plans. The Compensation Committee interprets the
Existing Plans, establishes and modifies administrative rules
for the Existing Plans and imposes the terms and conditions of
and restrictions on awards. The Compensation Committee may
delegate its powers and authority under or relating to the
Existing Plans to a subcommittee or to designated officers.
Shares Reserved. Under the
Existing Plans, there are 3,843,095 shares of common stock
authorized for issuance (subject to future adjustment) and
options to purchase 2,923,945 shares of
125
our common stock were outstanding as of December 31, 2010.
Shares of common stock covered by any unexercised portion of
terminated options (including canceled options), shares of
common stock that are forfeited and shares of common stock
subject to any award that are otherwise surrendered by a
participant are subject to subsequent award under the Existing
Plans. Shares of common stock subject to any options that have
been surrendered in connection with the exercise of stock
appreciation rights are not available for subsequent award under
the Existing Plans, but shares of common stock issued in payment
of such stock appreciation rights do not count against the
number of shares available for issuance under the Existing
Plans. In the event of the exercise of stock appreciation rights
not granted in tandem with options, only the number of shares of
common stock actually issued in payment of such stock
appreciation rights are charged against the number of shares
available for grant under the Existing Plans.
Eligibility. Subject to certain
procedural requirements and limitations, all of our employees
and directors and certain consultants are eligible to
participate in the 2004 Plan and executive officers and other
key executives are eligible to participate in the 2006 Plan.
Available Awards Under the Existing
Plans. Our Compensation Committee may grant
any of the following under the Existing Plans: incentive stock
options; non-qualified stock options; stock appreciation rights;
restricted share awards; and restricted unit awards.
Stock Options. Options granted under
our Existing Plans may be either incentive or non-qualified
stock options. The Compensation Committee may grant options to
purchase shares of our common stock in amounts, at exercise
prices and on other terms and conditions consistent with the
terms of our Existing Plans, as established by the Compensation
Committee. The terms of options granted under our Existing Plans
are provided in an award agreement and, in all cases, at
exercise prices that equal or exceed the fair market value of
our common stock on the date of grant. For incentive stock
options, the exercise price must be equal to at least 110% of
the fair market value of our common stock on the date of grant
if the recipient is a holder of more than 10% of the voting
power of our capital stock. Generally, stock options expire ten
years after their grant date. If an incentive stock option is
granted to a holder of more than 10% of the voting power of our
capital stock, the maximum term is five years. The Compensation
Committee sets option vesting and exercise schedules and, unless
otherwise provided in an award agreement, 33% of an option will
vest and become exercisable on each of the first three
anniversaries of the date of grant. Options are
non-transferable, except under limited circumstances as
described in the Existing Plans. An option holder must pay the
exercise price in full at the time of exercise. The exercise
price is payable in cash, shares of our common stock, a
combination of cash and shares or such other consideration as
the Compensation Committee may deem appropriate. An option
holder may pay the exercise price by cashless exercise, whereby
shares of our common stock are issued directly to the
holders broker on receipt of an irrevocable written notice
of exercise from the holder. As of December 31, 2010, we
had options to purchase 2,923,945 shares of our common
stock outstanding under the Existing Plans, with a weighted
average exercise price of $7.90 per share.
Stock Appreciation Rights. Stock
appreciation rights may be granted alone or in conjunction with
option grants. The exercise price of a stock appreciation right
may not be less than 100% of the fair market value of our common
stock on the date of grant and, if granted in conjunction with
an option, also may not be less than the exercise price for the
related option. A stock appreciation right granted in
conjunction with an option may be granted simultaneously with
or, in the case of a non-qualified stock option, subsequent to
the grant of the related option. Upon the exercise of an option,
the related stock appreciation right expires and, similarly, on
exercise of a stock appreciation right, the related option
expires. Upon the exercise of a stock appreciation right, the
holder receives the per share difference between the exercise
price of the stock appreciation right and the fair market value
of our common stock on the date of its exercise. Upon the
exercise of stock appreciation rights, the number of shares
issuable on exercise under any related options will be
automatically reduced by the number of shares represented by the
options surrendered as a result of the exercise of such stock
appreciation rights. Upon the exercise of stock appreciation
rights, we may pay the participant in cash,
126
common stock or any combination thereof, as determined by the
Compensation Committee. The terms and conditions of stock
appreciation rights, including vesting, exercisability and
transferability, are generally the same as those described above
for stock options. As of December 31, 2010, we had not
granted any stock appreciation rights under the Existing Plans.
Restricted Share Awards. The
Compensation Committee may grant awards of restricted shares of
our common stock. The Compensation Committee sets forth the
terms and conditions of and restrictions on restricted share
awards in an award agreement. Unless otherwise provided in an
award agreement, the recipient of a restricted share award
becomes a stockholder of our company with respect to all awarded
shares and has all rights of a stockholder, including the rights
to vote and to receive dividends. Any shares of common stock
distributed as a dividend or otherwise with respect to any
restricted shares for which the restrictions have not yet lapsed
are, however, subject to the same restrictions as the underlying
restricted shares. Restrictions placed on a restricted share
award lapse on (1) the expiration or termination of the
forfeiture period, (2) the satisfaction of any conditions
prescribed by the Compensation Committee or (3) a change in
control of our company. As of December 31, 2010, we had not
granted any restricted share awards under the Existing Plans.
Restricted Unit Awards. The
Compensation Committee may grant awards of restricted units,
representing the right to receive shares of our common stock
based on a participants completion of service or
achievement of performance or other objectives. The Compensation
Committee provides the terms and conditions of and restrictions
on restricted units in a restricted unit award agreement. We do
not issue shares of common stock in respect of a restricted unit
award and no recipient of restricted units will have any rights
as a stockholder of our company, unless and until the lapse or
release of all applicable restrictions. On the lapse or release
of all restrictions, we will deliver one or more share
certificates to the restricted unit recipient for the
appropriate number of shares, free of any restrictions set forth
in the award agreement or the Existing Plans. Other than
rendering services, our restricted unit award recipients are not
required to deliver any cash or other consideration in order to
receive shares of our common stock issuable on the lapse or
release of all restrictions. As of December 31, 2010, we
had not granted any restricted unit awards under the Existing
Plans.
Performance Awards. The Compensation
Committee may grant performance awards. Performance awards
afford the recipient the right to receive a payment, subject to
the recipients achievement of performance targets during
the award period, which generally is two or more years.
Performance award payments may equal (1) the fair market
value of a specified number of shares of our common stock,
(2) any increases in the fair market value of our common
stock during the award period
and/or
(3) a fixed cash amount. The Compensation Committee may
grant performance awards in conjunction with restricted share
awards. Performance targets established by the Compensation
Committee may vary for different award periods and are not
necessarily the same for each participant receiving a
performance award in a period. Payments of earned performance
awards may be made in cash, shares of our common stock or any
combination of cash and shares. The Compensation Committee sets
the terms and conditions of any payment of earned performance
awards. As of December 31, 2010, we had not granted any
performance awards under the Existing Plans.
Termination of Employment. Unless
otherwise provided in the applicable award agreement, any
unvested portion of stock options or stock appreciation rights
granted under the Existing Plans is cancelled on the termination
of a participants employment or other service with our
company. If a participants employment with us terminates
for a reason other than
his/her
death, disability or retirement or termination of the
participants employment by us, other than for cause, the
participant generally may exercise, within 30 days of
his/her
termination, all stock options and stock appreciation rights
exercisable at the time of termination. A participant (or
his/her
estate) would have 90 days from termination in which to
exercise all stock options and stock appreciation rights
exercisable at the time of
his/her
termination, if such termination is by reason of his or her
death, disability or retirement or termination of the
participants employment by us other than for cause. Stock
options and stock appreciation rights are not exercisable after
the expiration of their terms.
127
Restricted share awards will terminate unless the participant
continues in the service of our company until the expiration of
the forfeiture period for such awards and satisfies any
conditions set forth in the award agreement. Additionally, a
participant will not earn performance awards for any award
period during which the participants employment is
terminated, except for specific circumstances provided in the
Existing Plans, such as the participants death or
disability.
Amendment and Termination of the Existing
Plans. Our Compensation Committee may amend
or terminate the Existing Plans at any time so long as such
amendment or termination does not materially adversely affect
the rights of any participant previously granted an option or
other award under the Existing Plans. Any award outstanding at
the time of the applicable Existing Plans termination may
be exercised after such termination and prior to the expiration
date of such award to the same extent that such award would have
been exercisable had the applicable Existing Plan not been
terminated.
401(k)
Plan
On October 1, 2003, we began a 401(k) plan covering all
eligible employees. Subject to certain dollar limits, eligible
employees may contribute a portion of their pre-tax annual
compensation to the plan. We currently contribute up to 50% of
the first 3% of the gross salary of the employee, which vests
immediately.
Director
Compensation
The following table sets forth information regarding
compensation earned by our non-employee directors during the
year ended December 31, 2010. No formal director
compensation policy existed for 2010.
In connection with this offering, the company has adopted formal
director compensation payments for its non-employee directors in
2011 as follows: an annual retainer of $75,000, an annual
payment of $10,000 for each committee chair and an annual
payment of $7,500 for each committee on which the non-employee
director serves. These payments may be made in cash or stock, at
the election of the director. In addition, each non-employee
director will receive a grant of options to purchase common
stock with a value equal to $90,000 (based on the Black-Scholes
value of grant).
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Fees Earned
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Name
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or Paid in
Cash ($)
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Option Awards($)(3)
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Total ($)
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Steven I. Bandel
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Charles H. Fine
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5,811
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(1)
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273,738
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(4)
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279,549
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Alan E. Goldberg
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Lance L. Hirt
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Robert D. Lindsay
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Thomas J. Meredith
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21,714
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(2)
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2,649,245
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(5)
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2,670,959
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Andrew S. Weinberg
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(1)
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Includes $5,000 in directors fees and $811 in out of
pocket reimbursements.
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(2)
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Includes $21,714 in out of pocket reimbursements.
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(3)
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The amounts reported in this column represent the aggregate
grant date fair value of option awards granted to directors in
accordance with ASC Topic 718. See note 2 to our
consolidated financial statements included elsewhere in this
prospectus for a discussion of our assumptions in determining
the ASC Topic 718 value of our stock options.
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(4)
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Related to the grant of the option to purchase
20,000 shares of common stock on July 27, 2010 with a
fair value of $273,738. As of December 31, 2010,
Mr. Fine held 30,000 options to purchase our common stock.
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(5)
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Related to the grant of the option to purchase
200,000 shares of common stock. Of these options, 106,250
were granted on December 15, 2010 with a fair value of
$1,487,064 and 93,750
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were granted on July 27, 2010 with a fair value of
$1,162,181. As of December 31, 2010, Mr. Meredith held
200,000 options to purchase our common stock.
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Limitation on
Liability and Indemnification Matters
Our amended and restated certificate of incorporation and
amended and restated bylaws, each to be effective upon the
completion of this offering, will provide that we will indemnify
our directors and officers, and may indemnify our employees and
other agents, to the fullest extent permitted by the Delaware
General Corporation Law, which prohibits our amended and
restated certificate of incorporation from limiting the
liability of our directors for the following:
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any breach of the directors duty of loyalty to us or to
our stockholders,
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acts or omissions not in good faith or that involve intentional
misconduct or a knowing violation of law,
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unlawful payment of dividends or unlawful stock repurchases or
redemptions and
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any transaction from which the director derived an improper
personal benefit.
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If Delaware law is amended to authorize corporate action further
eliminating or limiting the personal liability of a director,
then the liability of our directors will be eliminated or
limited to the fullest extent permitted by Delaware law, as so
amended. Our amended and restated certificate of incorporation
does not eliminate a directors duty of care and, in
appropriate circumstances, equitable remedies, such as
injunctive or other forms of non-monetary relief, remain
available under Delaware law. This provision also does not
affect a directors responsibilities under any other laws,
such as the federal securities laws or other state or federal
laws. Under our amended and restated bylaws, we will also be
empowered to purchase insurance on behalf of any person whom we
are required or permitted to indemnify.
In addition to the indemnification required in our amended and
restated certificate of incorporation and amended and restated
bylaws, we have entered into indemnification agreements with
each of our current directors and executive officers. These
agreements provide for the indemnification of our directors and
executive officers for certain expenses and liabilities incurred
in connection with any action, suit, proceeding or alternative
dispute resolution mechanism, or hearing, inquiry or
investigation that may lead to the foregoing, to which they are
a party, or are threatened to be made a party, by reason of the
fact that they are or were a director, officer, employee, agent
or fiduciary of our company, or any of our subsidiaries, by
reason of any action or inaction by them while serving as an
officer, director, agent or fiduciary, or by reason of the fact
that they were serving at our request as a director, officer,
employee, agent or fiduciary of another entity. In the case of
an action or proceeding by or in the right of our company or any
of our subsidiaries, no indemnification will be provided for any
claim where a court determines that the indemnified party is
prohibited from receiving indemnification. We believe that these
bylaw provisions and indemnification agreements are necessary to
attract and retain qualified persons as directors and officers.
We also maintain directors and officers liability
insurance.
The limitation of liability and indemnification provisions in
our amended and restated certificate of incorporation amended
and restated bylaws and indemnification agreements may
discourage stockholders from bringing a lawsuit against
directors for breach of their fiduciary duties. They may also
reduce the likelihood of derivative litigation against directors
and officers, even though an action, if successful, might
benefit us and our stockholders. A stockholders investment
may be harmed to the extent we pay the costs of settlement and
damage awards against directors and officers pursuant to these
indemnification provisions. Insofar as indemnification for
liabilities arising under the Securities Act may be permitted to
our directors, officers and controlling persons pursuant to the
foregoing provisions, or otherwise, we have been advised that,
in the opinion of the SEC, such indemnification is against
public policy as expressed in the Securities Act, and is,
therefore, unenforceable. There is no pending litigation or
proceeding naming any of our directors or officers as to which
indemnification is being sought, nor are we aware of any pending
or threatened litigation that may result in claims for
indemnification by any director or officer.
129
CERTAIN
RELATIONSHIPS AND RELATED TRANSACTIONS
Related
Transactions
Since January 1, 2008, we have engaged in the following
transactions, other than compensation arrangements, with our
directors, executive officers and holders of more than 5% of our
voting securities, and certain affiliates of our directors,
executive officers and 5% stockholders required to be disclosed
by SEC rules:
In the normal course of business, we enter into transactions
with affiliated companies. Affiliated companies are those in
which we own a small ownership interest, normally equal to or
less than 20%.
During the year ended December 31, 2008, we sold handheld
devices to Movida Communications, Inc., one of our affiliated
companies in the U.S., in the amount of $5.6 million. There
were no sales to these affiliated companies for the years ended
December 31, 2009 and 2010. As of December 31, 2009
and 2010, we had no accounts receivable from such affiliate.
During the years ended December 31, 2009 and 2008, we also
sold handheld devices to Crisma Comercializadora, one of our
affiliated companies in Colombia, in the amount of
$5.6 million and $34.1 million, respectively. As of
December 31, 2009, we had $2.1 million in accounts
receivable from such affiliate. In January 2010, we acquired
Crisma Comercializadora.
In November 2008, 1945/1947 Turnberry CV, a member company of
the Cisneros Group, paid Brightstar $4.7 million pursuant
to a guaranty agreement under which the Cisneros Group had
guaranteed certain obligations of Movida Communications, Inc., a
customer of Brightstar. At the time, Steven I. Bandel, a
director of Brightstar was also an Executive President and Chief
Operating Officer of the Cisneros Group of Companies. The
guaranty was subsequently terminated and releases were exchanged.
During 2008, we paid $0.1 million to Charles H. Fine, one
of our directors, for consulting services.
On December 31, 2008, Mitsui & Co., Ltd., one of
our redeemable convertible preferred stockholders, had a
non-controlling ownership interest in our Australian subsidiary
and our subsidiary in Singapore. In March 2009,
Mitsui & Co., Ltd. elected to convert its investment
in Singapore into 493,828 shares of our Series C
Redeemable Convertible Preferred Stock. This effectively reduced
their non-controlling interest from 30% to zero. At the same
time, we also repurchased the ownership interest of
Mitsui & Co., Ltd. in our subsidiary in Australia for
$40.0 million in cash. This effectively reduced their
non-controlling interest in this subsidiary from 40% to zero. As
a result, both subsidiaries became wholly owned by us.
On December 31, 2008, we acquired a 10% non-controlling
interest held by Denise Gibson, the president of Brightstar
U.S. and Canada, Inc., in a transaction accounted for as a
purchase. The fair value of the net assets acquired amounted to
$4.9 million, including intangibles other than goodwill of
$2.7 million.
During the first quarter of 2009, we made net advances to R.
Marcelo Claure, our Chief Executive Officer of
$0.2 million. These advances are interest free and have no
stated maturity. During the third quarter of 2009, those
advances were later approved as additional compensation by our
board of directors.
In March 2009, Jaime Narea, one of our employees entered into an
ownership interest exchange with us wherein the employee
exchanged 9.8% of a non-controlling interest in one of our
consolidated subsidiaries for 40,000 shares of common stock
of the Company. This effectively reduced the non-controlling
interest held by the employee from 49% to 39.2%.
In connection with our investment in real estate and the leasing
of one of the units in Venezuela, we engaged a relative of our
Chief Executive Officer and controlling stockholder to provide
real estate services. The total amount for this service amounted
to $0.5 million, which was paid in February 2010.
130
Stockholders
Agreement
Following the completion of the offering, the only material
provision of our Fourth Amended and Restated Stockholders
Agreement that will remain in effect relates to the registration
rights. This registration rights provision provides the holders
of a majority of (i) the Series E Preferred Stock,
(ii) the Series B and Series C Redeemable
Convertible Preferred Stock and (iii) Series D
Redeemable Convertible Preferred Stock, at any time after this
offering, subject to certain limitations set forth in the
Stockholders Agreement, the right to demand that we
register our Class A common stock they hold upon conversion
of their respective redeemable convertible preferred stock under
the Securities Act. In addition, the holders of Class A
common stock issued upon conversion of our Series B, C, D
or E Redeemable Convertible Preferred Stock in connection with
this offering, as well as Telepark Corp. (or its permitted
assignees), will have unlimited piggyback
registration rights with respect to their Class A common
stock in connection with our future registrations of
Class A common stock.
Brightstar
Europe
In April 2007, we entered into a shareholders agreement
with Tech Data related to the establishment and operation of
Brightstar Europe. In connection with the shareholders
agreement, we invested $10.0 million for 50% ownership of
Brightstar Europe, and we agreed to make available a loan
facility to fund the operations of Brightstar Europe for
$40.0 million. Through December 31, 2010, we had
funded $40.0 million of the loan. Each shareholder holds
50% of the capital of Brightstar Europe and each party agrees to
provide 50% of the future funding of the joint venture. We
account for this investment using the equity method of
accounting, as we consider it a variable interest entity for
which we are not the primary beneficiary.
Statement of
Policy on Related Party Transactions
We recognize that related party transactions present a
heightened risk of conflicts of interest, and, in connection
with this offering, we intend to adopt a policy to which all
related party transactions will be subject. Pursuant to the
policy, the audit committee of our board of directors, or in the
case of a transaction in which the aggregate amount is, or is
expected to be, in excess of $ ,
the board of directors, will review the relevant facts and
circumstances of all related party transactions, including, but
not limited to, (i) whether the transaction is on terms
comparable to those that could be obtained in arms length
dealings with an unrelated third party and (ii) the extent
of the related partys interest in the transaction.
Pursuant to the policy, no director, including the chairman of
the audit committee, may participate in any approval of a
related party transaction to which he or she is a related party.
The audit committee, or our board of directors in the case of a
transaction in which the aggregate amount is, or is expected to
be, in excess of $ , will then, in
its sole discretion, either approve or disapprove the
transaction.
Certain types of transactions, which would otherwise require
individual review, have been pre-approved by the audit
committee. These types of transactions include, for example,
(i) compensation to an officer or director where such
compensation is required to be disclosed in our proxy statement,
(ii) transactions where the interest of the related party
arises only by way of a directorship or minority stake in
another organization that is a party to the transaction and
(iii) transactions involving competitive bids or fixed
rates. Additionally, pursuant to the terms of our related party
transaction policy, all related party transactions are required
to be disclosed in our applicable filings as required by the
Securities Act and the Exchange Act and related rules.
Furthermore, any material related party transactions are
required to be disclosed to the full board of directors. In
connection with becoming a public company, we will establish new
internal policies relating to disclosure controls and
procedures, which we expect will include policies relating to
the reporting of related party transactions that are
pre-approved under our related party transactions policy.
131
PRINCIPAL AND
SELLING STOCKHOLDERS
The following table sets forth information regarding beneficial
ownership of our common stock as of December 31, 2010, by:
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each person whom we know to own beneficially more than 5% of our
common stock;
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each of the directors and named executive officers
individually; and
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all directors and executive officers as a group.
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In accordance with the rules of the SEC, beneficial ownership
includes voting or investment power with respect to securities
and includes the shares issuable pursuant to stock options that
are exercisable within 60 days of December 31, 2010.
Shares issuable pursuant to stock options are deemed outstanding
for computing the percentage of the person holding such options
but are not outstanding for computing the percentage of any
other person. The number of shares of common stock outstanding
after this offering includes shares of Class A common stock
being offered for sale by us in this offering. The percentage of
beneficial ownership for the following table is based on
18,182,267 shares of common stock outstanding as of
December 31, 2010
and shares
of Class A common stock
and shares
of Class B common stock outstanding after the completion of
this offering, assuming (i) the conversion of our
redeemable convertible preferred stock
into shares
of Class A common stock, (ii) no exercise of the
underwriters option to purchase additional shares and
(iii) the conversion
of shares
of our common stock owned by Mr. Claure
into shares
of Class A common stock
and shares
of Class B common stock, and the conversion
of shares
of our common stock owned by other shareholders
into shares
of Class A common stock. Unless otherwise indicated, the
address for each listed stockholder is:
c/o Brightstar
Corp., 9725 N.W. 117th Ave., Miami, Florida 33178. To our
knowledge, except as indicated in the footnotes to this table
and pursuant to applicable community property laws, the persons
named in the table have sole voting and investment power with
respect to all shares of common stock. Beneficial ownership
representing less than 1% is denoted with an asterisk (*).
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Number of
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Shares Beneficially Owned After the Offering(1)
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Shares Beneficially Owned
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Class A
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Class A Common Stock Beneficially Owned
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Class B Common Stock Beneficially Owned
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Name and Address of 5%
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Before the Offering
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Shares Being
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% of Total
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% of Total
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Beneficial Owner
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Number
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Percent
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Offered
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Number
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Percent
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Voting Power
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Number
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Percent
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Voting Power
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LG Brightstar LLC(2)
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14,975,309
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39.7
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%
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Mitsui & Co., Ltd.(3)
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2,993,828
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7.9
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%
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Number of
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Shares Beneficially Owned After the Offering(1)
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Shares Beneficially Owned
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Class A
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Class A Common Stock Beneficially Owned
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Class B Common Stock Beneficially Owned
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Name and Address of
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Before the Offering
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Shares Being
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% of Total
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% of Total
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Directors or Officers
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Number
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Percent
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Offered
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Number
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Percent
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Voting Power
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Number
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Percent
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Voting Power
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R. Marcelo Claure
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15,867,419
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(4)
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42.1
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%
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100
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%
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Dennis J. Strand(5)
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375,000
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*
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500,000
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*
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*
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Michael J. Cost(6)
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200,000
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*
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200,000
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*
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*
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Denise W. Gibson
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Rod J. Millar
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Arturo A. Osorio(7)
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18,667
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*
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18,667
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*
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*
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Oscar A. Rojas
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Oscar J. Fumagali(8)
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93,750
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*
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93,750
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*
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*
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Steven I. Bandel
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Rafael M. de Guzman III(9)
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12,500
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*
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12,500
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*
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*
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Charles H. Fine(10)
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10,000
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*
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10,000
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*
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*
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Alan E. Goldberg(2)
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Lance L. Hirt(11)
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Robert D. Lindsay(2)
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Thomas J. Meredith(12)
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156,250
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*
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156,250
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*
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*
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Andrew S. Weinberg(10)
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All of our Directors and officers as a Group
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16,733,586
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46.5
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%
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(1)
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Assumes no exercise of the underwriters option to purchase
additional shares. See Underwriters.
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(2)
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LG Brightstar LLC, an affiliate of Lindsay Goldberg, currently
owns 13,975,309 shares of our Series D Redeemable
Convertible Preferred Stock which are convertible into shares of
our common stock at a ratio of 1 to 1 and 1,000,000 shares
of our common stock. The address of LG Brightstar LLC is
630 Fifth Avenue, 30th Floor, New York, NY 10111.
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132
All of the members interests in LG Brightstar LLC are
owned by affiliates of Lindsay Goldberg LLC. Such affiliates of
Lindsay Goldberg have sole voting power and investment power
with respect to shares of our capital stock owned by LG
Brightstar LLC. Messrs. Goldberg and Lindsay have
dispositive voting or investment control over the entities or
funds affiliated with Lindsay Goldberg that control LG
Brightstar LLC. Each of Messrs. Goldberg and Lindsay
disclaims beneficial ownership of the shares of our capital
stock held by LG Brightstar LLC, except to the extent of their
pecuniary interest therein.
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(3)
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Mitsui & Co., Ltd. currently owns
2,500,000 shares of our Series B Redeemable
Convertible Preferred Stock and 493,828 shares of our
Series C Redeemable Convertible Preferred Stock which are
convertible into shares of our common stock at a ratio of 1 to
1. The address of Mitsui & Co., Ltd. is 200 Park
Avenue, New York, NY 10166.
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(4)
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Includes (i)14,525,551.6073 shares of common stock held by
Mr. Claure individually; (ii) 15,541.0927 shares
of common stock held by RMC, Inc., a Nevada corporation
(RMC), which is 100% owned by the Claure Management
Trust, of which Mr. Claure is the settlor; and
(iii) 1,326,326.3 shares of common stock held by
N&P Holdings, Limited Partnership, a Nevada limited
partnership with RMC as general partner and The Claure
GRAT #1 and The Claure GRAT #2 as its only limited
partners, for both of which Mr. Claure serves as the
settlor and trustee.
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(5)
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Includes 375,000 shares of common stock issuable pursuant
to immediately exercisable stock options and 500,000 shares of
common stock issuable pursuant to immediately exercisable
options following this offering.
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(6)
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Includes 200,000 shares of common stock issuable pursuant
to immediately exercisable stock options.
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(7)
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Includes 18,667 shares of common stock issuable pursuant to
immediately exercisable stock options.
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(8)
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Includes 93,750 shares of common stock issuable pursuant to
immediately exercisable stock options.
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(9)
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Includes 12,500 shares of common stock issuable pursuant to
immediately exercisable stock options.
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(10)
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Includes 10,000 shares of common stock issuable pursuant to
immediately exercisable stock options.
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(11)
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By virtue of their affiliation with Lindsay Goldberg, an
affiliate of LG Brightstar LLC, each of Messrs. Hirt and
Weinberg may be deemed to have or share beneficial ownership of
all the shares of capital stock held of record by LG Brightstar
LLC. Each of Messrs. Hirt and Weinberg disclaims beneficial
ownership of the shares of our capital stock held of record by
LG Brightstar LLC, except to the extent of their pecuniary
interest therein.
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(12)
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Includes 156,250 shares of common stock issuable pursuant
to immediately exercisable stock options.
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133
DESCRIPTION OF
CAPITAL STOCK
As of December 31, 2010, there were 18,182,267 shares
of common stock outstanding which were held of record by
13 stockholders. In addition, as of December 31, 2010,
we had shares of Series B Redeemable Convertible Preferred
Stock, C Redeemable Convertible Preferred Stock,
D Redeemable Convertible Preferred Stock and
E Redeemable Convertible Preferred Stock outstanding.
Following this offering, our authorized capital stock will
consist
of shares
of Class A common stock, par value $0.0001 per
share, shares
of Class B common stock, par value $0.0001 per
share, and shares
of preferred stock, par value $
per share.
The following descriptions are summaries of the material terms
of our Certificate of Incorporation and By-laws as will be in
effect immediately following the offering. Reference is made to
the more detailed provisions of, and the descriptions are
qualified in their entirety by reference to, the Certificate of
Incorporation and By-laws, copies of which are filed with the
SEC as exhibits to the registration statement of which this
prospectus is a part, and applicable law.
Common
Stock
Class A
Common Stock
Holders of our Class A common stock are entitled to one
vote for each share held of record on all matters submitted to a
vote of stockholders. In addition, any director that is intended
by our board of directors to be designated as
independent will be elected by holders of Class A
and Class B common stock, voting together as a single class,
with each holder entitled to one vote per share. Our certificate
of incorporation will provide that at least three directors will
be designated as independent, and the board may
determine to designate additional directors as independent from
time to time. It is the current expectation that we will invoke
a controlled company exception to the Nasdaq Stock
Market rules so that a majority of the board of directors will
not be independent.
Holders of our Class A common stock are entitled to receive
dividends when and if declared by our board of directors out of
funds legally available therefor, subject to any statutory or
contractual restrictions on the payment of dividends and to any
restrictions on the payment of dividends imposed by the terms of
any outstanding preferred stock. Any dividend paid in respect of
our Class A common stock must also be paid in respect of
our Class B common stock.
Upon our dissolution or liquidation or the sale of all or
substantially all of our assets, after payment in full of all
amounts required to be paid to creditors and to the holders of
preferred stock having liquidation preferences, if any, the
holders of our Class A common stock and Class B common
stock will be entitled to receive pro rata our remaining assets
available for distribution.
Class B
Common Stock
Holders of our Class B common stock are entitled to 5 votes
for each share held of record on all matters submitted to a vote
of stockholders, except with respect to the election of any
director that is intended by our board of directors to be
designated as independent. With respect to the
election of such independent directors, holders of Class A
and Class B common stock will be entitled to one vote per
share and will vote together as a single class. Our certificate
of incorporation will provide that at least three directors will
be designated as independent, and the board may
determine to designate additional directors as independent from
time to time. It is the current expectation that we will invoke
a controlled company exception to the Nasdaq Stock
Market rules so that a majority of the board of directors will
not be independent. In addition, in the event of (a) the
merger or sale of the company or all or substantially all of the
assets of the company, (b) the liquidation, dissolution or
winding up of the company, or (c) any amendment to our
certificate of incorporation that would increase the authorized
capital stock of the company, Class B common stock will be
entitled to one vote per share. In the event that
Mr. Claure beneficially owns shares of our common stock
representing less than 20% of the total number of shares
outstanding or the company is no longer certified as a minority
business
134
enterprise, the Class B common stock will automatically
convert into Class A common stock. In addition, in the event
Mr. Claure sells, disposes or otherwise transfers his
shares of Class B common stock to a third party, such Class
B common stock will automatically convert to Class A common
stock.
Holders of our Class B common stock are entitled to receive
dividends when and if declared by our board of directors out of
funds legally available therefor, subject to any statutory or
contractual restrictions on the payment of dividends and to any
restrictions on the payment of dividends imposed by the terms of
any outstanding preferred stock. Any dividend paid in respect of
our Class B common stock must also be paid in respect of
our Class A common stock.
Upon our dissolution or liquidation or the sale of all or
substantially all of our assets, after payment in full of all
amounts required to be paid to creditors and to the holders of
preferred stock having liquidation preferences, if any, the
holders of our Class A common stock and Class B common
stock will be entitled to receive pro rata our remaining assets
available for distribution.
Preferred
Stock
The board of directors has the authority to issue the preferred
stock in one or more series and to fix the rights, preferences,
privileges and restrictions thereof, including dividend rights,
dividend rates, conversion rights, voting rights, terms of
redemption, redemption prices, liquidation preferences and the
number of shares constituting any series or the designation of
such series, without further vote or action by the stockholders.
The issuance of preferred stock may have the effect of delaying,
deferring or preventing a change in control of us without
further action by the stockholders and may adversely affect the
voting and other rights of the holders of common stock. At
present, we have no plans to issue any preferred stock.
Anti-Takeover
Effects of Delaware Law
Following consummation of this offering, we will be subject to
the business combination provisions of
Section 203 of the DGCL. In general, such provisions
prohibit a publicly held Delaware corporation from engaging in
various business combination transactions with any
interested stockholder for a period of three years after the
date of the transaction in which the person became an interested
stockholder, unless
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the transaction is approved by the board of directors prior to
the date the interested stockholder obtained such status;
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upon consummation of the transaction which resulted in the
stockholder becoming an interested stockholder, the stockholder
owned at least 85% of the voting stock of the corporation
outstanding at the time the transaction commenced; or
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on or subsequent to such date the business combination is
approved by the board of directors and authorized at an annual
or special meeting of stockholders by the affirmative vote of at
least
662/3%
of the outstanding voting stock which is not owned by the
interested stockholder. A business combination is
defined to include mergers, asset sales and other transactions
resulting in financial benefit to a stockholder. In general, an
interested stockholder is a person who, together
with affiliates and associates, owns (or within three years, did
own) 15% or more of a corporations voting stock. The
statute could prohibit or delay mergers or other takeover or
change in control attempts and, accordingly, may discourage
attempts to acquire us even though such a transaction may offer
our stockholders the opportunity to sell their stock at a price
above the prevailing market price.
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Voting
Rights
All elections of directors shall be determined by a plurality
vote and, except as provided by applicable law or our
certificate of incorporation, all other matters shall be
determined by a majority of
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the votes entitled to be cast by all shares of Class A
common stock and Class B common stock present or
represented at a meeting of the stockholders, voting together as
a single class. Each share of Class A common stock will be
entitled to one vote per share. Each share of Class B common
stock will be entitled to 5 votes per share, except as described
above under Class B Common Stock. In addition,
amendments to the amended and restated certificate of
incorporation that would alter or change the powers, preferences
or special rights of the Class A common stock or
Class B common stock so as to affect them adversely also
must be approved by a majority of the votes entitled to be cast
by the holders of the shares affected by the amendment, voting
as a separate class. Notwithstanding the foregoing, any
amendment to our amended and restated certificate of
incorporation to increase or decrease the authorized shares of
any class of common stock shall be approved upon the affirmative
vote of the holders of a majority of the shares of Class A
common stock and Class B common stock voting together as a
single class.
