UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended May 31, 2001
or
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from___________to____________
Commission File Number 0-22972
CELLSTAR CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 75-2479727
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
1730 Briercroft Court
Carrollton, Texas 75006
Telephone (972) 466-5000
(Address, including zip code and telephone number,
including area code, of registrant's principal executive offices)
Indicate by check mark whether the registrant (1) has filed all reports to
be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No _____
-----
On July 9, 2001, there were 60,142,221 outstanding shares of Common Stock,
$0.01 par value per share.
1
CELLSTAR CORPORATION
INDEX TO FORM 10-Q
Page
PART I - FINANCIAL INFORMATION Number
------ --------------------- ------
Item 1. FINANCIAL STATEMENTS
CONSOLIDATED BALANCE SHEETS (unaudited)
May 31, 2001 and November 30, 2000 3
CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited)
Three and six months ended May 31, 2001 and 2000 4
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
AND COMPREHENSIVE INCOME (unaudited)
Six months ended May 31, 2001 5
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
Six months ended May 31, 2001 and 2000 6
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 7
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 13
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES
ABOUT MARKET RISK 20
PART II - OTHER INFORMATION
------- -----------------
Item 1. LEGAL PROCEEDINGS 21
Item 6. EXHIBITS AND REPORTS ON FORM 8-K 22
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements
CellStar Corporation and Subsidiaries
Consolidated Balance Sheets
(Unaudited)
(Amounts in thousands, except share data)
May 31, November 30,
2001 2000
--------------- --------------
Assets
------
Current Assets:
Cash and cash equivalents $ 44,164 77,023
Restricted cash 41,312 42,622
Accounts receivable (less allowance for doubtful accounts of
$56,813 and $75,810, respectively) 218,838 345,996
Inventories 165,911 265,644
Deferred income tax assets 33,672 30,866
Prepaid expenses 16,899 25,470
--------------- --------------
Total current assets 520,796 787,621
Property and equipment, net 18,012 22,015
Goodwill (less accumulated amortization of $6,695 and $17,408, respectively) 22,670 23,532
Deferred income tax assets 14,314 16,484
Other assets 9,903 9,172
--------------- --------------
$ 585,695 858,824
=============== ==============
Liabilities and Stockholders' Equity
------------------------------------
Current liabilities:
Accounts payable $ 161,005 361,006
Notes payable 57,708 129,970
Accrued expenses 19,741 22,744
Income taxes payable 5,187 2,948
Deferred income tax liabilities 13 6,573
--------------- --------------
Total current liabilities 243,654 523,241
Long-term debt 150,000 150,000
--------------- --------------
Total liabilities 393,654 673,241
--------------- --------------
Stockholders' equity:
Preferred stock, $.01 par value, 5,000,000 shares authorized;
none issued - -
Common stock, $.01 par value, 200,000,000 shares authorized;
60,142,221 shares issued and outstanding 602 602
Additional paid-in capital 81,298 81,298
Accumulated other comprehensive loss - foreign currency
translation adjustments (13,881) (10,861)
Retained earnings 124,022 114,544
--------------- --------------
Total stockholders' equity 192,041 185,583
--------------- --------------
$ 585,695 858,824
=============== ==============
See accompanying notes to unaudited consolidated financial statements.
3
CellStar Corporation and Subsidiaries
Consolidated Statements of Operations
(Unaudited)
(Amounts in thousands, except per share data)
Three months Six months
ended May 31, ended May 31,
-------------------------------------------------------------------
2001 2000 2001 2000
--------------- -------------- --------------- ---------------
Revenues $ 572,328 561,370 1,217,486 1,151,229
Cost of sales 537,673 558,233 1,146,038 1,099,809
--------------- -------------- --------------- ---------------
Gross profit 34,655 3,137 71,448 51,420
Selling, general and
administrative expenses 23,238 58,059 52,172 90,298
Restructuring charge (credit) 750 - 750 (157)
--------------- -------------- --------------- ---------------
Operating income (loss) 10,667 (54,922) 18,526 (38,721)
--------------- -------------- --------------- ---------------
Other income (expense):
Equity in loss of
affiliated companies - (466) (700) (381)
Gain on sale of assets - - 933 -
Interest expense (3,875) (4,702) (8,964) (8,773)
Other, net 815 182 3,555 396
--------------- -------------- --------------- ---------------
Total other income (expense) (3,060) (4,986) (5,176) (8,758)
--------------- -------------- --------------- ---------------
Income (loss) before income taxes 7,607 (59,908) 13,350 (47,479)
Provision (benefit) for income taxes 2,321 (17,484) 3,872 (14,501)
--------------- -------------- --------------- ---------------
Net income (loss) $ 5,286 (42,424) 9,478 (32,978)
=============== ============== =============== ===============
Net income (loss) per share:
Basic $ 0.09 (0.71) 0.16 (0.55)
=============== ============== =============== ===============
Diluted $ 0.09 (0.71) 0.16 (0.55)
=============== ============== =============== ===============
See accompanying notes to unaudited consolidated financial statements.
