e10vq
 

 
 
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2008
0-23494
(Commission File no.)
 
Brightpoint, Inc.
(Exact name of registrant as specified in its charter)
     
Indiana   35-1778566
State or other jurisdiction of   (I.R.S. Employer Identification No.)
incorporation or organization    
     
2601 Metropolis Parkway, Suite 210, Plainfield, Indiana   46168
(Address of principal executive offices)   (Zip Code)
     
  (317) 707-2355  
  (Registrant’s telephone number, including area code)  
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer or a non-accelerated filer, or a smaller reporting company. See definition of “accelerated filer,” large accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer o            Accelerated filer þ                      Non-accelerated filer o                      Smaller reporting company o
                          (Do not check if a smaller reporting company)
Indicate by checkmark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act) Yes o No þ
The number of shares of Common Stock outstanding as of May 1, 2008: 81,593,200
 
 

 


 

PART 1 – FINANCIAL INFORMATION
Item 1. Financial Statements
Brightpoint, Inc.
Consolidated Statements of Operations

(Amounts in thousands, except per share data)
(Unaudited)
                 
    Three Months Ended
    March 31,
    2008   2007
     
Revenue
               
Distribution revenue
  $ 1,089,010     $ 567,040  
Logistic services revenue
    105,771       74,589  
     
Total revenue
    1,194,781       641,629  
 
               
Cost of revenue
               
Cost of distribution revenue
    1,039,145       550,414  
Cost of logistic services revenue
    68,367       58,500  
     
Total cost of revenue
    1,107,512       608,914  
     
 
               
Gross profit
    87,269       32,715  
 
               
Selling, general and administrative expenses
    71,751       28,253  
Amortization expense
    4,722       80  
Restructuring charge
    3,614        
     
Operating income from continuing operations
    7,182       4,382  
 
               
Interest, net
    7,544       1,150  
Other (income) expenses
    (1,965 )     44  
     
Income from continuing operations before income taxes
    1,603       3,188  
 
               
Income tax expense
    705       1,346  
     
 
               
Income from continuing operations before minority interest
    898       1,842  
 
               
Minority interest, net of taxes
    139        
 
               
Income from continuing operations
    759       1,842  
 
               
Discontinued operations, net of income taxes:
               
Gain from discontinued operations
    16       4  
Gain on disposal of discontinued operations
          4  
     
Total discontinued operations, net of income taxes
    16       8  
 
     
Net income
  $ 775     $ 1,850  
     
 
               
Earnings per share — basic:
               
Income from continuing operations
  $ 0.01     $ 0.04  
Discontinued operations, net of income taxes
           
     
Net income
  $ 0.01     $ 0.04  
     
 
               
Earnings per share — diluted:
               
Income from continuing operations
  $ 0.01     $ 0.04  
Discontinued operations, net of income taxes
           
     
Net income
  $ 0.01     $ 0.04  
     
 
               
Weighted average common shares outstanding:
               
Basic
    77,523       49,488  
     
Diluted
    81,519       50,424  
     
See accompanying notes

2


 

Brightpoint, Inc.
Consolidated Balance Sheets

(Amounts in thousands, except per share data)
                 
    March 31,     December 31,  
    2008     2007  
    (Unaudited)          
ASSETS
               
Current Assets:
               
Cash and cash equivalents
  $ 90,753     $ 102,160  
Accounts receivable (less allowance for doubtful accounts of $18,034 in 2008 and $17,157 in 2007)
    578,811       754,238  
Inventories
    471,107       474,951  
Other current assets
    70,505       69,261  
 
           
Total current assets
    1,211,176       1,400,610  
 
               
Property and equipment, net
    58,663       55,732  
Goodwill
    371,166       349,646  
Other intangibles, net
    139,198       135,431  
Other assets
    34,510       30,942  
 
           
 
Total assets
  $ 1,814,713     $ 1,972,361  
 
           
 
               
LIABILITIES AND SHAREHOLDERS’ EQUITY
               
Current liabilities:
               
Accounts payable
  $ 571,560     $ 666,085  
Accrued expenses
    165,875       189,415  
Current portion of long-term debt
    12,382       19,332  
Lines of credit and other short-term borrowings
    9,703        
 
           
Total current liabilities
    759,520       874,832  
 
               
Long-term liabilities:
               
Lines of credit, long-term
    126,989       208,399  
Long-term debt
    229,333       233,122  
Other long-term liabilities
    59,513       54,425  
 
           
Total long-term liabilities
    415,835       495,946  
 
           
Total liabilities
    1,175,355       1,370,778  
 
               
COMMITMENTS AND CONTINGENCIES
               
 
               
Minority interest
    1,014       818  
 
               
Shareholders’ equity:
               
Preferred stock, $0.01 par value: 1,000 shares authorized; no shares issued or outstanding
           
Common stock, $0.01 par value: 100,000 shares authorized; 88,647 issued in 2008 and 88,418 issued in 2007
    886       884  
Additional paid-in-capital
    586,389       584,806  
Treasury stock, at cost, 6,951 shares in 2008 and 6,930 shares in 2007
    (58,952 )     (58,695 )
Retained earnings
    30,242       29,467  
Accumulated other comprehensive income
    79,779       44,303  
 
           
Total shareholders’ equity
    638,344       600,765  
 
           
 
Total liabilities and shareholders’ equity
  $ 1,814,713     $ 1,972,361  
 
           
See accompanying notes

3


 

Brightpoint, Inc.
Consolidated Statements of Cash Flows

(Amounts in thousands)
(Unaudited)
                 
    Three Months Ended
    March 31,
    2008   2007
     
Operating activities
               
Net income
  $ 775     $ 1,850  
Adjustments to reconcile net income to net cash provided by (used in) operating activities:
               
Depreciation and amortization
    9,507       3,059  
Discontinued operations
    16       (8 )
Pledged cash requirements
          (1,342 )
Non-cash compensation
    1,645       1,552  
Restructuring charge
    3,614        
Change in deferred taxes
    (4,262 )     1,348  
Minority interest
    139        
Other non-cash
    3,330       1,091  
     
 
    14,764       7,550  
 
               
Changes in operating assets and liabilities, net of effects from acquisitions and divestitures:
               
Accounts receivable
    211,058       35,764  
Inventories
    29,298       71,593  
Other operating assets
    (3,154 )     (3,224 )
Accounts payable and accrued expenses
    (153,557 )     (121,512 )
     
Net cash provided by (used in) operating activities
    98,409       (9,829 )
 
               
Investing activities
               
Capital expenditures
    (6,377 )     (4,847 )
Acquisitions, net of cash acquired
    (1,252 )     (67,018 )
Decrease (increase) in other assets
    1,002       (1,472 )
     
Net cash used in investing activities
    (6,627 )     (73,337 )
 
               
Financing Activities
               
Net proceeds from (repayments) on lines of credit
    (79,134 )     76,434  
Repayments on Global Term Loans
    (23,130 )      
Deferred financing costs paid
          (1,627 )
Purchase of treasury stock
    (257 )     (353 )
Excess tax (deficit) benefit from equity based compensation
    (82 )     104  
Proceeds from common stock issuances under employee stock option plans
    22       255  
     
Net cash provided by (used in) financing activities
    (102,581 )     74,813  
 
               
Effect of exchange rate changes on cash and cash equivalents
    (608 )     943  
     
Net decrease in cash and cash equivalents
    (11,407 )     (7,410 )
Cash and cash equivalents at beginning of period
    102,160       54,130  
     
Cash and cash equivalents at end of period
  $ 90,753     $ 46,720  
     
See accompanying notes

4


 