No shares of any class of common stock are subject to redemption
or have preemptive rights to purchase additional shares of any
class of common stock. Upon consummation of this offering, all
of our outstanding shares of common stock are legally issued,
fully paid and nonassessable.
Listing
We intend to apply to list the Class A common stock on The
Nasdaq Stock Market under the symbol STAR.
Transfer Agent
and Registrar
The Transfer Agent and Registrar for the Class A common
stock
is .
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MATERIAL U.S.
FEDERAL TAX CONSEQUENCES FOR
NON-U.S.
HOLDERS
The following is a general discussion of the material
U.S. federal income and estate tax consequences of the
ownership and disposition of our common stock Class A by a
beneficial owner that is a
Non-U.S. Holder,
other than a
Non-U.S. Holder
that owns, or has owned, actually or constructively, more than
5% of our Class A common stock. A
Non-U.S. Holder
is a person or entity that, for U.S. federal income tax
purposes, is a:
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nonresident alien individual, other than certain former citizens
and residents of the United States subject to tax as expatriates;
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foreign corporation; or
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foreign estate or trust.
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A
Non-U.S. Holder
does not include a nonresident alien individual who is present
in the United States for 183 days or more in the taxable
year of disposition. Such an individual is urged to consult his
or her own tax adviser regarding the U.S. federal income
tax consequences of the sale, exchange or other disposition of
our Class A common stock.
If an entity that is classified as a partnership for
U.S. federal income tax purposes holds our Class A
common stock, the U.S. federal income tax treatment of a
partner will generally depend on the status of the partner and
the activities of the partnership. Partnerships holding our
Class A common stock and partners in such partnerships are
urged to consult their tax advisers as to the particular
U.S. federal income tax consequences of holding and
disposing of our Class A common stock.
This discussion is based on the Internal Revenue Code of 1986,
as amended (the Code), and administrative
pronouncements, judicial decisions and final, temporary and
proposed Treasury Regulations, changes to any of which
subsequent to the date of this prospectus may affect the tax
consequences described herein. This discussion does not address
all aspects of U.S. federal income and estate taxation that
may be relevant to a
Non-U.S. Holder
in light of its particular circumstances and does not address
any tax consequences arising under the laws of any state, local
or foreign jurisdiction. Prospective holders are urged to
consult their tax advisers with respect to the particular tax
consequences to them of owning and disposing of our Class A
common stock, including the consequences under the laws of any
state, local or foreign jurisdiction.
Dividends
Dividends paid to a
Non-U.S. Holder
of our Class A common stock generally will be subject to
withholding tax at a 30% rate or a reduced rate specified by an
applicable income tax treaty. In order to obtain a reduced rate
of withholding, a
Non-U.S. Holder
will be required to provide an Internal Revenue Service
Form W-8BEN
certifying its entitlement to benefits under a treaty.
If dividends paid to a
Non-U.S. Holder
are effectively connected with the
Non-U.S. Holders
conduct of a trade or business in the United States (and, if
required by an applicable income tax treaty, are attributable to
a permanent establishment in the United States), the
Non-U.S. Holder,
although exempt from the withholding tax discussed in the
preceding paragraph, will generally be taxed in the same manner
as a U.S. person. In this case, the
Non-U.S. Holder
will not be subject to any U.S. withholding tax if the
Non-U.S. Holder
complies with applicable certification and disclosure
requirements. In general, the
Non-U.S. Holder
will be required to provide a properly executed Internal Revenue
Service
Form W-8ECI
in order to claim an exemption from withholding. A foreign
corporation receiving effectively connected dividends may also
be subject to an additional branch profits tax
imposed at a rate of 30% (or a lower treaty rate).
137
Gain on
Disposition of Class A Common Stock
A
Non-U.S. Holder
generally will not be subject to U.S. federal income tax on
gain realized on a sale or other disposition of our Class A
common stock unless:
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the gain is effectively connected with a trade or business of
the
Non-U.S. Holder
in the United States (subject to an applicable income tax treaty
providing otherwise), or
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we are or have been a United States real property holding
corporation, as defined in the Code, at any time within the
five-year period preceding the disposition or the
Non-U.S. Holders
holding period, whichever period is shorter, and our
Class A common stock has ceased to be traded on an
established securities market prior to the beginning of the
calendar year in which the sale or disposition occurs.
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We believe that we are not, and do not anticipate becoming, a
United States real property holding corporation.
If a
Non-U.S. Holder
is engaged in a trade or business in the United States and gain
recognized by the
Non-U.S. Holder
on a sale or other disposition of our Class A common stock
is effectively connected with the conduct of such trade or
business, the
Non-U.S. Holder
will generally be taxed in the same manner as a
U.S. person, subject to an applicable income tax treaty
providing otherwise.
Non-U.S. Holders
whose gain from dispositions of our common stock may be
effectively connected with the conduct of a trade or business in
the United States are urged to consult their own tax advisers
with respect to the U.S. tax consequences of the ownership
and disposition of our Class A common stock, including the
possible imposition of a branch profits tax.
Information
Reporting Requirements and Backup Withholding
Information returns will be filed with the Internal Revenue
Service in connection with payments of dividends on our
Class A common stock. Unless the
Non-U.S. Holder
complies with certification procedures to establish that it is
not a U.S. person, information returns may be filed with
the Internal Revenue Service in connection with the proceeds
from a sale or other disposition of our Class A common
stock and the
Non-U.S. Holder
may be subject to U.S. backup withholding on dividend
payments on our Class A common stock or on the proceeds
from a sale or other disposition of our Class A common
stock. The certification procedures required to claim a reduced
rate of withholding under a treaty described above under
Dividends will satisfy the certification
requirements necessary to avoid backup withholding as well, as
long as the payer does not have actual knowledge or reason to
know that the
Non-U.S. Holder
is a U.S. person. The amount of any backup withholding from
a payment to a
Non-U.S. Holder
will be allowed as a credit against such holders
U.S. federal income tax liability and may entitle such
holder to a refund, provided that the required information is
timely furnished to the Internal Revenue Service.
Recent
Legislation
Recent legislation generally imposes a withholding tax of 30% on
payments to certain foreign entities (including financial
intermediaries) after December 31, 2012 of dividends on and
the gross proceeds of dispositions of U.S. common stock,
unless various U.S. information reporting and due diligence
requirements (generally relating to ownership by
U.S. persons of interests in or accounts with those
entities) have been satisfied. These requirements are different
from, and in addition to, the beneficial owner certification
requirements described above.
Non-U.S. Holders
should consult their tax advisors regarding the possible
implications of this legislation on their investment in our
Class A common stock.
Federal Estate
Tax
Individual
Non-U.S. Holders
and entities the property of which is potentially includible in
such an individuals gross estate for U.S. federal
estate tax purposes (for example, a trust funded by such an
individual and with respect to which the individual has retained
certain interests or powers) should note that, absent an
applicable treaty benefit, our Class A common stock will be
treated as U.S. situs property subject to U.S. federal
estate tax.
138
SHARES ELIGIBLE
FOR FUTURE SALE
Prior to this offering, there has been no market for our
Class A common stock. Future sales of substantial amounts
of our Class A common stock in the public market, including
shares issued upon conversion of outstanding Class B common
stock, could adversely affect market prices prevailing from time
to time. Furthermore, because only a limited number of shares
will be available for sale shortly after this offering due to
existing contractual and legal restrictions on resale as
described below, there may be sales of substantial amounts of
our Class A common stock in the public market after the
restrictions lapse. This may adversely affect the prevailing
market price and our ability to raise equity capital in the
future.
Upon completion of this offering, we will
have shares
of Class A common stock outstanding assuming the conversion
of shares
of our common stock
into shares
of Class A common stock, the conversion of our redeemable
convertible preferred stock
into shares
of Class A common stock, the exercise of the
underwriters option to purchase additional shares and no
exercise of any options and warrants outstanding as of
December 31, 2010. We will also
have shares
of Class B common stock outstanding, which are convertible
into shares
of Class A common stock at any time and, under certain
circumstances, will automatically be converted to shares of
Class A common stock. Of these
shares, shares
of Class A common stock,
or shares
of Class A common stock if the underwriters exercise their
option to purchase additional shares in full, sold in this
offering will be freely transferable without restriction or
registration under the Securities Act, except for any shares
purchased by one of our existing affiliates, as that
term is defined in Rule 144 under the Securities Act. The
remaining shares
of Class A common stock and Class B common stock existing
are restricted shares as defined in Rule 144.
Restricted shares may be sold in the public market only if
registered or if they qualify for an exemption from registration
under Rules 144 or 701 of the Securities Act. As a result
of the contractual
lock-up
periods described below and the provisions of Rules 144 and
701, these shares will be available for sale in the public
market as follows:
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Number of Shares of Class A
common stock
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Date
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On the date of this prospectus.
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After 90 days from the date of this prospectus.
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After 180 days from the date of this prospectus (subject,
in some cases, to volume limitations).
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After 365 days from the date of this prospectus (assuming the
company remains certified as a minority business enterprise for
at least 365 days following the date of this prospectus).
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Number of Shares of Class B
common stock
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Date
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On the date of this prospectus.
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After 90 days from the date of this prospectus
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After 180 days from the date of this prospectus (subject, in
some cases to volume limitations).
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After 365 days from the date of this prospectus (assuming the
company remains certified as a minority business enterprise for
at least 365 days from the date of this prospectus).
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Rule 144
In general, under Rule 144 as currently in effect, once we
have been a reporting company subject to the reporting
requirements of Section 13 or Section 15(d) of the
Exchange Act for 90 days, an affiliate who has beneficially
owned restricted shares of our Class A common stock or
Class B
139
common stock for at least six months would be entitled to sell
within any three-month period a number of shares that does not
exceed the greater of either of the following:
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1% of the number of shares of Class A common stock or Class
B common stock then outstanding, which will equal shares
immediately after this offering; and
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the average weekly reported volume of trading of our
Class A common stock or Class B common stock during the
four calendar weeks preceding the filing of a notice on
Form 144 with respect to the sale.
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However, the six-month holding period increases to one year in
the event we have not been a reporting company for at least
90 days. In addition, any sales by affiliates under
Rule 144 are also limited by manner of sale provisions and
notice requirements and the availability of current public
information about us.
The volume limitation, manner of sale and notice provisions
described above will not apply to sales by non-affiliates. For
purposes of Rule 144, a non-affiliate is any person or
entity who is not our affiliate at the time of sale and has not
been our affiliate during the preceding three months. Once we
have been a reporting company for 90 days, a non-affiliate
who has beneficially owned restricted shares of our Class A
common stock or Class B common stock for six months may rely on
Rule 144 provided that certain public information regarding
us is available. The six-month holding period increases to one
year in the event we have not been a reporting company for at
least 90 days. However, a non-affiliate who has
beneficially owned the restricted shares proposed to be sold for
at least one year will not be subject to any restrictions under
Rule 144 regardless of how long we have been a reporting
company.
We are unable to estimate the number of shares that will be sold
under Rule 144 since this will depend on the market price
for our Class A common stock, the personal circumstances of
the stockholder and other factors.
Rule 701
In general, under Rule 701, any of our employees,
directors, officers, consultants or advisors who purchases
shares from us in connection with a compensatory stock or option
plan or other written agreement before the effective date of
this offering is entitled to resell such shares 90 days
after the effective date of this offering in reliance on
Rule 144, without having to comply with the holding period
requirements or other restrictions contained in Rule 701.
The Securities and Exchange Commission has indicated that
Rule 701 will apply to typical stock options granted by an
issuer before it becomes subject to the reporting requirements
of the Exchange Act, along with the shares acquired upon
exercise of such options, including exercises after the date of
this prospectus. Securities issued in reliance on Rule 701
are restricted securities and, subject to the contractual
restrictions described above, beginning 90 days after the
date of this prospectus, may be sold by persons other than
affiliates, as defined in Rule 144, subject
only to the manner of sale provisions of Rule 144, and by
affiliates under Rule 144 without compliance
with its one-year minimum holding period requirement.
Registration
Rights
Upon completion of this offering, the holders
of shares
of Class A common stock (including shares of Class A
common stock issuable upon the conversion of our redeemable
convertible preferred
stock), and shares
of Class A common stock issuable upon the exercise of
outstanding options and warrants or their transferees will be
entitled to various rights with respect to the registration of
these shares under the Securities Act. Registration of these
shares under the Securities Act would result in these shares
becoming freely tradable without restriction under the
Securities Act immediately upon the effectiveness of the
registration, except for shares purchased by affiliates. See
Certain Relationships and Related Transactions.
140
Lock-up
Agreements
Our officers, directors and substantially all of our
stockholders have agreed, subject to limited exceptions, not to
offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell,
grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any shares of
Class A common stock or Class B common stock
beneficially owned (as such term is used in
Rule 13d-3
of the Exchange Act) or any other securities so owned
convertible into or exercisable or exchangeable for Class A
common stock or Class B common stock or enter into any swap
or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of any
shares of Class A common stock or Class B common stock
or any securities convertible into or exercisable or
exchangeable for shares of Class A common stock or
Class B common stock for a period of at least 180 days
(or at least 365 days in the case of Mr. Claure, as
long as the company remains certified as a minority business
enterprise) (or as extended) after the date of this prospectus
without the prior written consent of Goldman, Sachs &
Co. and J.P. Morgan Securities LLC.
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UNDERWRITING
We and the selling stockholders are offering the shares of
Class A common stock described in this prospectus through a
number of underwriters. Goldman, Sachs & Co.,
J.P. Morgan Securities LLC, Barclays Capital Inc., Credit
Suisse Securities (USA) LLC and Jefferies & Company,
Inc. are acting as joint book-running managers of the offering
and as representatives of the underwriters listed in the table
below. We and the selling stockholders have entered into an
underwriting agreement with the underwriters. Subject to the
terms and conditions of the underwriting agreement, we and the
selling stockholders have agreed to sell to the underwriters,
and each underwriter has severally agreed to purchase, at the
public offering price less the underwriting discounts set forth
on the cover page of this prospectus, the number of shares of
Class A common stock listed next to its name in the
following table:
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Number of
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Shares
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Goldman, Sachs & Co.
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J.P. Morgan Securities LLC
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Barclays Capital Inc.
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Credit Suisse Securities (USA) LLC
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Jefferies & Company, Inc.
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RBC Capital Markets, LLC
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Stifel, Nicolaus & Company, Incorporated
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Total
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The underwriters are committed to purchase all the shares of
Class A common stock offered by us and the selling
stockholders if they purchase any shares other than the shares
covered by the option described below unless and until this
option is exercised. The underwriting agreement also provides
that if an underwriter defaults, the purchase commitments of
non-defaulting underwriters may also be increased or the
offering may be terminated.
The underwriters propose to offer the shares of Class A
common stock directly to the public at the public offering price
set forth on the cover page of this prospectus and to certain
dealers at that price less a concession not in excess of
$ per share. Any such dealers may
resell shares to certain other brokers or dealers at a discount
of up to $ per share from the
public offering price. After the initial public offering of the
shares, the offering price and other selling terms may be
changed by the underwriters. Sales of shares made outside of the
United States may be made by affiliates of the underwriters. The
offering of the shares by the underwriters is subject to receipt
and acceptance and subject to the underwriters right to
reject any or all orders in whole or in part. The underwriters
have informed us that they do not intend to confirm sales to
discretionary accounts that exceed 5% of the total number of
shares offered by them.
The underwriters have an option to purchase up
to
additional shares of Class A common stock from us and the
selling stockholders if sales of shares by the underwriters
exceed the number of shares specified in the table above. The
underwriters have 30 days from the date of this prospectus
to exercise this option to purchase additional shares. If any
shares are purchased with this option, the underwriters will
purchase shares in approximately the same proportion as shown in
the table above. If any additional shares of Class A common
stock are purchased, the underwriters will offer the additional
shares on the same terms as those on which the shares are being
offered.
The underwriting discounts are equal to the public offering
price per share of Class A common stock less the amount
paid by the underwriters to us and the selling stockholders per
share. The underwriting discounts are
$ per share. The following table
shows the per share and total
142
underwriting discounts to be paid to the underwriters assuming
both no exercise and full exercise of the underwriters
option to purchase additional shares.
Underwriting
Discounts
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Paid by Brightstar Corp.
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Paid by Selling Stockholders
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Total
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No Exercise
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Full Exercise
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No Exercise
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Full Exercise
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No Exercise
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Full Exercise
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Per Share
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Total
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We estimate that the total expenses of this offering payable by
us, including registration, filing and listing fees, printing
fees and legal and accounting expenses, but excluding the
underwriting discounts, will be approximately
$ million.
A prospectus in electronic format may be made available on the
websites maintained by one or more underwriters, or selling
group members, if any, participating in the offering. The
underwriters may agree to allocate a number of shares to
underwriters and selling group members for sale to their online
brokerage account holders. Internet distributions will be
allocated by the representatives to underwriters and selling
group members that may make Internet distributions on the same
basis as other allocations.
We have agreed that we will not, subject to limited exceptions,
dispose of or hedge any of our Class A common stock or
securities convertible into or exchangeable for shares of
Class A common stock without the prior written consent of
Goldman, Sachs & Co. and J.P. Morgan Securities
LLC for a period of 180 days after the date of this
prospectus. Notwithstanding the foregoing, if (i) during
the last 17 days of the
180-day
restricted period the company issues an earnings release or
announces material news or a material event or (ii) prior
to the expiration of the
180-day
restricted period, the company announces that it will release
earnings results during the
15-day
period following the last day of the
180-day
period, in which case the restrictions described in the
preceding sentence will continue to apply until the expiration
of the
18-day
period beginning on the issuance of the earnings release of the
announcement of the material news or material event.
Directors, executive officers, stockholders and optionees
holding more than % of our fully
diluted shares prior to the offering, including all of our
selling stockholders, have entered into
lock-up
agreements with the underwriters prior to the commencement of
this offering pursuant to which each of these persons or
entities, with limited exceptions (including an exception with
respect to shares sold by selling stockholders in this
offering), for a period of at least 180 days after the date
of this prospectus (except for Mr. Claure, whose
lock-up
agreement is for a period of at least 365 days as long as
the company remains certified as a minority business
enterprise), may not, without the prior written consent of
Goldman, Sachs & Co. and J.P. Morgan Securities
LLC, dispose of or hedge any of our Class A common stock or
Class B common stock or securities convertible into or
exchangeable for shares of Class A common stock or Class B
common stock (including shares of common stock which may be
deemed to be beneficially owned by such directors, executive
officers, managers and members in accordance with the rules and
regulations of the SEC and securities which may be issued upon
exercise of a stock option or warrant).
We intend to apply to list the Class A common stock on The
Nasdaq Stock Market under the symbol STAR.
In connection with this offering, the underwriters may engage in
stabilizing transactions, which involves making bids for or
purchasing and selling Class A common stock in the open
market for the purpose of preventing or retarding a decline in
the market price of the Class A common stock while this
offering is in progress. These stabilizing transactions may
include making short sales of the Class A common stock,
which involves the sale by the underwriters of a greater number
of shares of Class A common stock than they are required to
purchase in this offering and purchasing Class A common
stock on the open market to cover positions created by short
sales. Short sales may be
143
covered shorts, which are short positions in an
amount not greater than the underwriters option to
purchase additional shares referred to above or may be
naked shorts, which are short positions in excess of
that amount. The underwriters may close out any covered short
position either by exercising their option to purchase
additional shares, in whole or in part, or by purchasing shares
in the open market. In making this determination, the
underwriters will consider, among other things, the price of
shares available for purchase in the open market compared to the
price at which the underwriters may purchase shares through the
option to purchase additional shares. A naked short position is
more likely to be created if the underwriters are concerned that
there may be downward pressure on the price of the Class A
common stock in the open market that could adversely affect
investors who purchase in this offering. To the extent that the
underwriters create a naked short position, they will purchase
shares in the open market to cover the position.
The underwriters have advised us that, pursuant to
Regulation M of the Securities Act, they may also engage in
other activities that stabilize, maintain or otherwise affect
the price of the Class A common stock, including the
imposition of penalty bids. This means that, if the
representatives of the underwriters purchase Class A common
stock in the open market in stabilizing transactions or to cover
short sales, the representatives can require the underwriters
that sold those shares as part of this offering to repay the
underwriting discount received by them.
These activities may have the effect of raising or maintaining
the market price of the Class A common stock or preventing
or retarding a decline in the market price of the Class A
common stock, and, as a result, the price of the Class A
common stock may be higher than the price that otherwise might
exist in the open market. If the underwriters commence these
activities, they may discontinue them at any time. The
underwriters may carry out these transactions on The Nasdaq
Stock Market, in the
over-the-counter
market or otherwise.
Prior to this offering, there has been no public market for our
Class A common stock. The initial public offering price
will be determined by negotiations between us, the selling
stockholders and the representatives of the underwriters. In
determining the initial public offering price, we, the selling
stockholders and the representatives of the underwriters expect
to consider a number of factors including:
|
|
|
|
|
the information set forth in this prospectus and otherwise
available to the representatives;
|
|
|
|
our prospects and the history and prospects for the industry in
which we compete;
|
|
|
|
an assessment of our management;
|
|
|
|
our prospects for future earnings;
|
|
|
|
the general condition of the securities markets at the time of
this offering;
|
|
|
|
the recent market prices of, and demand for, publicly traded
common stock of generally comparable companies; and
|
|
|
|
other factors deemed relevant by the underwriters, the selling
stockholders and us.
|
In relation to each Member State of the European Economic Area
which has implemented the Prospectus Directive (each, a
Relevant Member State) an offer to the public of any
shares of our Class A common stock may not be made in that
Relevant Member State, except that an offer to the public in
that Relevant Member State of any shares of our Class A
common stock may be made at any time under the following
exemptions under the Prospectus Directive, if they have been
implemented in that Relevant Member State:
|
|
|
|
|
to any legal entity which is a qualified investor as defined in
the Prospectus Directive;
|
|
|
|
to fewer than 100 or, if the Relevant Member State has
implemented the relevant provision of the 2010 PD Amending
Directive, 150, natural or legal persons (other than qualified
investors
|
144
|
|
|
|
|
as defined in the Prospectus Directive), as permitted under the
Prospectus Directive, subject to obtaining the prior consent of
the representatives for any such offer; or
|
|
|
|
|
|
in any other circumstances falling within Article 3(2) of
the Prospectus Directive, provided that no such offer of shares
of our Class A common stock shall result in a requirement
for the publication by us or any underwriter of a prospectus
pursuant to Article 3 of the Prospectus Directive.
|
For the purposes of this provision, the expression an
offer to the public in relation to any shares of our
Class A common stock in any Relevant Member State means the
communication in any form and by any means of sufficient
information on the terms of the offer and any shares of our
Class A common stock to be offered so as to enable an
investor to decide to purchase any shares of our Class A
common stock, as the same may be varied in that Relevant Member
State by any measure implementing the Prospectus Directive in
that Relevant Member State, the expression Prospectus
Directive means Directive 2003/71/EC (and amendments
thereto, including the 2010 PD Amending Directive, to the extent
implemented in the Relevant Member State), and includes any
relevant implementing measure in the Relevant Member State, and
the expression 2010 PD Amending Directive means
Directive 2010/73/EU.
Each underwriter has represented and agreed that:
|
|
|
|
|
it has only communicated or caused to be communicated and will
only communicate or cause to be communicated an invitation or
inducement to engage in investment activity (within the meaning
of Section 21 of the FSMA) received by it in connection
with the issue or sale of the shares of our Class A common
stock in circumstances in which Section 21(1) of the FSMA
does not apply to us; and
|
|
|
|
it has complied and will comply with all applicable provisions
of the FSMA with respect to anything done by it in relation to
the shares of our Class A common stock in, from or
otherwise involving the United Kingdom.
|
The shares may not be offered or sold by means of any document
other than (i) in circumstances which do not constitute an
offer to the public within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), or (ii) to
professional investors within the meaning of the
Securities and Futures Ordinance (Cap.571, Laws of Hong Kong)
and any rules made thereunder or (iii) in other
circumstances which do not result in the document being a
prospectus within the meaning of the Companies
Ordinance (Cap.32, Laws of Hong Kong), and no advertisement,
invitation or document relating to the shares may be issued or
may be in the possession of any person for the purpose of issue
(in each case whether in Hong Kong or elsewhere), which is
directed at, or the contents of which are likely to be accessed
or read by, the public in Hong Kong (except if permitted to do
so under the laws of Hong Kong) other than with respect to
shares which are or are intended to be disposed of only to
persons outside Hong Kong or only to professional
investors within the meaning of the Securities and Futures
Ordinance (Cap. 571, Laws of Hong Kong) and any rules made
thereunder.
This prospectus has not been registered as a prospectus with the
Monetary Authority of Singapore. Accordingly, this prospectus
and any other document or material in connection with the offer
or sale, or invitation for subscription or purchase, of the
shares may not be circulated or distributed, nor may the shares
be offered or sold, or be made the subject of an invitation for
subscription or purchase, whether directly or indirectly, to
persons in Singapore other than (i) to an institutional
investor under Section 274 of the Securities and Futures
Act, Chapter 289 of Singapore (the SFA),
(ii) to a relevant person, or any person pursuant to
Section 275(1A), and in accordance with the conditions,
specified in Section 275 of the SFA or (iii) otherwise
pursuant to, and in accordance with the conditions of, any other
applicable provision of the SFA.
Where the shares are subscribed or purchased under
Section 275 by a relevant person which is: (a) a
corporation (which is not an accredited investor) the sole
business of which is to hold
145
investments and the entire share capital of which is owned by
one or more individuals, each of whom is an accredited investor;
or (b) a trust (where the trustee is not an accredited
investor) whose sole purpose is to hold investments and each
beneficiary is an accredited investor, shares, debentures and
units of shares and debentures of that corporation or the
beneficiaries rights and interest in that trust shall not
be transferable for six months after that corporation or that
trust has acquired the shares under Section 275 except:
(i) to an institutional investor under Section 274 of
the SFA or to a relevant person, or any person pursuant to
Section 275(1A), and in accordance with the conditions,
specified in Section 275 of the SFA; (ii) where no
consideration is given for the transfer; or (iii) by
operation of law.
The securities have not been and will not be registered under
the Financial Instruments and Exchange Law of Japan (the
Financial Instruments and Exchange Law) and each underwriter has
agreed that it will not offer or sell any securities, directly
or indirectly, in Japan or to, or for the benefit of, any
resident of Japan (which term as used herein means any person
resident in Japan, including any corporation or other entity
organized under the laws of Japan), or to others for re-offering
or resale, directly or indirectly, in Japan or to a resident of
Japan, except pursuant to an exemption from the registration
requirements of, and otherwise in compliance with, the Financial
Instruments and Exchange Law and any other applicable laws,
regulations and ministerial guidelines of Japan.
Our securities may not be offered, sold and delivered directly
or indirectly, or offered or sold to any person for reoffering
or resale, directly or indirectly, in Korea or to any resident
of Korea except pursuant to the applicable laws and regulations
of Korea, including the Securities and Exchange Act and the
Foreign Exchange Transaction Law and the decrees and regulations
thereunder. Our securities have not been registered with the
Financial Supervisory Commission of Korea for public offering in
Korea. Furthermore, our securities may not be resold to Korean
residents unless the purchaser of our securities complies with
all applicable regulatory requirements (including but not
limited to government approval requirements under the Foreign
Exchange Transaction Law and its subordinate decrees and
regulations) in connection with the purchase of our securities.
The company and the selling stockholders have agreed to
indemnify the several underwriters against certain liabilities,
including liabilities under the Securities Act.
The underwriters and their respective affiliates are full
service financial institutions engaged in various activities,
which may include securities trading, commercial and investment
banking, financial advisory, investment management, investment
research, principal investment, hedging, financing and brokerage
activities. Certain of the underwriters and their respective
affiliates have, from time to time, performed, and may in the
future perform, various financial advisory and investment
banking services for us, for which they received or will receive
customary fees and expenses. In particular, affiliates of
certain underwriters are agents or lenders under our ABL
Revolver, and have received and will receive compensation from
us in connection with the ABL Revolver. In the ordinary course
of their various business activities, the underwriters and their
respective affiliates may make or hold a broad array of
investments and actively trade debt and equity securities (or
related derivative securities) and financial instruments
(including bank loans) for their own account and for the
accounts of their customers, and such investment and securities
activities may involve securities
and/or
instruments of the issuer. The underwriters and their respective
affiliates may also make investment recommendations
and/or
publish or express independent research views in respect of such
securities or instruments and may at any time hold, or recommend
to clients that they acquire, long
and/or short
positions in such securities or instruments.
146
LEGAL
MATTERS
The validity of the issuance of the shares of Class A
common stock offered hereby will be passed upon for Brightstar
by K&L Gates LLP, Miami, Florida and Davis Polk &
Wardwell LLP, New York, New York. The underwriters have been
represented by Cravath, Swaine & Moore LLP, New York,
New York.
EXPERTS
The consolidated financial statements and schedule of Brightstar
Corp. as of December 31, 2009 and 2010, and for each of the
years in the three-year period ended December 31, 2010,
have been included herein and in the registration statement in
reliance upon the report of KPMG LLP, independent registered
public accounting firm, appearing elsewhere herein, and upon the
authority of said firm as experts in accounting and auditing.
WHERE YOU CAN
FIND ADDITIONAL INFORMATION
We have filed with the SEC, Washington, D.C. 20549, a
registration statement on
Form S-1
under the Securities Act with respect to the Class A common
stock offered hereby. This prospectus does not contain all of
the information set forth in the registration statement and the
exhibits and schedules thereto. For further information with
respect to us and our Class A common stock, reference is
made to the registration statement and the exhibits and any
schedules filed therewith. Statements contained in this
prospectus as to the contents of any contract or other document
referred to are not necessarily complete and in each instance,
if such contract or document is filed as an exhibit, reference
is made to the copy of such contract or other document filed as
an exhibit to the registration statement, each statement being
qualified in all respects by such reference. A copy of the
registration statement, including the exhibits and schedules
thereto, may be read and copied at the SECs Public
Reference Room at 100 F Street, N.E.,
Washington, D.C. 20549. Information on the operation of the
Public Reference Room may be obtained by calling the SEC at
1-800-SEC-0330.
In addition, the SEC maintains an Internet website that contains
reports, proxy statements and other information about issuers,
like us, that file electronically with the SEC. The address of
that site is www.sec.gov. The other information we file with
the SEC is not part of the registration statement of which this
prospectus forms a part. Our report and other information that
we have filed or may in the future file with the SEC are not
incorporated by reference into and do not constitute a part of
this prospectus.
As a result of the offering, we will become subject to the full
informational requirements of the Exchange Act. We will fulfill
our obligations with respect to such requirements by filing
periodic reports and other information with the SEC. We intend
to furnish our stockholders with annual reports containing
consolidated financial statements certified by an independent
public accounting firm. We also maintain an Internet site at
www.brightstarcorp.com. Our website and the information
contained therein or connected thereto shall not be deemed to be
incorporated into this prospectus or the registration statement
of which it forms a part.
147
REPORT OF KPMG
LLP, INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
The Board of Directors and Stockholders
Brightstar Corp.:
We have audited the accompanying consolidated balance sheets of
Brightstar Corp. and subsidiaries as of December 31, 2009
and 2010, and the related consolidated statements of operations,
stockholders equity and comprehensive income (loss), and
cash flows for each of the years in the three-year period ended
December 31, 2010. In connection with our audits of the
consolidated financial statements, we also have audited the
financial statement schedule. These consolidated financial
statements and financial statement schedule are the
responsibility of the Companys management. Our
responsibility is to express an opinion on these consolidated
financial statements and financial statement schedule based on
our audits.
We conducted our audits in accordance with the standards of the
Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are
free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in
the financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by
management, as well as evaluating the overall financial
statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the financial
position of Brightstar Corp. and subsidiaries as of
December 31, 2009 and 2010, and the results of their
operations and their cash flows for each of the years in the
three year period ended December 31, 2010, in conformity
with U.S. generally accepted accounting principles. Also in
our opinion, the related financial statement schedule, when
considered in relation to the basic consolidated financial
statements taken as a whole, presents fairly, in all material
respects, the information set forth therein.
/s/ KPMG LLP
Miami, Florida
March 31, 2011, except for the financial statement
schedule, earnings per share information, Note 3 and Note
19, as to which the date is April 14, 2011)
Certified Public Accountants
F-2
BRIGHTSTAR CORP.
AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except share data)
|
|
|
ASSETS
|
Current assets:
|
|
|
|
|
|
|
|
|
Cash and cash equivalents
|
|
$
|
239,859
|
|
|
$
|
159,161
|
|
Restricted cash
|
|
|
48,619
|
|
|
|
1,832
|
|
Accounts receivable trade, net of allowance for
doubtful accounts of $11.8 million in 2009 and
$18.4 million in 2010
|
|
|
969,184
|
|
|
|
1,376,445
|
|
Inventories
|
|
|
239,988
|
|
|
|
612,396
|
|
Prepaid expenses and other current assets
|
|
|
124,666
|
|
|
|
87,729
|
|
Deferred income taxes
|
|
|
23,129
|
|
|
|
36,357
|
|
|
|
|
|
|
|
|
|
|
Total current assets
|
|
|
1,645,445
|
|
|
|
2,273,920
|
|
Property and equipment net
|
|
|
28,445
|
|
|
|
33,965
|
|
Deferred income taxes
|
|
|
18,214
|
|
|
|
19,447
|
|
Investments equity method
|
|
|
38,248
|
|
|
|
73,514
|
|
Other assets
|
|
|
83,487
|
|
|
|
95,724
|
|
|
|
|
|
|
|
|
|
|
Total assets
|
|
$
|
1,813,839
|
|
|
$
|
2,496,570
|
|
|
|
|
|
|
|
|
|
|
|
LIABILITIES AND STOCKHOLDERS EQUITY
|
Current liabilities:
|
|
|
|
|
|
|
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
$
|
898,197
|
|
|
$
|
1,464,725
|
|
Lines of credit, trade facilities and current portion of term
debt
|
|
|
329,111
|
|
|
|
201,219
|
|
Convertible senior subordinated notes
|
|
|
21,004
|
|
|
|
|
|
Deferred income taxes
|
|
|
4,289
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total current liabilities
|
|
|
1,252,601
|
|
|
|
1,665,944
|
|
Senior notes
|
|
|
|
|
|
|
250,000
|
|
Long-term debt, excluding current portion
|
|
|
51,733
|
|
|
|
2,586
|
|
Deferred income taxes
|
|
|
5,673
|
|
|
|
1,618
|
|
Other long-term liabilities
|
|
|
9,319
|
|
|
|
9,610
|
|
|
|
|
|
|
|
|
|
|
Total liabilities
|
|
|
1,319,326
|
|
|
|
1,929,758
|
|
|
|
|
|
|
|
|
|
|
Commitments and contingencies
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Redeemable convertible preferred stock, net (redemption
value $365.6 million in 2009 and
$412.4 million in 2010)
|
|
|
362,377
|
|
|
|
409,090
|
|
|
|
|
|
|
|
|
|
|
Stockholders equity:
|
|
|
|
|
|
|
|
|
Common stock. Authorized 50,000,000 shares of
$0.0001 par value per share; 18,176,167 shares issued
and outstanding in 2009 and 18,182,267 shares issued and
outstanding in 2010
|
|
|
2
|
|
|
|
2
|
|
Additional paid-in capital
|
|
|
48,074
|
|
|
|
50,535
|
|
Retained earnings
|
|
|
74,208
|
|
|
|
85,521
|
|
Accumulated other comprehensive income
|
|
|
3,796
|
|
|
|
13,799
|
|
|
|
|
|
|
|
|
|
|
Total Brightstar Corp. stockholders equity
|
|
|
126,080
|
|
|
|
149,857
|
|
Non-controlling interest
|
|
|
6,056
|
|
|
|
7,865
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity
|
|
|
132,136
|
|
|
|
157,722
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity
|
|
$
|
1,813,839
|
|
|
$
|
2,496,570
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-3
BRIGHTSTAR CORP.
AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands, except share
|
|
|
|
and per share data)
|
|
|
Revenue
|
|
$
|
3,550,165
|
|
|
$
|
2,718,652
|
|
|
$
|
4,612,863
|
|
Cost of revenue
|
|
|
3,254,167
|
|
|
|
2,354,016
|
|
|
|
4,218,979
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit
|
|
|
295,998
|
|
|
|
364,636
|
|
|
|
393,884
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating expenses:
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general and administrative
|
|
|
174,287
|
|
|
|
161,806
|
|
|
|
235,239
|
|
Provision for bad debts
|
|
|
2,736
|
|
|
|
6,435
|
|
|
|
8,785
|
|
Depreciation and amortization
|
|
|
9,917
|
|
|
|
13,457
|
|
|
|
11,913
|
|
Public offering expenses
|
|
|
|
|
|
|
|
|
|
|
7,333
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total operating expenses
|
|
|
186,940
|
|
|
|
181,698
|
|
|
|
263,270
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income
|
|
|
109,058
|
|
|
|
182,938
|
|
|
|
130,614
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other income (expenses):
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
|
14,206
|
|
|
|
21,278
|
|
|
|
7,139
|
|
Interest expense
|
|
|
(34,746
|
)
|
|
|
(17,102
|
)
|
|
|
(29,025
|
)
|
Other income (expenses), net
|
|
|
(923
|
)
|
|
|
(3,459
|
)
|
|
|
2,159
|
|
Foreign exchange losses, net
|
|
|
(25,117
|
)
|
|
|
(80,915
|
)
|
|
|
(33,263
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total other expenses
|
|
|
(46,580
|
)
|
|
|
(80,198
|
)
|
|
|
(52,990
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations before provision for income
taxes
|
|
|
62,478
|
|
|
|
102,740
|
|
|
|
77,624
|
|
Provision for income taxes
|
|
|
35,402
|
|
|
|
46,999
|
|
|
|
36,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations
|
|
|
27,076
|
|
|
|
55,741
|
|
|
|
40,686
|
|
(Loss) income from discontinued operations, net of taxes
|
|
|
(14,304
|
)
|
|
|
2,595
|
|
|
|
(921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
12,772
|
|
|
|
58,336
|
|
|
|
39,765
|
|
Less: Net income attributable to non-controlling interest
|
|
|
18,107
|
|
|
|
4,095
|
|
|
|
2,385
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Brightstar Corp.
|
|
$
|
(5,335
|
)
|
|
$
|
54,241
|
|
|
$
|
37,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends on redeemable convertible preferred stock
|
|
|
|
|
|
|
22,635
|
|
|
|
26,067
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Brightstar Corp. stockholders
|
|
$
|
(5,335
|
)
|
|
$
|
31,606
|
|
|
$
|
11,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to participating securities
|
|
|
|
|
|
|
15,209
|
|
|
|
5,468
|
|
Net (loss) income attributable to common stockholders
|
|
|
(5,335
|
)
|
|
|
16,397
|
|
|
|
5,845
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Brightstar Corp. stockholders
|
|
$
|
(5,335
|
)
|
|
$
|
31,606
|
|
|
$
|
11,313
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share for common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Brightstar
Corp. common stockholders
|
|
$
|
0.50
|
|
|
$
|
0.83
|
|
|
$
|
0.35
|
|
(Loss) income from discontinued operations attributable to
Brightstar Corp. common stockholders
|
|
|
(0.79
|
)
|
|
|
0.07
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Brightstar Corp. common
stockholders
|
|
$
|
(0.29
|
)
|
|
$
|
0.90
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share for common stock:
|
|
|
|
|
|
|
|
|
|
|
|
|
Income from continuing operations attributable to Brightstar
Corp. common stockholders
|
|
$
|
0.20
|
|
|
$
|
0.78
|
|
|
$
|
0.35
|
|
(Loss) income from discontinued operations attributable to
Brightstar Corp. common stockholders
|
|
|
(0.41
|
)
|
|
|
0.06
|
|
|
|
(0.03
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Brightstar Corp. common
stockholders
|
|
$
|
(0.21
|
)
|
|
$
|
0.84
|
|
|
$
|
0.32
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average number of common shares outstanding:
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic
|
|
|
18,134,166
|
|
|
|
18,163,037
|
|
|
|
18,181,347
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted
|
|
|
35,046,068
|
|
|
|
20,863,930
|
|
|
|
18,586,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-4
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Years Ended December 31, 2008, 2009 and 2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock
|
|
|
|
|
|
|
|
|
Accumulated
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of
|
|
|
|
|
|
Additional
|
|
|
|
|
|
Other
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares
|
|
|
Par
|
|
|
Paid-In
|
|
|
Retained
|
|
|
Comprehensive
|
|
|
Non-Controlling
|
|
|
|
|
|
Comprehensive
|
|
|
|
Outstanding
|
|
|
Amount
|
|
|
Capital
|
|
|
Earnings
|
|
|
Income (Loss)
|
|
|
Interest
|
|
|
Total
|
|
|
Income (Loss)
|
|
|
|
(In thousands, except number of shares)
|
|
|
Balance December 31, 2007
|
|
|
18,134,167
|
|
|
$
|
2
|
|
|
$
|
52,030
|
|
|
$
|
53,377
|
|
|
$
|
(2,255
|
)
|
|
$
|
43,399
|
|
|
$
|
146,553
|
|
|
$
|
(10,479
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,335
|
)
|
|
|
|
|
|
|
18,107
|
|
|
|
12,772
|
|
|
|
12,772
|
|
Dividend paid to holder of non-controlling interest on
subsidiary common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(863
|
)
|
|
|
(863
|
)
|
|
|
|
|
Purchase of non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,177
|
)
|
|
|
(2,177
|
)
|
|
|
|
|
Translation adjustment allocated to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9,375
|
)
|
|
|
(9,375
|
)
|
|
|
(9,375
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(11,620
|
)
|
|
|
|
|
|
|
(11,620
|
)
|
|
|
(11,620
|
)
|
Unrealized translation loss on intercompany long-term loan, net
of deferred tax benefit of $1.3 million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,552
|
)
|
|
|
|
|
|
|
(2,552
|
)
|
|
|
(2,552
|
)
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
753
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
753
|
|
|
|
|
|
Dividends on common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,440
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2008
|
|
|
18,134,167
|
|
|
|
2
|
|
|
|
52,783
|
|
|
|
42,602
|
|
|
|
(16,427
|
)
|
|
|
49,091
|
|
|
|
128,051
|
|
|
$
|
(10,775
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
54,241
|
|
|
|
|
|
|
|
4,095
|
|
|
|
58,336
|
|
|
|
58,336
|
|
Dividend paid to holder of non-controlling interest on
subsidiary common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,028
|
)
|
|
|
(2,028
|
)
|
|
|
|
|
Translation adjustment allocated to non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(229
|
)
|
|
|
(229
|
)
|
|
|
(229
|
)
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16,932
|
|
|
|
|
|
|
|
16,932
|
|
|
|
16,932
|
|
Unrealized translation gain on intercompany long-term loan, net
of deferred tax benefit of $(1.4) million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,733
|
|
|
|
|
|
|
|
2,733
|
|
|
|
2,733
|
|
Unrealized gains on marketable equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
558
|
|
|
|
|
|
|
|
558
|
|
|
|
558
|
|
Issuance of common stock in exchange for a portion of
non-controlling interest
|
|
|
40,000
|
|
|
|
|
|
|
|
996
|
|
|
|
|
|
|
|
|
|
|
|
(996
|
)
|
|
|
|
|
|
|
|
|
Conversion of non-controlling interest in a subsidiary in
exchange for convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
(4,501
|
)
|
|
|
|
|
|
|
|
|
|
|
(5,499
|
)
|
|
|
(10,000
|
)
|
|
|
|
|
Reduction of tax benefit on expired stock options
|
|
|
|
|
|
|
|
|
|
|
(223
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(223
|
)
|
|
|
|
|
Purchase of non-controlling interest
|
|
|
|
|
|
|
|
|
|
|
(1,622
|
)
|
|
|
|
|
|
|
|
|
|
|
(38,378
|
)
|
|
|
(40,000
|
)
|
|
|
|
|
Issuance of common stock
|
|
|
2,000
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
16
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
625
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
625
|
|
|
|
|
|
Cumulative dividends on redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(22,635
|
)
|
|
|
|
|
|
|
|
|
|
|
(22,635
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2009
|
|
|
18,176,167
|
|
|
|
2
|
|
|
|
48,074
|
|
|
|
74,208
|
|
|
|
3,796
|
|
|
|
6,056
|
|
|
|
132,136
|
|
|
$
|
78,330
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
37,380
|
|
|
|
|
|
|
|
2,385
|
|
|
|
39,765
|
|
|
|
39,765
|
|
Dividend paid to holder of non-controlling interest on
subsidiary common stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(576
|
)
|
|
|
(576
|
)
|
|
|
|
|
Foreign currency translation adjustments
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
10,382
|
|
|
|
|
|
|
|
10,382
|
|
|
|
10,382
|
|
Unrealized translation gain on intercompany long-term loan, net
of deferred tax benefit of $(0.2) million
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
482
|
|
|
|
|
|
|
|
482
|
|
|
|
482
|
|
Unrealized losses on marketable equity securities
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(861
|
)
|
|
|
|
|
|
|
(861
|
)
|
|
|
(861
|
)
|
Reduction of tax benefit on expired stock options
|
|
|
|
|
|
|
|
|
|
|
(154
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(154
|
)
|
|
|
|
|
Issuance of common stock
|
|
|
6,100
|
|
|
|
|
|
|
|
79
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
79
|
|
|
|
|
|
Stock option expense
|
|
|
|
|
|
|
|
|
|
|
2,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
2,536
|
|
|
|
|
|
Cumulative dividends on redeemable convertible preferred stock
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(26,067
|
)
|
|
|
|
|
|
|
|
|
|
|
(26,067
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance December 31, 2010
|
|
|
18,182,267
|
|
|
$
|
2
|
|
|
$
|
50,535
|
|
|
$
|
85,521
|
|
|
$
|
13,799
|
|
|
$
|
7,865
|
|
|
$
|
157,722
|
|
|
$
|
49,768
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-5
BRIGHTSTAR CORP.
AND SUBSIDIARIES
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
|
(In thousands)
|
|
|
Cash flows from operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
12,772
|
|
|
$
|
58,336
|
|
|
$
|
39,765
|
|
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of deferred loan costs
|
|
|
1,430
|
|
|
|
1,030
|
|
|
|
2,038
|
|
Share-based compensation expense
|
|
|
(728
|
)
|
|
|
625
|
|
|
|
2,536
|
|
Provision for bad debts
|
|
|
4,339
|
|
|
|
6,435
|
|
|
|
8,785
|
|
Depreciation and amortization
|
|
|
9,917
|
|
|
|
13,457
|
|
|
|
11,913
|
|
Exchange loss (gain)
|
|
|
|
|
|
|
2,119
|
|
|
|
(2,112
|
)
|
Loss (income) from equity method investments
|
|
|
2,906
|
|
|
|
(2,406
|
)
|
|
|
(2,440
|
)
|
Impairment on equity and cost method investments
|
|
|
3,098
|
|
|
|
4,300
|
|
|
|
|
|
Gain on sale of cost method investment
|
|
|
|
|
|
|
|
|
|
|
(923
|
)
|
Impairment of upfront fee
|
|
|
|
|
|
|
|
|
|
|
11,005
|
|
Gain on sale of short-term investments
|
|
|
(4,003
|
)
|
|
|
|
|
|
|
|
|
Deferred income tax provision
|
|
|
(4,623
|
)
|
|
|
(1,334
|
)
|
|
|
(22,389
|
)
|
Lease incentive
|
|
|
2,137
|
|
|
|
|
|
|
|
|
|
Deferred rent
|
|
|
108
|
|
|
|
(141
|
)
|
|
|
790
|
|
Loss on sale of subsidiary
|
|
|
|
|
|
|
714
|
|
|
|
|
|
Loss on sale of property and equipment
|
|
|
|
|
|
|
1,012
|
|
|
|
|
|
Changes in operating assets and liabilities, net of acquisitions:
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable trade
|
|
|
64,246
|
|
|
|
(73,289
|
)
|
|
|
(392,774
|
)
|
Inventories
|
|
|
65,922
|
|
|
|
74,112
|
|
|
|
(364,938
|
)
|
Prepaid expenses and other current assets
|
|
|
(10,203
|
)
|
|
|
(13,530
|
)
|
|
|
2,998
|
|
Other assets
|
|
|
(5,088
|
)
|
|
|
(25,236
|
)
|
|
|
27
|
|
Accounts payable, accrued expenses and other current liabilities
|
|
|
80,680
|
|
|
|
196,716
|
|
|
|
547,371
|
|
Other long-term liabilities
|
|
|
6,956
|
|
|
|
5,281
|
|
|
|
(959
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used in) operating activities
|
|
|
229,866
|
|
|
|
248,201
|
|
|
|
(159,307
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from investing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures
|
|
|
(9,335
|
)
|
|
|
(6,436
|
)
|
|
|
(15,479
|
)
|
Purchases of equity and cost method investments
|
|
|
(11,500
|
)
|
|
|
(26,053
|
)
|
|
|
(32,789
|
)
|
Proceeds from short-term loans
|
|
|
|
|
|
|
(28,889
|
)
|
|
|
13,275
|
|
Proceeds from short-term investments
|
|
|
24,704
|
|
|
|
6,996
|
|
|
|
21,895
|
|
Purchases of short-term investments
|
|
|
(11,399
|
)
|
|
|
|
|
|
|
|
|
Purchases of marketable equity securities, net
|
|
|
|
|
|
|
(17,070
|
)
|
|
|
|
|
Purchases of real estate investments
|
|
|
|
|
|
|
(13,751
|
)
|
|
|
(27,788
|
)
|
Depreciation of real estate investments
|
|
|
|
|
|
|
115
|
|
|
|
2,088
|
|
Business acquisitions, net of cash acquired
|
|
|
|
|
|
|
|
|
|
|
(915
|
)
|
Proceeds from sale of equity investment
|
|
|
|
|
|
|
|
|
|
|
1,866
|
|
Cash proceeds from sale of subsidiary
|
|
|
|
|
|
|
750
|
|
|
|
100
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash used in investing activities
|
|
|
(7,530
|
)
|
|
|
(84,338
|
)
|
|
|
(37,747
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash flows from financing activities:
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from term loan
|
|
|
|
|
|
|
|
|
|
|
20,000
|
|
Payments on term loan
|
|
|
(7,500
|
)
|
|
|
(10,000
|
)
|
|
|
(77,500
|
)
|
Proceeds from senior notes
|
|
|
|
|
|
|
|
|
|
|
250,000
|
|
Payments on borrowings on revolving credit facility
|
|
|
(2,896,696
|
)
|
|
|
(2,504,167
|
)
|
|
|
(4,257,271
|
)
|
Proceeds from borrowings on revolving credit facility
|
|
|
2,925,596
|
|
|
|
2,484,872
|
|
|
|
4,081,227
|
|
(Payments) proceeds on other borrowings, lines of credit and
trade facilities, net
|
|
|
(149,285
|
)
|
|
|
(20,613
|
)
|
|
|
56,277
|
|
Restricted cash
|
|
|
(58,361
|
)
|
|
|
49,993
|
|
|
|
47,045
|
|
Cash paid for acquisition of non-controlling interest
|
|
|
(1,000
|
)
|
|
|
(40,000
|
)
|
|
|
|
|
Proceeds from issuance of common stock under stock option plans
|
|
|
|
|
|
|
16
|
|
|
|
79
|
|
Debt issuance costs
|
|
|
(1,034
|
)
|
|
|
|
|
|
|
(9,797
|
)
|
Dividend payments to non-controlling interest stockholder
|
|
|
(863
|
)
|
|
|
(2,028
|
)
|
|
|
(576
|
)
|
Dividend payments to common stockholders
|
|
|
(5,440
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net cash (used in) provided by financing activities
|
|
|
(194,583
|
)
|
|
|
(41,927
|
)
|
|
|
109,484
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Effect of exchange rate changes on cash and cash equivalents
|
|
|
4,813
|
|
|
|
(4,134
|
)
|
|
|
6,872
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net increase (decrease) in cash and cash equivalents
|
|
|
32,566
|
|
|
|
117,802
|
|
|
|
(80,698
|
)
|
Cash and cash equivalents, beginning of period
|
|
|
89,491
|
|
|
|
122,057
|
|
|
|
239,859
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents, end of period
|
|
$
|
122,057
|
|
|
$
|
239,859
|
|
|
$
|
159,161
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental disclosure of cash flow information
cash paid for:
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest
|
|
$
|
34,139
|
|
|
$
|
15,753
|
|
|
$
|
11,016
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income taxes
|
|
$
|
46,941
|
|
|
$
|
42,885
|
|
|
$
|
47,744
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See accompanying notes to consolidated financial statements.
F-6
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Consolidated
Statements of Cash Flows (Continued)
In December 2008, we acquired a 10% non-controlling interest
held by a former employee in our subsidiary Brightstar US, Inc.
in a transaction accounted for as a purchase. The fair value of
the net assets acquired amounted to $4.9 million, including
intangibles other than goodwill of $2.7 million. See
Note 7 Intangible Assets.
In March 2009, a stockholder entered into a share exchange
agreement with us wherein they exchanged their 30%
non-controlling interest in our Singapore subsidiary for 493,828
Series C Redeemable Convertible Preferred shares of the
Company which has a $10.0 million liquidation value.
Note 10 Redeemable Convertible Preferred Stock.
In March 2009, we acquired a 9.8% non-controlling interest held
by an employee in our subsidiary Narbitec, LLC in exchange for
40,000 common shares of the Company in a transaction accounted
for as an exchange of equity. See Note 11
Stockholders Equity.
Our non-cash activities during 2008, 2009 and 2010 included
amounts recorded through comprehensive income, such as
unrealized gains/losses on marketable equity securities, and
$8.1 million, $4.6 million and $2.0 million,
respectively, related to capital expenditures purchased through
capital leases. During 2009 and 2010 we had non-cash activities
related to the reduction of tax benefit on expired stock options
of $0.2 million and cumulative dividends on redeemable
convertible preferred stock of $22.6 million and
$26.1 million, respectively. Additionally, we had non-cash
activities of $15.1 million during 2009 related to the
purchase of real estate investments recorded through accounts
payable, accrued expenses and other current liabilities.
F-7
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial Statements
Business
Description
Brightstar Corp., a Delaware corporation, and its subsidiaries
(our, us, we), began
operations on October 15, 1997. We provide customized
value-added distribution services and solutions, primarily
serving the wireless telecommunications industry. Our products
include wireless devices, such as wireless handsets developed by
major original equipment manufacturers (OEMs), data
centric devices like smartphones, fixed wireless devices and
custom-branded handsets, accessories, and, most recently, we
have expanded our product portfolio into information technology
devices. In addition, we provide
end-to-end
supply chain and device management solutions for operators
around the world. Our customer base is principally operators,
retailers, agents, dealers, and resellers. We represent a number
of leading global manufacturers and many emerging manufacturers.
Our headquarters are based in Miami, Florida.
Managements
Estimates
The preparation of our consolidated financial statements in
conformity with U.S. generally accepted accounting
principles requires us to make estimates and assumptions that
affect the recorded amounts of assets and liabilities and
disclosure of contingent assets and liabilities at the date of
the financial statements and the amounts of revenue and expenses
during the reporting period. Actual results could differ from
these estimates. Estimates are used when we account for items
such as allowance for doubtful accounts, the determination of
net realizable value of inventory, uncertain positions and
valuation allowance related to income taxes, rebates and sales
incentives due to customers, vendor credits and allowances,
accruals for potential liabilities related to any lawsuits or
claims against us, the fair value of our common stock and stock
options, and the fair value of financial instruments.
|
|
Note 2
|
Summary of
Significant Accounting Policies
|
Principles of
Consolidation
Our consolidated financial statements include Brightstar Corp.
and its subsidiaries. We consolidate entities over which we have
control, as typically evidenced by a direct ownership interest
of greater than 50%. For affiliates where significant influence
over financial and operating policies exists, as typically
evidenced by a direct ownership interest from 20% to 50%, the
investment is accounted for using the equity method. Otherwise,
the investment is recorded at cost.
All significant intercompany accounts and transactions are
eliminated in consolidation. We evaluate our relationships with
other entities to identify whether they are variable interest
entities as defined in Accounting Standards Codification
(ASC) 810 Consolidation and to assess whether
we are the primary beneficiary of such entities. If the
determination is made that we are the primary beneficiary, then
that entity is included in our consolidated financial statements
in accordance with ASC 810. As of December 31, 2008
and 2009, we have an interest in two variable interest entities
for which we are not the primary beneficiary. As of
December 31, 2010, we have an interest in one variable
interest entity for which we are not the primary beneficiary.
See Note 13 Investing Activities.
Cash and Cash
Equivalents
Cash and cash equivalents include investments with original
maturities of three months or less. As of December 31, 2009
and 2010, cash and cash equivalents were primarily comprised of
time deposits and money market funds. All income generated from
these investments is recorded as
F-8
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
interest income when earned. As of December 31, 2009 and
2010, our Venezuelan subsidiary had cash and cash equivalents of
$157.9 million and $15.7 million, respectively. Our
ability to exchange these funds held in Venezuela is limited due
to certain foreign currency exchange controls in Venezuela. See
Note 2 Summary of Significant Accounting
Policies under Foreign Currency Translation and Transactions.
We had a book overdraft for certain disbursement cash accounts
as of December 31, 2009 and 2010. A book overdraft
represents transactions that have not cleared the bank accounts
at the end of the period. We transfer cash on an as-needed basis
to fund these items as they clear the bank in subsequent
periods. The balance of the book overdraft is reported as
accounts payable and the change in the book overdraft balance is
included in our cash flows from operating activities.
Restricted
Cash
As of December 31, 2009, we had restricted cash in the
amount of $48.6 million to be used exclusively to reduce
short-term borrowings under our Revolving Credit Facility and
Term Loan (see Note 9 Debt) and for the purpose
of maintaining letters of credit with vendors and lines of
credit of our subsidiaries. As of December 31, 2010, we had
restricted cash of $1.8 million primarily for the purpose
of collateralizing foreign operation bank facilities.
Short-Term
Investments
Short-term investments are primarily investments with original
maturities between three to twelve months, or have other
characteristics of short-term investments.
As of December 31, 2009 and 2010, our short-term
investments consisted of certificates of deposits with original
maturities of over 90 days and less than 12 months and
30-day
short-term loans which are held to maturity, both of which
approximate fair value due to their near-term maturity. As of
December 31, 2009 and 2010, we had short-term investments
of $53.6 million and $2.3 million, respectively,
included within prepaid expenses and other current assets, of
which $21.3 million and $0.0 million, respectively,
collateralize our debt requirements. See Note 5
Prepaid Expenses and Other Current Assets and Other Assets. As
of December 31, 2009 and 2010, we had
30-day
short-term loans of $28.9 million and $1.2 million,
respectively.
Inventories
Inventories are substantially comprised of finished goods that
include wireless communication products and related accessories,
and are stated at the lower of cost or market value. Cost is
determined using the average cost method. An adjustment is
recorded to write down any excess or obsolete inventories to
their estimated net realizable market value. Our assessment of
realizable market value may include, among others, inventory
aging, manufacturers discontinued goods and industry
market conditions.
Value Added
Tax
Our international subsidiaries may be subject to Value Added Tax
(VAT), which is typically applied to goods and
services purchased in countries where VAT is applied. We are
required to remit the VAT we collect to tax authorities, but may
deduct the VAT we have paid on eligible purchases. In certain
circumstances, the collection of the VAT receivable may extend
over a period of years. We review our VAT receivable for
impairment whenever events or changes in circumstances indicate
the carrying amount of our VAT receivable may not be recoverable.
F-9
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
Property and
Equipment
Property and equipment are recorded at cost. Depreciation and
amortization are computed using the straight-line method over
the estimated useful lives of the respective assets. Leasehold
improvements are amortized over the shorter of the term of the
lease or the estimated useful lives of the improvements.
Expenditures for repairs and maintenance are charged to expense
as incurred. Expenditures for betterments and major improvements
are capitalized. The carrying amounts of assets sold or retired
and the related accumulated depreciation are eliminated in the
year of disposal and the resulting gains and losses are included
in income.
Certain events or changes in circumstances could cause us to
conclude that the carrying value of our property and equipment
may not be recoverable. Events or circumstances that might
require impairment testing include, but are not limited to, a
decrease in market price, negative forecasted cash flow or a
significant adverse change in the business environment of the
asset. If the total estimate of the expected future undiscounted
cash flows of an asset grouping over its useful life is less
than its carrying value, an impairment loss is recorded in the
financial statements equal to the difference between the
estimated fair value and carrying value of the asset grouping.
Investments
Investments are accounted for on the equity basis or cost basis.
We regularly review our equity and cost method investments to
determine whether a significant event or change in circumstances
has occurred that may have an adverse effect on the fair value
of each investment. In the event that a decline in fair value of
an investment occurs, we must determine if the decline has been
other than temporary. We consider our investments strategic and
long-term in nature, so we must determine if the fair value
decline is recoverable within a reasonable period. For
investments accounted for using the equity basis or cost basis,
we evaluate fair value based on specific valuation techniques
including the income approach or discounted cash flows method,
market approach or guideline company method, among others, as
well as specific information (e.g., financial statements,
significant events, etc.), in addition to quoted market price,
if available. Factors indicative of an other than temporary
decline include recurring operating losses, credit defaults and
subsequent rounds of financing with pricing that is below the
cost basis of the investment. We consider all known quantitative
and qualitative factors in determining if an other than
temporary decline in value of an investment has occurred.
Our assessments of fair value represent our best estimates at
the time of the impairment review.
As of December 31, 2009 and 2010, our equity method
investments amounted to $38.2 million and
$73.5 million, respectively. Our cost method investments
amounted to $2.8 million and $1.5 million as of
December 31, 2009 and 2010, respectively, and are included
within other assets in the accompanying consolidated balance
sheets. The investments were accounted for using the cost or the
equity method of accounting depending upon the level of
ownership and whether significant influence over financial and
operating policies exists.
During December 31, 2008, 2009 and 2010, we recorded other
than temporary impairments of approximately $3.1 million,
$4.3 million and $0.0 million, respectively, which are
recorded in other income (expenses), net in the consolidated
statements of operations related to certain of our equity
investments. During the years ended December 31, 2008, 2009
and 2010, we recognized $2.9 million of equity in losses
and $2.4 million and $2.4 million of equity in
earnings, respectively, related to investments accounted for
under the equity method of accounting. These amounts are
recorded within other income (expenses), net in the consolidated
statements of operations.
F-10
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
In addition to the above investments, at times we have
investments in both short and long-term
available-for-sale
securities. These securities are recorded at fair value with
unrealized holding gains and losses, net of deferred taxes,
reported in accumulated other comprehensive income (loss).
Dividend income relating to these investments is recognized in
the statement of operations when earned.
We also have investments in income-producing real estate. This
real estate is recorded at cost and is depreciated using the
straight-line method over its estimated useful life of
20 years. The depreciation and rental income associated
with this real estate are recognized in the consolidated
statements of operations in other income (expenses), net. See
Note 13 Investing Activities.
Derivative
Instruments and Hedging Activities
Occasionally, we use derivative instruments. Currently, we use
forward contracts to limit our exposure to fluctuations in
foreign currency exchange rates. We do not use derivative
instruments for speculative purposes. Our forward contracts are
entered into in order to fix the cost of anticipated debt
payments or trade payables related to inventory purchases.
In accordance with ASC 815 Derivatives and Hedging,
all derivatives, whether designated for hedging relationships or
not, are recognized at their fair value. At the time a
derivative contract is entered into, the Company designates each
derivative as: (1) a hedge of the fair value of a
recognized asset or liability (a fair-value hedge), (2) a
hedge of a forecasted transaction or of the variability of cash
flows that are to be received or paid in connection with a
recognized asset or liability (a cash-flow hedge), (3) a
foreign-currency fair-value or cash-flow hedge (a foreign-
currency hedge), (4) a foreign-currency hedge of the net
investment in a foreign subsidiary, or (5) a derivative
that does not qualify for hedge accounting treatment.
ASC 815 provides for the reporting of net assets or liabilities
for the fair value amounts of derivatives with the same
counterparty under a master netting agreement. Accordingly,
derivatives, assets and liabilities reported in the consolidated
statements of financial position represent the net position with
each respective counterparty.
The changes in fair value are immediately included in earnings
if the derivatives are not designated as hedges or do not
qualify for hedge accounting treatment. If a derivative is a
designated and qualified fair value hedge, then changes in the
fair value of the derivative are offset against the changes in
the fair value of the underlying hedged item. If a derivative is
a designated and qualified cash-flow hedge, then changes in the
fair value of the derivative are recognized as a component of
accumulated other comprehensive income (loss) until the
underlying hedged item is recognized in earnings. If a
derivative financial instrument is a designated and qualified
hedge of a net investment in a foreign operation, then changes
in the fair value of the financial instrument are recognized as
a component of accumulated other comprehensive income (loss) to
offset the change in the translated value of the net investment
being hedged, until the investment is liquidated.
The Company formally and contemporaneously documents all
relationships between hedging instruments and hedged items, as
well as its risk-management objective and its strategy for
undertaking various hedge transactions. This includes linking
all derivatives that are designated as fair-value, cash-flow, or
foreign-currency hedges either to specific assets and
liabilities on the balance sheet, or to firm commitments or
forecasted transactions. The Company formally assesses a hedge
at its inception and on an ongoing basis thereafter to determine
whether the hedging relationship between the derivative and the
hedged item is still highly effective, and whether it is
expected to remain highly effective in future periods, in
offsetting changes in fair value or cash flows. At the inception
of a hedge, the Company determines whether the hedging
relationship qualifies for hedge accounting treatment,
F-11
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
and if it does, whether the Company will elect such treatment.
We classify the fair value of our derivative contracts and the
fair value of our offsetting hedged firm commitments as current,
which are included in prepaid expenses and other current assets
and accounts payable, accrued expenses and other current
liabilities. The cash flows from derivatives treated as hedges
are classified in our statements of cash flows in the same
category as the item being hedged.
We estimate the fair value of our derivatives using available
market information and appropriate valuation methodologies.
These derivatives derive their value primarily based on changes
in currency exchanges. Considerable judgment is required in
interpreting market data to develop the estimates of fair value.
Accordingly, the estimates presented herein are not necessarily
indicative of the amounts at which we may eventually settle
these derivatives.
As of December 31, 2009 and 2010, we had outstanding
forward contracts in the notional amounts of $86.6 million
and $164.0 million, respectively, buying (selling)
U.S. dollars to fix the future cash outflows in local
currency (U.S. dollars) on certain payables denominated in
U.S. dollars (local currencies). The maturity of these
instruments generally occurs within one to 15 months.
During the years ended December 31, 2008, 2009 and 2010,
all net changes in the fair value of our undesignated hedges, as
well as the gain and losses originated by the underlying
transactions denominated in U.S. dollars (local currencies)
in our subsidiaries, were recorded in foreign exchange gains
(losses), net in the consolidated statements of operations since
we did not meet the hedge accounting criteria described under
ASC 815. For the years ended December 31, 2008, 2009
and 2010, the change in fair value of the outstanding forward
contracts resulted in a net loss of $3.2 million and net
gains of $1.1 million and $1.3 million, respectively,
which were included within foreign exchange losses in our
consolidated statements of operations. The fair values of the
outstanding forward contracts in the aggregate as of
December 31, 2009 and 2010 were liabilities of
$1.5 million and $0.2 million, respectively.
During 2008, the Company entered into interest rate swap
agreements for notional amounts of $100.0 million with an
average fixed interest rate of 2.1%. In November 2009, a
$20.0 million interest rate swap agreement matured and was
not renewed, such that the notional amount outstanding as of
December 31, 2009 was $80.0 million. In November 2010,
our remaining two $40.0 million interest rate swap
agreements matured and were not renewed, such that there was no
notional amount outstanding as of December 31, 2010.