4
CellStar Corporation and Subsidiaries
Consolidated Statement of Stockholders' Equity and Comprehensive Income
Six months ended May 31, 2001
(Unaudited)
(In thousands)
Common Stock Accumulated
---------------------- Additional other comprehensive Retained
Shares Amount paid-in capital loss earnings Total
----------- --------- ---------------- ------------------- ------------ -----------
Balance at November 30, 2000 60,142 $ 602 81,298 (10,861) 114,544 185,583
Comprehensive income:
Net income - - - 9,478 9,478
Foreign currency translation adjustment - - (3,020) - (3,020)
-----------
Total comprehensive income 6,458
----------- --------- ---------------- ------------------- ------------ -----------
Balance at May 31, 2001 60,142 $ 602 81,298 (13,881) 124,022 192,041
=========== ========= ================ =================== ============ ===========
See accompanying notes to unaudited consolidated financial statements.
5
CellStar Corporation and Subsidiaries
Consolidated Statements of Cash Flows
Six months ended May 31, 2001 and 2000
(Unaudited)
(In thousands)
2001 2000
-------------- -------------
Cash flows from operating activities:
Net income (loss) $ 9,478 (32,978)
Adjustments to reconcile net income to net cash provided by
(used in) operating activities:
Depreciation and amortization 5,629 6,394
Equity in loss of affiliated companies 700 381
Gain on sale of assets (933) -
Deferred income taxes (7,196) (20,781)
Changes in operating assets and liabilities
net of effects from disposition of business:
Accounts receivable 122,297 2,351
Inventories 98,504 (85,700)
Prepaid expenses 7,499 5,270
Other assets 211 (1,818)
Accounts payable (195,280) 76,997
Accrued expenses (2,270) 638
Income taxes payable 2,239 (6,865)
-------------- -------------
Net cash provided by (used in) operating activities 40,878 (56,111)
-------------- -------------
Cash flows from investing activities:
Proceeds from sale of assets 2,237 -
Change in restricted cash 1,310 (10,405)
Purchases of property and equipment (2,060) (2,722)
Acquisition of business, net of cash acquired (195) (84)
Purchase of investment - (4,144)
Investment in joint venture (735) -
-------------- -------------
Net cash provided by (used in) investing activities 557 (17,355)
-------------- -------------
Cash flows from financing activities:
Net borrowings (repayments) on notes payable (72,262) 46,877
Additions to deferred loan costs (2,032) -
Net proceeds from issuance of common stock - 370
-------------- -------------
Net cash provided by (used in) financing activities (74,294) 47,247
-------------- -------------
Net decrease in cash and cash equivalents (32,859) (26,219)
Cash and cash equivalents at beginning of period 77,023 70,498
-------------- -------------
Cash and cash equivalents at end of period $ 44,164 44,279
============== =============
See accompanying notes to unaudited consolidated financial statements.
6
CellStar Corporation and Subsidiaries
Notes to Consolidated Financial Statements
(Unaudited)
(1) Basis of Presentation
Although the interim consolidated financial statements of CellStar
Corporation and subsidiaries (the "Company") are unaudited, Company
management is of the opinion that all adjustments (consisting of only
normal recurring adjustments) necessary for a fair statement of the results
have been reflected therein. Operating revenues and net income for any
interim period are not necessarily indicative of results that may be
expected for the entire year.
These statements should be read in conjunction with the consolidated
financial statements and related notes included in the Company's Annual
Report on Form 10-K/A Amendment No. 2 for the year ended November 30, 2000.
Certain prior period financial statement amounts have been reclassified to
conform to the current year presentation.
(2) Net Income Per Share
Basic net income per common share is based on the weighted average number
of common shares outstanding for the relevant period. Diluted net income
per common share is based on the weighted average number of common shares
outstanding plus the dilutive effect of potentially issuable common shares
pursuant to stock options and convertible notes.