Brightpoint, Inc.
Notes to Consolidated Financial Statements
(Unaudited)
1. Basis of Presentation
General
The accompanying unaudited Consolidated Financial Statements have been prepared in conformity with U.S. generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X of the Securities Exchange Act of 1934. Accordingly, they do not include all of the information and footnotes necessary for fair presentation of financial position, results of operations and cash flows in conformity with U.S. generally accepted accounting principles. Operating results from interim periods are not necessarily indicative of results that may be expected for the fiscal year as a whole. The Company is subject to seasonal patterns that generally affect the wireless device industry. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates, but management does not believe such differences will materially affect Brightpoint, Inc.’s financial position or results of operations. The Consolidated Financial Statements reflect all adjustments considered, in the opinion of management, necessary to fairly present the results for the periods. Such adjustments are of a normal recurring nature.
For further information, including the Company’s significant accounting policies, refer to the audited Consolidated Financial Statements and the notes thereto included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007. As used herein, the terms “Brightpoint”, “Company”, “we”, “our” and “us” mean Brightpoint, Inc. and its consolidated subsidiaries.
Earnings Per Share
Basic earnings per share is based on the weighted average number of common shares outstanding during each period, and diluted earnings per share is based on the weighted average number of common shares and dilutive common share equivalents outstanding during each period. The following is a reconciliation of the numerators and denominators of the basic and diluted earnings per share computations (in thousands, except per share data):
                 
    Three Months Ended  
    March 31,  
    2008     2007  
     
Income from continuing operations
  $ 759     $ 1,842  
Discontinued operations, net of income taxes
    16       8  
 
           
Net Income
  $ 775     $ 1,850  
 
           
 
               
Earnings per share — basic:
               
Income from continuing operations
  $ 0.01     $ 0.04  
Discontinued operations, net of income taxes
           
 
           
Net income
  $ 0.01     $ 0.04  
 
           
 
               
Earnings per share — diluted:
               
Income from continuing operations
  $ 0.01     $ 0.04  
Discontinued operations, net of income taxes
           
 
           
Net income
  $ 0.01     $ 0.04  
 
           
 
               
Weighted average shares outstanding for basic earnings per share
    77,523       49,488  
Net effect of dilutive stock options, restricted stock units, shares held in escrow and restricted stock based on the treasury stock method using average market price
    3,996       936  
 
           
Weighted average shares outstanding for diluted earnings per share
    81,519       50,424  
 
           

5


 

Brightpoint, Inc.
Notes to Consolidated Financial Statements
Recently Issued Accounting Pronouncements
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards (SFAS) 157, Fair Value Measurements. The provisions of SFAS 157 were effective for the Company on January 1, 2008 for financial assets and liabilities and are effective for the Company on January 1, 2009 for non-financial assets and liabilities. The adoption of SFAS 157 did not have a material impact on the Company’s financial statements. SFAS 157 defines fair value, provides guidance for measuring fair value and requires certain disclosures. SFAS No. 157 discusses valuation techniques, such as the market approach (comparable market prices), the income approach (present value of future income or cash flow), and the cost approach (cost to replace the service capacity of an asset or replacement cost). The statement utilizes a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value into three broad levels. The following is a brief description of those three levels:
    Level 1: Observable inputs such as quoted prices (unadjusted) in active markets for identical assets or liabilities.
 
    Level 2: Inputs, other than quoted prices, that are observable for the asset or liability, either directly or indirectly. These include quoted prices for similar assets or liabilities in active markets and quoted prices for identical or similar assets or liabilities in markets that are not active.
 
    Level 3: Unobservable inputs that reflect the reporting entity’s own assumptions.
The following table summarizes the bases used to measure certain financial assets and financial liabilities at fair value on a recurring basis in the balance sheet (in thousands):
                         
            Quoted prices   Significant
    Balance at   in active   other
    March 31,   markets   observable
    2008   (Level 1)   inputs (Level 2)
Financial instruments classified as assets
                       
Marketable securities
  $ 7,050     $ 7,050     $  
 
                       
Financial instruments classified as liabilities
                       
Interest rate swaps
  $ 3,833     $     $ 3,833  
Forward foreign currency contracts
    1,692             1,692  
In December 2007, FASB issued SFAS 141 (R). This statement amends SFAS 141, Business Combinations, and provides revised guidance for recognizing and measuring identifiable assets and goodwill acquired, liabilities assumed, and any noncontrolling interest in the acquiree. It also provides disclosure requirements to enable users of the financial statements to evaluate the nature and financial effects of the business combination. The provisions of SFAS 141(R) are effective for the Company on January 1, 2009. The Company does not currently expect the adoption of SFAS 141(R) to have a material impact on its financial statements since the provisions of SFAS 141 (R) are applied prospectively.
In December 2007, the FASB issued SFAS 160, Noncontrolling Interests in Consolidated Financial Statements — an amendment of ARB 51. SFAS 160 amends ARB 51 to establish accounting and reporting standards for the noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. It also amends certain of ARB 51’s consolidation procedures for consistency with the requirements of SFAS 141(R). The provisions of SFAS 160 are effective for the Company on January 1, 2009. The Company does not expect the adoption of SFAS 160 to have a material impact on its financial statements.
In March 2008, the FASB issued SFAS 161, Disclosures about Derivative Instruments and Hedging Activities. This Statement enhances disclosures about derivative and hedging activities. The provisions of SFAS 161 are effective

6


 

Brightpoint, Inc.
Notes to Consolidated Financial Statements
for the Company on January 1, 2009. The Company does not expect the adoption of SFAS 161 to have a material impact on its financial statements.
Other Comprehensive Income
Comprehensive income is comprised of net income, unrealized losses on marketable securities, unrealized losses on derivative instruments, and gains or losses resulting from currency translations of foreign investments. The details of comprehensive income for the three months ended March 31, 2008 and 2007 are as follows (in thousands):
                 
    Three Months Ended  
    March 31,  
    2008     2007  
     
Net income
  $ 775     $ 1,850  
Unrealized loss on derivative instruments
    (721 )      
Unrealized loss on marketable securities
    (1,334 )      
Foreign currency translation
    37,531       1,835  
 
           
Comprehensive income
  $ 36,251     $ 3,685  
 
           
2. Acquisitions
On March 30, 2007, the Company completed its acquisition of certain assets and the assumption of certain liabilities related to the U.S. operations and the Miami-based Latin America business of CellStar Corporation for $67.5 million (including direct acquisition costs). Results of operations related to this acquisition have been included in the Company’s Consolidated Statements of Operations beginning in the second quarter of 2007.
On July 31, 2007 the Company completed its acquisition of Dangaard Telecom A/S (Dangaard Telecom). The purchase price for the Dangaard Telecom acquisition was $311.1 million (including direct acquisition costs). The fair value of the Company’s common stock was measured in accordance with EITF 99-12, Determination of the Measurement Date for the Market Price of Acquirer Securities Issued in a Purchase Business Combination. Total equity consideration was estimated using a stock price of $11.25 per share, which represents the average closing stock price beginning two trading days before and ending two trading days after February 20, 2007, the date of the public announcement of the definitive purchase agreement. The allocation of the purchase price is based upon preliminary estimates of the fair value of assets acquired and liabilities assumed. Results of operations related to this acquisition are included in the Company’s Consolidated Statements of Operations beginning on August 1, 2007.
The following sets forth unaudited pro forma financial information in accordance with accounting principles generally accepted in the United States assuming the Dangaard Telecom acquisition took place at the beginning of the period presented. The unaudited pro forma results include certain adjustments as described in the notes below (in thousands, except per share data):
Three months ended:
(amounts in 000s)
                                         
    Dangaard                
March 31, 2007   Telecom   Brightpoint   Adjustments   Note   Consolidated
     
Revenue
  $ 507,719     $ 641,629     $ (49,911 )     (1 )   $ 1,099,437  
Income from continuing operations
    2,675       1,842       (3,101 )     (2 )     1,416  
Net income
    2,675       1,850       (3,101 )             1,424  
 
                                       
Weighted average shares outstanding — diluted
            50,424       30,000       (3 )     80,424  
 
                                       
Income from continuing operations per share — diluted
          $ 0.04                     $ 0.02  

7


 

Brightpoint, Inc.
Notes to Consolidated Financial Statements
Pro forma adjustments:
  (1)   To reclassify the cost of revenue that was historically presented on a gross basis to a net basis to conform with EITF 99-19, Reporting Revenue Gross as a Principal versus Net as an Agent and Brightpoint accounting policy.
 