Interest payments on these instruments are due on the last day
of the month. The interest rate swap agreements serve as an
economic hedge against increases in interest rates and have not
been designated as hedges for accounting purposes. Accordingly,
we account for these interest rate swap agreements on a fair
value basis and adjust these instruments to fair value, and the
resulting changes in fair value are charged to interest expense.
For the years ended December 31, 2008, 2009 and 2010, the
change in fair value of the outstanding interest rate swaps
resulted in net losses of $0.9 million and
$0.3 million and net gains of $1.2 million,
respectively, which were included within interest expense in our
consolidated statements of operations. The fair value of the
outstanding interest rate swap agreements in the aggregate as of
December 31, 2009, was a liability of $1.2 million.
Intangible
Assets
We review intangible assets with indefinite lives not subject to
amortization for impairment each year, or more frequently when
events or significant changes in circumstances indicate that the
carrying value may not be recoverable.
We also review intangible assets with definite lives subject to
amortization whenever events or circumstances indicate that a
carrying amount of an asset may not be recoverable. Intangible
assets with definite lives subject to amortization are amortized
on a straight-line basis with estimated useful
F-12
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
lives generally of 7 years. Events or circumstances that
might require impairment testing include the loss of a
significant client, the identification of other impaired assets
within a reporting unit, loss of key personnel, the disposition
of a significant portion of a reporting unit, a significant
decline in stock price or a significant adverse change in
business climate or regulations.
Long-Lived
Assets
We evaluate the carrying value of long-lived assets whenever
events or changes in circumstances indicate that a potential
impairment has occurred. A potential impairment has occurred if
the projected future undiscounted cash flows are less than the
carrying value of the assets. The estimate of cash flows
includes managements assumptions of cash inflows and
outflows directly resulting from the use of the asset in
operations. When a potential impairment has occurred, an
impairment charge is recorded if the carrying value of the
long-lived asset exceeds its fair value. Fair value is measured
based on a projected discounted cash flow model using a discount
rate we feel is commensurate with the risk inherent in our
business. Our impairment analysis contains estimates due to the
inherently judgmental nature of forecasting long-term estimated
cash flows and determining the ultimate useful lives of assets.
Actual results may differ, which could materially impact our
impairment assessment.
Revenue
Recognition
Revenue is primarily derived from the sale of wireless
communications equipment and related accessories, and to a
lesser extent from our services and solutions. Product and
service revenue is recognized in accordance with ASC 605
Revenue Recognition, specifically
ASC 605-10
when all of the following criteria are satisfied:
(i) persuasive evidence of an arrangement exists;
(ii) the price is fixed or determinable;
(iii) collectability is reasonably assured; and
(iv) delivery of products has occurred or services have
been performed. Our arrangements for product sales with our
customers do not contain customer acceptance provisions that
would preclude recognition of revenue upon delivery of the
product or when services are rendered. We do not have any
substantial obligations after delivery of the product or after
services are rendered.
Revenue derived from our services and solutions is usually in
the form of agreements that contain multiple elements, including
warehouse logistic services, implementation of technology
enablers, and ongoing supply chain optimization services. These
arrangements may have both fixed and variable components, as
well as contingent incentive compensation based on performance,
designed to link a portion of our revenue to our performance
relative to both qualitative and quantitative goals. Performance
incentives are recognized as revenue for quantitative targets
when the target has been achieved, and for qualitative targets
when confirmation of the incentive is received from the client.
These arrangements may also have other strategic services, for
which revenue is based on the achievement of cost savings to the
customer. We allocate revenue between the elements based on
acceptable fair value allocation methodologies, provided that
each element meets the criteria for treatment as a separate unit
of accounting as outlined in
ASC 605-25.
In applying the allocation criteria within
ASC 605-25,
we consider a variety of factors in determining the appropriate
method of revenue recognition under these arrangements, such as
whether the elements are separable, whether there are
determinable fair values, and whether there is a unique earnings
process associated with each element of a contract. Where we
believe that an upfront fee or milestone payment does not
qualify as a separate unit of accounting and specifically link
to a separate earnings process, revenues are recognized ratably
over the term of the agreement. When our obligations under such
arrangements are completed, any remaining deferred revenue and
cost is recognized. For those services that are directly linked
to a separate unit of accounting and earnings process, such as
the ongoing warehouse logistics services, supply chain
optimization services and strategic services, revenue is
recognized as services are delivered and collectability is
assured.
F-13
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
Amounts billed to customers in a sale transaction related to
shipping and handling are recorded as revenue. Shipping and
freight costs are included in cost of sales. In compliance with
ASC 605-45,
we assess whether we or the third-party supplier is the primary
obligor. We evaluate the terms of our customer arrangements as
part of this assessment. In addition, we give appropriate
consideration to other key indicators such as general inventory
risk, latitude in establishing price, discretion in supplier
selection and credit risk to the vendor. Accordingly, we
generally record revenue on a gross basis, as we believe the key
indicators of the business suggest we generally act as principal
on behalf of our clients in our primary line of business. In
those businesses, primarily services and solutions, where the
key indicators suggest we act as an agent, we record revenue on
a net basis.
Revenue is reported net of estimated sales returns and net of
taxes assessed on revenue. We estimate our sales returns based
on historical return rates and inclusive of any costs or losses
that may be expected related to these estimated returns in
accordance with ASC 450 Contingencies. Our provision
for sales returns was approximately $8.7 million and
$12.3 million as of December 31, 2009 and 2010,
respectively.
We analyze current economic conditions, specific facts and
circumstances related to our customers, news and trends,
historical bad debts, customer concentrations, customer
credit-worthiness and changes in customer payment terms when
evaluating revenue recognition and the adequacy of the allowance
for bad debts.
Vendor
Incentives Programs
We receive credits from our vendors for transactions entered
into on behalf of our clients that, based on the terms of our
contracts and local law, are either remitted to our clients or
retained by us. If amounts are to be passed through to clients,
they are recorded as liabilities until settlement or, if
retained by us, are recorded using the guidelines of
ASC 605-50.
Generally, we receive three different types of incentives from
our vendors: price protection, volume incentive rebates and
marketing and promotional funds.
Price protection consideration basically consists of market unit
price changes normally initiated by the suppliers of wireless
devices. Suppliers normally control and determine the amount of
price protection based on, among other things, general market
conditions, demands for the product, technology advancements,
introduction of new models, etc. Price protection consideration
is generally received in the form of a credit memo directly from
suppliers and is recorded when we are notified by a vendor as
either a reduction of inventory cost or for those wireless
devices already sold as a reduction of cost of sales.
Volume incentive rebate consideration is received from certain
suppliers when purchase or sell-through targets are attained or
exceeded within a specified time period. These rebates are
generally determined based on exceeding a pre-defined volume of
purchases. Volume incentive rebates are recorded as a reduction
in the carrying value of our inventory or as a reduction of cost
of sales for those wireless devices already sold, based on a
systematic and rational allocation of the incentive rebate,
provided the amounts are probable and reasonably estimable. When
the incentive rebate cannot be reasonably estimated, we
recognize it when the pre-defined volume of purchases is
achieved, and it is deemed collectible. From time to time, we
may earn from our suppliers other types of incentives which are
recorded when deemed earned and collectible.
Marketing and promotional fund consideration is received from
certain suppliers for cooperative arrangements related to market
development and special promotions agreed upon in advance.
Amounts received are recorded as a liability and expenditures
made pursuant to the agreed upon activity reduce our liability.
Any amounts not utilized are recorded as a reduction in the
carrying value
F-14
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
of our inventory or as a reduction of cost of sales when there
is no further obligation to return the funds. To the extent that
we make expenditures in excess of the amounts received, we
recognize such excess in operations as incurred.
Advertising
Costs
Advertising and promotional expenses are charged to operations
as incurred. Advertising and promotional expenses for the years
ended December 31, 2008, 2009 and 2010 were
$2.8 million, $3.1 million and $6.6 million,
respectively.
Public
Offering Expenses
During 2010, we incurred certain expenses relating to an
anticipated initial public offering to occur in 2010. Certain of
these expenses were initially deferred in accordance with
ASC 340 Other Assets and Deferred Costs,
specifically
ASC 340-10-S99.
In June 2010, management decided to postpone the initial public
offering for an undetermined period of time. These expenses were
charged to public offering expenses within the consolidated
statements of operations for the quarters ended March 31,
2010 and June 30, 2010 amounting to $5.4 million and
$1.9 million, respectively.
Foreign
Currency Translation and Transactions
For our foreign subsidiaries and affiliates using the local
currency as their functional currency, assets and liabilities
are translated at exchange rates in effect at the balance sheet
dates. Revenues and expenses of these foreign subsidiaries and
affiliates are translated at average exchange rates for the
period. Equity is translated at historical rates, and the
resulting cumulative foreign currency translation adjustments
resulting from this process are included as a component of
accumulated other comprehensive income (loss). Therefore, the
U.S. dollar (USD) value of these items in our
financial statements fluctuates from period to period, depending
on the value of the USD against these functional currencies.
Exchange gains and losses arising from transactions denominated
in a currency other than the functional currency of the entity
involved are included in the consolidated statements of
operations as foreign exchange losses.
ASC 830 Foreign Currency Matters defines a highly
inflationary economy as one in which the cumulative compounded
inflation rate over a three-year consecutive period approximates
or exceeds 100%. For the purposes of ASC 830, a foreign
entity in a highly inflationary economy does not have a stable
functional currency. Venezuela was determined to be a highly
inflationary economy during 2009. Management has identified the
inflation index it uses to determine whether Venezuela is a
highly inflationary economy as the Consumer Price Index rate.
Using this index, the cumulative inflation rate for the
three-year period ended June 30, 2009 was 101.14%. As a
result, management has determined that Venezuelas economy
meets the definition of highly inflationary as of
June 30, 2009. Accordingly, we changed the functional
currency of our Venezuelan subsidiary, commencing July 1,
2009, to the USD, the reporting currency of the parent,
Brightstar Corp. Thus, the financial statements for Venezuela
are remeasured into the functional currency of the parent
reporting entity. Technically, the remeasurement of books of
record into an entitys functional currency is not a
translation of foreign currency financial statements as that
term is used in ASC 830, even if it is done solely for
consolidation purposes. It represents retroactive application of
recognition and measurement principles for foreign currency
transactions.
Pursuant to certain foreign currency exchange control
regulations in Venezuela, the Central Bank of Venezuela
(BCV) centralizes the purchase and sale of foreign
currency within the country. Under these regulations, the
purchase and sale of foreign currency were required to be made
through the Comisión de Administración de Divisas
(CADIVI) at an official rate of exchange that is
fixed from
F-15
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
time to time by the Executive Branch and BCV (the Official
Rate). As of December 31, 2009, the exchange rate was
BsF 2.150 per USD. On January 8, 2010, the Venezuelan
government announced a currency devaluation, wherein the Bolivar
had two government set rates; a BsF 2.60 rate to the USD for
transactions deemed priorities by the government, and a BsF 4.30
rate to the USD for other transactions. The latter rate is
applicable to our operations in Venezuela. We had net assets of
approximately $14.5 million as of January 8, 2010,
held by our Venezuelan subsidiary, which resulted in a foreign
currency devaluation expense of $7.2 million in January
2010.
As a result of the foregoing, there has been no market for the
purchase and sale of foreign currency in Venezuela since
February 2003. In October 2005, the Venezuelan government
enacted the Criminal Exchange Law that imposes strict sanctions,
criminal and economic, for the exchange of Venezuelan currency
with other foreign currency through other than officially
designated methods, or for obtaining foreign currency under
false pretenses. However, the Criminal Exchange Law provides an
exemption for the purchase and sale of certain securities. The
exemption for transactions in certain securities as described
above has resulted in the establishment of an indirect
parallel market of foreign currency exchange,
through which companies may obtain foreign currency without
resorting to, or requesting it, from CADIVI. The average rate of
exchange in the parallel market is variable, and may differ
significantly from the Official Rate. Publicly available quotes
do not exist for the foreign exchange rates in this parallel
market, but such rates may be obtained from brokers or other
means. In this market, the purchase of foreign currency is
performed through a series of transactions made through a
broker. As such, these parallel market transactions are often
used to settle foreign currency obligations and to move currency
in and out of Venezuela.
During May 2010, the government of Venezuela revised its foreign
exchange laws to prohibit private trading of bonds for foreign
currency. Under the new revision, the BCV is now the only legal
conduit for buying and selling foreign currency, including the
bond market.
ASC 830 indicates that entities should use the applicable rate
at which a transaction could settle as of the transaction date
to translate and record the transactions. In its
November 25, 2008, meeting, the AICPAs International
Practices Task Force (the IPTF) noted that it had
determined whether the Criminal Exchange Law changed a
registrants ability to access the parallel market. If the
registrant determines that the parallel market is readily
available for the settlement of dollar-denominated transactions,
then the rate used for remeasurement of foreign currency
denominated transactions into the functional currency depends on
the type of transaction being remeasured. Since the Criminal
Exchange Law, by virtue of exemption, provides for a parallel
exchange mechanism and since there is an observable market rate
of exchange for securities traded in this market, based on facts
and circumstances, this market rate may be appropriate for the
remeasurement of foreign currency denominated transactions that
could be settled through the parallel market mechanism. If it is
determined that the parallel market is not a readily available
means by which USD denominated transactions can be settled, then
the Official Rate should be used for all USD denominated
transactions.
ASC 830 indicates that, in the absence of unusual
circumstances, the rate applicable to conversion of a currency
for purposes of dividend remittances shall be used to translate
foreign currency statements. The existence of the parallel
market does not constitute unusual circumstances potentially
justifying the use of an exchange rate other than the Official
Rate for purposes of foreign currency translation. Further,
ASC 830-30-45-7
contemplates that unsettled transactions may be subject to and
translated using preference or penalty rates, while translation
of foreign currency statements is based on the rate applicable
to dividend remittances, and establishes a mechanism for
reconciling differences arising from such translation relating
to intercompany receivables and payables. As a result, it would
appear to be appropriate to continue to use the Official Rate
applicable to
F-16
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
conversion of currency for purposes of dividend remittances to
translate foreign currency financial statements.
It is managements belief that transactions including those
actually settled prior to May 2010 using the parallel market
rate, under the exemption provided by the Criminal Exchange Law
of Venezuela should be remeasured using the Official Rate. As
such, our results of operations for our Venezuelan subsidiary
reflect substantially higher than normal gross profit margin and
significantly higher foreign currency losses. Such results for
the six months ended December 31, 2009 and twelve months
ended December 31, 2010 would have been substantially
different, if the remeasured inventory related cost of revenue
would have been calculated using the actual parallel cost. For
the six months ended December 31, 2009, revenue and cost of
revenue would have been lower by approximately
$68.6 million and $2.5 million, respectively, with a
corresponding reduction in foreign currency losses of
$65.9 million. For the twelve months ended
December 31, 2010, revenue would have been lower by
approximately $22.2 million, with a corresponding reduction
in foreign currency losses of $22.2 million. There would be
no impact on net income since any change in revenue and cost of
revenue would be offset by identical changes in the foreign
currency transaction balance.
In December 2010, the Venezuelan government announced a currency
devaluation, effective January 2011, wherein the Bolivar would
have one set government rate, eliminating the previously
existing BsF 2.60 rate to the USD for transactions deemed
priorities by the government. This announcement resulted in one
official rate of BsF 4.30 to the USD for all transactions. This
change had no impact on our operations as the BsF 4.30 rate to
the USD is the existing rate applicable to our operations in
Venezuela. As of December 31, 2010, our Venezuelan
subsidiary had approximately $27.2 million in total assets,
which excludes our investment in real estate, and
$20.3 million in total liabilities.
Warranty
Liability
The vast majority of our products are purchased from various
manufacturer customers which generally carry explicit warranties
that extend from 12 months to 24 months, based on
terms that are generally accepted in the marketplace. These
manufacturers warranties are generally passed on to our
end customers and our exposure has been very limited. For
products that we manufacture or assemble, as well as for
products that are manufactured under our direct supervision,
which generally carry explicit warranties of 12 months, we
record warranty costs at the time of sale which are included
within cost of sales. The estimated warranty liability
represents managements best estimate of the expected
future amount needed to honor our warranty obligations for the
products sold. This liability is recorded in accounts payable,
accrued expenses and other current liabilities in the
accompanying consolidated balance sheets.
Warranty liability changes were as follows (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Balance, beginning of year
|
|
$
|
1,372
|
|
|
$
|
465
|
|
Warranty provision
|
|
|
2,271
|
|
|
|
5,461
|
|
Reductions for payments
|
|
|
(3,178
|
)
|
|
|
(3,019
|
)
|
|
|
|
|
|
|
|
|
|
Balance, end of year
|
|
$
|
465
|
|
|
$
|
2,907
|
|
|
|
|
|
|
|
|
|
|
F-17
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
Income
Taxes
The provision for income taxes includes federal, state, local
and foreign taxes. Income taxes are accounted for under the
asset and liability method. Under this method, deferred tax
assets and liabilities are recognized for the expected future
tax consequences of temporary differences between the financial
statement carrying values and their respective tax bases.
Deferred tax assets and liabilities are measured using enacted
tax rates expected to apply to taxable income in the years in
which the temporary differences are expected to be recovered or
settled. The effect on deferred tax assets and liabilities of a
change in tax rates is recognized in income in the period that
includes the enactment date. We evaluate the realizability of
our deferred tax assets and establish a valuation allowance when
it is more likely than not that all or a portion of the deferred
tax assets will not be realized.
Fair Value of
Financial Instruments
Effective January 1, 2008, we adopted ASC 820 Fair
Value Measurements and Disclosures, which defines fair
value, establishes a framework for measuring fair value and
expands required disclosures about fair value measurements.
Under the standard, fair value refers to the price that would be
received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants in the market in
which the reporting entity transacts. ASC 820 clarifies the
principle that fair value should be based on the assumptions
market participants would use when pricing the asset or
liability. ASC 820 deferred the application of its guidance
in relation to all non-financial assets and all non-financial
liabilities to January 1, 2009. Effective January 1,
2009, we adopted the application of ASC 820 in relation to
all non-financial assets and all non-financial liabilities.
ASC 820 establishes a fair value hierarchy which requires the
Company to maximize the use of observable inputs and minimize
the use of unobservable inputs when measuring fair value. We
primarily apply the market approach for recurring fair value
measurements. The standard describes three levels of inputs that
may be used to measure fair value:
Level 1: Quoted prices in active
markets for identical assets or liabilities.
Level 2: Observable inputs other
than Level 1 prices, such as quoted prices for similar
assets or liabilities; quoted prices in markets that are not
active; or other inputs that are observable or can be
corroborated by observable market data for substantially the
full term of the assets or liabilities.
Level 3: Unobservable inputs that
are supported by little or no market activity and that are
significant to the fair value of the assets or liabilities.
As of December 31, 2009 and 2010, those assets and
liabilities that are measured at fair value on a recurring basis
consisted of the Companys short-term and long-term
marketable equity securities it classifies as
available-for-sale,
foreign currency exchange contracts, and interest rate swap
instruments. The Company believes that the carrying amounts of
its other financial instruments, including cash and cash
equivalents, short-term investments, accounts receivable,
prepaid expenses and other current assets, accounts payable,
accrued expenses and other current liabilities, and amounts
drawn on our revolving credit facilities consist primarily of
instruments without extended maturities, the fair value of
which, based on managements estimates, approximates their
carrying value due to the short-term maturities of these
instruments.
F-18
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
The following table presents information about our assets and
liabilities measured at fair value on a recurring basis as of
December 31, 2009 and 2010, and indicates the fair value
hierarchy of the valuation techniques utilized to determine such
fair value (in thousands). As of December 31, 2009 and
2010, the Company had not measured any assets or liabilities
using fair value inputs categorized as Level 3.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2009,
using
|
|
|
|
|
|
|
|
|
|
Amount Reported
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
in Statement of
|
|
|
|
in Active
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Financial Position
|
|
|
|
Identical Items
|
|
|
Inputs
|
|
|
as of December 31,
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
2009
|
|
|
Assets at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term marketable equity securities
|
|
$
|
15,070
|
|
|
$
|
|
|
|
$
|
15,070
|
|
Long-term marketable equity securities
|
|
|
2,558
|
|
|
|
|
|
|
|
2,558
|
|
Derivative assets related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
38
|
|
|
|
38
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
17,628
|
|
|
$
|
38
|
|
|
$
|
17,666
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
|
|
|
$
|
1,572
|
|
|
$
|
1,572
|
|
Interest rate swaps
|
|
|
|
|
|
|
1,219
|
|
|
|
1,219
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
2,791
|
|
|
$
|
2,791
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair Value Measurements as of December 31, 2010,
using
|
|
|
|
|
|
|
|
|
|
Amount Reported
|
|
|
|
Quoted Prices
|
|
|
Significant
|
|
|
in Statement of
|
|
|
|
in Active
|
|
|
Other
|
|
|
Consolidated
|
|
|
|
Markets for
|
|
|
Observable
|
|
|
Financial Position
|
|
|
|
Identical Items
|
|
|
Inputs
|
|
|
as of December 31,
|
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
2010
|
|
|
Assets at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Short-term marketable equity securities
|
|
$
|
|
|
|
$
|
|
|
|
$
|
|
|
Long-term marketable equity securities
|
|
|
1,689
|
|
|
|
|
|
|
|
1,689
|
|
Derivative assets related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
|
|
|
|
|
1,275
|
|
|
|
1,275
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total assets at fair value
|
|
$
|
1,689
|
|
|
$
|
1,275
|
|
|
$
|
2,964
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities at fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities related to:
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign exchange contracts
|
|
$
|
|
|
|
$
|
1,480
|
|
|
$
|
1,480
|
|
Interest rate swaps
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities at fair value
|
|
$
|
|
|
|
$
|
1,480
|
|
|
$
|
1,480
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
F-19
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
The following is a description of the valuation methodologies
used for these items, as well as the general classification of
such items pursuant to the fair value hierarchy of ASC 820:
Short-Term Marketable Equity Securities the
short-term marketable equity securities consist of
available-for-sale
securities. Fair values for these investments are based on
quoted prices in active markets and are therefore classified
within Level 1 of the fair value hierarchy.
Long-Term Marketable Equity Securities the long-term
marketable equity securities consist of
available-for-sale
securities. Fair values for these investments are based on
quoted prices in active markets and are therefore classified
within Level 1 of the fair value hierarchy.
Foreign Currency Derivative Assets and Liabilities
consist of forward foreign currency exchange contracts and
foreign currency options to mitigate the risk of foreign
currency movements on certain transactions and interest rate
swaps. Fair value for the foreign currency exchange contracts
are based on a model-driven valuation using the observable
components (e.g., exchange rates, forward rates, interest rates
and options volatilities), which are observable at commonly
quoted intervals for the full term of the contracts. The
calculations are adjusted for credit risk. Therefore, our
derivative assets and liabilities are classified within
Level 2 of the fair value hierarchy. Foreign currency
derivative assets are included within prepaid expenses and other
current assets and foreign currency derivative liabilities are
included within accounts payable, accrued expenses and other
current liabilities.
Interest Rate Swap Liabilities the interest rate
swaps are a pay-variable, receive-fixed interest rate swap based
on the London Interbank Offered Rate (LIBOR) rate.
Our interest rate swap agreements eliminate the variability of
cash flows in the interest payments for $80.0 million of
borrowings under our revolving credit facility. Fair value is
based on a model-driven valuation using the LIBOR rate, which is
observable at commonly quoted intervals for the full term of the
swaps. Therefore, these derivative liabilities are classified
within Level 2 of the fair value hierarchy. The
aforementioned models incorporate adjustments to appropriately
reflect our own performance risk and the counterpartys
non-performance risk. Interest rate derivative liabilities are
included within accounts payable, accrued expenses and other
current liabilities.
ASC 820 provides guidance regarding its application for illiquid
financial instruments. It clarifies that approaches to
determining fair value other than the market approach may be
appropriate when the market for a financial asset is not active.
We did not have to use this aspect of the above guidance in
determining the fair value of our assets and liabilities.
As of December 31, 2009, the estimated fair values of our
financial instrument liabilities that are not measured at fair
value on a recurring basis consist of our convertible senior
subordinated notes and our term loan. The convertible senior
subordinated notes were valued under ASC 820 using two binomial
lattice trees with 16 remaining nodes until maturity, with one
tree representing the valuation of the equity component of value
and the other tree representing the valuation of the fixed
income component of value, both over the remaining life of the
note. The equity component was valued using the current stock
price valuation as of December 31, 2009 and the fixed
income component was valued incorporating Level 2 inputs of
a counterparty risk rate, a risk-free Treasury rate, and a
calculated market volatility. The fair value of both the equity
and fixed income components as of December 31, 2009 is
valued at $27.3 million. The variable rate term loan is
part of our revolving credit facility and its carrying value as
of December 31, 2009 of $57.5 million approximates its
fair value. The fair value was calculated based on a
model-driven valuation using a LIBOR rate curve. The
aforementioned model incorporates adjustments to appropriately
reflect our own performance risk and the counterpartys
non-performance risk. As of December 31, 2010, the
convertible senior
F-20
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
subordinated notes were converted and the variable rate term
loan part of our Amended and Restated Credit Facility was paid
in full. See Note 9 Debt.
As of December 31, 2010, the estimated fair value of our
financial instrument liabilities that are not measured at fair
value on a recurring basis consist of the Notes. See
Note 9 Debt. The fair value of the Notes was
calculated based on an analysis of quoted market prices and
trading summary data. As of December 31, 2010, the fair
value of the Notes was $254.4 million.
Comprehensive
Income (Loss)
Comprehensive income (loss) is a measure of net income (loss)
and all other changes in equity that result from transactions
other than with stockholders. Our comprehensive income (loss)
consists of net income (loss), foreign currency translation
adjustments, unrealized gains or losses related to
available-for-sale
investments and unrealized gains or losses on long-term loans to
subsidiaries, net of its related deferred tax assets
(liabilities). Comprehensive income (loss) is recorded in the
consolidated statements of stockholders equity and
comprehensive income (loss).
Stock Option
Incentive Plans
We account for stock-based compensation in accordance with
ASC 718 Compensation Stock Compensation
using the modified-prospective transition method.
ASC 718 requires compensation costs related to share-based
transactions, including employee stock options, to be recognized
in the financial statements based on fair value.
Compensation cost for all of our graded-vesting awards is
recognized ratably using the straight-line attribution method
over the vesting period or to the retirement eligibility date,
if less than the vesting period, when vesting is not contingent
upon any future performance. In addition, pursuant to
ASC 718, we are required to estimate the amount of expected
forfeitures, which we estimate based on historical forfeiture
experience and projected employee turnover, when calculating
compensation cost. If the actual forfeitures that occur are
different than the estimate, then we revise our estimates.
Concentration
of Risks and Uncertainties
Financial instruments that potentially subject us to
concentrations of credit risk consist primarily of trade
accounts receivable. We monitor the creditworthiness of our
customers to which we grant credit terms in the normal course of
our business, as well as the general economic and political
conditions in the countries where they operate. Concentrations
of credit risk associated with these receivables are monitored
on an ongoing basis. Historically, we have not experienced
significant credit losses due primarily to the credit rating of
our customers which tend to be large operators; except as
discussed in Note 14 Commitments and
Contingencies under Litigation, Claims, and Assessments. We do
not normally require collateral or other security to support
normal credit sales. See Note 4 Accounts
Receivable and Factoring Agreements.
Trade accounts receivable are generated from product sales and
services provided to operators, agents, resellers, dealers and
retailers in the wireless communications industry in the United
States, Latin America and other parts of the world. The general
economy and competition in the marketplace may impact our sales
volume and, consequently, an adverse change in either of these
factors could negatively affect our consolidated net sales. We
operate throughout Latin America, which we believe is subject to
greater political, monetary, economic and regulatory risks than
our operations in the United States and other parts of the
world. As of December 31, 2009 and 2010, our accounts
receivable were comprised of approximately 73% and 57% from
Latin America, respectively, 19% and 34% and from
U.S. operations, respectively, and 8% and 9% from other
parts of the world,
F-21
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
respectively. A significant portion of our sales that originated
in the United States were made to customers located outside of
the United States. Parts of these sales are made to operators in
Venezuela. We have been selling to Venezuela-based operators
since the year 2000 and have managed through exchange controls
and both economic and political developments with insignificant,
if any, bad debt loss. We believe that Venezuela operations
represent a higher business risk and could result in a negative
impact to our consolidated results of operations and cash flows
if factors beyond our control were to develop. During the years
ended December 31, 2008, 2009 and 2010, we made sales to
customers in Venezuela of approximately $654.8 million,
$527.6 million and $486.6 million, respectively. As of
December 31, 2009, we had gross accounts receivable
relating to operator customers in Venezuela totaling
$320.2 million and also had credits available from our
customers in Venezuela in the amount of $65.3 million,
which were included within accounts payable, accrued expenses
and other current liabilities, for which we did not have the
right of off-set. As of December 31, 2010, we had gross
accounts receivable relating to operator customers in Venezuela
totaling $131.0 million and had credits available from our
customers in Venezuela in the amount of $1.6 million, which
were included within accounts receivable trade, net.
Operators represented approximately 66%, 59% and 53% of our
consolidated net sales for the years ended December 31,
2008, 2009 and 2010, respectively. Our consolidated net sales
and net accounts receivable for years ended December 31,
2008, 2009 and 2010 included transactions with leading operators
in Mexico and Venezuela. The operators in Mexico represented
19%, 16% and 16% of our consolidated net sales for years ended
December 31, 2008, 2009 and 2010, respectively, and 14% and
15% of our net consolidated accounts receivable as of
December 31, 2009 and 2010, respectively. The operators in
Venezuela represented approximately 18%, 17% and 7% of our
consolidated net sales for the years ended December 31,
2008, 2009 and 2010, respectively, and 33% and 10% of our
consolidated accounts receivable as of December 31, 2009
and 2010, respectively.
We are dependent on the ability of our suppliers to provide
products on a timely basis at favorable pricing terms. The loss
of certain principal suppliers or a significant reduction in
product availability could have a material adverse effect on our
operations, cash flows and financial position. We have five key
suppliers of wireless devices. Purchases from these five
suppliers comprised 82% and 89% and of all purchases made in
2009 and 2010, respectively. The largest supplier for the years
ended December 31, 2009 and 2010 accounted for 37% and 40%
of all purchase made of wireless devices, respectively. Any
significant interruption by the suppliers or a termination of a
distribution agreement could have a material adverse impact on
our operations. See Note 14 Commitments and
Contingencies under Relationship with Suppliers.
Our current and future operations and investments in certain
foreign countries are generally subject to the risks of
political, economic or social instability, including the
possibility of expropriation, confiscatory taxation,
hyper-inflation, or other adverse regulatory or legislative
developments or limitations on the repatriation of investment
income, capital and other assets. We cannot predict whether any
of such factors will occur in the future or the extent to which
such factors would have a material adverse effect on our
international operations.
Discontinued
Operations
As part of our periodic review of our subsidiary operations,
during 2008 and 2009, we decided to exit certain underperforming
international operations. No such reductions occurred during the
year ended December 31, 2010. We record amounts in
discontinued operations as required by ASC 205
Presentation of Financial Statements. In accordance with
ASC 360, the results of operations and related disposal
costs, gains and losses for significant components that we have
abandoned or sold
F-22
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
are classified in discontinued operations for all periods
presented. The consolidated statements of operations reflect the
reclassification of the results of operations of our
subsidiaries Aptec Mobile and Brightec and our subsidiaries in
Bangladesh, India, Mauritius, Namibia and South Africa for all
periods presented based on our decision to cease these
operations during 2008. These operations were disposed of in
2008.
In April 2009, we sold WSA Distributing de Mexico S.A. de C.V.,
a subsidiary in Mexico, for approximately $1.0 million in
cash and promissory notes. The consolidated statements of
operations reflect the reclassification of the results of WSA
Distributing de Mexico S.A. de C.V. for all periods presented
based on our decision to cease these operations during 2009. In
2009, we decided to cease the operations of our Philippines
subsidiary and as a result disposed of these operations in the
same year. The consolidated statements of operations reflect the
reclassification of the results of our Philippines subsidiary
for all periods presented based on our decision to cease these
operations during 2009.
The following table summarizes the results of operations of our
subsidiaries classified as discontinued operations (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Revenue
|
|
$
|
53,483
|
|
|
$
|
8,057
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income before taxes and non-controlling interest from
discontinued operations
|
|
$
|
(18,475
|
)
|
|
$
|
5,214
|
|
|
$
|
(921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income from discontinued operations
|
|
$
|
(14,304
|
)
|
|
$
|
2,595
|
|
|
$
|
(921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
As of December 31, 2009, the net assets (with the exception
of cash) and net liabilities of operations exited are recorded
as discontinued operations within prepaid expenses and other
current assets and accounts payable, accrued expenses and other
current liabilities, respectively (see Note 5
Prepaid Expenses and Other Current Assets and Other Assets and
Note 8 Accounts Payable, Accrued Expenses and
Other Current Liabilities and Other Long-Term Liabilities). The
consolidated balance sheets reflect the reclassification of
assets and liabilities commencing in the period in which we
exited these operations whether through disposal or disposal by
sale.
The amount of total assets (with the exception of cash) of
operations exited which are included within prepaid expenses and
other current assets as of December 31, 2009 and 2010 was
approximately $0.2 million and $0.0 million,
respectively. The amount of total liabilities of operations
exited which are included within accounts payable, accrued
expenses and other current liabilities as of December 31,
2009 and 2010 was approximately $0.5 million and
$0.0 million, respectively. These assets and liabilities
are comprised mainly of deposits and accrued expenses.