7
A reconciliation of the numerators and denominators of the basic and diluted net
income per share computations for the three and six months ended May 31, 2001
and 2000, follows (in thousands, except per share data):
Three months ended
May 31,
---------------------------------
2001 2000
--------------- --------------
Basic:
Net income (loss) $ 5,286 (42,424)
=============== ==============
Weighted average number of shares outstanding 60,142 60,137
=============== ==============
Net income (loss) per share $ 0.09 (0.71)
=============== ==============
Diluted:
Net income (loss) $ 5,286 (42,424)
Interest on convertible notes, net of tax effect - -
--------------- --------------
Adjusted net income (loss) $ 5,286 (42,424)
=============== ==============
Weighted average number of shares outstanding 60,142 60,137
Effect of dilutive securities:
Stock options 1 -
Convertible notes - -
--------------- --------------
Weighted average number of shares outstanding including
effect of dilutive securities 60,143 60,137
=============== ==============
Net income (loss) per share $ 0.09 (0.71)
=============== ==============
Six months ended
May 31,
---------------------------------
2001 2000
--------------- --------------
Basic:
Net income (loss) $ 9,478 (32,978)
=============== ==============
Weighted average number of shares outstanding 60,142 60,121
=============== ==============
Net income (loss) per share $ 0.16 (0.55)
=============== ==============
Diluted:
Net income (loss) $ 9,478 (32,978)
Interest on convertible notes, net of tax effect - -
--------------- --------------
Adjusted net income (loss) $ 9,478 (32,978)
=============== ==============
Weighted average number of shares outstanding 60,142 60,121
Effect of dilutive securities:
Stock options 2 -
Convertible notes - -
--------------- --------------
Weighted average number of shares outstanding including
effect of dilutive securities 60,144 60,121
=============== ==============
Net income (loss) per share $ 0.16 (0.55)
=============== ==============
8
Options outstanding at May 31, 2001, to purchase 6.1 million and 5.7
million shares of common stock for the three and six months ended May
31, 2001 were not included in the computation of diluted earnings per
share (EPS) because their inclusion would have been anti-dilutive.
Options outstanding to purchase 5.4 million shares of common stock for
the three and six months ended May 31, 2000, respectively were not
included in the computation of diluted EPS because their inclusion would
have been anti-dilutive.
The subordinated convertible notes were not dilutive for the three and
six month periods ended May 31, 200l and 2000, respectively.
(3) Segment and Related Information
The Company operates predominately within one industry, wholesale and
retail sales of wireless telecommunications products. The Company's
management evaluates operations primarily on income before interest and
income taxes in the following reportable geographical regions: Asia-
Pacific, North America, Latin America, which includes Mexico and the
Company's Miami, Florida operations ("Miami"), and Europe. Revenues and
operating results of Miami are included in Latin America since Miami's
activities are primarily for export customers. The Corporate segment
includes headquarter operations, primarily general and administrative
costs, and income and expenses not allocated to reportable segments.
Corporate segment assets primarily consist of cash, cash equivalents and
deferred income tax assets. Intersegment sales and transfers are not
significant.
Segment asset information as of May 31, 2001, and November 30, 2000,
follows (in thousands):
Asia- North
Pacific America Latin America Europe Corporate Total
------------- ------------- --------------- ------------- ------------- -------------
Total assets
May 31, 2001 $ 278,483 95,037 132,135 45,649 34,391 585,695
November 30, 2000 289,677 172,527 256,907 56,824 82,889 858,824
9
Segment operations information for the three and six months ended May 31, 2001
and 2000, follows (in thousands):
Asia- North Latin
Pacific America America Europe Corporate Total
------------- ----------- ----------- ----------- -------------- -----------
Three months ended
May 31, 2001:
Revenues from external customers $ 308,983 104,983 98,579 59,783 - 572,328
Income (loss) before 9,116 6,789 390 (1,224) (4,475) 10,596
interest and income taxes
Three months ended
May 31, 2000:
Revenues from external customers 231,388 102,953 160,526 66,503 - 561,370
Income (loss) before
interest and income taxes 1,461 (19,962) (28,095) (3,654) (6,245) (56,495)
2001 2000
---------- ---------
Income (loss) before interest and income taxes per segment information....................... $ 10,596 (56,495)
Interest expense per the consolidated statements of operations............................... (3,875) (4,702)
Interest income included in other, net in the consolidated statements of operations.......... 886 1,289
---------- ---------
Income (loss) before income taxes per the consolidated statements of operations.............. $ 7,607 (59,908)
========== =========
Asia- North Latin
Pacific America America Europe Corporate Total
------------- ----------- ----------- ----------- -------------- ---------------
Six months ended
May 31, 2001:
Revenues from external customers $ 607,505 251,505 237,647 120,829 - 1,217,486
Income (loss) before
interest and income taxes 13,588 11,067 3,579 (1,103) (7,213) 19,918
Six months ended May 31, 2000:
Revenues from external customers 473,306 180,410 315,732 181,781 - 1,151,229
Income (loss) before
interest and income taxes 13,183 (19,117) (23,072) (960) (10,910) (40,876)
2001 2000
---------- --------
Income (loss) before interest and income taxes per segment information...................... $ 19,918 (40,876)
Interest expense per the consolidated statements of operations.............................. (8,964) (8,773)
Interest income included in other, net in the consolidated statements of operations......... 2,396 2,170
---------- --------
Income (loss) before income taxes per the consolidated statements of operations............. $ 13,350 (47,479)
========== ========
10
(4) Notes Payable
Notes payable consisted of the following at May 31, 2001 and November
30, 2000 (in thousands):
2001 2000
---------- ----------
Multicurrency revolving credit facility $ 16,081 82,700
People's Republic of China ("PRC") credit facilities 30,776 44,428
Taiwan note payable 8,009 -
Peru note payable 2,842 2,842
---------- ----------
$ 57,708 129,970
========== ==========
As of January 30, 2001, the Company had negotiated an amendment to its
Multicurrency Revolving Credit Facility, (the"Facility") that reduced the
amount of the Facility from $100.0 million to $86.4 million.