  (2)   To record the following:
    amortization of the intangible assets recorded as a result of the acquisition Dangaard Telecom, and
 
    income tax provision for the effect of the pro forma adjustments above based on statutory tax rates.
  (3)   To adjust the weighted average number of shares outstanding used to determine diluted pro forma earnings per share assuming the 30,000,000 shares of the Company’s unregistered Common Stock used to acquire Dangaard Telecom were issued at the beginning of the period presented.
Prior to the completion of the acquisition of Dangaard Telecom, Company management began formulating a plan to exit certain activities of the combined company. Components of this plan included terminating Dangaard Telecom’s implementation of SAP enterprise resource planning (ERP) and related software and consolidating certain facilities. These additional liabilities were recognized as liabilities assumed in the business combination and included in the allocation of the acquisition costs in accordance with EITF 95-3, Recognition of Liabilities in Connection with a Purchased Business Combination. Adjustments to the purchase price allocation under the preliminary plan resulted in reductions of assets acquired of $16.7 million and additional liabilities assumed of $2.7 million in 2007.
3. Borrowings
At March 31, 2008, the Company and its subsidiaries were in compliance with the covenants in each of its credit agreements. Interest expense includes interest on outstanding debt, fees paid for unused capacity on credit lines and amortization of deferred financing fees. Average daily debt outstanding was approximately $513.0 million in the first quarter of 2008.
The table below summarizes the borrowings that were available to the Company as of March 31, 2008 (in thousands):
                                 
                    Letters of Credit &   Net
    Gross Availability   Outstanding   Guarantees   Availability
     
Global Term Loans
  $ 241,715     $ 241,715     $     $  
Global Credit Facility
    300,000       126,989       1,027       171,984  
Other
    60,624       9,703             50,921  
     
Total
  $ 602,339     $ 378,407     $ 1,027     $ 222,905  
     
Additional details on the above borrowings are discussed in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.
4. Guarantees
In accordance with FIN 45, Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others, guarantees are recorded at fair value and disclosed, even when the likelihood of making any payments under such guarantees is remote.
The Company has issued certain guarantees on behalf of its subsidiaries with regard to lines of credit. Although the guarantees relating to lines of credit are excluded from the scope of FIN 45, the nature of these guarantees and the amounts outstanding are described in the Company’s Annual Report on Form 10-K for the year ended December 31, 2007.

8


 

Brightpoint, Inc.
Notes to Consolidated Financial Statements
The Company has entered into indemnification agreements with its officers and directors, to the extent permitted by law, pursuant to which the Company has agreed to reimburse its officers and directors for legal expenses in the event of litigation and regulatory matters. The terms of these indemnification agreements provide for no limitation to the maximum potential future payments. The Company has a directors and officers insurance policy that may, in certain instances, mitigate the potential liability and payments.
Late in 2004, the Company entered into a non-exclusive agreement to distribute wireless devices in Europe for a certain supplier. Subject to this agreement, the Company provides warranty repair services on certain devices it distributes for this supplier. The warranty period for these devices ranges from 12 to 24 months, and the Company is liable for providing warranty repair services unless failure rates exceed a certain threshold. The Company records estimated expenses related to future warranty repair at the time the devices are sold. Estimates for warranty costs are calculated primarily based on management’s assumptions related to cost of repairs and anticipated failure rates. During 2006, this supplier re-branded its devices and provides aftermarket support services including warranty repairs. The Company does not provide warranty repair services on the re-branded devices on behalf of the supplier; however, the Company does provide aftermarket support services including warranty repairs for wireless devices sold by one of the Company’s European operations to one customer. Sales of devices for which the Company provides warranty repair services have decreased significantly since this supplier re-branded its devices. The Company assumed an obligation through the acquisition of Dangaard Telecom that is related to a similar program. Warranty accruals are adjusted from time to time when the Company’s actual warranty claim experience differs from its estimates. A summary of the changes in the product warranty accrual is as follows (in thousands):
                 
    Three Months Ended
    March 31,
    2008   2007
     
January 1
  $ 3,944     $ 3,063  
Provision for product warranties
    478       1,227  
Settlements during the period
    (1,760 )     (1,893 )
     
March 31
  $ 2,662     $ 2,397  
     
5. Restructuring
Prior to the completion of the acquisition of Dangaard Telecom, Company management began formulating a plan to exit certain activities of the combined company. As Company management finalizes the plan, additional liabilities may result primarily related to involuntary employee termination costs and costs to exit certain facilities in our Europe operations. These additional liabilities will be recognized as liabilities assumed in the business combination and included in the allocation of the acquisition costs in accordance with EITF 95-3, Recognition of Liabilities in Connection with a Purchased Business Combination.
Reserve activity for the restructuring for the three months ended March 31, 2008 is as follows (in thousands):
                         
            Lease        
    Employee     Termination        
    Terminations     Costs     Total  
Balance at December 31, 2007
  $ 3,336     $ 728     $ 4,064  
Restructuring charge
    426       3,188       3,614  
Foreign currency translation
    138       123       261  
 
                 
Total activity:
    3,900       4,039       7,939  
 
                       
Less:
                       
Cash usage
    (886 )           (886 )
Non-cash usage
                 
 
                 
Balance at March 31, 2008
  $ 3,014     $ 4,039     $ 7,053  
 
                 

9


 

Brightpoint, Inc.
Notes to Consolidated Financial Statements
Restructuring charge was $3.6 million for the three months ended March 31, 2008. The restructuring charge consists of $3.2 million associated with the exit of our redundant warehouse and office facility in Germany as well as $0.4 million of severance costs to terminate employees of the Company’s redundant operations in Germany and Norway.
6. Operating Segments
The Company has operations centers and/or sales offices in various countries including Australia, Austria, Belgium, Colombia, Denmark, Finland, France, Germany, India, Italy, the Netherlands, New Zealand, Norway, Poland, Portugal, Russia, Singapore, Slovakia, South Africa, Spain, Sweden, Switzerland, Turkey, the United Arab Emirates, the United Kingdom and the United States. All of the Company’s operating entities generate revenue from the distribution of wireless devices and accessories and/or the provision of logistic services. The Company identifies its reportable segments based on management responsibility of its three geographic divisions: the Americas, Asia-Pacific and Europe. The Company’s operating segments have been aggregated into these three geographic reporting segments.
The Company evaluates the performance of and allocates resources to these segments based on operating income from continuing operations (excluding corporate selling, general and administrative expenses and other unallocated expenses). In the first quarter of 2008, the Company reclassified the financial information related to the global IT support cost center from the Asia-Pacific region to the Corporate and Reconciling section of the segment information presented below. Segment information as of and for the three months ended March 31, 2007 has been reclassified to conform to the 2008 presentation. A summary of the Company’s operations by segment is presented below (in thousands) for the three months ended March 31, 2008 and 2007:
                                         
                            Corporate and    
    Americas   Asia-Pacific   Europe   Reconciling Items   Total
     
Three Months Ended March 31, 2008:
                                       