Redeemable
Convertible Preferred Stock
The Companys redeemable convertible preferred stock is
classified as temporary equity and is shown net of issuance
costs. The difference in carrying value and redemption value is
due to these issuance costs. Cumulative dividends are accrued at
the stated rate each period so that the temporary equity
carrying value will equal its redemption value at the date the
temporary equity is redeemable and is recorded on the
declaration date at fair market value. We will adjust the
carrying value of the redeemable convertible preferred stock for
the issuance costs at the time it becomes probable that the
redeemable convertible preferred stock will become redeemable.
See Note 10 Redeemable Convertible Preferred
Stock.
F-23
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
Earnings per
Share
We calculate basic earnings per share using the two-class method
in accordance with ASC 260 Earnings Per Share. This
requires the income per share for common stock and participating
securities to be calculated assuming 100% of our earnings are
distributed as dividends to common stock and participating
securities based on their respective dividend rights, even
though we do not anticipate distributing 100% of our earnings as
dividends. Our redeemable convertible preferred stock represents
the participating securities. See Note 10
Redeemable Convertible Preferred Stock.
For the basic earnings per share calculation, net income
available to shareholders is allocated among our common stock
and participating securities. The allocation is based upon the
two-class method on a
one-for-one
per share basis, as common stock and redeemable convertible
preferred stock share pro rata in earnings. Only common stock
shares in losses since there is no legal obligation for
participating securities to fund losses. Net income is allocated
using this method.
Basic earnings per share applicable to common stockholders is
computed by dividing earnings applicable to common stockholders
by the weighted-average number of common shares. Income
applicable to common stockholders is net of the dividends
relating to redeemable convertible preferred stock.
Diluted net earnings per share assumes the conversion of the
redeemable convertible preferred stock if dilutive.
Additionally, it assumes the conversion of convertible senior
subordinated notes and convertible shares in subsidiaries using
the if converted method, if dilutive, and includes any dilutive
effect of stock options under the treasury stock method. It adds
back the net income and cumulative dividends allocated to the
redeemable convertible preferred stock, the net income allocated
to convertible shares in subsidiaries and interest expense
allocated to the convertible senior subordinated notes for fully
diluted earnings per share calculations, if dilutive.
The following summarizes the weighted-average number of common
stock shares outstanding during the year:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Weighted average common and redeemable convertible preferred
stock outstanding for basic earnings per share
|
|
|
34,609,475
|
|
|
|
35,011,761
|
|
|
|
35,197,535
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding for basic earnings
per share
|
|
|
18,134,166
|
|
|
|
18,163,037
|
|
|
|
18,181,347
|
|
Diluted shares resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
Stock options
|
|
|
11,577
|
|
|
|
|
|
|
|
358,006
|
|
Redeemable convertible preferred stock
|
|
|
16,475,309
|
|
|
|
|
|
|
|
47,051
|
|
Convertible senior subordinated notes
|
|
|
|
|
|
|
2,580,480
|
|
|
|
|
|
Shares in subsidiaries that are convertible into redeemable
convertible preferred stock
|
|
|
425,016
|
|
|
|
120,413
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares for diluted earnings per share
|
|
|
35,046,068
|
|
|
|
20,863,930
|
|
|
|
18,586,404
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share excluded 1,892,976 shares,
2,319,770 shares and 1,026,500 shares for the years
ended December 31, 2008, 2009 and 2010, respectively,
related to stock options with an exercise price per share
greater than the average fair value, resulting in an
anti-dilutive effect on diluted earnings per share. It also
excluded 16,848,724 shares and 16,969,137 shares for
the years ended December 31, 2009 and 2010, respectively,
related to redeemable convertible cumulative
F-24
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
participating preferred stock with allocated net income and
contractual cumulative preferred dividends which were considered
anti-dilutive. In addition, diluted earnings per share excluded
2,580,480 shares and 2,533,429 shares, respectively,
for the years ended December 31, 2008 and 2010, related to
convertible senior subordinated notes which were considered
anti-dilutive. In addition, diluted earnings per share excluded
3,510,542 shares and 853,611 shares for the years
ended December 31, 2008 and 2009, respectively, related to
convertible shares in subsidiaries which were considered
anti-dilutive.
During 2008, a dividend distribution of $5.4 million was
made to common shareholders. The redeemable convertible
preferred stock shareholders waived their legal rights to
participation in this particular dividend. See
Note 11 Stockholders Equity.
Reclassification
Certain prior year amounts have been reclassified to conform to
the current years presentation. For the years ended
December 31, 2009 and 2010, we reclassified redeemable
convertible preferred stock amounting to $343.0 million and
$363.6 million, respectively, and issuance costs amounting
to $3.3 million and $3.3 million, respectively, from
stockholders equity to temporary equity within the
consolidated balance sheets. We also reclassified
$22.6 million and $48.7 million in accrued dividends
related to the redeemable convertible preferred stocks from
accounts payable, accrued expenses and other current liabilities
to temporary equity within the consolidated balance sheets at
December 31, 2009 and 2010 in order to comply with SEC
rules and regulations.
For the year ended December 31, 2009, we reclassified
$5.0 million in inventory price protection credits from
accounts payable, accrued expenses and other current liabilities
to inventories within the consolidated balance sheet.
|
|
Note 3
|
Accounting
Standards
|
Recently
Adopted Accounting Standards
In September 2006, the SEC issued Staff Accounting
Bulletin No. 108, Considering the Effects of
Prior Year Misstatements when Quantifying Misstatements in
Current Year Financial Statements (SAB 108 is now
contained in ASC 250). ASC 250 Accounting Changes
and Error Correction provides interpretive guidance on the
considerations of the effects of prior year misstatements in
quantifying current year misstatements for the purpose of a
materiality assessment. We adopted the SAB 108 provisions
within ASC 250 on January 1, 2010 in connection with
our first time application of public company accounting
policies. Upon adoption, there was no material impact on our
consolidated financial statements.
Effective January 1, 2008, we adopted ASC 820, which
defines fair value, establishes a framework for measuring fair
value and expands required disclosures about fair value
measurements. Under the standard, fair value refers to the price
that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants
in the market in which the reporting entity transacts.
ASC 820 clarifies the principle that fair value should be
based on the assumptions market participants would use when
pricing the asset or liability. ASC 820 deferred the
application of its guidance in relation to all non-financial
assets and all non-financial liabilities to January 1,
2009. Effective January 1, 2009, we adopted the application
of ASC 820 in relation to all non-financial assets and all
non-financial liabilities.
On January 1, 2009, we adopted a new accounting standard
codified within ASC 810 issued by the FASB which clarified
that a non-controlling interest in a subsidiary should be
reported as equity in the consolidated financial statements.
Upon adoption, there was no material impact on our
F-25
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
consolidated financial statements other than the inclusion of
non-controlling interests within the consolidated statements of
stockholders equity and comprehensive income (loss).
On January 1, 2009, we adopted a replacement of an
accounting standard issued by the FASB codified within
ASC 805 Business Combinations which significantly
changes the principles and requirements for how an acquisition
is recognized and measured in a companys financial
statements, including the identifiable assets acquired and the
liabilities assumed. This statement also provides guidance for
recognizing and measuring goodwill acquired in a business
combination and required disclosures to enable users of the
financial statements to evaluate the nature and financial
effects of the business combination.
On January 1, 2009, we adopted an interpretation of an
accounting standard issued by the FASB and codified within
ASC 740 Income Taxes. This interpretation clarifies
the accounting for uncertainty in income taxes recognized in a
companys financial statements. This interpretation
prescribes a recognition threshold and measurement attribute for
the financial statement recognition and measurement of a tax
position taken or expected to be taken in a tax return. This
interpretation also provides guidance on derecognition,
classification, interest and penalties, accounting in interim
periods, disclosure and transition. Upon adoption, there was no
material impact on our consolidated financial statements.
In June 2009, the FASB issued, with effect from July 1,
2009, the FASB Accounting Standards
Codificationtm
(the Codification) as the source of authoritative
U.S. GAAP recognized by the FASB to be applied by
non-governmental entities. Rules and interpretive releases of
the SEC under authority of federal securities laws are also
sources of authoritative U.S. GAAP for SEC registrants. The
Codification does not change GAAP, except in limited
circumstances, and the content of the Codification carries the
same level of GAAP authority. The GAAP hierarchy has been
modified to include only two levels of GAAP: authoritative and
nonauthoritative. The Codification is effective for interim and
annual periods ending after September 15, 2009. Brightstar
adopted the Codification and while it impacts the way Brightstar
refers to accounting pronouncements in its disclosures, it had
no effect on Brightstars financial position, results of
operations or cash flows upon adoption.
On January 1, 2010, we adopted a new accounting standard
codified within ASC 860 Transfers and Servicing.
ASC 860 removes the concept of a qualifying special-purpose
entity and removes an exception related to the application of
the standard to qualifying special-purpose entities. Therefore,
formerly qualifying special-purpose entities should be evaluated
for consolidation by reporting entities on and after the
effective date in accordance with the applicable consolidation
guidance. If the evaluation on the effective date results in
consolidation, the reporting entity should apply the transition
guidance provided in the pronouncement that requires
consolidation. Upon adoption, there was no material impact on
our consolidated financial statements.
On January 1, 2010, we adopted a new accounting standard
codified within ASC 810 which amends existing guidance to
require revised evaluations of whether entities represent
variable interest entities, ongoing assessments of control over
such entities, and additional disclosures for variable
interests. Upon adoption, there was no material impact on our
consolidated financial statements.
Recent
Accounting Pronouncements
In September 2009, the FASB ratified Accounting Standards Update
2009-13,
codified within ASC 605 which addresses criteria for
separating the consideration in multiple element arrangements.
ASC 605 requires companies to allocate the overall
consideration to each deliverable by using a best estimate of
the selling price of the individual deliverables in the
arrangement, in the absence of vendor-specific objective
evidence or other third-party evidence of the selling price.
ASC 605 will be
F-26
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
effective prospectively for revenue arrangements entered into or
materially modified in fiscal years beginning on or after
June 15, 2010 and early adoption will be permitted. We
anticipate that there will be no material impact on our
consolidated financial statements upon adoption.
|
|
Note 4
|
Accounts
Receivable and Factoring Agreements
|
We utilize factoring agreements with banks as a short-term
financing alternative to help us monetize receivables that may
otherwise take over 90 days to collect. Under these
agreements, we have sold certain eligible trade accounts
receivable with and without recourse to us. We generally keep
the servicing of such receivables through their due dates.
During the years ended December 31, 2008, 2009 and 2010, we
did not enter into factoring agreements that were accounted for
as sales under ASC 860 and consequently our factoring
agreements are accounted for as debt. These agreements are
discussed in Note 9 Debt.
Accounts receivable are presented net of an allowance for
doubtful accounts of $11.8 million and $18.4 million
as of December 31, 2009 and 2010, respectively. We recorded
a provision for doubtful accounts of $2.7 million,
$6.4 million and $8.8 million during the years ended
December 31, 2008, 2009 and 2010, respectively, within
continuing operations. In addition, we recorded write-offs of
$4.9 million, $1.3 million and $1.6 million
during the years ended December 31, 2008, 2009 and 2010,
respectively.
|
|
Note 5
|
Prepaid Expenses
and Other Current Assets and Other Assets
|
Prepaid expenses and other current assets and other assets were
comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Prepaid expenses and other current assets
|
|
|
|
|
|
|
|
|
Value-added tax receivable
|
|
$
|
10,014
|
|
|
$
|
19,422
|
|
Short-term investments
|
|
|
53,582
|
|
|
|
2,309
|
|
Prepaid expenses
|
|
|
13,355
|
|
|
|
24,159
|
|
Income taxes receivable
|
|
|
14,208
|
|
|
|
11,256
|
|
Other receivables
|
|
|
6,012
|
|
|
|
12,413
|
|
Deferred contract costs
|
|
|
7,613
|
|
|
|
11,981
|
|
Marketable equity securities
|
|
|
15,070
|
|
|
|
|
|
Deferred loan costs
|
|
|
799
|
|
|
|
1,714
|
|
Assets of discontinued operations
|
|
|
160
|
|
|
|
|
|
Other
|
|
|
3,853
|
|
|
|
4,475
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
124,666
|
|
|
$
|
87,729
|
|
|
|
|
|
|
|
|
|
|
Other assets
|
|
|
|
|
|
|
|
|
Investments in real estate
|
|
$
|
28,821
|
|
|
$
|
39,589
|
|
Investments cost method
|
|
|
2,821
|
|
|
|
1,470
|
|
Deferred contract costs
|
|
|
32,555
|
|
|
|
24,191
|
|
Value-added tax receivable
|
|
|
3,847
|
|
|
|
1,251
|
|
Deferred loan costs
|
|
|
1,022
|
|
|
|
9,754
|
|
Marketable equity securities
|
|
|
2,558
|
|
|
|
1,689
|
|
Security deposits
|
|
|
3,988
|
|
|
|
1,449
|
|
Intangibles
|
|
|
3,572
|
|
|
|
6,543
|
|
Goodwill
|
|
|
1,357
|
|
|
|
1,836
|
|
Other
|
|
|
2,946
|
|
|
|
7,952
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
83,487
|
|
|
$
|
95,724
|
|
|
|
|
|
|
|
|
|
|
F-27
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
|
|
Note 6
|
Property and
Equipment
|
Property and equipment were comprised of the following (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Estimated
|
|
|
|
December 31,
|
|
|
Useful Lives
|
|
|
|
2009
|
|
|
2010
|
|
|
(In Years)
|
|
|
Land
|
|
$
|
42
|
|
|
$
|
57
|
|
|
|
|
|
Building
|
|
|
1,423
|
|
|
|
1,337
|
|
|
|
20
|
|
Leasehold improvements
|
|
|
12,280
|
|
|
|
15,877
|
|
|
|
1-10
|
|
Computer equipment and software
|
|
|
38,826
|
|
|
|
43,948
|
|
|
|
3-5
|
|
Furniture, fixtures and equipment
|
|
|
15,959
|
|
|
|
25,125
|
|
|
|
3-10
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
68,530
|
|
|
|
86,344
|
|
|
|
|
|
Accumulated depreciation
|
|
|
(40,085
|
)
|
|
|
(52,379
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
28,445
|
|
|
$
|
33,965
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
For the years ended December 31, 2008, 2009 and 2010,
depreciation expense was approximately $9.9 million,
$13.4 million and $11.5 million, respectively, related
to continuing operations.
|
|
Note 7
|
Intangible
Assets
|
Intangible assets, including goodwill, were comprised of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Trade names
|
|
$
|
2,173
|
|
|
$
|
2,199
|
|
Customer relationships
|
|
|
526
|
|
|
|
1,369
|
|
Vendor relationships
|
|
|
|
|
|
|
996
|
|
Services and solutions
|
|
|
926
|
|
|
|
2,014
|
|
Goodwill
|
|
|
1,357
|
|
|
|
1,836
|
|
Other
|
|
|
22
|
|
|
|
420
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,004
|
|
|
|
8,834
|
|
Accumulated amortization
|
|
|
(75
|
)
|
|
|
(455
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
4,929
|
|
|
$
|
8,379
|
|
|
|
|
|
|
|
|
|
|
On December 31, 2008, we acquired a 10% non-controlling
interest held by a former employee in our subsidiary Brightstar
US, Inc. for $1.0 million in cash and a $4.0 million
promissory note, payable in annual installments of
$1.0 million, commencing December 31, 2009. The
transaction was accounted for as a purchase. The fair value of
the net assets acquired amounted to $4.9 million, including
intangibles other than goodwill of $2.7 million.
Intangible assets include trade names and customer
relationships. Intangible assets with definitive lives subject
to amortization are amortized on a straight-line basis with
estimated useful lives generally of seven years. As a result of
the 10% non-controlling interest purchase of our subsidiary
Brightstar US, Inc., we acquired $0.5 million in
amortizable customer relationships and $2.2 million in
trade names. For the years ended December 31, 2009 and
2010, amortization of these intangible assets included within
depreciation and amortization in our statements of operations
was $0.1 million and $0.1 million, respectively. No
such amortization was recorded in the year ended
December 31, 2008. Expected annual amortization expense of
intangible assets is $0.1 million per year, which started
in 2009 and we expect to continue through 2015.
F-28
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
We also have other intangible assets related to services and
solutions software amounting to approximately $0.9 million
and $2.0 million, net of accumulated amortization of
$0.0 million and $0.1 million as of December 31,
2009 and 2010, respectively. All intangible assets are included
as part of other assets in the accompanying consolidated balance
sheets.
On October 1, 2010, we acquired 100% of the shares of OTBT,
Inc. for approximately $3.2 million, of which
$2.0 million was in cash and an estimated $1.2 million
was in contingent consideration. OTBT, Inc. is a leading enabler
of wireless reseller solutions and is focused on providing the
value-added reseller and systems integration channel with a
single source for wireless devices services, software,
accessories and related equipment. The transaction was accounted
for as a business combination. The fair value of the net assets
acquired amounted to $3.2 million, including intangibles
other than goodwill of $2.2 million.
Intangible assets are assets with indefinite lives not subject
to amortization and assets with definite lives subject to
amortization. Intangible assets with definitive lives subject to
amortization are amortized on a straight-line basis with
estimated useful lives generally between one and eight years. As
a result of the acquisition, we acquired $1.0 million in
vendor relationships, $0.8 million in customer
relationships, and approximately $0.4 million of other
intangible assets with definitive lives. For the year ended
December 31, 2010, amortization of these intangible assets
included within depreciation and amortization in our statements
of operations was $0.2 million.
|
|
Note 8
|
Accounts Payable,
Accrued Expenses and Other Current Liabilities and Other
Long-Term
Liabilities
|
Accounts payable, accrued expenses, and other current
liabilities and other long-term liabilities were comprised of
the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Accounts payable, accrued expenses and other current
liabilities
|
|
|
|
|
|
|
|
|
Accounts payable trade
|
|
$
|
468,208
|
|
|
$
|
1,178,301
|
|
Reserves, rebates, and volume incentive payable
|
|
|
117,665
|
|
|
|
52,245
|
|
Other accrued expenses
|
|
|
76,623
|
|
|
|
135,411
|
|
Income taxes payable
|
|
|
23,329
|
|
|
|
32,008
|
|
Accrued payroll and related benefits
|
|
|
20,151
|
|
|
|
31,416
|
|
Customer deposits
|
|
|
153,169
|
|
|
|
17,266
|
|
Warranty liability
|
|
|
465
|
|
|
|
2,907
|
|
Amounts due under purchase agreements
|
|
|
1,000
|
|
|
|
|
|
Deferred revenue
|
|
|
5,871
|
|
|
|
5,110
|
|
Amounts due under upfront fee arrangements
|
|
|
30,440
|
|
|
|
4,015
|
|
Accrued interest
|
|
|
754
|
|
|
|
6,046
|
|
Liabilities of discontinued operations
|
|
|
522
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
898,197
|
|
|
$
|
1,464,725
|
|
|
|
|
|
|
|
|
|
|
F-29
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Other long-term liabilities
|
|
|
|
|
|
|
|
|
Amounts due under purchase agreements
|
|
$
|
2,000
|
|
|
$
|
|
|
Deferred rent
|
|
|
2,317
|
|
|
|
2,826
|
|
Deferred revenue
|
|
|
3,522
|
|
|
|
2,343
|
|
Contingent consideration
|
|
|
|
|
|
|
1,186
|
|
Other
|
|
|
1,480
|
|
|
|
3,255
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
9,319
|
|
|
$
|
9,610
|
|
|
|
|
|
|
|
|
|
|
Lines of credit, trade financing facilities and term loan are
comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Revolving Credit Facility U.S. operations
|
|
$
|
176,046
|
|
|
$
|
|
|
Term Loan U.S. operations
|
|
|
57,500
|
|
|
|
|
|
Senior Notes
|
|
|
|
|
|
|
250,000
|
|
Trade facilities U.S. operations
|
|
|
96,768
|
|
|
|
64,200
|
|
Bank facilities U.S. operations
|
|
|
8,699
|
|
|
|
5,103
|
|
Bank facilities Foreign operations
|
|
|
41,831
|
|
|
|
134,502
|
|
|
|
|
|
|
|
|
|
|
Total
|
|
|
380,844
|
|
|
|
453,805
|
|
Less: Long-term debt
|
|
|
51,733
|
|
|
|
252,586
|
|
|
|
|
|
|
|
|
|
|
Lines of credit, trade facilities and current portion of term
debt
|
|
$
|
329,111
|
|
|
$
|
201,219
|
|
|
|
|
|
|
|
|
|
|
Convertible senior subordinated notes
|
|
$
|
21,004
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
The scheduled contractual repayment terms of our debt as of
December 31, 2010 are as follows (in thousands):
|
|
|
|
|
2011
|
|
$
|
201,219
|
|
2012
|
|
|
1,483
|
|
2013
|
|
|
628
|
|
2014
|
|
|
100
|
|
2015
|
|
|
80
|
|
2016 and thereafter
|
|
|
250,295
|
|
|
|
|
|
|
|
|
$
|
453,805
|
|
|
|
|
|
|
Senior
Notes
On November 30, 2010, we issued an aggregate of
$250.0 million of 9.50% senior notes (the
Notes) due December 1, 2016. The Notes are
guaranteed, jointly and severally, by each of our wholly owned
existing and future domestic restricted subsidiaries (as
defined, the Restricted Subsidiaries) that guarantee
our credit agreement (the Guarantors). The Notes
were issued under an Indenture dated November 30, 2010 (as
supplemented, the Indenture) among us, the
Guarantors and Deutsche Bank Trust Company Americas, as
trustee (the Trustee). The Notes pay interest at
F-30
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
9.50% per annum, payable semiannually in arrears on June 1 and
December 1 commencing on June 1, 2011. Interest on the
Notes will accrue from November 30, 2010. As of
December 31, 2010, the outstanding balance of accrued
interest was $2.0 million and is recorded within accounts
payable, accrued expenses and other current liabilities in our
consolidated balance sheets.
The terms of the Indenture contain customary events of default
and covenants that restrict, among other things, our ability to
incur additional debt; make certain payments, including
dividends or other distributions, with respect to our capital
stock, or prepayments of subordinated debt; make certain
investments or sell assets; create certain liens or engage in
sale and leaseback transactions; provide guarantees for certain
debt; enter into restrictions on the payment of dividends and
other amounts by subsidiaries; engage in certain transactions
with affiliates; consolidate, merge or transfer of all or
substantially all our assets; and enter into other lines of
business.
The Notes are guaranteed, jointly and severally, by the
Guarantors. Each Guarantors guarantee is a general
unsecured senior obligation of that Guarantor, rank pari passu
in right of payment with all existing and future unsubordinated
indebtedness of that Guarantor and is effectively subordinated
to any secured debt of that Guarantor to the extent of the value
of the assets securing such debt. The Notes are structurally
subordinated to all existing and future debt and other
liabilities of our subsidiaries that do not guarantee the Notes.
On the date of issuance we received proceeds from the notes of
$244.3 million net of issuance costs of $5.7 million.
The proceeds from the issuance of the Notes were used to pay
down a portion of the revolving credit facility related to our
Amended and Restated Credit Facility. The issuance costs related
to the Notes in addition to other qualified expenses, primarily
professional fees, have been deferred in accordance with
ASC 835 Interest for a total deferred cost of
$7.1 million. The deferred costs related to the Notes will
be amortized over 6 years, the contractual term of the
Notes, using the effective interest method. As of
December 31, 2010, our deferred cost balance was
$7.0 million, net of accumulated amortization of
$0.1 million, and is recorded within other assets in our
consolidated balance sheets.
At any time prior to December 1, 2014, the Company may on
any one or more occasions redeem all or a portion of the
aggregate principal amount of the Notes at a redemption price
equal to 109.5% of the principal amount, plus accrued and unpaid
interest to the applicable redemption date, with the net cash
proceeds of certain equity offerings; provided that (i) at
least 65% of the aggregate principal amount of the Notes remains
outstanding immediately after such redemption (other than the
Notes held, directly or indirectly, by the Company or its
subsidiaries), and (ii) the redemption occurs within
90 days of the date of the closing of such equity offering.
At any time prior to December 1, 2014, the Company may
redeem all or a part of the Notes at a redemption price equal to
100% of the principal amount of the Notes redeemed plus an
applicable premium (as defined in the Indenture), as
of, and accrued and unpaid interest, if any, to the applicable
redemption date.
Additionally, on or after December 1, 2014, the Company may
redeem all or a part of the Notes on any one or more occasions,
at the redemption prices (expressed as percentages of principal
amount on the redemption date) set forth below plus accrued and
unpaid interest on the Notes redeemed, to the applicable
redemption date, if redeemed during the
12-month
period beginning on December 1 of each of the years indicated
below:
|
|
|
|
|
Year
|
|
Percentage
|
|
2014
|
|
|
104.75
|
%
|
2015 and thereafter
|
|
|
100.00
|
%
|
F-31
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
Pursuant to the Indenture, the Company may incur certain
additional indebtedness and any of its subsidiaries may incur
indebtedness and any of its Restricted Subsidiaries, as defined
in the Indenture, may incur indebtedness, if the Fixed Charge
Coverage Ratio, as defined in the Indenture, on a consolidated
basis for the Company and its Restricted Subsidiaries for the
most recently ended four fiscal quarters for which internal
financial statements are available immediately preceding the
sale on which such addition indebtedness is incurred would have
been at least 2.50 to 1.00, determined on a pro forma basis, as
if the additional indebtedness had been incurred and the
application of proceeds therefrom had occurred at the beginning
of such four-quarter period provided. If the aforementioned
incurrence test is not met, the Indenture provides for other
indebtedness tests which are tied to the book value of
receivables and inventory (baskets). All existing
debt at the effective date of the Notes (excluding the Amended
and Restated Credit Facility and the Modified Notes) is excluded
from the baskets.
In the event of a change in control, the Company will be
required to commence and complete an offer to purchase all the
Notes then outstanding at a price equal to 101% of their
principal amount, plus accrued interest (if any), to the date of
repurchase. Additionally, if the Company or a guarantor sell
assets, all or a portion of the net proceeds of which are not
reinvested in accordance with the terms of the Indenture or are
not used to repay certain debt, the Company will be required to
offer to purchase an aggregate principal amount of the
outstanding Notes, in an amount equal to such remaining net
proceeds, at a purchase price equal to 100% of the principal
amount thereof, plus accrued interest and additional interest,
if any and as defined below, to the payment date.
The Notes have not been registered under the Securities Act of
1933, as amended (the Securities Act) or any other
federal securities laws or the securities laws of any state. The
initial purchasers, as defined in the Indenture, are offering
the notes only to qualified institutional buyers under
Rule 144A of the Securities Act and to persons outside of
the United States in compliance with Regulation S of the
Securities Act. Subject to our completion of an initial public
offering of our common stock, we are obligated to use our
commercially reasonable efforts to commence an offer to exchange
the notes under the Securities Act within 180 days.
Revolving
Credit Facility and Term Loan
In August 2007, we restated our Amended Credit Facility and Term
Loan (the Term Loan) by incorporating all executed
amendments into one credit facility (the Amended and
Restated Credit Facility). In November 2010, we paid off
and closed our Term Loan. In December 2010, we amended and
restated our existing Amended and Restated Credit Facility,
terminating the Term Loan, incorporating all executed amendments
and including newly negotiated terms into one credit facility
(the Revolving Debt Agreement).
The Amended and Restated Credit Facility was collateralized by
the receivables, inventories, fixed assets and general
intangibles of our U.S. subsidiaries and operations. The
borrowing base primarily consisted of 85% of eligible
receivables plus 59% to 73% of eligible inventories, as defined
in the agreement. The Amended and Restated Credit Facility
provided for a revolving credit facility to fund working capital
advances, letters of credit and general corporate purposes and a
Term Loan with a group of lenders.
The Amended and Restated Credit Facility increased the revolving
credit facility to $350.0 million and provided an option to
increase it to $400.0 million on an uncommitted basis. The
Amended and Restated Credit Facility also provided us with an
option to increase the Term Loan from $75.0 million to
$100.0 million on an uncommitted basis. Term Loan principal
payments of $2.5 million were payable on a quarterly basis
commencing in April 2008 through the maturity date, which was
extended to August 2012. Upon maturity the entire outstanding
balance would have been due.
F-32
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
Interest was payable monthly in arrears on the first day of each
month. Interest accrued at rates based on the higher of the
Domestic Rate, as defined in the agreement, plus a margin of
0.25% to 1.75%, or its Eurodollar Rate, as defined in the
agreement, plus a margin of 1.25% to 2.75%, depending on the
average monthly outstanding amounts. We were also required to
pay an unused facility fee ranging from 0.25% to 0.50% per
annum, depending on the average undrawn availability.
The Amended and Restated Credit Facility contained both a
subjective acceleration clause and a lock-box arrangement,
whereby remittances from customers were received and used to
reduce the current outstanding borrowings. Cash collected
through this arrangement was classified as restricted cash in
the accompanying consolidated balance sheets. Pursuant to
ASC 470 Debt, we classified the revolving credit
facility under the Amended and Restated Credit Facility as a
current liability.
For the subsidiaries party to the Amended and Restated Credit
Facility, we used cash sweeping arrangements to help manage our
debt obligations under the facility and liquidity requirements.
In these sweeping arrangements, the subsidiaries party to the
Amended and Restated Credit Facility agreed with the lenders
that the cash balances of any of such subsidiaries with the
lenders would be subject to a full right of set off against
amounts owed to the lenders under the Amended and Restated
Credit Facility. Amounts under these sweeping arrangements were
considered restricted cash. See Note 2 Summary
of Significant Accounting Policies under Restricted Cash.
The Amended and Restated Credit Facility contained customary
events of default and covenants that restricted, among other
things, making investments, incurring additional indebtedness or
making capital expenditures in excess of specified amounts,
creating liens and engaging in certain mergers or combinations
without the prior written consent of the lenders. They allowed
us to declare or pay stock dividends on our common stock or
preferred stock and provided that we may declare or pay
dividends (other than dividends payable in our stock) on our
common stock or preferred stock as long as: (i) we were not
in default of the Amended and Restated Credit Facility,
(ii) our consolidated earnings before interest, taxes,
depreciation and amortization (EBITDA) as of the end
of the fiscal quarter immediately preceding such dividend
payment calculated as of the four fiscal quarters then ended was
in excess of a specified amount and (iii) other criteria
set forth in the agreements were met. The agreements also
required us to maintain certain financial ratios including fixed
charge coverage ratios.
In September 2010, we elected the option to increase the
revolving credit facility by $30.0 million to a total
facility size of $380.0 million, as well as to increase the
Term Loan by $20.0 million. In November 2010, we elected
the option to increase our revolving credit facility by an
additional $20.0 million to a total facility size of
$400.0 million. All options were approved by the group of
banks and all other loan provisions remained unchanged. On
November 30, 2010 we used our revolving credit facility to
pay off our Term Loan.
The increase and other changes in the Amended and Restated
Credit Facility were accounted for as a modification of debt
instruments in accordance with ASC 470. As the Amended and
Restated Credit Facility had a syndication of lenders, we
evaluated each lender to determine the extent of change in the
borrowing capacity of the old debt compared to the modified or
new debt. In accordance with ASC 470, the modification of
the Amended Credit Facility was determined to not be a
substantial modification. As a result, unamortized debt issuance
costs, fees paid to the lenders and any third-party costs
incurred related to the modified debt were allocated to the new
debt and amortized over the term of the new debt. As of
December 31, 2009, the outstanding unamortized debt
issuance costs were $1.8 million. For the years ended
December 31, 2008 and 2009, we amortized approximately
$1.0 million and $1.0 million, respectively, of debt
issuance costs and recorded the charge as interest expense.
F-33
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
In December 2010, we amended and restated our existing Amended
and Restated Credit Facility, terminating the Term Loan,
incorporating all executed amendments and including newly
negotiated terms into one credit facility (the Revolving
Debt Agreement). The Revolving Debt Agreement increased
the revolving credit facility to $500.0 million and
provides an option to increase it to $600.0 million on an
uncommitted basis. The Revolving Debt Agreement has a stated
maturity of December 2015, five years from the closing date.
Based on these modifications and pursuant to ASC 470, we
have classified the Revolving Debt Agreement as a long-term
liability.
The Revolving Debt Agreement is collateralized by the
receivables, inventories, fixed assets and general intangibles
of our U.S. subsidiaries and operations. The borrowing base
primarily consisted of 85% to 90% of eligible receivables plus
60% to 75% of eligible inventories, as defined in the agreement.
The Revolving Debt Agreement provides for a revolving credit
facility to fund working capital advances, letters of credit and
general corporate purposes.
The increase and other changes in the Revolving Debt Agreement
were accounted for as a modification of revolving-debt
arrangements in accordance with ASC 470. As the Revolving
Debt Agreement has a syndication of lenders, we evaluated each
lender to determine the extent of change in the borrowing
capacity of the old debt compared to the modified or new debt.
As a result, unamortized debt issuance costs, fees paid to the
lenders and any third-party costs incurred related to the
modified debt were allocated to the new debt and amortized over
the term of the new debt for each lender remaining within the
syndication of lenders. For those original lenders that were not
part of the new syndicated group of lenders, the pro rata
portion of unamortized debt issuance costs of $0.5 million
was written off in December 2010 leaving a balance of
$1.0 million. As the borrowing capacity of the Revolving
Debt Agreement is greater than the old arrangement the
unamortized deferred costs of $1.0 million, any fees paid
to the creditor and any third-party costs incurred will be
deferred and amortized over the term of the new arrangement.
These amounted to approximately $4.6 million in total.
The Revolving Debt Agreement contains customary events of
default and covenants that restrict, among other things, making
investments, incurring additional indebtedness or making capital
expenditures in excess of specified amounts, creating liens and
engaging in certain mergers or combinations without the prior
written consent of the lenders. Many of the negative covenants,
including dividend payments and loans and investments to foreign
subsidiaries, are subject to a Fixed Charge Coverage Ratio
incurrence test and minimum undrawn availability target. The
Revolving Debt Agreement does not contain financial maintenance
covenants, as long as we exceed a minimum average undrawn
availability ratio for the reporting period.
In addition, the Revolving Debt Agreement contains a subjective
acceleration clause. However, it no longer contains a lock-box
arrangement whereby remittances from customers are received and
used to reduce the current outstanding borrowings. Therefore,
cash collected through our new lock-box arrangement is no longer
classified as restricted cash in the accompanying consolidated
balance sheets and, pursuant to ASC 470, we are not
required to classify the revolving credit facility as a current
liability.