On February 27, 2001, the Company and its banking syndicate negotiated
and executed a Second Amended and Restated Credit Agreement that further
reduced the amount of the Facility to $85.0 million on February 27, 2001,
$74.0 million on July 31, 2001, $65.0 million on September 30, 2001, and
$50.0 million on December 15, 2001. Such Second Amended and Restated
Credit Agreement further (i) increases the applicable interest rate
margin by 25 basis points, (ii) shortens the term of the Facility from
June 1, 2002 to March 1, 2002, (iii) provides additional collateral for
such Facility in the form of additional stock pledges and mortgages on
real property, (iv) provides for dominion of funds by the banks for the
Company's U.S. operations, (v) limits the borrowing base, and (vi)
tightens restrictions on the Company's ability to fund its operations,
particularly its non-U.S. operations.
As of July 3, 2001, the Company had negotiated an additional amendment to
its Facility that reduced the borrowing capacity under the Facility from
$85.0 million to $40.0 million and waived compliance with a covenant for
the quarter ended May 31, 2001.
At July 9, 2001 the Company had available $29.5 million of unused
borrowing capacity under the Facility.
At May 31, 2001, the Company's operations in the PRC had three lines of
credit, one for USD $12.5 million, the second for RMB 215 million
(approximately USD $26.0 million) and the third for RMB 50 million
(approximately USD $6.0 million), bearing interest at 7.16%, 5.85% and
2.34% respectively. The loans have maturity dates through August 2001.
The first two lines of credit are fully collateralized by U.S. dollar
cash deposits. The cash deposits were made via intercompany loans from
the operating entity in Hong Kong as a mechanism to secure repatriation
of these funds. The third line of credit is supported by a RMB 15.0
million cash collateral deposit and a promissory note. At May 31, 2001,
the U.S. dollar equivalent of $30.8 million had been borrowed against the
lines of credit in the PRC. As a result of this method of funding
operations in the PRC, the consolidated balance sheet at May 31, 2001
reflects USD $41.3 million in cash that is restricted as collateral on
these advances and a corresponding USD $30.8 million in notes payable.
Based upon current and anticipated levels of operations, and aggressive
efforts to reduce inventories and accounts receivable, the Company
anticipates that its cash flow from operations, together with amounts
available under its Facility and existing unrestricted cash balances,
will be adequate to meet its anticipated cash requirements in the
foreseeable future. In the event that existing unrestricted cash
balances, cash flows and available borrowings under the Facility are not
sufficient to meet future cash requirements, the Company may be required
to reduce planned expenditures or seek additional financing. The Company
can provide no assurances that reductions in planned expenditures would
be sufficient to cover shortfalls in available cash or that additional
financing would be available or, if available, offered on terms
acceptable to the Company.
11
(5) Accounting for Derivative Instruments and Hedging Activities
In June 1998, the Financial Accounting Standards Board issued Statement No.
133, "Accounting for Derivative Instruments and Hedging Activities"
("Statement 133"), amended by Statement 138 issued in June 2000. Effective
December 1, 2000, the Company adopted Statement 133. Given the Company's
current derivative activities, the adoption of Statement 133 did not have a
material effect on the Company's consolidated financial position and
results of operations.
The Company uses various derivative financial instruments as part of an
overall strategy to manage the Company's exposure to market risk associated
with interest rate and foreign currency exchange rate fluctuations. The
Company evaluates the use of interest rate swaps and cap agreements to
manage its interest risk on debt instruments, including the reset of
interest rates on variable rate debt.