Distribution revenue
  $ 200,853     $ 330,448     $ 557,709     $     $ 1,089,010  
Logistic services revenue
    46,750       10,640       48,381             105,771  
     
Total revenue from external customers
  $ 247,603     $ 341,088     $ 606,090     $     $ 1,194,781  
     
 
                                       
Operating income from continuing operations
  $ 8,256     $ 6,085     $ 945     $ (8,104 )   $ 7,182  
Depreciation and amortization
    2,683       744       5,816       264       9,507  
Capital expenditures
    1,077       93       4,952       255       6,377  
 
                                       
Three Months Ended March 31, 2007:
                                       
Distribution revenue
  $ 139,951     $ 318,277     $ 108,812     $     $ 567,040  
Logistic services revenue
    42,226       7,235       25,104       24       74,589  
     
Total revenue from external customers
  $ 182,177     $ 325,512     $ 133,916     $ 24     $ 641,629  
     
 
                                       
Operating income from continuing operations
  $ 5,482     $ 4,313     $ 725     $ (6,138 )   $ 4,382  
Depreciation and amortization
    2,059       512       262       226       3,059  
Capital expenditures
    3,526       841       194       286       4,847  
Additional segment information is as follows (in thousands):
                 
    March 31,   December 31,
    2008   2007
     
Total segment assets:
               
Americas
  $ 289,092     $ 354,910  
Asia-Pacific
    202,142       243,084  
Europe
    1,294,611       1,343,621  
Corporate
    28,868       30,746  
     
 
  $ 1,814,713     $ 1,972,361  
     
7. Legal Proceedings and Contingencies
On July 31, 2007, we acquired Dangaard Telecom which had the following material claims and/or disputes:

10


 

Brightpoint, Inc.
Notes to Consolidated Financial Statements
German value-added tax authorities
There are two disputes pending with Finanzamt Flensburg, the German value-added tax, or VAT, authorities (the Finanzamt):
  1.   Dangaard Telecom’s subsidiary, Dangaard Telecom Denmark A/S, received an assessment from the Finanzamt claiming that local German VAT should be applied on sales made by Dangaard Telecom Denmark A/S to two specific German customers in 1997 and 1998. Finanzamt claimed approximately $2.9 million. The case is currently in abeyance waiting for a principal decision or settlement involving similar cases pending in Germany. Dangaard Telecom Denmark A/S continues to dispute this claim and intends to defend this matter vigorously. The former shareholders of Dangaard Telecom agreed to indemnify Dangaard Holding with respect to this dispute when Dangaard Holding acquired Dangaard Telecom, and Dangaard Holding has agreed in the purchase agreement to transfer and assign these indemnification rights to us (or enforce them on our behalf if such transfer or assignment is not permitted).
 
  2.   Dangaard Telecom’s subsidiary, Dangaard Telecom Denmark A/S, received a notice from the Finanzamt claiming that local German VAT should be applied on all sales made by Dangaard Telecom Denmark A/S to German customers during the years 1999 to 2004. Finanzamt claimed approximately $8.1 million. The case is currently in abeyance waiting for a principal decision or settlement involving similar cases pending in Germany. Dangaard Telecom Denmark A/S continues to dispute this claim and intends to defend this matter vigorously. The former shareholders of Dangaard Telecom agreed to indemnify Dangaard Holding with respect to 80% of this claim when Dangaard Holding acquired Dangaard Telecom, and Dangaard Holding has agreed in the purchase agreement to transfer and assign these indemnification rights to us (or enforce them on our behalf if such transfer or assignment is not permitted).
Fleggaard group of companies
The former headquarters of Dangaard Telecom was in premises rented from a member of the Fleggaard group of companies, which was a former shareholder of Dangaard Telecom. A fire in March 2006 caused by another tenant in the building destroyed the headquarters and Dangaard Telecom had to leave the building while awaiting renovation of its space. Because of Fleggaard’s failure to renovate the space, Dangaard Telecom terminated the lease. Fleggaard has disputed the lease termination and has claimed $1.4 million in damages. Dangaard Telecom continues to dispute this claim and intends to defend this matter vigorously.
Norwegian tax authorities
Dangaard Telecom’s subsidiary, Dangaard Telecom Norway AS Group, received notice from the Norwegian tax authorities regarding tax claims in connection with certain capital gains. The Norwegian tax authorities have claimed $2.7 million. Dangaard Telecom Norway AS Group has disputed this claim; however, The Norwegian Tax Authorities ruled against Dangaard Telecom Norway AS in April 2008, and a law firm has been asked to give an assessment of whether or not to appeal the case. The former shareholders of Dangaard Telecom agreed to indemnify Dangaard Holding with respect to 80% of this claim when Dangaard Holding acquired Dangaard Telecom, and Dangaard Holding agreed in the purchase agreement with the Company to transfer and assign these indemnification rights to the Company (or enforce them on our behalf if such transfer or assignment is not permitted). The Company is currently evaluating the actions to be taken towards former shareholders of the Dangaard group of companies in relation to the indemnification agreement.
German tax authorities
Dangaard Telecom’s subsidiary, Dangaard Telecom Germany Holding GmbH, received notice from the German tax authorities regarding tax claims in connection with the deductibility of certain stock adjustments and various fees during the period 1998 to 2002. Dangaard Telecom Germany Holding GmbH agreed to pay part of the claim, and the current amount in dispute is $1.8 million. Dangaard Telecom Germany Holding GmbH continues to dispute this claim and intends to defend this matter vigorously. The former shareholders of Dangaard Telecom are obliged to indemnify Dangaard Holding with respect to any such tax claims. Due to the claim’s limited size, however, it will be below an agreed upon threshold, therefore the indemnification would not be activated by this claim if no other claims for indemnification have been or are asserted.

11


 

Brightpoint, Inc.
Notes to Consolidated Financial Statements
8. Subsequent events
On April 28, 2008, the Company acquired the assets of Hugh Symons Group Ltd.’s wireless distribution business for $0.6 million (0.3 million pounds sterling) and the value of inventory at date of closing. In addition, the Company agreed to contingent cash earn out payments based upon certain operating performance measures which may be payable on the first, second and third anniversary of closing. The total earn out payments shall in no event exceed $7.2 million (3.6 million pounds sterling).
In April 2008, the Company reached an agreement with the former managing director of the Company’s Colombia operations to sell certain assets used primarily in connection with fulfillment services performed in that market. The agreement will result in a pre-tax loss in connection with this sale of approximately $1.7 million to $2.0 million in the second quarter of 2008 of which approximately $1.1 million to $1.4 million will be non-cash.