Interest accrues at rates based on the higher of the Domestic
Rate, as defined in the agreements, plus a margin of 1.00% to
1.50% or its Eurodollar Rate, as defined in the agreements, plus
margin of 2.00% to 2.50%, depending on the average monthly
outstanding amount. Interest on the Revolving Debt Agreement is
payable in arrears on the first day of each month with respect
to Domestic Rate Loans and, with respect to Eurodollar Rate
Loans, at the end of each Interest Period or, for Eurodollar
Rate Loans with an Interest Period in excess of three months, at
the earlier of (a) each three months from the commencement
of such Eurodollar Rate Loan or (b) the end of the Interest
Period. Domestic Rate Loans bear interest based upon the
Alternate Base Rate which means
F-34
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
for any day, an annual rate equal to the highest of (i) the
Base Rate in effect on such day, (ii) the Federal Funds
Open Rate in effect on such day plus 0.50% and (iii) the
Daily LIBOR Rate plus 1.00%. Eurodollar Rate Loans bear interest
based upon the Eurodollar Rate which means the average of LIBOR
two business days prior to the commencement of the Interest
Period divided by a number equal to 1.0 minus the Eurodollar
Reserve Percentage.
As of December 31, 2009, the Amended and Restated Credit
Facilitys weighted average interest rate was 2.18%, there
was $82.1 million in outstanding letters of credit and the
balance on our term loan and revolving credit facility were
$57.5 million and $176.0 million, respectively.
As of December 31, 2010, the Revolving Debt
Agreements weighted average interest rate was 2.70%, there
was $83.7 million in outstanding letters of credit, the
balance of the revolving credit facility was $0.0 million,
and the term loan, no longer outstanding, had no balance. As of
December 31, 2009 and 2010, unamortized debt issuance costs
related to the Amended and Restated Credit Facility were
included with unamortized debt issuance costs related to the
Revolving Debt Agreement. The short-term portion of unamortized
debt issuance cost is included within the balance sheet in
prepaid expenses and other current assets. For the year ended
December 31, 2010, we amortized approximately
$1.4 million of debt issuance costs and recorded the charge
as interest expense.
Other
Facilities U.S. Operations
In 2008, we executed a debt restructuring strategy that allowed
us to consolidate the number of facilities with more favorable
terms and rates with our lenders. As a result, we were able to
secure new funding, renegotiated existing facilities and during
2008 and 2009 closed several others with less favorable terms
and higher interest rates.
In September 2008 we renewed two trade payable facilities with a
maturity date of October 2009 and a borrowing limit of
$30.0 million. The facility was renewed in October 2009 for
$20.0 million bearing an interest rate of LIBOR plus 1.00%
to 2.00% with a maturity date of October 2010. In June 2010, we
increased our borrowing limit from $20.0 million to
$30.0 million. The facility was renewed in October 2010 for
$30.0 million bearing an interest rate of LIBOR plus 2.00%
with a maturity date of October 2011. The payment terms are up
to 120 days from the disbursement date. The lines are
secured with credit insurance policies and the credit insurance
covers 100% of the trade facilities in the event of our default.
The cost of the credit insurance is paid by the Company. We also
pay quarterly an unused facility fee of 0.25% per annum. As of
December 31, 2009, the outstanding balance was
$25.3 million and the interest rate under the facilities
ranged from 1.28% to 2.32%. As of December 31, 2010, the
outstanding balance was $0.0 million and the interest rate
under the facilities ranged from 1.28% to 2.61%.
In October 2008, we entered into a loan agreement to assist in
financing the purchase of goods with a borrowing limit of
$50.0 million. The loan is unsecured and matures annually
and is automatically renewed unless either party notifies within
60 days of the maturity date. We most recently renewed in
October 2010. We also pay a quarterly unused commitment fee of
0.50% per annum and annually an administration fee of 0.35% per
annum at the maturity date and every anniversary thereafter.
This agreement generally has payment terms of no more than
120 days from the date of disbursement and with a borrowing
rate of LIBOR plus 1.50%. As of December 31, 2009 and 2010,
the outstanding balance was $50.0 million and
$43.7 million, respectively, and the interest rate under
this facility ranged from 1.75% to 1.80% and 1.75% to 2.03%,
respectively.
In April and May 2009, the Company entered into two separate
promissory notes with a bank to facilitate the financing of the
Companys account receivables to customers located in
Venezuela. The promissory notes have no stated maturity dates
and bear interest at LIBOR plus 1.00% which is paid
F-35
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
by the customers. The capacity of the line is up to
$30.0 million. The outstanding balance as of
December 31, 2009 and 2010 for these promissory notes
amounted to $21.5 million and $0.0 million,
respectively. These promissory notes were repaid in October 2010.
In June 2010, we entered into a $5.0 million factoring
agreement with a bank to finance vendor invoices which we
amended in August 2010 to $20.0 million. The line bears
interest at LIBOR plus 4.40% plus fees as stated in the
agreement. The outstanding balance as of December 31, 2010
for this agreement amounted to $20.5 million and the
interest rate under this agreement ranged from 4.69% to 4.94%.
Bank
Facilities U.S. Operations
During 2007, we entered into a master lease agreement with a
bank for the purpose of financing certain purchases of equipment
and services for up to $12.0 million. At the inception,
each individual lease is evaluated and accounted for in
accordance with its merits as a capital or operating lease.
Payments are made in accordance with the banks
amortization schedules. The terms of the lease agreements
generally range between 36 months to 60 months from
the commencement date. We also have lease-financing arrangements
with other third parties. As of December 31, 2009 and 2010,
we had outstanding $8.7 million and $5.1 million,
respectively. See Note 14 Commitments and
Contingencies under Capital Leases.
Bank
Facilities Foreign Operations
At December 31, 2009 and 2010, we had entered into various
financing arrangements with local banks at some of our foreign
subsidiaries, primarily consisting of factoring agreements,
revolving lines of credit, trade facilities, term loans and
capital leases. The terms of the credit facilities generally
range from 12 months to 30 months and are guaranteed
with the pledge of local Brightstar assets
and/or with
a corporate guarantee. As to capital leases, each individual
lease is evaluated and accounted for in accordance with its
merits as a capital or operating lease. Payments are made in
accordance with the given banks amortization schedules.
The terms of the capital lease agreements generally range
between 36 months to 60 months from the commencement
date.
As of December 31, 2009 and 2010, we had foreign operations
bank facilities outstanding of $41.8 million and
$134.5 million, respectively. These facilities bear
interest at the agreements stated interest rate,
predominantly LIBOR, plus a margin of 0.35% to 5.50%. These
interest rates ranged from 1.00% to 10.50% and 1.00% to 13.70%
per annum in 2009 and 2010, respectively. Additionally, some
facilities bear fees related to unused availability, commitment
amounts or other basis, as stated in the agreement, these range
from 0.05% to 0.50% and are generally paid annually.
General
From time to time, we may also have available lines of credit in
different countries that may be used as needed to provide
standby letters of credit to our suppliers and vendors.
Convertible
Senior Subordinated Notes
In 2003, we obtained private financing of $31.8 million in
convertible subordinated senior notes. During 2007, in
connection with the issuance of our Series D Preferred
Stock, we repaid a portion of the convertible subordinated
senior notes and concurrently extended the maturity date to
December 2010 (the Modified Notes).
The Modified Notes were convertible into common stock at any
time at the election of the holders at a conversion price of
$8.00 per share. The Modified Notes accrued interest at 10.50%
per
F-36
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
annum, payable quarterly. The Modified Notes contained certain
financial covenants which included limitations on maximum
leverage ratio and minimum consolidated EBITDA (as defined in
the Modified Notes). The Modified Notes also contained
non-financial covenants which among other restrictions,
restricted declaring or paying any sum for any Restricted Junior
Payment (as defined in the Modified Notes), redeeming shares of
common stock or options in excess of $5.0 million and
declaring dividends other than for Preferred Stock and certain
subsidiaries with non-controlling holders. We had the right to
require the conversion of the Modified Notes upon a change in
control event, if we completed an initial public offering which
resulted in gross proceeds of at least $50.0 million, or if
the shares of common stock were sold in an initial public
offering at a price of at least 200% of the conversion price.
In October 2008, subject to certain conditions, including the
execution of certain waivers, approval by certain shareholders
of the Company and receipt of certain required consents, we
agreed with the holders of the Modified Notes and amended the
Modified Notes to modify the conversion feature so that in
addition to the right to convert the Modified Notes into shares
of our common stock, the Modified Notes were convertible into
shares of a new series of preferred shares designated as
Series E Redeemable Convertible Preferred Stock
(Series E Preferred Stock), that with respect
to rights upon liquidation, winding up and dissolution, rank
pari passu to our Series B Redeemable Convertible Preferred
Stock, Series C Redeemable Convertible Preferred Stock and
Series D Redeemable Convertible Preferred Stock. The
Series E Preferred Stock has the right to vote on an
as-converted basis as a class with the holders of our common
stock on matters submitted to the holders of our common stock.
The Series E Preferred Stock also has participating rights
and yields no stated dividends. The Series E Preferred
Stock is convertible into common stock at any time at the
election of the holders at an initial conversion price of $8.00
per share. The Series E Preferred Stock has no stated
maturity and provides for the redemption of these securities at
the election of the holders in the event of a change of control,
at an offer price in cash equal to 101% of the liquidation
amount.
We have the right to require the conversion of the Series E
Preferred Stock in whole, but not in part, if we complete an
initial public offering, which results in gross proceeds of at
least $50.0 million and the common stock sold in such
offering are sold to the public at a price of at least $16.00
per share, or upon the occurrence of a liquidation event (as
defined in the Series E Preferred Stock documents) as long
as the cash consideration is at least 200% of the Series E
Preferred Stock conversion price.
In 2009, we obtained waivers from the investor group and the
convertible note holders for non-compliance with the minimum
required $100.0 million EBITDA for the last twelve-month
period for each of the five quarters ended March 31, 2010.
Additionally, we obtained a waiver from the majority convertible
preferred stockholder for the twelve-month period ended
September 30, 2010.
In December 2010, the holders of the Modified Notes elected to
convert all of the Modified Notes to Series E Preferred
Stock. See Note 10 Redeemable Convertible
Preferred Stock.
|
|
Note 10
|
Redeemable
Convertible Preferred Stock
|
Our redeemable convertible preferred stock consists of five
series. The redeemable convertible preferred stock has been
issued from time to time and has been considered temporary
equity based on the fact that the shares have conditions for
redemption which are not solely within the control of the
Company. The redeemable convertible preferred stock is presented
in the consolidated balance
F-37
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
sheets at its aggregate redemption values, net of issuance costs
and inclusive of accrued dividends. The following details the
redeemable convertible preferred stock terms:
Redeemable convertible preferred stock Series A. Authorized
5,000,000 shares of $0.0001 par value per share; none
issued and outstanding as of December 31, 2009 and 2010.
Redeemable convertible preferred stock Series B. Authorized
2,500,000 shares of $0.0001 par value per share;
2,500,000 issued and outstanding as of December 31, 2009
and 2010 ($50.0 million liquidation value).
Redeemable convertible preferred stock Series C. Authorized
5,000,000 shares of $0.0001 par value per share;
493,828 issued and outstanding as of December 31, 2009 and
2010 ($10.0 million liquidation value).
Redeemable convertible preferred stock Series D. Authorized
14,000,000 shares of no par value per share; 13,975,309
issued and outstanding as December 31, 2009 and 2010
($283.0 million liquidation value).
Redeemable convertible preferred stock Series E. Authorized
2,600,000 shares of $0.0001 par value per share; none
issued and outstanding as of December 31, 2009; 2,580,477
issued and outstanding as of December 31, 2010
($20.6 million liquidation value).
Series E
Redeemable Convertible Preferred Stock
In October 2008, our Board of Directors authorized the creation
of the Series E Redeemable Convertible Preferred Stock
(Series E Preferred Stock), consisting of
2,600,000 shares having a par value of $0.0001 per share.
The Series E Preferred Stock may only be issued upon
conversion of the Convertible Senior Subordinated Notes. Our
Series E Preferred Stock has voting rights and
participating rights and may participate in dividends on common
stock, if declared. The Series E Preferred Stock is
convertible into common stock at any time at the election of the
holders at a conversion price of $8.00 per share, subject to
customary anti-dilution adjustments. The Series E Preferred
Stock has no stated maturity and provides for the redemption of
these securities by the holders at their election, in whole or
in part, in the event of a change in control, at an offer price
in cash equal to 101% of the liquidation amount, plus accrued
and unpaid dividends, if any.
In December 2010, the holders of the Convertible Senior
Subordinated Notes elected to convert their Convertible Senior
Subordinated Notes into 2,580,477 shares of our
Series E Preferred Stock. As of December 31, 2010, the
liquidation and redemption value of the Series E Preferred
Stock is $20.6 million.
We have the right to require the conversion of the Series E
Preferred Stock, in whole but not in part, if we complete an
initial public offering which results in gross proceeds of at
least $50.0 million. We may also require the conversion of
the Series E Preferred Stock, if the shares of common stock
are sold in an initial public offering at a price of at least
200% of the Series E conversion price.
Series D
Redeemable Convertible Preferred Stock
In June 2007, we issued 13,975,309 shares of 6.4%
Series D Redeemable Convertible Preferred Stock
(Series D Preferred Stock), no par value, to a
private investor for an aggregate purchase price of
$283.0 million. Cumulative dividends on Series D
Preferred Stock commenced on January 1, 2009. If any shares
of Series D Preferred Stock remain outstanding after
September 30, 2011, the dividend rate will increase by 1.0%
per annum on such date and every year thereafter up to a maximum
dividend rate of 15.0% per annum until such time no shares of
Series D Preferred Stock will be outstanding. The
Series D Preferred Stock also has certain protective
default rights in the event of
F-38
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
non-compliance with their provisions that could trigger an
increase in its dividend rate to 10% per annum from the date of
the non-compliance through such time the non-compliance is
remediated. The Series D Preferred Stock has participating
rights. As of the issuance date, the Series D Preferred
Stock was non-voting; however, upon the occurrence of certain
triggering events in the future, they can be converted to voting
at the election of the holders. The Series D Preferred
Stock is convertible into common stock at any time, in whole or
in part, at the election of the holders at a conversion price of
$20.25 per share. The Series D Preferred Stock has no
stated maturity and provides for the redemption of these
securities by the holders at their election in the event of a
change in control, at an offer price in cash equal to 101% of
the liquidation amount, plus accrued and unpaid dividends. As of
December 31, 2009, the redemption value of the
Series D Preferred Stock is $301.8 million, which
includes $18.8 million ($1.35 per share) in accrued and
unpaid dividends. As of December 31, 2010, the redemption
value of the Series D Preferred Stock is
$321.3 million, which includes $38.3 million ($2.74
per share) in accrued and unpaid dividends.
We have the right to require the conversion of the Series D
Preferred Stock, in whole but not in part, if we complete an
initial public offering which results in gross proceeds of at
least $100.0 million. We may also require the conversion of
the Series D Preferred Stock, if the shares of common stock
are sold in an initial public offering at a price of at least
130% of the Series D conversion price.
Series B
and C Redeemable Convertible Preferred Stocks
During 2006, we issued 2,500,000 shares of Series B
Redeemable Convertible Preferred Stock (Series B
Preferred Stock), having a par value of $0.0001 per share,
for an aggregate purchase price of $50.0 million.
In March 2007, our Board of Directors authorized the creation of
the Series C Redeemable Convertible Preferred Stock
(Series C Preferred Stock), consisting of
5,000,000 shares having a par value of $0.0001 per share.
The Series C Preferred Stock may only be issued to the
stockholder of the 30% and 40% ownership interest in our
subsidiaries in Singapore and Australia, respectively, upon the
stockholders election to convert its holdings pursuant to
a conversion option.
As of December 31, 2008, the same stockholder that had a
30% ownership interest in our subsidiary in Singapore also owned
40% of our subsidiary in Australia and they were the holders of
an option which enabled them to convert their investment in
Singapore
and/or
Australia into shares of Series C Preferred Stock of the
Company, at any time after February 2008, subject to a fully
diluted ceiling of 10% of the Companys capital stock at
the time of conversion after taking into effect the issuance of
Series C Preferred Stock. In March 2009, such stockholder
elected to convert its investment in Singapore into
493,828 shares of our Series C Preferred Stock. At the
same time, we also repurchased their ownership interest in our
subsidiary in Australia for $40.0 million in cash. The
conversion ratio was calculated at the time of election by the
shareholder to convert, based on the then fair market value of
Brightstar and the respective subsidiaries.
Our Series B and Series C Preferred Stock require a
cumulative dividend of 6.4% per annum commencing on
January 1, 2009. If any of the Series B and
Series C Preferred Stock remains outstanding after
September 30, 2011, the dividend rate on the series with
outstanding shares will increase by 1.0% per annum on such date
and every year thereafter up to a maximum dividend rate of 15.0%
per annum until such time as no shares of such series is
outstanding. At least one-half of the dividends are to be paid
quarterly in cash. If, as of any dividend date, we fail to pay
at least one-half of the dividends payable on such date in cash,
then the dividend rate on each share of the preferred stock will
be 10% per share annually, effective as of the first day of the
dividend period, up until the default is cured. The
Series B and C Preferred Stock also have certain protective
default rights in the event of non-compliance with their
provisions that could trigger an increase in their
F-39
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
dividend rate to 10% per annum from the date of the
non-compliance through such time the non-compliance is
remediated. The Series B and Series C Preferred Stock
are convertible into common stock at any time, in whole or in
part, at the election of the holders. The conversion price for
the Series B is $20.00 per share (the Series B
Conversion Price) and the conversion price for the
Series C is $20.25 per share (the Series C
Conversion Price). The Series B and C Preferred Stock
have no stated maturity and provide for the redemption of these
securities by the holders at their election in the event of a
change in control, at an offer price in cash equal to 101% of
the liquidation amount, plus accrued and unpaid dividends.
In 2009, we received waivers for Series B and Series C
Preferred Stock in order to waive the 10% default rate through
December 31, 2009 due to nonpayment of dividends. We began
using the default rate of 10% due to nonpayment of dividends as
of January 1, 2010 in the accrual of the Series B and
Series C Preferred dividends. As of December 31, 2010,
the redemption value of the Series B and C Preferred Stock
is $58.8 million and $11.6 million, respectively,
which includes $8.8 million ($3.52 per share) and
$1.6 million ($3.19 per share), respectively, in accrued
and unpaid dividends. As of December 31, 2009, the
redemption value of the Series B and C Preferred Stock is
$53.3 million and $10.5 million, respectively, which
includes $3.3 million ($1.33 per share) and
$0.5 million ($1.01 per share), respectively, in accrued
and unpaid dividends.
We have the right to require the conversion of the Series B
and Series C Preferred Stock, in whole but not in part, if
we complete an initial public offering which results in gross
proceeds of at least $100.0 million. We may also require
the conversion of the Series B and Series C Preferred
Stock if the shares of our common stock are sold in an initial
public offering at a price of at least 130% of the Series B
Conversion Price or Series C Conversion Price. Our
Series B and Series C Preferred Stock have voting
rights and participating rights.
Under the Revolving Debt Agreement, the Company is permitted to
make dividend payments subject to, no Event of Default, pro
forma compliance with the Fixed Charge Coverage Ratio and
Minimum Undrawn Availability target. Under the terms of the
Notes, the Company is permitted to make dividend payments
limited to 50% of net income accumulated since October 1,
2010 and subject to pro forma compliance with the Fixed Charge
Coverage Ratio, which excludes the first $50.0 million in
dividends. In addition, the Company has a one-time basket of
$25.0 million which it can utilize to pay dividends.
|
|
Note 11
|
Stockholders
Equity
|
We currently have authorized for issuance 50 million shares
of common stock, par value per share $0.0001. As of
December 31, 2009 and 2010 we had 18,176,167 and
18,182,267 shares issued and outstanding, respectively.
In December 2008, we declared and paid $5.4 million in
dividends ($0.30 per share) to our common stockholders after
consents and waivers were obtained from noteholders and our
preferred stockholders. Our future dividend policy will be
determined on a yearly basis and will depend on earnings,
financial condition, capital requirements and certain other
factors. We do not expect to declare dividends with respect to
our common stock in the foreseeable future. The terms of the
Revolving Debt Agreement, the Notes, the Series A, B, C, D
and E Preferred Stock restrict our ability to declare or pay
dividends on any of our equity securities, except that we may
pay (1) stock dividends in shares of common stock to our
holders, and (2) dividends on our preferred stock in
accordance with its terms provided we meet the requirements
under the Amended and Restated Credit Facility. In addition to
the foregoing, we may only declare dividends if we meet certain
requirements set forth in that certain Second Amended and
Restated Payment Terms Agreement dated as of July 7, 2008
F-40
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
entered into among us, certain of our subsidiaries, and one of
our suppliers of wireless equipment (the Payment Terms
Agreement).
Pursuant to the terms of the Payment Terms Agreement, we and
certain of our subsidiaries have entered into various security,
pledge and guaranty agreements with one of our suppliers whereby
we pledged shares of common stock and other ownership interests
of certain of our subsidiaries and allowed the supplier to
register in various foreign jurisdictions a security interest on
those shares or ownership interests and assets of certain of our
foreign subsidiaries. Newly formed subsidiaries may be required
to sign agreements to become parties to the Payment Terms
Agreement and the various security, pledge, and guaranty
documents in order to meet certain collateral ratio obligations
set forth in the Payment Terms Agreement. In exchange, the
supplier agreed to continue to provide us with a vendor credit
line for the purchase of products from the supplier.
In March 2009, an employee entered into an ownership interest
exchange with us wherein the employee exchanged 9.8% of their
non-controlling interest in one of our consolidated subsidiaries
for 40,000 common shares of the Company. This effectively
reduced the non-controlling interest held by the employee from
49% to 39.2%.
Our two founding common stockholders entered into a stock pledge
and security agreement in 2004 with one of our suppliers of
wireless equipment. Under the agreement, our original
stockholders granted the supplier a first lien on all of their
shares of our common stock in connection with the supplier
renewing the master distribution agreements. The pledged stock
serves as collateral and secures payment of our obligations to
the supplier. In June 2007, the lien was released with respect
to the stock held by one of our founders. In September 2009, the
lien was released with respect to the stock held by the other
founder.
Our provision for income taxes is based on reported earnings
before income taxes. Deferred taxes are recognized for the
future tax effects of temporary differences between the
financial statement carrying amounts of existing assets and
liabilities and their respective tax bases using tax rates in
effect for the years in which the differences are expected to
reverse. The effects of changes in tax laws on deferred tax
balances are recognized in the period the new legislation is
enacted. Valuation allowances are recognized to reduce deferred
tax assets to the amount that is more likely than not to be
realized. In assessing the likelihood of realization, management
considers estimates of future taxable income.
We file a consolidated U.S. income tax return and tax
returns in various states and local jurisdictions. Our
subsidiaries also file tax returns in various foreign
jurisdictions. During 2009, we provided for U.S. deferred
income taxes on cumulative earnings on certain
non-U.S. affiliates
where management intends to repatriate earnings. During 2010, we
included the undistributed earnings of our Australian
subsidiaries as deemed dividends in the computation of our 2010
current year tax provision and we reduced the 2010 income tax
provision by the amount of deferred income taxes recorded in
2009 on those earnings that management considered to be
available for repatriation.
In July 2008, the U.S. Internal Revenue Service (the
IRS) commenced an examination for the 2005, 2006 and
2007 tax years. We have evaluated our tax positions based on
appropriate provisions of applicable enacted tax laws and
regulations and we believe that they are supportable based on
their specific technical merits and the facts and circumstances
of the transactions. As of June 30, 2010, in connection
with this examination, we received notices of proposed
adjustment, in which the IRS proposed an aggregate adjustment of
the three-year period of approximately $102.8 million. As
of December 31, 2010, the IRS revised this adjustment to
$42.9 million. We believe that certain of the
F-41
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
proposed IRS adjustments are generally inconsistent with
applicable tax laws and we intend to challenge the adjustments
vigorously.
It is managements intention to pursue all administrative
remedies available to the Company and we expect to prevail in
any proceedings with the IRS, and we expect that any resulting
tax liability will not exceed amounts provided for income taxes
in our financial statements. There can be no assurance, however,
that any action taken by the Company related to this audit, or
any future tax examinations involving similar assertions will be
resolved in our favor, and an adverse outcome of this matter
could have a material effect on our results of operations and
financial condition.
Income from continuing operations before provision for income
taxes and non-controlling interests is comprised of the
following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
United States
|
|
$
|
7,817
|
|
|
$
|
15,736
|
|
|
$
|
8,107
|
|
Foreign
|
|
|
54,661
|
|
|
|
87,004
|
|
|
|
69,517
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
62,478
|
|
|
$
|
102,740
|
|
|
$
|
77,624
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The provision for income taxes from continuing operations is
comprised of the following (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Years Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Current:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
4,403
|
|
|
$
|
11,092
|
|
|
$
|
26,978
|
|
State and local
|
|
|
407
|
|
|
|
1,005
|
|
|
|
2,093
|
|
Foreign
|
|
|
35,215
|
|
|
|
36,236
|
|
|
|
30,256
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
40,025
|
|
|
|
48,333
|
|
|
|
59,327
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred:
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
2,860
|
|
|
|
3,816
|
|
|
|
(12,291
|
)
|
State and local
|
|
|
402
|
|
|
|
(254
|
)
|
|
|
(2,439
|
)
|
Foreign
|
|
|
(7,885
|
)
|
|
|
(4,896
|
)
|
|
|
(7,659
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,623
|
)
|
|
|
(1,334
|
)
|
|
|
(22,389
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
$
|
35,402
|
|
|
$
|
46,999
|
|
|
$
|
36,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The amount of tax (benefit) expense relating to discontinued
operations for the years ended December 31, 2008, 2009 and
2010 was $(4.1) million, $2.6 million and
$0.0 million, respectively.
With the exception of Australia, we currently do not intend to
repatriate earnings. The aggregate unremitted earnings of our
foreign subsidiaries for which U.S. federal income taxes
have not been provided amounted to approximately
$322.5 million, $228.7 million and $254.4 million
as of December 31, 2008, 2009 and 2010, respectively.
Deferred income taxes have not been provided on these earnings
because we consider them to be indefinitely reinvested. If these
earnings were repatriated to the United States or they were no
longer determined to be indefinitely reinvested, we would have
to record a deferred tax liability for these earnings. Because
of the availability of U.S. foreign tax credits, it is not
practical to determine the U.S. federal income tax
liability that would be payable if such earnings were not
reinvested indefinitely.
F-42
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
Differences exist between income and expenses reported in the
consolidated financial statements and those declared for
U.S. Federal, state, and foreign income tax reporting. Our
deferred tax assets and liabilities are comprised of the
following temporary difference tax effects (in thousands):
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2009
|
|
|
2010
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
Net operating loss carry forwards
|
|
$
|
8,400
|
|
|
$
|
9,590
|
|
Accruals not currently deductible
|
|
|
14,048
|
|
|
|
16,869
|
|
Bases difference in inventory
|
|
|
9,237
|
|
|
|
20,413
|
|
Income tax credits
|
|
|
6,794
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
|
2,969
|
|
|
|
5,776
|
|
Capital loss carryforwards
|
|
|
11,913
|
|
|
|
12,907
|
|
Stock options
|
|
|
608
|
|
|
|
1,418
|
|
Bases difference in amortizable assets
|
|
|
|
|
|
|
3,665
|
|
Other net
|
|
|
5,894
|
|
|
|
6,413
|
|
|
|
|
|
|
|
|
|
|
Gross deferred tax assets
|
|
|
59,863
|
|
|
|
77,051
|
|
Valuation allowance
|
|
|
(18,520
|
)
|
|
|
(21,247
|
)
|
|
|
|
|
|
|
|
|
|
Deferred tax assets, net
|
|
|
41,343
|
|
|
|
55,804
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
Deferred revenue
|
|
|
(2,730
|
)
|
|
|
|
|
Deferred income tax on undistributed earnings of foreign
subsidiary
|
|
|
(6,236
|
)
|
|
|
|
|
Intangibles
|
|
|
(996
|
)
|
|
|
(953
|
)
|
Other
|
|
|
|
|
|
|
(665
|
)
|
|
|
|
|
|
|
|
|
|
Total deferred tax liabilities
|
|
|
(9,962
|
)
|
|
|
(1,618
|
)
|
|
|
|
|
|
|
|
|
|
Net deferred tax assets (liabilities)
|
|
$
|
31,381
|
|
|
$
|
54,186
|
|
|
|
|
|
|
|
|
|
|
As reported in the accompanying consolidated balance sheets:
|
|
|
|
|
|
|
|
|
Current deferred tax assets, net of valuation allowance
|
|
$
|
23,129
|
|
|
$
|
36,357
|
|
Long-term deferred tax assets, net of valuation allowance
|
|
|
18,214
|
|
|
|
19,447
|
|
Current deferred tax liabilities
|
|
|
(4,289
|
)
|
|
|
|
|
Long-term deferred tax liabilities
|
|
|
(5,673
|
)
|
|
|
(1,618
|
)
|
|
|
|
|
|
|
|
|
|
|
|
$
|
31,381
|
|
|
$
|
54,186
|
|
|
|
|
|
|
|
|
|
|
Our consolidated balance sheet as of December 31, 2009 and
2010 includes gross deferred tax assets of $59.9 million
and $77.1 million, respectively. In assessing the
realizability of deferred tax assets, management considers
whether it is more likely than not that some or all of the
deferred tax assets will not be realized. The ultimate
realization of deferred tax assets depends on the generation of
future taxable income during the periods in which those
temporary differences are deductible. Management considers the
scheduled reversal of deferred tax liabilities (including the
impact of available carryback and carryforward periods),
projected taxable income, and tax-planning strategies in making
this assessment. Based on the weight of all evidence known and
available as of the balance sheet date, we believe that
$41.3 million and $55.8 million of these tax benefits
are more likely than not to be realized in the future. To the
extent we do not consider it more likely than not that a
deferred tax asset will be recovered, a valuation allowance is
established.
We have net operating loss carryovers for U.S. federal,
state and foreign purposes as of December 31, 2009 of
$0.0 million, $38.1 million and $34.1 million,
respectively, and as of
F-43
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
December 31, 2010 of $0.0 million, $38.1 million
and $37.6 million, respectively. Our domestic state loss
carryovers are generally available for use against our domestic
state taxable income. The state and foreign loss carryovers
expire between 2010 2030 and 2010 2020,
respectively, but certain foreign net operating losses have no
expiration date.
We had foreign tax credit carryovers of $6.8 million as of
December 31, 2009 available for our use between 2010 and
2019. We have no foreign tax credits carryovers as of
December 31, 2010.
The following table reconciles income taxes based on the
U.S. statutory tax rate to the Companys income from
continuing operations before provision for income taxes (in
thousands, except income tax rate data):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
U.S. federal statutory income tax rate
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
35.0
|
%
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal income tax provision at statutory rate
|
|
$
|
21,868
|
|
|
$
|
35,959
|
|
|
$
|
27,168
|
|
Nondeductible expenses
|
|
|
4,337
|
|
|
|
380
|
|
|
|
5,244
|
|
Excludable non-controlling income
|
|
|
(587
|
)
|
|
|
(411
|
)
|
|
|
(192
|
)
|
Change in valuation allowance
|
|
|
4,496
|
|
|
|
3,701
|
|
|
|
3,417
|
|
State and local income taxes
|
|
|
1,273
|
|
|
|
191
|
|
|
|
699
|
|
Effect of
non-U.S. tax
rates
|
|
|
535
|
|
|
|
(2,520
|
)
|
|
|
(6,526
|
)
|
U.S. federal tax on foreign earnings
|
|
|
|
|
|
|
6,236
|
|
|
|
(6,236
|
)
|
Distribution from foreign subsidiaries and affiliates, net of
foreign tax credits
|
|
|
1,474
|
|
|
|
1,458
|
|
|
|
12,384
|
|
Tax charge on permanent items reconciliation
|
|
|
151
|
|
|
|
1,492
|
|
|
|
(1,592
|
)
|
Provision for uncertain tax positions
|
|
|
816
|
|
|
|
784
|
|
|
|
1,823
|
|
Other
|
|
|
1,039
|
|
|
|
(271
|
)
|
|
|
749
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes
|
|
$
|
35,402
|
|
|
$
|
46,999
|
|
|
$
|
36,938
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The effective income tax rate was 47.6% for the year ended
December 31, 2010. The effective income tax rate differed
from the statutory federal tax rate of 35% primarily due to a
discrete item related to a non-tax deductible book
hyperinflationary currency deduction, an increase in the
valuation allowance recorded for additional deferred tax assets,
and a discrete item related to changes in the foreign exchange
rates used in the calculation of the underlying foreign tax
credits effective rate relating to a deemed foreign
dividend of the Companys Australian subsidiary that arose
pursuant to a U.S. income tax election made by the Company.
For future years, the Australian subsidiarys annual
earning will be subject to both U.S. and Australian income
taxes. Australian income taxes will be available to be credited
against the U.S. income tax pursuant to the requirements
provided for under the U.S. income regulations. As
discussed above, a deferred tax liability was established in
2009 for $6.2 million relating to the Australia
subsidiarys undistributed earnings as of December 31,
2009 that were included in the amount deemed distributed in 2010.
The Companys subsidiary located in the province of Tierra
del Fuego, Argentina operates under a tax concession that
exempts it from income tax and grants other concessions with
respect to its approved operations that benefit the province.
The law that grants the tax exemption expires on
December 31, 2023. The amount of the Argentina income tax
reduction attributed to the exempt pretax book income is
$0.0 million in 2009 and $3.0 million in 2010. Of the
$3.0 million, $1.5 million would be allocated to
common stock holders under the two-class method for earnings per
share purposes. This equates to $0.08 basic earnings per share
for the year ended December 31, 2010. See
Note 2 Summary of Significant Accounting
Policies under Earnings per Share.