The Company periodically uses foreign currency forward contracts to reduce
exposure to exchange rate risks primarily associated with transactions in
the regular course of the Company's international operations. The Company
consolidates the bulk of its foreign exchange exposure related to
intercompany transactions in its international finance subsidiary. The
forward contracts establish the exchange rates at which the Company
purchases or sells the contracted amount of local currencies for specified
foreign currencies at a future date. The Company uses forward contracts,
which are short-term in nature (45 days to one year), and receives or pays
the difference between the contracted forward rate and the exchange rate at
the settlement date.
At May 31, 2001, the Company had French franc forward contracts with a
contractual amount of $5.6 million. The carrying amount and fair value of
these contracts are not significant. These derivatives are not accounted
for as hedges under Statement 133.
The Company does not hold or issue derivative financial instruments for
trading purposes.
(6) Contingencies
Refer to Part II, Item 1, "Legal Proceedings".
12
Item 2. Management's Discussion and Analysis of Financial Condition and
Results of Operations
Overview
The Company reported net income of $5.3 million, or $0.09 per diluted
share, for the second quarter of 2001, compared with a net loss of $42.4
million, or $0.71 per diluted share, for the same quarter last year.
Revenues for the quarter ended May 31, 2001, were $572.3 million, an
increase of $10.9 million compared to $561.4 million in 2000. Gross profit
increased from $3.1 million in 2000 to $34.7 million in 2001. Selling,
general and administrative expenses for the second quarter of 2001 were
$23.2 million compared to $58.1 million in 2000. In the second quarter of
2000, the Company decided to divest its majority interest in its Brazil
joint venture, phase out a major portion of its North America and Miami
redistributor business, and substantially reduce international trading
operations conducted by its U.K. subsidiary due to third party theft and
fraud losses. During the second quarter of 2000, the Company recorded
inventory obsolescence expense of $21.8 million, bad debt expense of $25.5
million, and $3.2 million in theft and fraud losses related to the U.K.
international trading operations.
The Company announced on July 6, 2001, that Alan H. Goldfield retired
effective immediately from the position of Chairman and CEO and that James
L. "Rocky" Johnson, who has served on the Board of Directors since March
1994 will become non-executive Chairman of the Board, and Terry S. Parker,
a member of the Board of Directors and a former President and COO of
CellStar, will be rejoining the Company as Chief Executive Officer.
Pursuant to the terms of Alan H. Goldfield's separation agreement filed
herewith, the Company expects to incur a charge in the range of $5.0
million during the third quarter of 2001.
13
Cautionary Statements
The Company's success will depend upon, among other things, its
ability to maintain its operating margins, continue to secure an adequate supply
of competitive products on a timely basis and on commercially reasonable terms,
service its indebtedness and comply with covenants, secure adequate financial
resources, continually turn its inventories and accounts receivable,
successfully manage growth (including monitoring operations, controlling costs,
maintaining adequate information systems and effective inventory and credit
controls), manage operations that are geographically dispersed, achieve
significant penetration in existing and new geographic markets, and hire, train
and retain qualified employees who can effectively manage and operate its
business.
The Company's foreign operations are subject to various political and
economic risks including, but not limited to, the following: political
instability; economic instability; currency controls; currency devaluations;
exchange rate fluctuations; potentially unstable channels of distribution;
increased credit risks; export control laws that might limit the markets the
Company can enter; inflation; changes in laws related to foreign ownership of
businesses abroad; foreign tax laws; changes in cost of and access to capital;
changes in import/export regulations, including enforcement policies; "gray
market" resales; and tariff and freight rates. Political and other factors
beyond the control of the Company, including trade disputes among nations or
internal political or economic instability in any nation where the Company
conducts business, could have a material adverse effect on the Company.
Special Cautionary Notice Regarding Forward-Looking Statements
This Quarterly Report on Form 10-Q contains forward-looking statements
relating to such matters as anticipated financial performance and business
prospects. When used in the Quarterly Report, the words "estimates", "may",
"intends", "expects", "anticipates", "could", "should", "will" and similar
expressions are intended to be among the statements that identify forward-
looking statements. From time to time, the Company may also publish forward-
looking statements. The Private Securities Litigation Reform Act of 1995
provides a safe harbor for forward-looking statements. In order to comply with
the terms of the safe harbor, the Company notes that a variety of factors,
including foreign customer and vendor relationships, seasonality, inventory
obsolescence and availability, "gray market" resales, and inflation could cause
the Company's actual results and experience to differ materially from
anticipated results or other expectations expressed in the Company's forward-
looking statements.