12


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
OVERVIEW AND RECENT DEVELOPMENTS
This discussion and analysis should be read in conjunction with the accompanying Consolidated Financial Statements and related notes. Our discussion and analysis of the financial condition and results of operations is based upon our consolidated financial statements, which have been prepared in conformity with U.S. generally accepted accounting principles. The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities, disclosure of any contingent assets and liabilities at the financial statement date and reported amounts of revenue and expenses during the reporting period. On an on-going basis we review our estimates and assumptions. Our estimates were based on our historical experience and various other assumptions that we believe to be reasonable under the circumstances. Actual results could differ from those estimates but we do not believe such differences will materially affect our financial position or results of operations. Our critical accounting policies and estimates, the policies we believe are most important to the presentation of our financial statements and require the most difficult, subjective and complex judgments are outlined in our Annual Report on Form 10-K for the year ended December 31, 2007, and have not changed significantly. Certain statements made in this report may contain forward-looking statements. For a description of risks and uncertainties relating to such forward-looking statements, see the cautionary statements contained in Exhibit 99.1 to this report and our Annual Report on Form 10-K for the year ended December 31, 2007.
Brightpoint, Inc. is a global leader in the distribution of wireless devices and accessories and provision of customized logistic services to the wireless industry. We have operations centers and/or sales offices in various countries including Australia, Austria, Belgium, Colombia, Denmark, Finland, France, Germany, India, Italy, the Netherlands, New Zealand, Norway, Poland, Portugal, Russia, Singapore, Slovakia, South Africa, Spain, Sweden, Switzerland, Turkey, the United Arab Emirates, the United Kingdom and the United States. We provide customized integrated logistic services including procurement, inventory management, software loading, kitting and customized packaging, fulfillment, credit services and receivables management, call center and activation services, website hosting, e-fulfillment solutions and other services within the global wireless industry. Our customers include mobile network operators, mobile virtual network operators (MVNOs), resellers, retailers and wireless equipment manufacturers. We distribute wireless communication devices and we provide value-added distribution and logistic services for wireless products manufactured by companies such as High Tech Computer Corp., Kyocera, LG Electronics, Motorola, Nokia, Samsung, Siemens, Sony Ericsson and UTStarcom.
On July 31, 2007 we completed our acquisition of Dangaard Telecom A/S (Dangaard Telecom). Results of operations related to this acquisition are included in our Consolidated Statements of Operations beginning on August 1, 2007.
On March 30, 2007, we completed our acquisition of certain assets and the assumption of certain liabilities related to the U.S. operations and the Miami-based Latin America business of CellStar Corporation. Results of operations related to this acquisition have been included in our Consolidated Statements of Operations beginning in the second quarter of 2007.

13


 

RESULTS OF OPERATIONS
Revenue and wireless devices handled by division and service line
                                         
    Three Months Ended March 31,    
            % of           % of    
    2008   Total   2007   Total   Change
    (Amounts in 000s)        
Distribution revenue
                                       
 
Americas
  $ 200,853       19 %   $ 139,951       25 %     44 %
Asia-Pacific
    330,448       30 %     318,277       56 %     4 %
Europe
    557,709       51 %     108,812       19 %     413 %
             
Total
  $ 1,089,010       100 %   $ 567,040       100 %     92 %
             
 
                                       
Logistic services revenue
                                       
 
                                       
Americas
  $ 46,750       44 %   $ 42,226       56 %     11 %
Asia-Pacific
    10,640       10 %     7,235       10 %     47 %
Europe
    48,381       46 %     25,104       34 %     93 %
             
Total
  $ 105,771       100 %   $ 74,565       100 %     42 %
             
 
                                       
Total revenue
                                       
 
                                       
Americas
  $ 247,603       21 %   $ 182,177       28 %     36 %
Asia-Pacific
    341,088       28 %     325,512       51 %     5 %
Europe
    606,090       51 %     133,916       21 %     353 %
             
Total
  $ 1,194,781       100 %   $ 641,605       100 %     86 %
             
                                         
    Three months ended    
    March 31,    
            % of           % of    
    2008   Total   2007   Total   Change
    (Amounts in 000s)        
     
Wireless devices sold through distribution
                                       
 
Americas
    1,593       25 %     987       25 %     61 %
Asia-Pacific
    2,740       43 %     2,564       66 %     7 %
Europe
    2,025       32 %     347       9 %     484 %
             
Total
    6,358       100 %     3,898       100 %     63 %
             
 
                                       
Wireless devices handled through logistic services
                                       
 
                                       
Americas
    14,030       91 %     10,121       96 %     39 %
Asia-Pacific
    376       2 %     364       3 %     3 %
Europe
    1,020       7 %     147       1 %     594 %
             
Total
    15,426       100 %     10,632       100 %     45 %
             
 
                                       
Total wireless devices handled
                                       
 
                                       
Americas
    15,623       72 %     11,108       77 %     41 %
Asia-Pacific
    3,116       14 %     2,928       20 %     6 %
Europe
    3,045       14 %     494       3 %     516 %
             
Total
    21,784       100 %     14,530       100 %     50 %
             
The following table presents the percentage changes in revenue for the first quarter of 2008 by service line compared to the same period in the prior year, including the effect of handset volume, average selling price, foreign currency, and acquisitions on these percentage changes.

14


 

                                                                 
    2008 Percentage Change in Revenue vs. 2007        
                    Non-                        
    Handset-   Average   handset                        
    based   Selling   based   Foreign                    
    volume (1)   Price   revenue (2)   Currency   Subtotal (3)   Acquisitions   Total        
     
Distribution
    (3 %)     (1 %)     1 %     2 %     (1 %)     93 %     92 %        
Logistic services
    9 %     (5 %)     8 %     2 %     14 %     28 %     42 %        
Total
    (2 %)     (1 %)     2 %     2 %     1 %     85 %     86 %        
 
(1)   Handset-based volume includes percentage change in revenue from wireless devices sold through our distribution business and revenue from wireless devices handled through our logistic services business.
 
(2)   Non-handset distribution revenue includes revenue from accessories sold, freight, non-voice navigation devices and PCs and PC accessories sold through our distribution business. Non-handset based logistic services revenue includes revenue from the sale of prepaid airtime, freight billed, and fee based services other than fees earned from wireless devices handled.
 
(3)   The subtotal represents the percent change in distribution revenue and logistic services revenue excluding the impact the acquisitions of the North America and Latin America operations of CellStar on March 31, 2007 and the acquisition of Dangaard Telecom on July 31, 2007.
Revenue and wireless devices handled by division:
                                         
    Three Months Ended    
    March 31,    
Americas           % of           % of    
(Amounts in 000s)   2008   Total   2007   Total   Change
     
REVENUE:
                                       
Distribution
  $ 200,853       81 %   $ 139,951       77 %     44 %
Logistic services
    46,750       19 %     42,226       23 %     11 %
             
Total
  $ 247,603       100 %   $ 182,177       100 %     36 %
             
 
                                       
WIRELESS DEVICES HANDLED :
                                       
Distribution
    1,593       10 %     987       9 %     61 %
Logistic services
    14,030       90 %     10,121       91 %     39 %
             
Total
    15,623       100 %     11,108       100 %     41 %
             
The following table presents the percentage changes in revenue for our Americas division by service line for the first quarter of 2008 compared to the same period in the prior year, including the effect of handset volume, average selling price, foreign currency, and the CellStar acquisition on these percentage changes.
                                                         
    2008 Percentage Change in Revenue vs. 2007
                    Non-                    
    Handset-   Average   handset                    
    based   Selling   based   Foreign           CellStar    
    volume   Price   revenue   Currency   Subtotal   Acquisition   Total
     
Distribution
    (19 %)     14 %     0 %     1 %     (4 %)     48 %     44 %
Logistic services
    17 %     (9 %)     2 %     1 %     11 %     0 %     11 %
Total
    (11 %)     9 %     0 %     1 %     (1 %)     37 %     36 %
The decrease in handset based volume was primarily due to higher sales of lower priced handsets in 2007 that did not recur in the first quarter of 2008. The increase in average selling price was primarily due to a higher mix of converged devices sold compared to the same period in the prior year. Converged devices are feature-rich and typically carry a higher average selling price. While we believe the market for converged devices will continue to expand, there can be no assurances that our average selling price will continue to remain at current levels and the mix of devices sold will continue to yield favorable variances in average selling price.