F-44
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
Uncertain Tax
Positions
ASC 740 prescribes a recognition threshold and measurement model
for the financial statement recognition and measurement of a tax
position taken, or expected to be taken, in a tax return and
provides guidance on derecognition classification, interest and
penalties, accounting in interim periods, disclosure and
transition.
We are subject to tax audits in numerous jurisdictions in the
U.S. and around the world. Tax audits by their very nature
are often complex. In the normal course of business, we are
subject to challenges from the IRS and other tax authorities
regarding amounts of taxes due. These challenges may alter the
timing or amount of taxable income or deductions, or the
allocation of income among tax jurisdictions. As part of our
calculation of the provision for income taxes on earnings, we
determine whether the benefits of our tax positions are at least
more likely than not of being sustained upon audit based on the
technical merits of the tax position. For tax positions that are
more likely than not of being sustained upon audit, we accrue
the largest amount of the benefit that is more likely than not
of being sustained in our consolidated financial statements.
Such accruals require management to make estimates and judgments
with respect to the ultimate outcome of a tax audit. Actual
results could vary materially from these estimates.
Interest and penalties related to income tax exposures are
recognized as incurred and included in the provision for income
taxes in our consolidated statements of operations.
The following is a summary of tax years that are no longer
subject to examination:
U.S. Federal Audits of our
U.S. federal income tax returns are completed for years
before 2005.
U.S. State For those states in
which the Company files tax returns, audits are completed for
years before 2005.
Foreign The status of international
tax examinations varies by jurisdictions. Audits of our
significant Mexican subsidiaries were completed through 2003 and
2004. Our Australian subsidiarys years 2005 forward have
not been audited.
The following table summarizes the activity related to
unrecognized tax benefits, (in thousands):
|
|
|
|
|
|
|
|
|
|
|
2009
|
|
|
2010
|
|
|
Balance as of January 1
|
|
$
|
6,625
|
|
|
$
|
7,136
|
|
Additions based on tax positions related to the current year
|
|
|
511
|
|
|
|
1,103
|
|
Additions for tax positions of prior years
|
|
|
|
|
|
|
512
|
|
Reductions for tax positions of prior years
|
|
|
|
|
|
|
(513
|
)
|
|
|
|
|
|
|
|
|
|
Balance as of December 31
|
|
$
|
7,136
|
|
|
$
|
8,238
|
|
|
|
|
|
|
|
|
|
|
Of the total unrecognized tax benefits as of December 31,
2009 and 2010, $7.1 million and $8.2 million,
respectively, represent the amount of unrecognized tax benefits
that, if recognized would favorably affect the effective tax
rate in future periods. These amounts are included in accounts
payable, accrued expenses and other current liabilities in the
accompanying consolidated balance sheets. The total amount of
accrued interest and penalties was $1.8 million and
$3.3 million as of December 31, 2009 and 2010,
respectively.
For the years ended December 31, 2008, 2009 and 2010, we
recognized an income tax expense related to interest and
penalties of $0.5 million, $0.5 million and
$1.5 million, respectively, within provision for income
taxes in our consolidated statements of operations. It is
expected that the amount of unrecognized tax benefits will
change in the next twelve months; however, we do not expect the
F-45
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
change to have a significant impact on our consolidated
statements of operations or consolidated balance sheets. These
changes may be the result of settlement of ongoing audits or
statute of limitations expiring. The Company expects that it
will settle portions of the IRS audit for 2005, 2006 and 2007
during the next twelve months. The Company expects that the
settlement could result in a reduction of up to
$6.6 million in our accrual for uncertain tax positions and
related accrued interest.
|
|
Note 13
|
Investing
Activities
|
Investments
Equity Method
In April 2007, we entered into a shareholders agreement
with Tech Data United Kingdom Acquisition Limited (Tech
Data) related to the establishment and operation of
Brightstar Europe Limited (BEL), a limited company
incorporated in England and Wales. In connection with the
shareholders agreement, we acquired 50% ownership of BEL
for $10.0 million in cash and we also agreed to make
available a loan facility to fund the operations of BEL for
$40.0 million. Through December 31, 2009 and 2010, we
had funded $34.5 million and $40.0 million of this
loan facility, respectively. BEL is engaged in the business of
distribution of wireless communication equipment and related
accessories and services and solutions through various European
territories. Each shareholder holds 50% of the capital of BEL
and each party agrees to provide 50% of the future funding of
the company. We account for this investment using the equity
method of accounting and we consider it a variable interest
entity for which we are not the primary beneficiary.
As part of our recurring evaluation of our investment in BEL,
during 2008 we performed an independent valuation of the
operations of BEL using a combination of discounted cash flows
and comparable companies valuation and determined that a
portion of our initial capital contribution was impaired. As a
result, we recorded an other than temporary impairment of
$2.1 million in 2008, which is included in the consolidated
statements of operations in other income (expenses), net.
We evaluate the operations of BEL and we expect the operations
of BEL will be profitable on an annual basis. A change in those
expectations may result in further discussions with our partner
that may lead to modification of the business plans, current
commitments under the shareholders agreement, or other
available remedies, if any.
In October 2010, BEL acquired 100% of the shares of Mobile
Communication Company (MCC) in the Netherlands and
Belgium. Our investment in BEL related to this acquisition was
$28.8 million. MCC is a major supplier in the Netherlands
and Belgium of mobile telephony and personal navigation devices
and related accessories to retail channels, telecommunications
dealers and consumer electronic stores in Netherlands and
Belgium. MCC has a portfolio of major vendors in both countries.
During 2008, 2009 and 2010, we recognized $2.6 million of
equity in losses and $1.8 million and $2.4 million of
equity in earnings, respectively, from this investment. These
gains and losses are included in the consolidated statements of
operations in other income (expenses), net.
As of December 31, 2009 and 2010 our net investment in BEL
amounted to $38.2 million and $73.5 million,
respectively.
In September 2007, we acquired 200 shares or 20% of Grupo
Tesema, a Panamanian company, with two wholly owned subsidiaries
in Colombia (Tesema), for an aggregate amount of
$5.5 million ($4.5 million in cash and
75,000 shares of our common stock). The companies are
engaged in the distribution of wireless handsets and
provisioning of logistics and fulfillment services. We account
for this investment using the equity method of accounting and we
consider it a variable interest entity, for which we are not the
primary beneficiary. During 2008 and 2009, we recorded
$(0.3) million and
F-46
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
$0.6 million, respectively, in equity (loss) income from
this investment, which are included in our consolidated
statements of operations in other income (expenses), net.
As part of our recurring evaluation of our investment in Tesema,
during 2008 and 2009 we performed an independent valuation of
the operations using a combination of discounted cash flows and
comparable companies valuation and determined that our
initial capital contribution was impaired. As a result, we
recorded an other than temporary impairment of $1.0 million
and $3.7 million in 2008 and 2009, respectively, which is
included in the consolidated statements of operations in other
income (expenses), net. As a result of these impairments, our
investment in Tesema was completely written down during 2009.
In January 2010, we acquired a 100% equity interest in Crisma
SAS (Crisma), which at the time was a subsidiary of
Tesema. This acquisition was carried out by exchanging our 20%
interest in Tesema for 100% of the common stock of Crisma.
Included in the acquisition were certain assets and liabilities
including cash of $0.9 million. No goodwill or gain on
bargain purchase option was recorded.
Marketable
Equity Securities
Short-term investments in
available-for-sale
securities of $15.1 million and $0.0 million are
included in prepaid expenses and other current assets as of
December 31, 2009 and 2010, respectively. These short-term
investments in
available-for-sale
securities are recorded at fair value with unrealized holding
gains and losses, net of deferred taxes, recorded in accumulated
other comprehensive income (loss). Dividend income is recognized
in the statement of operations when earned. As of
December 31, 2009 and 2010, there were no unrealized gains
or losses associated with these investments. During 2010,
short-term investments in
available-for-sale
securities of $15.1 million were liquidated in conjunction
with our purchase of income producing real estate in Venezuela.
Long-term investments in
available-for-sale
securities of $2.6 million and $1.7 million are
included in other assets as of December 31, 2009 and 2010,
respectively. These securities are recorded at fair value with
unrealized holding gains and losses, net of deferred taxes,
reported in other comprehensive income (loss). Dividend income
is recognized in the statement of operations when earned. As of
December 31, 2009 and 2010, $0.6 million and
($0.9) million of unrealized gains and (losses),
respectively, was included in accumulated other comprehensive
income.
Real
Estate
In December 2009, we invested in income-producing real estate in
Venezuela. As of December 31, 2009 and 2010, our investment
of $28.8 million and $39.6 million, net of accumulated
depreciation of $0.1 million and $2.2 million,
respectively, is contained within other assets in our
consolidated balance sheets. The current year portion of
depreciation expense related to this investment is
$2.1 million and is included in purchases of real estate
investments in our cash flows from investing activities. This
real estate is recorded at cost and is depreciated using the
straight-line method over its estimated useful life of
20 years. The depreciation and rental income associated
with this real estate is recorded in the consolidated statements
of operations in other income (expenses), net. Expected annual
depreciation expense of this real estate is $2.1 million
per year. We record this investment in other assets and rental
revenue as non-operating income as this is not considered a part
of our core business.
F-47
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
|
|
Note 14
|
Commitments and
Contingencies
|
Operating
Leases
We lease office premises and equipment. Where leases contain
escalation clauses or concessions, such as rent holidays and
landlord/tenant incentives or allowances, the impact of such
adjustments is recognized on a straight-line basis over the
minimum lease period. Certain leases provide for renewal options
and require the payment of real estate taxes or other occupancy
costs, which are also subject to escalation clauses. Rent
expenses amounted to approximately $7.7 million,
$7.8 million and $7.6 million for the years ended
December 31, 2008, 2009 and 2010, respectively, and are
included in selling, general, and administrative expense in the
consolidated statements of operations. During 2007, we executed
a new lease agreement for our corporate headquarters with a term
of 10 years and two months, which commenced in March 2008.
The minimum lease payments for this new lease are included in
our future minimum lease commitments disclosed below.
Future minimum lease commitments for office premises and
equipment under non-cancelable leases as of December 31,
2010 are as follows (in thousands):
|
|
|
|
|
2011
|
|
$
|
10,685
|
|
2012
|
|
|
9,068
|
|
2013
|
|
|
6,837
|
|
2014
|
|
|
5,621
|
|
2015
|
|
|
2,514
|
|
2016 and thereafter
|
|
|
4,182
|
|
|
|
|
|
|
|
|
$
|
38,907
|
|
|
|
|
|
|
Capital
Leases
We entered into capital lease agreements for hardware and
software equipment. The lease terms generally range from
36 months to 60 months and may contain bargain
purchase options. See Note 9 Debt. The
aggregate amount of assets acquired through these capital lease
agreements during years ended December 31, 2008, 2009 and
2010 was approximately $8.1 million, $4.6 million and
$2.0 million, respectively.
Future minimum lease payments under the capital leases as of
December 31, 2010 are as follows (in thousands):
|
|
|
|
|
2011
|
|
$
|
3,074
|
|
2012
|
|
|
1,606
|
|
2013
|
|
|
673
|
|
2014
|
|
|
126
|
|
2015
|
|
|
98
|
|
2016 and thereafter
|
|
|
266
|
|
|
|
|
|
|
Total minimum lease payments
|
|
|
5,843
|
|
Amount representing interest
|
|
|
(487
|
)
|
|
|
|
|
|
Net minimum lease payments
|
|
$
|
5,356
|
|
|
|
|
|
|
Guarantees
We have contingent obligations under guarantees of certain
obligations of our subsidiaries relating primarily to credit
facilities, contract obligations and trade facilities. In the
event of nonpayment
F-48
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
by the applicable subsidiary of the obligations covered by a
guarantee, we would be obligated to pay the amounts covered by
that guarantee. See Note 9 Debt.
We are also part of an indemnity agreement with a supplier. See
below under Litigation, Claims and Assessments.
Litigation,
Claims, and Assessments
We, from time to time, are subject to various inquiries or
audits by taxing authorities (income taxes or other) originating
from our U.S. or foreign operations, covering a wide range
of matters that arise in the ordinary course of business. Each
of these matters is subject to various uncertainties, and it is
possible that some of these matters may not be resolved in our
favor. We have established accruals for matters that we believe
are probable and reasonably estimable. Management believes that
any liability that may ultimately result from the resolution of
these matters in excess of amounts provided will not have a
material adverse effect on our financial position or results of
operations.
Since 2002, we have been party to a Cellular Essential
Properties Cross License Agreement (the IP
Agreement) with a supplier and manufacturer of cellular
phones. During 2007, we began negotiations with such supplier to
resolve certain royalty payment disputes. In 2008, we settled
the royalty payment disputes for $2.5 million, amended the
IP Agreement and obtained releases under several other trademark
license agreements.
On February 20, 2008, Brightstar filed a complaint seeking
declaratory relief against GeoSentric OYJ
(GeoSentric) in the United States District Court for
the Southern District of Florida asking the court to determine
the parties rights and duties pursuant to a purchase order
issued by Brightstar to GeoSentric on December 22, 2006.
Brightstar sought to have the court declare that it had
fulfilled its obligations under the purchase order and that it
did not owe GeoSentric any monies under the purchase order.
Brightstar also sought to have the court declare that GeoSentric
owed Brightstar an unspecified amount for storing the
non-conforming goods and to require GeoSentric to accept the
return of the products that it previously shipped to Brightstar.
GeoSentric denied Brightstars allegations and asked the
court to rule that Brightstar had not brought a proper action
for declaratory relief. GeoSentric also brought a complaint in
Salo, Finland against Brightstar seeking damages for
Brightstars alleged breach of the purchase order it issued
on December 22, 2006. GeoSentric sought damages in excess
of $10.0 million. GeoSentric did not bring a claim for
damages in the action before the United States District Court
for the Southern District of Florida, but reserved the right to
bring the same claim as it brought in Salo, Finland. Brightstar
filed a motion with the court in Salo, Finland to have that
court dismiss GeoSentrics complaint. During 2009, the
matter was settled.
We have a handset manufacturing plant in Tierra del Fuego,
Argentina (TDF). In July 7, 2008, we extended
our supply agreement with our only supplier in TDF. In
connection with the extension of this supply agreement in TDF,
we provided our supplier an indemnification of up to
$10.0 million to cover any reimbursements made by the
supplier to a common customer that could potentially arise from
the non-compliance with the tax regime we, the supplier, and the
customers operate under in TDF. A tax assessment has been filed
against a common customer and we are supporting our
suppliers defense of the case in the Tax Court. We
evaluated the indemnification in accordance with ASC 460
Guarantees, which requires immediate recognition of a
liability for the obligations under the guarantee that imposes
an ongoing obligation to stand ready to perform, even if it is
not probable that the specified triggering events or conditions
occur. As a consequence of entering into this indemnity with our
supplier, we recorded a liability of $2.0 million.
In February 2009, Brightstar Retail LLC (Brightstar
Retail) and Brightstar de Mexico, S.A. de C.V.
(Brightstar Mexico) commenced an arbitration action
against WSA Distributing, Inc. (WSA)
F-49
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
and Maria Bertha Enciso Ulloa (Ms. Enciso) for
breach of the parties May 14, 2007 Stock Purchase
Agreement, as amended (Stock Purchase Agreement).
The arbitration was based on Brightstar Retail and Brightstar
Mexicos claim that WSA and Ms. Enciso breached the
Stock Purchase Agreement. WSA and Ms. Enciso responded with
counterclaims against Brightstar Corp., Marcelo Claure, Carlos
Lomniczi and Juan Carlos Archila that sought $5.0 to
$10.0 million in damages and presented a defense to the
claims raised. On December 15, 2009, the arbitration panel
ruled that the counterclaims against Brightstar Corp.,
Mr. Claure, Mr. Lomniczi and Mr. Archila were
dismissed. However, the indemnification counterclaim and the
breach of the Stock Purchase Agreement counterclaims (assuming
it was brought against either Brightstar Retail or Brightstar
Mexico) remained.
As for the related litigation, it was captioned as Brightstar
Corp. v. WSA Distributing, Inc. and Carlos Becerra, and
docketed in the Circuit Court of the
11th
Judicial Circuit in and for Miami-Dade County at Case
No. 09-12323
CA 23, and was docketed in the United States District Court for
the Southern District of Florida at Case
No. 09-20795,
Seitz-OSullivan. Specifically, on February 17, 2009,
Brightstar Corp. filed a lawsuit against WSA and Carlos Becerra
(Becerra) for fraud in the inducement. The lawsuit
sought monetary damages
and/or the
rescission of the Operating Agreement.
The case was filed in Florida state court, but it was removed to
federal court based on diversity jurisdiction on March 27,
2009. On or about July 30, 2009, Brightstar filed an
Amended Complaint, which again present a fraudulent inducement
claim against Becerra and WSA. Following a motion to dismiss,
which was denied, the defendants filed their Answer and
Counterclaims on April 16, 2010. The Counterclaims included
claims against Brightstar Corp., Brightstar Retail, Marcelo
Claure, Juan Carlos Archila and Carlos Lomniczi.
After a global mediation encompassing the litigation and
arbitration, the parties entered into a confidential settlement
that became effective on June 14, 2010. The parties
dismissed the arbitration and litigation on June 16, 2010.
Since 2005, our subsidiary in São Paulo, Brazil had a
contractual relationship with a company headquartered and
registered in Espirito Santo, Brazil. This company imported
merchandise on account and order of our subsidiary in Sao Paulo,
Brazil and paid value added taxes to the State of Espirito Santo
on our behalf. Considering the above, the tax authorities of the
State of Sao Paulo issued a tax assessment against our
subsidiary in Sao Paolo to collect value added taxes, interest
and fines. This assessment was approximately $36.8 million
and $53.9 million as of December 31, 2009 and 2010,
respectively. In 2009, an interstate normative ruling was
enacted, which legally states that any importation of goods made
by one company on behalf of another, undertaken by May 31,
2009, the value added taxes must be paid to the state where the
nationalization was physically carried out. In this
circumstance, this would result in the State of Espirito Santo
being entitled to the value added tax and not Sao Paulo.
However, the above inter-state normative ruling requires
regulating rules for its full appliance. Despite the lack of
regulating rules, tax authorities have informally postponed tax
assessments regarding the issues ruled by the inter-state
normative ruling. Based on the current facts, circumstances and
technical merits available to us, we have determined that any
liability resulting from this assessment is not probable and as
a result, no accrual is deemed necessary.
In May 2010, Brazilian Customs Authorities imposed an assessment
on our subsidiary in São Paulo for importations of
smartphones during 2005 to 2008 based on incorrect tariff
classification. This assessment was approximately
$4.4 million as of December 31, 2010. Based on the
current facts, circumstances and analysis available to us, we
have determined that any liability resulting from this
assessment is not probable and as a result, no accrual is deemed
necessary.
F-50
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
In March 2008, Movida Communications filed a petition for
protection under Chapter 11 of the Bankruptcy Code. In
March 2010, after confirmation of a plan of liquidation, the
Liquidation Trustee for Movida Communications filed an adversary
proceeding seeking to void and recover transfers to Brightstar
US, Inc. in the aggregate amount of $39.8 million. In
October 2010, the court granted Brightstar US, Inc.s
motion to dismiss certain claims without prejudice and dismissed
claims seeking $30.5 million, leaving a remaining claim of
$9.3 million. The claim is currently in the discovery
stages and the likelihood of an unfavorable outcome cannot be
determined.
As of April 2010, a distributor in Mexico, to which we sold
approximately $27.2 million of inventory and services
during 2009 and $7.9 million through April 2010, faced
severe liquidity issues. As of December 31, 2009, we had
outstanding a net accounts receivable balance of approximately
$1.7 million. Due to the distributors financial
condition, we reserved $1.7 million, the full amount owed
to us as of December 31, 2009. In the first quarter ended
March 31, 2010, we also provided for an additional
$7.5 million for sales made during the three months then
ended. No additional sales have been made to this distributor
subsequent to April 2010.
In December 2010, we entered into several settlement agreements
with this distributor who agreed to pay the entire outstanding
accounts receivable balance plus accrued interest on or before
November 15, 2011. The distributor paid $2.2 million
in cash and assigned accounts receivable from one its customers
to us in the net amount of $0.7 million prior to
December 31, 2010. The amounts received from the
distributor were recorded as recovery of bad debts in our
consolidated statements of operations for the year ended
December 31, 2010. In addition to the payments received in
December 2010, the distributor signed a note payable, with
monthly payments of $0.4 million, due on or before
November 15, 2011. In addition, the distributor pledged the
proceeds of two real estate properties held in trust for this
purpose and assigned future net proceeds from their sales to a
certain customer.
We also are involved in other legal and administrative
proceedings arising in the ordinary course of business. The
outcomes of these actions are not expected to have a material
effect on our financial position or results of operations on an
individual basis, although adverse outcomes in a significant
number of such ordinary course legal proceedings could, in the
aggregate, have a material adverse effect on our financial
condition and results of operations.
Relationship
with Suppliers
To a certain extent, we depend on a few suppliers to provide us
with the products that we distribute. Our contracts with those
suppliers are generally non-exclusive and may be terminated with
proper notice. We distribute wireless communications products
through a global distribution agreement and various regional
amendments with one of our major suppliers. We also have various
other regional agreements with a number of major suppliers.
Our distribution agreements with one of our major suppliers
expire on various dates through June 30, 2011, but are
subject to automatic one-year renewals unless a party to the
agreement notifies the other of its intent not to renew the
agreement at least ninety (90) or one-hundred eighty
(180) days, as applicable, prior to the expiration of the
applicable renewal term. In addition, the supplier may
immediately terminate each of these agreements if we fail to
comply with certain obligations, including compliance with laws
or the suppliers ethical standards or if we experience
bankruptcy, insolvency or a change of control. These agreements
may also be immediately terminated if, after notice, we fail to
make payment of our obligations to the supplier or if there is a
default under any of our agreements with it (including the
occurrence of an event or condition that would have a material
adverse effect on our financial condition, business, assets or
operations).
F-51
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
Any termination of one or more of our distribution agreements
with our major suppliers or any significant deterioration in our
relationship with our major suppliers could reduce the
availability of the products that we offer for sale. Our
distribution agreements offer us the ability to purchase
products on open account with a credit limit determined by the
supplier based on its own credit criteria. The supplier may
reduce the amount of credit that it extends to us under this
open account at any time if it determines that our condition,
including our financial condition, is unacceptable to it. If the
supplier makes such a determination, it could cancel purchase
orders, require us to pay cash
and/or delay
shipment of products. This credit is secured by a second lien in
all of our assets in the United States and Puerto Rico and a
pledge to it of all of the outstanding capital stock or
ownership interests owned by us in certain of our domestic
subsidiaries. The loss of, or reduction in, trade supplier
credit available to us from our principal suppliers
and/or
limitations on our ability to sell our accounts receivable,
could significantly reduce our liquidity, increase our working
capital needs
and/or limit
our ability to purchase products.
In November 2008, we entered into a five-year exclusive rights
contract related to the sale of information technology devices
with one of our customers. In February 2009, the customer
completed the designation of exclusivity to Brightstar Corp.
within its subsidiaries in Latin America and at this time we
agreed to an upfront fee of $19.4 million for the
exclusivity rights to distribute the information technology
devices in select territories in Latin America. As of
December 31, 2009, in connection with this contract, we
have an asset recorded in our consolidated balance sheet of
approximately $17.7 million, net of $1.7 million of
amortization and a corresponding liability of
$12.7 million. The asset is being amortized over the life
of the contract on a straight line basis. The amortization of
the asset is being recorded as a reduction of revenue in
accordance with ASC 605.
During 2010, we evaluated the asset for impairment indicators
and concluded that the asset was impaired due to
underperformance compared to the terms of the contract.
Accordingly, we performed an undiscounted cash flow analysis in
accordance with ASC 360. Based on this analysis, we
recorded an impairment charge of $11.0 million during the
year ended December 31, 2010 as a reduction of revenue
within the consolidated statements of operations and as an
impairment of the upfront fee within our cash flows from
operating activities. As of December 31, 2010, the
remaining asset balance, net of impairment and $4.1 million
of accumulated amortization, is $4.3 million and is
included within other assets in our consolidated balance sheets.
At December 31, 2010 we had paid off the upfront fee
liability related to sale of information technology devices.
During 2009, we entered into several other contracts with this
customer for exclusive rights to provide reverse logistics
technical support to its subsidiaries in Latin America and in a
separate contract to be the selected manufacturing partner in
Argentina. At this time we agreed to upfront fees totaling
$16.3 million in connection with these contracts, which
represent the balance as of December 31, 2009. Commencing
in 2010, these assets are being amortized over the corresponding
terms of these contracts which range from 5-6 years and is
recorded as a reduction of revenue within the consolidated
statements of operations. The corresponding liability related to
these upfront fees at December 31, 2009 was
$17.7 million. As of December 31, 2010, the remaining
asset balance, net of accumulated amortization of
$2.1 million, is $23.3 million and is included within
other assets in our consolidated balance sheets. The
corresponding liability related to these upfront fees at
December 31, 2010 was $4.0 million. During 2009 and
2010, the Company evaluated these assets for impairment
indicators, noting no impairment indicators related to these
contracts.
During the year ended December 31, 2010, we recognized
revenue in our consolidated statements of operations of
$10.4 million related to a sale of software licenses to an
unrelated party under a distribution and referral agreement with
a supplier. We hold an insignificant equity interest in the
supplier.
F-52
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
|
|
Note 15
|
Employee Benefit
Plans Stock Option Plan
|
We issue our share-based compensation awards under our 2004
Stock Option Incentive Plan or our 2006 Executive Stock
Incentive Plan (the Stock Plans). As of
December 31, 2008, 2009 and 2010, we had 3.7 million,
3.7 million and 3.8 million shares of common stock
reserved for issuance under the Stock Plans, respectively. The
Stock Plans allow us to issue stock options, stock appreciation
rights, restricted stock awards and restricted stock units
(collectively incentive awards). Incentive awards
are primarily granted to management-level employees, members of
our Board of Directors and consultants. The Stock Plans are
administered by a committee of our directors (the
Committee), that determines who is eligible to
participate, the number of shares for which incentive awards are
to be granted and the amounts that may be exercised within a
specified term. These plans allow us to fulfill our incentive
award obligations using unissued or treasury shares. Certain
incentive awards provide for accelerated vesting if we have a
change in control, as defined in the Stock Plans.
The total share-based compensation expense and the respective
income tax benefit recognized were approximately
($0.7) million and $0.3 million, respectively, for the
year ended December 31, 2008. No share-based awards were
exercised during the year ended December 31, 2008. The
total share-based compensation expense, net of forfeitures and
the respective income tax benefit recognized were approximately
$0.6 million and $0.2 million, respectively, for the
year ended December 31, 2009. The total share-based
compensation expense, net of forfeitures and the respective
income tax benefit recognized were approximately
$2.5 million and $0.9 million, respectively, for the
year ended December 31, 2010. The above share-based
compensation expense is included in the accompanying
consolidated statements of operations in selling, general and
administrative expense.
We do not maintain an internal market for our shares. While we
have issued new equity to unrelated third parties and we use
such facts in the determination of the fair value of our shares,
we believe that the lack of a secondary market for our common
stock and our limited history issuing stock to unrelated parties
makes it impracticable to estimate our common stocks
expected volatility. Therefore, it is not possible to reasonably
estimate the grant-date fair value of our options using our own
historical price data. Accordingly, we applied the provisions of
ASC 718 in accounting for the share options under the
calculated value method.
The calculated fair value of each incentive award was estimated
on the date of grant using the Black-Scholes option-pricing
model. The Black-Scholes weighted average values and assumptions
were as follows:
|
|
|
|
|
|
|
|
|
December 31,
|
|
|
2008
|
|
2009
|
|
2010
|
|
Fair value of options at date of grant
|
|
$0.12
|
|
$0.94
|
|
$14.02
|
Expected option life(a)
|
|
6.34 years
|
|
5.77 years
|
|
5.97 years
|
Expected dividend yield(b)
|
|
None
|
|
None
|
|
None
|
Risk-free interest rate(c)
|
|
2.2%
|
|
2.3%
|
|
2.2%
|
Expected volatility(d)
|
|
36.2%
|
|
38.0%
|
|
46.5%
|
|
|
|
(a) |
|
We have elected to calculate the average expected life based on
the simplified method described in ASC 718 for all at-the
money grants, as it will be a better representation of the
estimated life than our actual limited historical exercise
behavior. For grants where the exercise price is significantly
higher than the estimated fair value of the common stock at
grant date, we use the Monte Carlo Simulation method to estimate
expected option life. Based on our assessment of employee
groupings and observable behaviors, we determined that a single
grouping is appropriate. |
F-53
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
|
|
|
(b) |
|
We use an expected dividend yield of zero, since we do not
intend to pay cash dividends on our common stock in the
foreseeable future. |
|
(c) |
|
The risk-free interest rate is based on U.S. Treasury
zero-coupon issues, with a remaining term equal to the expected
option life assumed at the date of grant. |
|
(d) |
|
In 2010, the expected volatility is based on the average
volatility of up to 19 companies within various SIC
industries as management believes that we fit the profile of the
companies selected. In 2009 and 2008, the expected volatility
was based on a weighting of the volatility of 10 companies
within the SIC Industry 5065, Electronic Parts and Equipment,
not Elsewhere Classified, as management believed we fit the
profile of the companies selected. The group of companies
selected was then divided in two groups and each group was given
a different weight based on what management believed was
appropriate, using each groups past financial history. |
The Committee generally sets stock option exercise prices at
100% of the fair market value of the underlying common stock or
above fair market value on the date the option is granted. All
share based awards granted since inception of the Stock Plans
have been granted at an exercise price per share which, the
Committee believes, approximates or exceeds the fair market
value of our common stock on the date of grant. Historically,
the Committee establishes exercise prices based on independent
transactions with third-parties, independent valuations or fixed
exercise prices the Committee considers adequate. Generally,
employee options vest evenly over several years and have a
ten-year term. The Stock Plans provide for certain provisions of
accelerated vesting if there is a change in control as defined
within the plans. The change in control provision is applied by
the Committee, at its discretion, in each individual grant.
F-54
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
A summary of stock option activity during the years ended
December 31, 2008, 2009 and 2010 was as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
|
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
|
|
|
|
|
Weighted-
|
|
|
Remaining
|
|
|
Aggregate
|
|
|
|
|
|
|
Average
|
|
|
Contractual
|
|
|
Intrinsic
|
|
|
|
Shares
|
|
|
Exercise Price
|
|
|
Term
|
|
|
Value(a)
|
|
|
|
|
|
|
|
|
|
|
|
|
(In thousands)
|
|
|
Outstanding as of January 1, 2008
|
|
|
1,639,992
|
|
|
$
|
13.46
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
1,510,250
|
|
|
|
14.83
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(846,587
|
)
|
|
|
13.99
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2008
|
|
|
2,303,655
|
|
|
$
|
14.17
|
|
|
|
8.34
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2008
|
|
|
877,833
|
|
|
$
|
12.00
|
|
|
|
6.39
|
|
|
$
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of January 1, 2009
|
|
|
2,303,655
|
|
|
$
|
14.17
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
975,000
|
|
|
|
15.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(2,000
|
)
|
|
|
8.00
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(956,885
|
)
|
|
|
14.66
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2009
|
|
|
2,319,770
|
|
|
$
|
14.32
|
|
|
|
7.96
|
|
|
$
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2009
|
|
|
919,145
|
|
|
$
|
12.94
|
|
|
|
6.14
|
|
|
$
|
69
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of January 1, 2010
|
|
|
2,319,770
|
|
|
$
|
14.32
|
|
|
|
|
|
|
|
|
|
Granted
|
|
|
852,500
|
|
|
|
30.00
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(6,100
|
)
|
|
|
12.92
|
|
|
|
|
|
|
|
|
|
Forfeited
|
|
|
(242,225
|
)
|
|
|
15.09
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding as of December 31, 2010
|
|
|
2,923,945
|
|
|
$
|
18.83
|
|
|
|
7.90
|
|
|
$
|
32,660
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Exercisable as of December 31, 2010
|
|
|
1,348,945
|
|
|
$
|
15.45
|
|
|
|
6.69
|
|
|
$
|
19,628
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(a) |
|
The aggregate intrinsic value represents the amount by which the
fair value of underlying stock exceeds the option exercise price
for the periods presented. |
During 2010, we granted 852,500 stock options, of which 591,250
were granted in July and 261,250 were granted in December. The
stock options in both grant periods had an exercise price of
$30.00 per share which equaled the fair market value of our
common stock in those periods. The valuations of our common
stock were performed contemporaneously with each of the
corresponding grant periods by an independent third party.
F-55
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
The weighted average grant-date fair value of options granted
during the years ended December 31, 2008, 2009 and 2010 was
$0.2 million, $0.9 million and $11.9 million,
respectively. Options exercised in 2010 and 2009 had little to
no intrinsic value. As of December 31, 2010, there was
$10.2 million of total unrecognized compensation cost
related to unvested stock options. This cost is expected to be
recognized over a period of 3.2 years; a portion of this
amount could be recognized earlier if an event of change in
control takes place. Cash received from common stock issued as a
result of stock options exercised during 2009 and 2010 amounted
to $16 thousand and $79 thousand, respectively. No stock options
were exercised during 2008.