Results of Operations
The following table sets forth certain unaudited consolidated
statements of operations data for the Company expressed as a percentage of
revenues for the three and six months ended May 31, 2001 and 2000:
Three months Six months
ended May 31, ended May 31,
--------------------- -------------------
2001 2000 2001 2000
--------- --------- --------- ---------
Revenues 100.0 % 100.0 100.0 100.0
Cost of Sales 93.9 99.5 94.1 95.5
--------- --------- --------- ---------
Gross profit 6.1 0.5 5.9 4.5
Selling, general and administrative expenses 4.1 10.3 4.3 7.8
Restructuring charge (credit) 0.1 - 0.1 -
--------- --------- --------- ---------
Operating income (loss) 1.9 (9.8) 1.5 (3.3)
Other income (expense):
Equity in loss of affiliated companies - (0.1) (0.1) -
Gain on sale of assets - - 0.1 -
Interest expense (0.7) (0.8) (0.7) (0.8)
Other, net 0.1 - 0.3 -
--------- --------- --------- ---------
Total other income (expense) (0.6) (0.9) (0.4) (0.8)
--------- --------- --------- ---------
Income (loss) before income taxes 1.3 (10.7) 1.1 (4.1)
Provision (benefit) for income taxes 0.4 (3.1) 0.3 (1.3)
--------- --------- --------- ---------
Net income (loss) 0.9 % (7.6) 0.8 (2.8)
========= ========= ========= =========
14
Three Months Ended May 31, 2001 Compared to Three Months Ended May 31, 2000
Revenues. The Company's revenues increased $10.9 million, or 2.0%,
from $561.4 million to $572.3 million.
Revenues in the Asia-Pacific Region increased $77.6 million, or
33.5%, from $231.4 million to $309.0 million. The Company's operations in
the People's Republic of China, including Hong Kong ("PRC"), provided
$271.7 million in revenues, an increase of $118.5 million, or 77.3%, from
$153.2 million. Growth in the PRC, where market penetration of handsets is
very low, is being driven by the rapid addition of new wireless
subscribers. Revenues from the Company's operations in Singapore increased
$11.0 million to $21.5 million, or 105.5%, due to new products, including
two products for which the Company has exclusive rights. Revenues from
Taiwan and The Philippines operations decreased $43.2 million, or 88.5%,
and $8.8 million, or 46.2%, respectively, to $5.6 million and $10.2
million, respectively. The Company's operations in Taiwan and The
Philippines continue to be affected by economic and political turmoil in
the respective countries.
North American Region revenues were $105.0 million, an increase of
$2.0 million compared to $103.0 million in 2000. Early in the first quarter
of 2001, the Company converted a major U.S. account to a consignment basis
with fulfillment fees, which will reduce revenue potential for the 2001
fiscal year by approximately $100 million. Revenues for the second quarter
of 2000 on a comparable basis were $89.5 million. The conversion to
consignment is expected to have minimal impact on net income, but will
reduce inventory risk and the need for working capital.
The Company's operations in the Latin America Region provided $98.6
million of revenues, compared to $160.5 million in 2000, a 38.6% decrease.
Revenues in Mexico, the region's largest revenue contributor, were $66.4
million compared to $100.0 million in 2000, which benefited from strong
carrier promotions. The decrease was also due to a delay in 2001 in new-
subscriber and promotional activities by a large carrier customer. The
Company sold its 51% interest in its Brazil joint venture in August 2000.
Revenues for Brazil were $12.5 million in last year's second quarter.
Revenues from the Venezuela operations were $8.9 million in 2000. The
Company sold its Venezuela operations in December 2000. Revenues from the
Company's Miami export operations were $13.5 million compared to $20.5
million in the second quarter a year ago, reflecting the Company's decision
last year to phase out a major portion of its redistributor channel and the
increased availability of in-country manufactured products in South
America, which has reduced sales to exporters by Miami. As a result, the
Company restructured its Miami operation to reduce the size and cost of
these operations, resulting in a charge of $0.8 million in the second
quarter of 2001. Combined revenues from CellStar's Argentina, Chile,
Colombia and Peru operations were $18.7 million in 2001 and $18.8 million
in 2000.
The Company's European Region operations recorded revenues of $59.8
million, a decrease of $6.7 million from $66.5 million in 2000. The
handset market in Europe is highly penetrated and is increasingly driven by
replacement sales, which are depressed due to delays in the rollout of new
handset technologies and services.
Gross Profit. Gross profit increased $31.6 million from $3.1 million
to $34.7 million. In the second quarter of 2000, the Company incurred $21.8
million in inventory obsolescence, primarily as a result of price declines.