15


 

The increase in devices handled through logistic services and decrease in average fulfillment fee per unit in our Americas division was primarily driven by the successful launch of the T-Mobile logistic services business during the second quarter of 2007.
                                         
    Three Months Ended    
    March 31,    
Asia-Pacific           % of           % of    
(Amounts in 000s)   2008   Total   2007   Total   Change
     
REVENUE:
                                       
Distribution
  $ 330,448       97 %   $ 318,277       98 %     4 %
Logistic services
    10,640       3 %     7,235       2 %     47 %
             
Total
  $ 341,088       100 %   $ 325,512       100 %     5 %
             
 
                                       
WIRELESS DEVICES HANDLED :
                                       
Distribution
    2,740       88 %     2,564       88 %     7 %
Logistic services
    376       12 %     364       12 %     3 %
             
Total
    3,116       100 %     2,928       100 %     6 %
             
The following table presents the percentage changes in revenue for our Asia-Pacific division by service line for the first quarter of 2008 compared to the same period in the prior year, including the effect of handset volume, average selling price, and foreign currency on these percentage changes.
                                         
    2008 Percentage Change in Revenue vs. 2007
                    Non-        
    Handset-   Average   handset        
    based   Selling   based   Foreign    
    volume   Price   revenue   Currency   Total
     
Distribution
    6 %     (7 %)     2 %     3 %     4 %
Logistic services
    1 %     2 %     39 %     5 %     47 %
Total
    6 %     (6 %)     2 %     3 %     5 %
The increase in wireless devices sold in our Asia-Pacific division was driven by increased volume of devices sold to customers served by our Singapore business. However, supply constraints caused by snow storms in China slowed the growth in devices sold by our Singapore business. The decrease in average selling price in our Asia-Pacific division was also driven by our Singapore business as a result of an increase in sales of lower priced handsets due to market demand as well as lower availability of higher priced devices. This decrease in average selling price in Singapore was partially offset by an increase in average selling price in our Australia business due to a higher mix of converged devices sold compared to the same period in the prior year.
The increase in non-handset based logistic services revenue was primarily due to an increase in repair services in India compared to the same period in the prior year as well as an increase in revenue from non-handset based logistic services contracts in New Zealand.

16


 

                                         
            Three Months Ended            
    March 31,    
Europe           % of           % of    
(Amounts in 000s)   2008   Total   2007   Total   Change
     
REVENUE:
                                       
Distribution
  $ 557,709       92 %   $ 108,812       81 %     413 %
Logistic services
    48,381       8 %     25,104       19 %     93 %
             
Total
  $ 606,090       100 %   $ 133,916       100 %     353 %
             
 
                                       
WIRELESS DEVICES HANDLED :
                                       
Distribution
    2,025       67 %     347       70 %     484 %
Logistic services
    1,020       33 %     147       30 %     594 %
             
Total
    3,045       100 %     494       100 %     516 %
             
The following table presents the percentage changes in revenue for the first quarter of 2008 by service line for our Europe division compared to the same period in the prior year, including the effect of handset volume, average selling price, foreign currency, and the Dangaard Telecom acquisition on these percentage changes.
                                                         
    2008 Percentage Change in Revenue vs. 2007
                    Non-                    
    Handset-   Average   handset                    
    based   Selling   based   Foreign           Dangaard    
    volume   Price   revenue   Currency   Subtotal   Acquisition   Total
     
Distribution
    (12 %)     1 %     (1 %)     3 %     (9 %)     422 %     413 %
Logistic services
    0 %     (1 %)     8 %     2 %     9 %     84 %     93 %
Total
    (10 %)     1 %     1 %     2 %     (6 %)     359 %     353 %
The increase in distribution revenue was primarily due to the acquisition of Dangaard Telecom. The acquisition of Dangaard Telecom expanded our Europe division to include nine countries in which we historically did not have a significant operating presence. In countries in which both companies had a significant operating presence, the acquisition of Dangaard Telecom allowed us to increase our market share. Excluding the Dangaard Telecom operations, distribution revenue in our Europe division was estimated to have decreased 9% when assuming that revenue from legacy Brightpoint operations in overlapping countries (Germany, Norway, and Sweden) remained constant from the first quarter of 2007. The decrease in handset-based volume excluding the Dangaard Telecom operations was primarily due to a decrease in wireless devices sold by our Finland operations as a result of lower sales to a wireless device retailer. The decrease in non-handset based revenue was primarily due to a decrease in revenue from the sale of locally branded PC notebooks in Europe. This business is currently under evaluation, and revenue from the sale of locally branded PC notebooks is not expected to return to historical levels.
The increase in logistic services revenue was primarily due to the acquisition of Dangaard Telecom, which was included in our results of operations beginning on August 1, 2007. In order to conform to Brightpoint accounting policies and US GAAP, Dangaard Telecom changed its revenue recognition for arrangements where Dangaard Telecom serves as the “agent” in the transaction. The revenue from these arrangements is included in logistic services revenue. Excluding the Dangaard Telecom operations, logistic services revenue in our Europe division increased 9% due to an increase in revenue from the sale of prepaid airtime in Sweden.

17


 

Gross Profit and Gross Margin
                                         
    Three Months Ended    
    March 31,    
            % of           % of    
    2008   Total   2007   Total   Change
    (Amounts in 000s)        
Distribution
  $ 49,865       57 %   $ 16,626       51 %     200 %
Logistic services
    37,404       43 %     16,089       49 %     132 %
             
Gross profit
  $ 87,269       100 %   $ 32,715       100 %     167 %
             
 
                                       
Distribution
    4.6 %             2.9 %           1.7  points
Logistic services
    35.4 %             21.6 %           13.8  points
Gross margin
    7.3 %             5.1 %           2.2  points
The 2.2 percentage point increase in gross margin was driven by both a 1.7 percentage point increase in gross margin from our distribution business and a 13.8 percentage point increase in gross margin from our logistic services business. The increases in gross profit and gross margin from logistic services were driven by incremental logistic services gross profit and gross margin from the Dangaard Telecom operations as well the impact of conforming Dangaard Telecom to Brightpoint accounting policies. The increases in distribution gross profit and gross margin were primarily driven by a shift in mix toward higher margin distribution business in Europe resulting from the acquisition of Dangaard Telecom. Distribution gross margin was negatively impacted by approximately 0.3 percentage points due to a loss from the sale of locally branded PC notebooks in Europe. This business is currently under evaluation, and revenue and profit from the sale of locally branded PC notebooks is not expected to return to historical levels.
Selling General and Administrative (SG&A) Expenses
                         
    Three Months Ended    
    March 31,    
    2008   2007   Change
    (Amounts in 000s)        
SG&A expenses
  $ 71,751     $ 28,253       154 %
Percent of revenue
    6.0 %     4.4 %   1.6  points
The increase in SG&A expenses for the first quarter of 2008 compared to the same period in the prior year was primarily driven by the impact of the Dangaard Telecom and CellStar acquisitions.
As a percent of revenue, SG&A expenses increased 1.6 percentage points. The increase in SG&A as a percent of revenue was largely driven by the impact of the Dangaard Telecom operations including the impact of conforming Dangaard Telecom to Brightpoint accounting policies. In addition, SG&A as a percent of revenue was negatively impacted by the lower than expected revenue resulting from overall weakness in Europe during mid to late March as well as the supply constraints caused by snow storms in China. SG&A expenses included $1.6 million of non-cash stock based compensation expense for the three months ended March 31, 2008 and 2007.
Compared to the fourth quarter of 2007, which was the first full quarter including the Dangaard Telecom operations, SG&A expenses decreased $1.4 million from $73.1 million for the three months ended December 31, 2007.
Amortization expense
Amortization expense was $4.7 million for the three months ended March 31, 2008 compared to $0.1 million for the same period in the prior year. The increase in amortization expense relates to finite-lived intangible assets acquired in connection with the CellStar and Dangaard Telecom transactions. We allocated the purchase price of the Dangaard Telecom and CellStar acquisitions based on the fair value of assets acquired and liabilities assumed. The assets acquired in connection with the Dangaard Telecom transaction included $123.1 million of finite-lived intangible assets assigned to the customer relationships as of July 31, 2007. The acquired finite-lived intangible