The following table summarizes various share-based transactions
that occurred during the periods presented and the related
share-based compensation expense that was recorded (in
thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended December 31,
|
|
|
|
2008
|
|
|
2009
|
|
|
2010
|
|
|
Share-based compensation expense
|
|
|
|
|
|
|
|
|
|
|
|
|
ASC 718 share-based expense
|
|
$
|
753
|
|
|
$
|
625
|
|
|
$
|
2,536
|
|
Reversal of prior year SFAS No. 5 (ASC 450) stock
awards commitments granted during the current year
|
|
|
(1,481
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total share-based compensation expense
|
|
$
|
(728
|
)
|
|
$
|
625
|
|
|
$
|
2,536
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Defined
Contribution Plan
On October 1, 2003, we began a 401(k) plan covering all
eligible employees. Subject to certain dollar limits, eligible
employees may contribute a portion of their pre-tax annual
compensation to the plan. We currently contribute up to 50% of
the first 3% of the gross salary of the employee, which vests
immediately. As of December 31, 2008, 2009 and 2010, total
plan assets amounted to approximately $5.0 million,
$6.8 million and $8.6 million, respectively. During
the years ended December 31, 2008, 2009 and 2010, we
contributed approximately $0.7 million, $0.1 million
and $0.3 million, respectively. In January 2009, we
announced a temporary freeze on matching contributions. Matching
contributions were resumed in January 2010.
|
|
Note 16
|
Related-Party and
Affiliate Transactions
|
In the normal course of business, we enter into transactions
with affiliated companies. Affiliated companies are those that
we own a small ownership interest, normally equal or less than
20%. During the year ended December 31, 2008, we sold
handheld devices to one of our affiliated companies in the
United States in the amount of approximately $5.6 million.
There were no sales to these affiliated companies for the years
ended December 31, 2009 and 2010. No balance was due as of
December 31, 2009 and 2010.
During the years ended December 31, 2008 and 2009, we also
sold handheld devices to one of our affiliated companies in
Colombia in the amount of approximately $34.1 million and
$5.6 million, respectively. As of December 31, 2009,
we had approximately $2.1 million in accounts receivable
from such affiliate. In January 2010, we acquired the affiliated
company.
In November 2008,
1945/1947
Turnberry CV, a member company of the Cisneros Group, paid
Brightstar $4.7 million pursuant to a guaranty agreement
under which the Cisneros Group had guaranteed certain
obligations of Movida Communications, Inc., a customer of
Brightstar. At the time,
F-56
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
a director of Brightstar was also an Executive President and
Chief Operating Officer of the Cisneros Group of Companies. The
guaranty was subsequently terminated and releases were exchanged.
During 2008, we paid $0.1 million to a board member for
consulting services.
On December 31, 2008, one of our preferred stockholders had
a non-controlling ownership interest in our Australian
subsidiary and our subsidiary in Singapore. In March 2009, such
stockholder elected to convert its investment in Singapore into
493,828 shares of our Series C Preferred Stock. This
effectively reduced their non-controlling interest from 30% to
zero. At the same time, we also repurchased their ownership
interest in our subsidiary in Australia for $40.0 million
in cash. This effectively reduced their non-controlling interest
from 40% to zero. As a result, both subsidiaries became wholly
owned by us. See Note 11 Stockholders
Equity.
On December 31, 2008, we acquired a 10% non-controlling
interest held by a former employee in our subsidiary Brightstar
US, Inc. in a transaction accounted for as a purchase. The fair
value of the net assets acquired amounted to $4.9 million,
including intangibles other than goodwill of $2.7 million.
See Note 7 Intangible Assets.
During the first quarter of 2009, we made net advances to our
controlling shareholder of $0.2 million. These advances are
interest free and have no stated maturity. During the third
quarter of 2009, those advances were later approved as
additional compensation by our Board of Directors.
In March 2009, an employee entered into an ownership interest
exchange with us wherein the employee exchanged 9.8% of a
non-controlling interest in one of our consolidated subsidiaries
for 40,000 common shares of the Company. This effectively
reduced the non-controlling interest held by the employee from
49% to 39.2%. See Note 11 Stockholders
Equity.
In connection with our investment in real estate and the leasing
of one of the units in Venezuela, we engaged a relative of our
CEO and controlling shareholder to provide real estate services.
The total amount for this service amounted to $0.5 million,
which was paid in February 2010.
|
|
Note 17
|
Segment
Reporting
|
Brightstar operates predominately in a single industry segment
as a global service company focused on delivering solutions to
the key participants in the wireless ecosystem: manufacturers,
operators, retailers and enterprises. While the Company operates
primarily in one industry it is managed by its geographic
segments, which includes Latin America (LATAM), the United
States and Canada (U.S./Canada) and Asia Pacific (APAC).
These three geographic segments represent our reportable
segments. We identify reportable segments based on how the CEO
and CFO evaluate the business and its activities and based on
management responsibility. Key performance metrics used by the
CEO and CFO for our segments are gross margins and operating
income. The CEO and CFO evaluate performance and allocate
resources based on profit or loss from operations before income
taxes. The reportable segments are each managed separately
because of their geographical location, markets, economic
characteristics and customer bases. While we strive to provide
our customers with a full array of services, revenues generated
from the direct sale of services contributed less than 10% of
our overall net sales. There are no intersegment sales and the
accounting policies of the reportable segments are the same as
those described in the summary of significant accounting
policies with the exception of foreign currency losses in
Venezuela relating to the indirect parallel market
of foreign currency exchange transactions. The reportable
segment gross profit and operating income for LATAM reflect
foreign currency losses attributable to Venezuela as a reduction
of revenue instead of foreign exchange loss in the amount of
$85.6 million and $22.2 million for the years ended
December 31, 2009 and 2010,
F-57
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
respectively. The consolidated statements of operations reflect
these foreign currency losses as foreign exchange losses for the
same amount. See Note 2 Summary of Significant
Accounting Policies under Foreign Currency Translation and
Transactions.
The following table sets forth a summary of our operations by
segment for the years ended December 31, 2008, 2009 and
2010 (in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Corporate and
|
|
|
|
|
U.S./Canada
|
|
LATAM
|
|
APAC
|
|
Other
|
|
Total
|
|
2008
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
650,611
|
|
|
$
|
2,700,279
|
|
|
$
|
199,275
|
|
|
$
|
|
|
|
$
|
3,550,165
|
|
Gross Profit
|
|
|
44,752
|
|
|
|
174,284
|
|
|
|
76,962
|
|
|
|
|
|
|
|
295,998
|
|
Operating income
|
|
|
16,050
|
|
|
|
56,486
|
|
|
|
37,083
|
|
|
|
(561
|
)
|
|
|
109,058
|
|
Depreciation and amortization
|
|
|
1,251
|
|
|
|
6,058
|
|
|
|
2,047
|
|
|
|
561
|
|
|
|
9,917
|
|
Total assets
|
|
|
122,425
|
|
|
|
1,259,245
|
|
|
|
171,211
|
|
|
|
21,259
|
|
|
|
1,574,140
|
|
2009
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
724,161
|
|
|
$
|
1,733,522
|
|
|
$
|
175,373
|
|
|
$
|
|
|
|
$
|
2,633,056
|
|
Gross Profit
|
|
|
58,769
|
|
|
|
140,014
|
|
|
|
80,257
|
|
|
|
|
|
|
|
279,040
|
|
Operating income
|
|
|
26,504
|
|
|
|
38,383
|
|
|
|
35,455
|
|
|
|
(3,000
|
)
|
|
|
97,342
|
|
Depreciation and amortization
|
|
|
2,505
|
|
|
|
8,314
|
|
|
|
2,638
|
|
|
|
|
|
|
|
13,457
|
|
Total assets
|
|
|
261,368
|
|
|
|
1,286,603
|
|
|
|
215,131
|
|
|
|
50,737
|
|
|
|
1,813,839
|
|
2010
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
1,472,593
|
|
|
$
|
2,749,695
|
|
|
$
|
367,185
|
|
|
$
|
1,181
|
|
|
$
|
4,590,654
|
|
Gross Profit
|
|
|
85,350
|
|
|
|
197,635
|
|
|
|
92,360
|
|
|
|
(3,670
|
)
|
|
|
371,675
|
|
Operating income
|
|
|
31,438
|
|
|
|
63,665
|
|
|
|
39,662
|
|
|
|
(26,360
|
)
|
|
|
108,405
|
|
Depreciation and amortization
|
|
|
2,976
|
|
|
|
5,594
|
|
|
|
3,189
|
|
|
|
154
|
|
|
|
11,913
|
|
Total assets
|
|
|
605,485
|
|
|
|
1,518,412
|
|
|
|
294,304
|
|
|
|
78,369
|
|
|
|
2,496,570
|
|
Other than Mexico, Venezuela and the U.S., no other individual
country represented 10% or more of the Companys total
revenues. Revenues in Mexico totaled $676.9 million,
$487.7 million and $820.0 million for the years ended
December 31, 2008, 2009 and 2010, respectively. Revenues in
Venezuela totaled $654.8 million, $527.6 million and
$486.6 million for the years ended December 31, 2008,
2009 and 2010, respectively. Revenues in the U.S. totaled
$650.6 million, $724.1 million and
$1,472.6 million for the years ended December 31,
2008, 2009 and 2010, respectively.
Other than two customers within the LATAM segment, no other
customer represented 10% or more of the Companys total
revenues for 2008, 2009 or 2010. Revenues for the first customer
totaled $775.7 million, $549.3 million and
$1,063.5 million for the years ended December 31,
2008, 2009 and 2010, respectively. This customer represented
22%, 20% and 23% of our net consolidated revenues for the years
ended December 31, 2008, 2009 and 2010, respectively.
Revenues for the second customer totaled $653.2 million,
$278.5 million and $257.5 million for the years ended
December 31, 2008, 2009 and 2010, respectively. This
customer represented 18%, 10% and 6% of our net consolidated
revenues for the years ended December 31, 2008, 2009 and
2010, respectively.
F-58
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
|
|
Note 18
|
Quarterly Results
of Operations (unaudited)
|
The following tables present our unaudited quarterly results of
operations for the eight quarters ended December 31, 2010
and should be read in conjunction with the consolidated
financial statements and related notes (in thousands, except per
share data). The quarterly results of operations data for each
of the quarters in the years ended December 31, 2009 and
2010 have not been subjected to a SAS 100 review by our
independent registered public accounting firm in accordance with
Statement of Auditing Standards No. 100, Interim
Financial Information. We have prepared the unaudited
information on the same basis as our audited consolidated
financial statements. Our operating results for any quarter are
not necessarily indicative of results for any future quarters or
for a full year.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
Total
|
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
2009
|
|
|
Year
|
|
|
Revenues(1)
|
|
$
|
625,132
|
|
|
$
|
598,505
|
|
|
$
|
646,122
|
|
|
$
|
848,893
|
|
|
$
|
2,718,652
|
|
Gross profit
|
|
|
60,316
|
|
|
|
87,624
|
|
|
|
120,976
|
|
|
|
95,720
|
|
|
|
364,636
|
|
Net income from continuing operations
|
|
|
6,130
|
|
|
|
25,265
|
|
|
|
18,442
|
|
|
|
5,904
|
|
|
|
55,741
|
|
(Loss) income from discontinued operations, net of income taxes
|
|
|
(1,109
|
)
|
|
|
3,998
|
|
|
|
(294
|
)
|
|
|
|
|
|
|
2,595
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income
|
|
$
|
5,021
|
|
|
$
|
29,263
|
|
|
$
|
18,148
|
|
|
$
|
5,904
|
|
|
$
|
58,336
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income attributable to Brightstar Corp. stockholders
|
|
$
|
1,976
|
|
|
$
|
28,716
|
|
|
$
|
18,127
|
|
|
$
|
5,422
|
|
|
$
|
54,241
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share for common stock:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to
Brightstar Corp. common stockholders
|
|
$
|
(0.12
|
)
|
|
$
|
0.55
|
|
|
$
|
0.36
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
(Loss) income from discontinued operations attributable to
Brightstar Corp. common stockholders
|
|
|
(0.06
|
)
|
|
|
0.11
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Brightstar Corp. common
stockholders
|
|
$
|
(0.18
|
)
|
|
$
|
0.66
|
|
|
$
|
0.35
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
Diluted earnings per share for common stock:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to
Brightstar Corp. common stockholders
|
|
$
|
(0.12
|
)
|
|
$
|
0.49
|
|
|
$
|
0.33
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
(Loss) income from discontinued operations attributable to
Brightstar Corp. common stockholders
|
|
|
(0.06
|
)
|
|
|
0.10
|
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Brightstar Corp. common
stockholders
|
|
$
|
(0.18
|
)
|
|
$
|
0.59
|
|
|
$
|
0.32
|
|
|
$
|
(0.03
|
)
|
|
|
|
|
F-59
BRIGHTSTAR CORP.
AND SUBSIDIARIES
Notes to Consolidated Financial
Statements (Continued)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Quarter Ended
|
|
|
|
|
|
|
March 31,
|
|
|
June 30,
|
|
|
September 30,
|
|
|
December 31,
|
|
|
Total
|
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
2010
|
|
|
Year
|
|
|
Revenues(1)
|
|
$
|
767,377
|
|
|
$
|
1,049,794
|
|
|
$
|
1,136,315
|
|
|
$
|
1,659,377
|
|
|
$
|
4,612,863
|
|
Gross profit
|
|
|
84,699
|
|
|
|
94,424
|
|
|
|
97,207
|
|
|
|
117,554
|
|
|
|
393,884
|
|
(Loss) income from continuing operations
|
|
|
(4,100
|
)
|
|
|
19,440
|
|
|
|
13,273
|
|
|
|
12,073
|
|
|
|
40,686
|
|
Loss from discontinued operations, net of income taxes
|
|
|
(9
|
)
|
|
|
(532
|
)
|
|
|
(380
|
)
|
|
|
|
|
|
|
(921
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income
|
|
$
|
(4,109
|
)
|
|
$
|
18,908
|
|
|
$
|
12,893
|
|
|
$
|
12,073
|
|
|
$
|
39,765
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Brightstar Corp. stockholders
|
|
$
|
(4,440
|
)
|
|
$
|
18,367
|
|
|
$
|
12,496
|
|
|
$
|
10,957
|
|
|
$
|
37,380
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share for common stock:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to
Brightstar Corp. common stockholders
|
|
$
|
(0.59
|
)
|
|
$
|
0.36
|
|
|
$
|
0.18
|
|
|
$
|
0.12
|
|
|
|
|
|
Loss from discontinued operations attributable to Brightstar
Corp. common stockholders
|
|
|
|
|
|
|
(0.02
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Brightstar Corp. common
stockholders
|
|
$
|
(0.59
|
)
|
|
$
|
0.34
|
|
|
$
|
0.17
|
|
|
$
|
0.12
|
|
|
|
|
|
Diluted earnings per share for common stock:(2)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Loss) income from continuing operations attributable to
Brightstar Corp. common stockholders
|
|
$
|
(0.59
|
)
|
|
$
|
0.32
|
|
|
$
|
0.16
|
|
|
$
|
0.12
|
|
|
|
|
|
Loss from discontinued operations attributable to Brightstar
Corp. common stockholders
|
|
|
|
|
|
|
(0.01
|
)
|
|
|
(0.01
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net (loss) income attributable to Brightstar Corp. common
stockholders
|
|
$
|
(0.59
|
)
|
|
$
|
0.31
|
|
|
$
|
0.15
|
|
|
$
|
0.12
|
|
|
|
|
|
|
|
|
(1)
|
|
Sales of wireless devices are
seasonal. Demand related to the wireless devices market is
normally highest in the fourth quarter.
|
|
(2)
|
|
Quarterly earnings per common stock
share are calculated on an individual basis and because of
rounding, changes in the weighted-average shares outstanding
during the year and the two-class method, the summation of each
quarter may not equal the amount calculated for the year as a
whole. See Note 2 Summary of Significant
Accounting Policies under Earnings Per Share.
|
|
|
Note 19
|
Subsequent
Event
|
In April 2011, we acquired eSecuritel, a leading provider of
cell phone and wireless products insurance services. We will
account for this acquisition as a business combination in
accordance with ASC 805.
* * * * * * * * *
F-60
BRIGHTSTAR CORP.
AND SUBSIDIARIES
SCHEDULE II
VALUATION AND QUALIFYING ACCOUNTS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at
|
|
Charged to
|
|
|
|
Balance at
|
|
|
Beginning
|
|
Costs and
|
|
|
|
End of
|
Allowance for Doubtful Accounts
Receivable
|
|
of Period
|
|
Expenses
|
|
Deductions(1)
|
|
Period
|
|
|
(In thousands)
|
|
2008
|
|
$
|
24,234
|
|
|
|
4,339
|
|
|
|
(21,738
|
)
|
|
$
|
6,835
|
|
2009
|
|
$
|
6,835
|
|
|
|
6,435
|
|
|
|
(1,441
|
)
|
|
$
|
11,829
|
|
2010
|
|
$
|
11,829
|
|
|
|
8,785
|
|
|
|
(2,222
|
)
|
|
$
|
18,392
|
|
|
|
|
(1) |
|
Deductions include receivables written-off, foreign currency
translation adjustments and elimination of accounts receivable
allowance relating to discontinued operations |
F-61
PART II
INFORMATION NOT
REQUIRED IN PROSPECTUS
|
|
Item 13.
|
Other Expenses
of Issuance and Distribution.
|
|
|
|
|
|
|
|
Amount
|
|
|
|
to be Paid
|
|
|
Registration fee
|
|
$
|
34,830
|
|
FINRA Filing fee
|
|
|
75,500
|
|
Stock exchange fee
|
|
|
*
|
|
Transfer agents fees
|
|
|
*
|
|
Printing and engraving expenses
|
|
|
*
|
|
Legal fees and expenses
|
|
|
*
|
|
Accounting fees and expenses
|
|
|
*
|
|
Blue Sky fees and expenses
|
|
|
*
|
|
Miscellaneous
|
|
|
*
|
|
|
|
|
|
|
Total
|
|
$
|
*
|
|
|
|
|
|
|
|
|
|
* |
|
To be provided by amendment. |
|
|
Item 14.
|
Indemnification
of Directors and Officers.
|
Section 145 of the Delaware General Corporation Law
provides that a corporation may indemnify directors and officers
as well as other employees and individuals against expenses
(including attorneys fees), judgments, fines and amounts
paid in settlement actually and reasonably incurred by such
person in connection with any threatened, pending or completed
actions, suits or proceedings in which such person is made a
party by reason of such person being or having been a director,
officer, employee or agent to the Registrant. The Delaware
General Corporation Law provides that Section 145 is not
exclusive of other rights to which those seeking indemnification
may be entitled under any bylaw, agreement, vote of stockholders
or disinterested directors or otherwise. Section 9.1 of the
Registrants Bylaws provides for indemnification by the
Registrant of its directors and officers to the fullest extent
permitted by the Delaware General Corporation Law.
Section 102(b)(7) of the Delaware General Corporation Law
permits a corporation to provide in its certificate of
incorporation that a director of the corporation shall not be
personally liable to the corporation or its stockholders for
monetary damages for breach of fiduciary duty as a director,
except for liability (i) for any breach of the
directors duty of loyalty to the corporation or its
stockholders, (ii) for acts or omissions not in good faith
or which involve intentional misconduct or a knowing violation
of law, (iii) for unlawful payments of dividends or
unlawful stock repurchases, redemptions or other distributions
or (iv) for any transaction from which the director derived
an improper personal benefit. The Registrants Certificate
of Incorporation provides for such limitation of liability.
The Registrant maintains standard policies of insurance under
which coverage is provided (a) to its directors and
officers against loss rising from claims made by reason of
breach of duty or other wrongful act and (b) to the
Registrant with respect to payments which may be made by the
Registrant to such officers and directors pursuant to the above
indemnification provision or otherwise as a matter of law. In
addition, the company provides indemnification to its directors
and officers pursuant to indemnification agreements the company
has entered into with each director and officer.
The proposed forms of Underwriting Agreement filed as
Exhibit 1 to this Registration Statement provide for
indemnification of directors and officers of the Registrant by
the underwriters against certain liabilities.
II-1
|
|
Item 15.
|
Recent Sales
of Unregistered Securities.
|
During the three years preceding the filing of this registration
statement, we issued and sold the following securities that were
not registered under the Securities Act:
On November 30, 2010, we sold $250,000,000 of our
9.500% Senior Notes due 2016 to qualified institutional
buyers under rule 144A of the Securities Act and to persons
outside of the United States in compliance with
Regulation S of the Securities Act. Subject to our
completion of an initial public offering of our common stock, we
are obligated to use our commercially reasonable efforts to
commence an offer to exchange the notes under the Securities Act
within 180 days.
On April 15, 2009, 40,000 shares of our common stock
were issued to Jaime Narea in exchange for 98 units of
Narbitec, LLC, a subsidiary of the company. The common stock was
issued in reliance on Section 4(2) of the Securities Act.
On March 31, 2009, 493,828 shares of our Series C
Convertible Preferred Stock were issued to Mitsui &
Co., Ltd. in exchange for 137,143 ordinary shares in the capital
of Brightstar Logistics Pte. The Series C Convertible
Preferred Stock was issued in reliance on Section 4(2) of
the Securities Act.
Over the past three years, we issued options to purchase
3,337,750 shares of common stock under the 2004 Plan and
2006 Plan, with a weighted average exercise price of $18.75 as
of December 31, 2010. Over the past three years, 2,045,697
have been forfeited, 8,100 have been exercised for shares of our
common stock, and the remaining 2,923,945 were outstanding as of
December 31, 2010. The options to purchase common stock
were issued in reliance on Rule 701 under the Securities
Act. We did not, nor do we plan to, pay or give, directly or
indirectly, any commission or other remuneration, including
underwriting discounts, in connection with any of the issuances
of securities listed above.
|
|
Item 16.
|
Exhibits and
Financial Statement Schedules.
|
(a) The following exhibits are filed as part of this
Registration Statement:
II-2
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
1
|
|
|
Form of Underwriting Agreement*
|
|
3
|
.1
|
|
Certificate of Incorporation*
|
|
3
|
.2
|
|
By-Laws*
|
|
4
|
.1
|
|
Form of Class A Common Stock Certificate*
|
|
4
|
.2
|
|
Fourth Amended and Restated Stockholders Agreement of
Brightstar Corp. dated September 30, 2008*
|
|
4
|
.3
|
|
Indenture, dated as of November 30, 2010, among Brightstar
Corp., the guarantors party thereto and Deutsche Bank
Trust Company Americas, as Trustee; governing the of
9.500% Senior Notes due 2016*
|
|
4
|
.4
|
|
Form of 9.500% Senior Note due 2016*
|
|
5
|
.1
|
|
Opinion of Davis Polk & Wardwell LLP*
|
|
10
|
.1
|
|
Third Amended And Restated Revolving Credit And Security
Agreement between PNC Bank, National Association, as lender and
administrative agent, PNC Capital Markets LLC, as sole lead
arranger, and the other lenders party thereto, Brightstar Corp.
and Brightstar US, Inc., as borrowers, and the other loan
parties signatory thereto dated December 23, 2010*
|
|
10
|
.2
|
|
Amended And Restated Shareholders Deed of Brightstar
Europe Limited by and among WDC Limited Partnership, TD United
Kingdom Acquisition Limited, Brightstar Corp., Tech Data
Corporation and Brightstar Europe Limited dated 20 October
2010*
|
|
10
|
.3
|
|
Employment Agreement, dated April 1, 2011, by and between
R. Marcelo Claure and Brightstar Corp.*
|
|
10
|
.4
|
|
Employment Agreement, dated April 1, 2011, by and between
Dennis Strand and Brightstar Corp.*
|
|
10
|
.5
|
|
Employment Agreement, dated April 1, 2011, by and between
Michael J Cost and Brightstar US, Inc.*
|
|
10
|
.6
|
|
Employment Agreement, dated April 1, 2011, by and between
Oscar A. Rojas and Brightstar Corp.*
|
|
10
|
.7
|
|
Amended and Restated Employment Agreement, dated April 1,
2011, by and between Arturo A. Osorio and Brightstar Logistics
PTY Limited*
|
|
10
|
.8
|
|
Brightstar Corp. 2004 Stock Incentive Plan*
|
|
10
|
.9
|
|
Brightstar Corp. 2006 Executive Stock Incentive Plan*
|
|
10
|
.10
|
|
Brightstar Corp. 2011 Stock Incentive Plan*
|
|
10
|
.11
|
|
Form of Director and Officer Indemnification Agreement*
|
|
10
|
.12
|
|
Form of Director and Officer Indemnification Agreement for
directors appointed by LG Brightstar LLC*
|
|
10
|
.13
|
|
Compensation agreement, dated September 4, 2008, by and
between Charles H. Fine and Brightstar Corp.*
|
|
21
|
.1
|
|
Subsidiaries of the Registrant*
|
|
23
|
.1
|
|
Consent of KPMG LLP
|
|
23
|
.2
|
|
Consent of Davis Polk & Wardwell LLP (included in
Exhibit 5)*
|
|
24
|
.1
|
|
Power of Attorney (included on signature page)
|
|
|
|
* |
|
To be filed with subsequent amendment to the
S-1. |
|
|
|
Indicates a management contract or compensatory plan or
arrangement. |
II-3
The undersigned hereby undertakes:
(a) The undersigned registrant hereby undertakes to provide
to the underwriter at the closing specified in the underwriting
agreement certificates in such denominations and registered in
such names as required by the underwriter to permit prompt
delivery to each purchaser.
(b) Insofar as indemnification for liabilities arising
under the Securities Act of 1933 may be permitted to
directors, officers and controlling persons of the registrant
pursuant to the provisions referenced in Item 14 of this
Registration Statement, or otherwise, the registrant has been
advised that in the opinion of the Securities and Exchange
Commission such indemnification is against public policy as
expressed in the Act and is, therefore, unenforceable. In the
event that a claim for indemnification against such liabilities
(other than the payment by the registrant of expenses incurred
or paid by a director, officer or controlling person of the
registrant in the successful defense of any action, suit or
proceeding) is asserted by such director, officer or controlling
person in connection with the securities being registered
hereunder, the registrant will, unless in the opinion of its
counsel the matter has been settled by controlling precedent,
submit to a court of appropriate jurisdiction the question of
whether such indemnification by it is against public policy as
expressed in the Act and will be governed by the final
adjudication of such issue.
(c) The undersigned registrant hereby undertakes that:
(1) For purposes of determining any liability under the
Securities Act of 1933, the information omitted from the form of
prospectus filed as part of this Registration Statement in
reliance upon Rule 430A and contained in a form of
prospectus filed by the Registrant pursuant to
Rule 424(b)(1) or (4) or 497(h) under the Securities
Act shall be deemed to be part of this Registration Statement as
of the time it was declared effective.
(2) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that
contains a form of prospectus shall be deemed to be a new
Registration Statement relating to the securities offered
therein, and the offering of such securities at that time shall
be deemed to be the initial bona fide offering thereof.
II-4
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant has duly caused this Registration Statement to be
signed on its behalf by the undersigned, thereunto duly
authorized, in the City of Miami, State of Florida, on the
14th day of April, 2011.
BRIGHTSTAR CORP.
Name: Dennis J. Strand
|
|
|
|
Title:
|
Executive Vice President and Chief Financial Officer
|
KNOW ALL MEN BY THESE PRESENTS, that each person whose signature
appears below constitutes and appoints R. Marcelo Claure
and Dennis J. Strand, and each of them, his or her true and
lawful attorneys-in-fact and agents, with full power to act
separately and full power of substitution and resubstitution,
for him or her and in his or her name, place and stead, in any
and all capacities, to sign any and all amendments (including
post-effective amendments) to this registration statement and
all additional registration statements pursuant to
Rule 462(b) of the Securities Act of 1933, as amended, and
to file the same, with all exhibits thereto, and all other
documents in connection therewith, with the Securities and
Exchange Commission, granting unto each said attorney-in-fact
and agent full power and authority to do and perform each and
every act in person, hereby ratifying and confirming all that
said attorneys-in-fact and agents or either of them or his or
her or their substitute or substitutes may lawfully do or cause
to be done by virtue hereof.
This Power of Attorney shall not revoke any powers of attorney
previously executed by the undersigned. This Power of Attorney
shall not be revoked by any subsequent power of attorney that
the undersigned may execute, unless such subsequent power of
attorney specifically provides that it revokes this Power of
Attorney by referring to the date of the undersigneds
execution of this Power of Attorney. For the avoidance of doubt,
whenever two or more powers of attorney granting the powers
specified herein are valid, the agents appointed on each shall
act separately unless otherwise specified.
Pursuant to the requirements of the Securities Act of 1933, as
amended, this registration statement has been signed by the
following persons in the capacities, in the locations and on the
dates indicated.
|
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
City, State
|
|
Date
|
|
|
|
|
|
|
|
|
/s/ R.
Marcelo Claure
R.
Marcelo Claure
|
|
Chairman and Chief Executive Officer (Principal Executive
Officer)
|
|
Miami, Florida
|
|
April 14, 2011
|
|
|
|
|
|
|
|
/s/ Dennis
J. Strand
Dennis
J. Strand
|
|
Executive Vice President, Chief Financial Officer and Director
(Principal Financial Officer and Principal Accounting Officer)
|
|
Miami, Florida
|
|
April 14, 2011
|
|
|
|
|
|
|
|
/s/ Steven
I. Bandel
Steven
I. Bandel
|
|
Director
|
|
Miami, Florida
|
|
April 14, 2011
|
|
|
|
|
|
|
|
/s/ Michael
J. Cost
Michael
J. Cost
|
|
Director
|
|
Miami, Florida
|
|
April 14, 2011
|
|
|
|
|
|
|
|
|
|
Signature
|
|
Title
|
|
City, State
|
|
Date
|
|
|
|
|
|
|
|
|
/s/ Oscar
J. Fumagali
Oscar
J. Fumagali
|
|
Director
|
|
Miami, Florida
|
|
April 14, 2011
|
|
|
|
|
|
|
|
/s/ Denise
W. Gibson
Denise
W. Gibson
|
|
Director
|
|
Chicago, Illinois
|
|
April 14, 2011
|
|
|
|
|
|
|
|
/s/ Rafael M. de Guzman III
Rafael
M. de Guzman III
|
|
Director
|
|
Miami, Florida
|
|
April 14, 2011
|
|
|
|
|
|
|
|
/s/ Charles
H. Fine
Charles
H. Fine
|
|
Director
|
|
Cambridge, Massachusetts
|
|
April 14, 2011
|
|
|
|
|
|
|
|
/s/ Alan
E. Goldberg
Alan
E. Goldberg
|
|
Director
|
|
New York, New York
|
|
April 14, 2011
|
|
|
|
|
|
|
|
/s/ Lance
L. Hirt
Lance
L. Hirt
|
|
Director
|
|
New York, New York
|
|
April 14, 2011
|
|
|
|
|
|
|
|
/s/ Robert
D. Lindsay
Robert
D. Lindsay
|
|
Director
|
|
New York, New York
|
|
April 14, 2011
|
|
|
|
|
|
|
|
/s/ Thomas
J. Meredith
Thomas
J. Meredith
|
|
Director
|
|
New York, New York
|
|
April 14, 2011
|
|
|
|
|
|
|
|
/s/ Andrew
S. Weinberg
Andrew
S. Weinberg
|
|
Director
|
|
New York, New York
|
|
April 14, 2011
|
EXHIBIT INDEX
|
|
|
|
|
Exhibit
|
|
|
Number
|
|
Description
|
|
|
1
|
|
|
Form of Underwriting Agreement*
|
|
3
|
.1
|
|
Certificate of Incorporation*
|
|
3
|
.2
|
|
By-Laws*
|
|
4
|
.1
|
|
Form of Class A Common Stock Certificate*
|
|
4
|
.2
|
|
Fourth Amended and Restated Stockholders Agreement of
Brightstar Corp. dated September 30, 2008*
|
|
4
|
.3
|
|
Indenture, dated as of November 30, 2010, among Brightstar
Corp., the guarantors party thereto and Deutsche Bank
Trust Company Americas, as Trustee; governing the of
9.500% Senior Notes due 2016*
|
|
4
|
.4
|
|
Form of 9.500% Senior Note due 2016*
|
|
5
|
.1
|
|
Opinion of Davis Polk & Wardwell LLP*
|
|
10
|
.1
|
|
Third Amended And Restated Revolving Credit And Security
Agreement between PNC Bank, National Association, as lender and
administrative agent, PNC Capital Markets LLC, as sole lead
arranger, and the other lenders party thereto, Brightstar Corp.
and Brightstar US, Inc., as borrowers, and the other loan
parties signatory thereto dated December 23, 2010*
|
|
10
|
.2
|
|
Amended And Restated Shareholders Deed of Brightstar
Europe Limited by and among WDC Limited Partnership, TD United
Kingdom Acquisition Limited, Brightstar Corp., Tech Data
Corporation and Brightstar Europe Limited dated 20 October
2010*
|
|
10
|
.3
|
|
Employment Agreement, dated April 1, 2011, by and between
R. Marcelo Claure and Brightstar Corp.*
|
|
10
|
.4
|
|
Employment Agreement, dated April 1, 2011, by and between
Dennis Strand and Brightstar Corp.*
|
|
10
|
.5
|
|
Employment Agreement, dated April 1, 2011, by and between
Michael J Cost and Brightstar US, Inc.*
|
|
10
|
.6
|
|
Employment Agreement, dated April 1, 2011, by and between
Oscar A. Rojas and Brightstar Corp.*
|
|
10
|
.7
|
|
Amended and Restated Employment Agreement, dated April 1,
2011, by and between Arturo A. Osorio and Brightstar Logistics
PTY Limited*
|
|
10
|
.8
|
|
Brightstar Corp. 2004 Stock Incentive Plan*
|
|
10
|
.9
|
|
Brightstar Corp. 2006 Executive Stock Incentive Plan*
|
|
10
|
.10
|
|
Brightstar Corp. 2011 Stock Incentive Plan*
|
|
10
|
.11
|
|
Form of Director and Officer Indemnification Agreement*
|
|
10
|
.12
|
|
Form of Director and Officer Indemnification Agreement for
directors appointed by LG Brightstar LLC*
|
|
10
|
.13
|
|
Compensation agreement, dated September 4, 2008, by and
between Charles H. Fine and Brightstar Corp.*
|
|
21
|
.1
|
|
Subsidiaries of the Registrant*
|
|
23
|
.1
|
|
Consent of KPMG LLP
|
|
23
|
.2
|
|
Consent of Davis Polk & Wardwell LLP (included in
Exhibit 5)*
|
|
24
|
.1
|
|
Power of Attorney (included on signature page)
|
|
|
|
* |
|
To be filed by subsequent amendment. |
|
|
|
Indicates a management contract or compensatory plan or
arrangement. |