Also during the second quarter of 2000, the Company recorded $3.2 million
in third party theft and fraud losses related to the U.K. international
trading operations. Gross profit as a percentage of revenues increased due
to better inventory management and product mix.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $34.8 million from $58.1 million to $23.2
million. This decrease was principally due to a reduction in bad debt
expense of $27.3 million. Bad debt expense in 2000 was $25.5 million and
was primarily from certain U.S.-based accounts receivable, the
collectibility of which had deteriorated significantly in the second
quarter of 2000 and which were further affected by the Company's decision
to sell its majority interest in its joint venture in Brazil and the phase
out of a major portion of the redistributor business in its Miami and North
America operations. Bad debt expense in 2001, includes a recovery of $3.9
million related to a receivable from a satellite handset customer, which
was reserved in
15
the fourth quarter of 2000. Selling, general and administrative expenses
related to the Brazil and Venezuela operations, which were sold in August
2000 and December 2000, respectively, were $6.3 million in 2000.
Restructuring Charge (Credit). In connection with its previously
announced intent, the Company restructured its Miami facilities in the
second quarter of 2001 to reduce the size and cost of those operations,
resulting in a charge of $0.8 million, primarily related to the impairment
of leasehold improvements.
Equity in Loss of Affiliated Companies. Equity in loss of affiliated
companies was $0.5 million in 2000 due to losses from the Company's 49%
minority interest in CellStar Amtel. As a result of the continuing
deterioration in the Malaysia market, the Company intends to divest its
ownership in CellStar Amtel to limit further exposure. The Company will be
required to recognize future losses, if any, of CellStar Amtel up to the
amount of debt and payables of CellStar Amtel guaranteed by the Company.
The Company currently estimates the remaining exposure to be up to $1.0
million.
Interest Expense. Interest expense decreased to $3.9 million from
$4.7 million. This decrease was primarily related to the elimination of
debt of the Brazil operation, which was sold in August 2000. The decrease
was also a result of lower borrowing levels on the Company's Multicurrency
Revolving Credit Facility.
Other, Net. Other, net increased $0.6 million, from income of $0.2
million to income of $0.8 million, primarily due to losses in the second
quarter of 2000 on foreign currencies related to European operations.
Income Taxes. Income tax expense increased from a benefit of $17.5
million to an expense of $2.3 million. The Company's annual effective tax
rate decreased to 29.0% from 30.5% The lower effective tax rate was
attributable to changes in the expected geographical mix of income (loss)
before income taxes.
16
Six Months Ended May 31, 2001 Compared to Six Months Ended May 31, 2000
Revenues. The Company's revenues increased $66.3 million, or 5.8%,
from $1,151.2 million to $1,217.5 million.
Revenues in the Asia-Pacific Region increased $134.2 million, or
28.4%, from $473.3 million to $607.5 million. The Company's operations in
the PRC provided $526.0 million in revenue, an increase of $204.8 million,
or 63.8%, from $321.2 million. This increase was due to continued strong
demand in the PRC and the build-up of extensive sales channels. Growth in
the PRC, where market penetration of handsets is very low, is being driven
by the rapid addition of new wireless subscribers. Revenues from the
Company's operations in Singapore increased $19.8 million, or 105.8%, to
$38.5 million due to third party subsidies and new products, including
two products for which the Company has exclusive rights. Revenues from
Taiwan and The Philippines operations decreased $82.4 million, or 80.5%,
and $8.0 million, or 25.7%, respectively to $19.9 million and $23.1
million, respectively. The Company's operations in Taiwan and The
Philippines continue to be affected by economic and political turmoil in
the respective countries.
North American Region revenues were $251.5 million, an increase of
$71.1 million, or 39.4% when compared to $180.4 million. U.S. revenues
continued to benefit from strong promotional activity by several customers,
as well as from the addition of new customers and expanded markets. Early
in the first quarter of 2001, the Company converted a major U.S. account to
a consignment basis with fulfillment fees, which will reduce revenue
potential for the 2001 fiscal year by approximately $100 million. Revenues
for the six months ended May 31, 2001 and May 31, 2000, on a comparable
basis were $233.2 million and $161.6 million, respectively. The conversion
to consignment is expected to have minimal impact on net income, but will
reduce inventory risk and the need for working capital.