18


 

assets have a useful life of approximately fifteen years and are being amortized over the period that the assets are expected to contribute to our future cash flows. The assets are being amortized on an accelerated method based on the projected cash flows used for valuation purposes. We believe that these cash flows are most reflective of the pattern in which the economic benefit of the finite-lived intangible assets will be consumed.
Restructuring charge
Restructuring charge was $3.6 million for the three months ended March 31, 2008. The restructuring charge consists of $3.2 million associated with the exit of our redundant warehouse and office facility in Germany as well as $0.4 million of severance costs to terminate employees of our redundant operations in Germany and Norway.
In the second quarter of 2008, we will record a pre-tax restructuring charge of approximately $1.7 million to $2.0 million in connection with the sale of certain assets in Colombia to the former managing director. Approximately $1.1 million to $1.4 million of this charge will be non-cash.
Operating Income from Continuing Operations
                                         
    Three Months Ended    
    March 31,    
            % of           % of    
    2008   Total   2007   Total   Change
    (Amounts in 000s)        
Americas
  $ 8,256       115 %   $ 5,482       125 %     51 %
Asia-Pacific
    6,085       85 %     4,313       98 %     41 %
Europe
    945       13 %     725       17 %     30 %
Corporate
    (8,104 )     (113 %)     (6,138 )     (140 %)     32 %
             
Total
  $ 7,182       100 %   $ 4,382       100 %     64 %
             
Operating Income as a Percent of Revenue by Division:
                         
    Three Months Ended    
    March 31,    
    2008   2007   Change
     
Americas
    3.3 %     3.0 %   0.3 points
Asia-Pacific
    1.8 %     1.3 %   0.5 points
Europe
    0.2 %     0.5 %   (0.3) points
Total
    0.6 %     0.7 %   (0.1) points
The increase in operating income in our Americas division was primarily as a result of the acquisition of CellStar and the launch of logistic services for T-Mobile in the second quarter of 2007.
The increase in operating income in our Asia-Pacific division was primarily as a result of an increase in volume of devices sold to customers served by our Singapore business as well as a better allocation of products compared to the first quarter of 2007. However, supply constraints caused by snow storms in China slowed the growth in devices sold by our Singapore business.
Operating income in our Europe division increased $0.2 million despite the acquisition of Dangaard Telecom primarily due to overall weakness in Western Europe during mid to late March as well as a loss in connection with locally branded PC notebook distribution business in Europe. This business is currently under evaluation, and profit from the sale of locally branded PC notebooks is not expected to return to historical levels.
The increase in operating loss from our corporate function was due to an increase in personnel costs primarily due to an increase in headcount in support of managing our expanded global operations.

19


 

Interest, net
The components of interest, net are as follows:
                         
    Three Months Ended    
    March 31,    
    2008   2007   Change
    (Amounts in 000s)        
Interest expense
  $ 8,770     $ 1,478       493 %
Interest income
    (1,226 )     (328 )     274 %
             
Interest, net
  $ 7,544     $ 1,150       556 %
             
Interest expense includes interest on outstanding debt, charges for accounts receivable factoring programs, fees paid for unused capacity on credit lines and amortization of deferred financing fees. The increase in interest expense for the three months ended March 31, 2008 compared to the same period in the prior year was primarily due to the debt assumed in the Dangaard Telecom acquisition as well as borrowings for the CellStar acquisition. We have made $102.3 million of repayments of borrowings during the first quarter of 2008, primarily near the end of the quarter. Average daily debt outstanding was approximately $513.0 million in the first quarter of 2008.
Other income
Other income was $2.0 million for the three months ended March 31, 2008. The increase in other income was primarily due to foreign currency transaction gains.
Income Tax Expense
                         
    Three Months Ended    
    March 31,    
    2008   2007   Change
    (Amounts in 000s)        
Income tax expense
  $ 705     $ 1,346       (48 )%
Effective tax rate
    44.0 %     42.2 %   1.8  points
Income tax expense for the first quarter of 2008 was $0.7 million resulting in an effective tax rate of 44.0% compared to an effective tax rate of 42.2% for the first quarter of 2007. The effective income tax rate is higher than the U.S. statutory rate due to certain non-deductible items during the quarter. We still expect our effective tax rate to be within a range of 32.0% to 35.0% for the 2008 fiscal year.
Return on Invested Capital from Operations (ROIC)
We believe that it is important for a business to manage its balance sheet as well as it manages its statement of operations. A measurement that ties the statement of operations performance to the balance sheet performance is Return on Invested Capital from Operations, or ROIC. We believe that if we are able to grow our earnings while minimizing the use of invested capital, we will be optimizing shareholder value while preserving resources in preparation for further potential growth opportunities. We take a simple approach in calculating ROIC: we apply an estimated average tax rate to the operating income of our continuing operations with adjustments for unusual items, such as facility consolidation charges, and apply this tax-adjusted operating income to our average capital base, which, in our case, is our shareholders’ equity and debt. The details of this measurement are outlined below.

20


 

                                 
    Three Months Ended     Trailing Four Quarters Ended  
    March 31,     March 31,  
(Amounts in 000s)   2008     2007     2008     2007  
Operating income after taxes:
                               
Operating income from continuing operations
  $ 7,182     $ 4,382     $ 68,714     $ 40,184  
Plus: restructuring charge
    3,614             12,275        
Less: estimated income taxes (1)
    (4,746 )     (1,850 )     (5,741 )     (10,587 )
 
                       
Operating income after taxes
  $ 6,050     $ 2,532     $ 75,248     $ 29,597  
 
                       
 
                               
Invested Capital:
                               
Debt
  $ 378,407     $ 94,405     $ 378,407     $ 94,405  
Shareholders’ equity
    638,344       200,063       638,344       200,063  
 
                       
Invested capital
  $ 1,016,751     $ 294,468     $ 1,016,751     $ 294,468  
 
                       
Average invested capital (2)
  $ 1,039,184     $ 253,460     $ 734,773     $ 199,565  
ROIC (3)
    2 %     4 %     10 %     15 %
 
(1)   Estimated income taxes were calculated by multiplying the sum of operating income from continuing operations and the facility consolidation charge by the respective periods’ effective tax rate.
 
(2)   Average invested capital for quarterly periods represents the simple average of the beginning and ending invested capital amounts for the respective quarter.
 
(3)   ROIC is calculated by dividing operating income after taxes by average invested capital. ROIC for quarterly periods is stated on an annualized basis and is calculated by dividing operating income after taxes by average invested capital and multiplying the results by four.
The decline in ROIC for the three months ended March 31, 2008 compared to the same period in the prior year was primarily due to the increase in average invested capital compared the prior year. Average invested capital was negatively impacted by an increase in invested capital to fund the acquisition of Dangaard Telecom.
Operating income after taxes was negatively impacted for the three months ended March 31, 2008 by $4.7 million (after-tax) of non-cash amortization expense related to finite-lived intangible assets in connection with the acquisitions of Dangaard Telecom and certain assets of CellStar.
Our overall trailing four quarter ROIC may continue to decrease, and we currently estimate that it could go as low as 7% to 9%. We anticipate that our ROIC will trend upwards from this low point as we complete the integration of Dangaard Telecom, obtain anticipated synergies, obtain combined balance sheet improvements and reduce our debt.
LIQUIDITY AND CAPITAL RESOURCES
Consolidated Statement of Cash Flows
We use the indirect method of preparing and presenting our statements of cash flows. In our opinion, it is more practical than the direct method and provides the reader with a good perspective and analysis of the Company’s cash flows.

21


 

                         
    Three Months Ended    
    March 31,    
    2008   2007   Change
    (Amounts in 000s)        
Net cash provided by (used in):
                       
Operating activities
  $ 98,409     $ (9,829 )   $ 108,238  
Investing activities
    (6,627 )     (73,337 )     66,710  
Financing activities
    (102,581 )     74,813       (177,394 )
Effect of exchange rate changes on cash and cash equivalents
    (608 )     943       (1,551 )
     
Net increase (decrease) in cash and cash equivalents
  $ (11,407 )   $ (7,410 )   $ (3,997 )
     
Net cash provided by operating activities was $98.4 million for the first quarter of 2008 compared net cash used in used in operating activities of $9.8 million for the first quarter of 2007, a change of $108.2 million due to:
    $101.0 million less cash used for working capital primarily due to higher collections of receivables in the first three months of 2008.
 
    $7.2 million more cash provided by operating activities before changes in operating assets and liabilities for the first three months of 2008 compared to the same period in the prior year.
A large customer within our Europe division experienced IT difficulties at the end of December 2007, resulting in $62.2 million of anticipated payments in the fourth quarter being delayed into the first quarter. This payment was received on January 2, 2008. We do not expect similar payment delays due to IT difficulties from this customer in the future. Had this payment been received in 2007, net cash provided by operating activities would have been $36.2 million for the three months ended March 31, 2008.
Net cash used for investing activities was $6.6 million for the first quarter of 2008 compared to $73.3 million for the first quarter of 2007. This decrease is primarily due to the $67.5 million of cash used in connection with the acquisition of certain assets and assumption of certain liabilities related to the U.S. operations and the Miami -based Latin America business of CellStar Corporation during the first quarter of 2007.
Net cash used in financing activities was $102.6 million for the first quarter of 2008 compared to net cash provided by financing activities of $74.8 million for the first quarter of 2007, a change of $177.4 million. This change is primarily due to $102.3 million of repayments of borrowings during the first quarter of 2008 compared to $76.4 million of proceeds from credit facilities in same period in the prior year. These repayments were made primarily at the end of the first quarter of 2008.

22


 

Cash Conversion Cycle
                 
    Three Months Ended
    March 31,
    2008   2007
     
Days sales outstanding in accounts receivable
    32       22  
Days inventory on-hand
    37       50  
Days payable outstanding
    (41 )     (48 )
 
               
Cash Conversion Cycle Days
    28       24  
 
               
A key source of our liquidity is our ability to invest in inventory, sell the inventory to our customers, collect cash from our customers and pay our suppliers. We refer to this as the cash conversion cycle. For additional information regarding this measurement and the detailed calculation of the components of the cash conversion cycle, please refer to our Annual Report on Form 10-K for the year ended December 31, 2007. The cash conversion cycle for the three months ended March 31, 2007 was calculated excluding the assets acquired and liabilities assumed related to the U.S. operations and the Miami -based Latin America business of CellStar Corporation as such amounts were acquired on the last day of the quarter and no activity was recorded in our Consolidated Statement of Operations during the first quarter of 2007 related to the assets acquired and the liabilities assumed.
For the three months ended March 31, 2008, the cash conversion cycle increased to 28 days from 24 days for the same period in the prior year. The increase in the cash conversion cycle was primarily due to the Dangaard Telecom acquisition.
Compared to the fourth quarter of 2007, which was the first full quarter including the Dangaard Telecom operations, the cash conversion cycle increased one day from 27 days.
Lines of Credit
The table below summarizes the borrowings that were available to the Company as of March 31, 2008 (in thousands):
                                 
                    Letters of Credit &   Net
    Gross Availability   Outstanding   Guarantees   Availability
     
Global Term Loans
  $ 241,715     $ 241,715     $     $  
Global Credit Facility
    300,000       126,989       1,027       171,984  
Other
    60,624       9,703             50,921  
     
Total
  $ 602,339     $ 378,407     $ 1,027     $ 222,905  
     
Liquidity Analysis
We measure liquidity as the sum of total unrestricted cash and unused borrowing availability, and we use this measurement as an indicator of how much access to cash we have to either grow the business through investment in new markets, acquisitions, or through expansion of existing service or product lines or to contend with adversity such as unforeseen operating losses potentially caused by reduced demand for our products and services, material uncollectible accounts receivable, or material inventory write-downs, as examples. The table below shows our liquidity calculation.
                         
    March 31,   December 31,    
(Amounts in 000s)   2008   2007   % Change
     
Unrestricted cash
  $ 90,166     $ 101,582       (11 )%
Unused borrowing availability
    222,905       130,435       71 %
     
Liquidity
  $ 313,071     $ 232,017       35 %
     

23


 

Item 3. Quantitative and Qualitative Disclosures About Market Risk
There have been no material changes in our exposure to market risk since the disclosure in our Form 10-K for the year ended December 31, 2007.
Item 4. Controls and Procedures.
The Company, under the supervision and with the participation of its management, including its Principal Executive Officer and Principal Financial Officer has evaluated the effectiveness of its disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Exchange Act) as of the end of the period covered by this report. Based on that evaluation, the Principal Executive Officer and Principal Financial Officer have concluded that the Company’s disclosure controls and procedures are effective.
There has been no change in the Company’s internal control over financial reporting during the most recently completed fiscal quarter that has materially affected, or is reasonably likely to materially affect, internal control over financial reporting except we have integrated the CellStar operations and incorporated these operations as part of our internal controls. For purposes of this evaluation, the impact of the acquisition of Dangaard Telecom A/S, which closed on July 31, 2007, on our internal controls over financial reporting has been excluded.

24


 

PART II – OTHER INFORMATION
Item 1. Legal Proceedings.
The Company is from time to time involved in certain legal proceedings in the ordinary course of conducting its business. While the ultimate liability pursuant to these actions cannot currently be determined, the Company believes these legal proceedings will not have a material adverse effect on its financial position or results of operations. For more information on legal proceedings, see Note 7 Legal Proceedings and Contingencies, in the Notes to Consolidated Financial Statements.
Item 1A. Risk Factors.
In addition to the other information set forth in this report, you should carefully consider the factors discussed in Part I, “Item 1A. Risk Factors” in our Annual Report on Form 10-K for the year ended December 31, 2007, which could materially affect our business, financial condition or future results. Additional risks and uncertainties not currently known to us or that we currently deem to be immaterial also may materially adversely affect our business, financial condition and/or operating results.

25


 

Item 6. Exhibits.
     
Exhibit    
Number   Description
 
   
31.1
  Certification of Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, implementing Section 302 of the Sarbanes-Oxley Act of 2002(1)
 
   
31.2
  Certification of Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934 implementing Section 302 of the Sarbanes-Oxley Act of 2002(1)
 
   
32.1
  Certification of Chief Executive Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes- Oxley Act of 2002(1)
 
   
32.2
  Certification of Chief Financial Officer Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant To Section 906 of the Sarbanes- Oxley Act of 2002(1)
 
   
99.1
  Cautionary Statements(1)
 
(1)   Filed herewith

26


 

SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         
  Brightpoint, Inc.
(Registrant)
 
 
Date: May 6, 2008  /s/ Robert J. Laikin    
  Robert J. Laikin   
  Chairman of the Board and
Chief Executive Officer
(Principal Executive Officer) 
 
 
     
Date: May 6, 2008  /s/ Anthony W. Boor    
  Anthony W. Boor   
  Executive Vice President, Chief Financial Officer and Treasurer
(Principal Financial Officer) 
 
 
     
Date: May 6, 2008  /s/ Vincent Donargo    
  Vincent Donargo   
  Vice President, Corporate Controller, Chief
Accounting Officer
(Principal Accounting Officer) 
 

27