The Latin American Region provided $237.6 million of revenues,
compared to $315.7 million, or a 24.7% decrease. Revenues in Mexico
decreased $40.4 from $182.8 million in 2000, which benefited from strong
carrier promotions, to $142.4 million in 2001. The decrease was also due to
a delay in 2001 in new-subscriber and promotional activities by a large
carrier customer. Revenues for Brazil were $25.7 million in 2000. The
Company's sold its Brazil operations in August 2000. Revenues from the
Venezuela operations were $26.4 million in 2000. The Company sold its
Venezuela operations in December 2000. Revenues from the Company's
operations in Miami decreased $17.9 million from 2000 as increased product
availability from in-country manufacturers in Latin America continued to
reduce export sales from Miami. The Company phased out a major portion of
its redistributor business in its Miami and North American operations due
to the volatility of the redistributor business, the relatively lower
margins, and higher credit risks. Combined revenues from the operations in
Argentina, Chile, Colombia and Peru increased $31.0 million to $69.8
million primarily due to significant promotional activity by a major
carrier in Colombia during the first quarter of 2001.
The Company's Europe Region recorded revenues of $120.8 million, a
decrease of $61.0 million, or 33.5%, from $181.8 million, primarily due to
the Company's decision to curtail its U.K. international trading operations
in April 2000 (see "International Operations"). The handset market in
Europe is highly penetrated and is increasingly driven by replacement
sales, which are depressed due to delays in the rollout of new handset
technologies and services.
Gross Profit. Gross profit increased $20.0 million from $51.4
million to $71.4 million. During 2000, the Company incurred $23.5 million
in inventory obsolescence primarily as a result of price declines during
the second quarter and $3.2 million in third party theft and fraud losses
related to the U.K. international trading operations. Excluding the above
items in 2000, the decrease in gross profit as a percentage of revenues was
primarily due to competitive market conditions, particularly in the Asia-
Pacific Region.
Selling, General and Administrative Expenses. Selling, general and
administrative expenses decreased $38.1 million from $90.3 million to $52.2
million. This decrease was principally due to a reduction in bad debt
expense of $28.0 million from $29.9 million to $1.9 million in 2001. The
bad debt expense in 2000 was primarily from certain U.S.-based accounts
receivable, the collectibility of which had deteriorated significantly in
the second quarter of 2000 and which were further affected by the Company's
decision to sell its majority interest in its joint venture in Brazil and
the phase out of a major portion of the
17
redistributor business in its Miami and North America operations. Bad debt
expense in 2001, includes a recovery of $3.9 million related to a
receivable from a satellite handset customer which was reserved in the
fourth quarter of 2000. Selling, general and administrative expenses
related to the Brazil and Venezuela operations, which were sold in August
2000 and December 2000, respectively, were $0.2 million in 2001 and $10.0
million in 2000.
Restructuring Charge (Credit). In connection with its previously
announced intent, the Company restructured its Miami facilities in the
second quarter of 2001 to reduce the size and cost of those operations,
resulting in a charge of $0.8 million, primarily related to the impairment
of leasehold improvements.
Equity in Loss of Affiliated Companies. Equity in loss of affiliated
companies increased from $0.4 million to $0.7 million in 2001 due to losses
from the Company's 49% minority interest in CellStar Amtel. As a result of
the continuing deterioration in the Malaysia market, the Company intends to
divest its ownership in CellStar Amtel to limit further exposure. The
Company will be required to recognize future losses, if any, of CellStar
Amtel up to the amount of debt and payables of CellStar Amtel guaranteed by
the Company. The Company currently estimates the remaining exposure to be
up to $1.0 million.
Gain on Sale of Assets. The Company recorded a gain on sale of
assets of $0.9 million in 2001 primarily associated with the sale of its
Venezuela operations in December 2000.
Interest Expense. Interest expense increased to $9.0 million from
$8.8 million.
Other, Net. Other, net increased $3.2 million, from income of $0.4
million to income of $3.6 million, primarily due to gains on foreign
currencies related to European operations in 2001 compared with losses in
2000 and increased interest income.
Income Taxes. Income tax expense increased from a benefit of $14.5
million in 2000 to expense of $3.9 million in 2001. The Company's annual
effective tax rate decreased to 29.0% from 30.5%. The lower effective tax
rate was attributable to changes in the expected geographical mix of income
(loss) before income taxes.
International Operations
The Company's foreign operations are subject to various political
and economic risks including, but not limited to, the following: political
instability; economic instability; currency controls; currency
devaluations; exchange rate fluctuations; potentially unstable channels of
distribution; increased credit risks; export control laws that might limit
the markets the Company can enter; inflation; changes in laws related to
foreign ownership of businesses abroad; foreign tax laws; trade disputes
among nations; changes in cost of capital; changes in import/export
regulations, including enforcement policies, "gray market" resales, tariff
and freight rates. Such risks and other factors beyond the control of the
Company in any nation where the Company conducts business could have a
material adverse effect on the Company.
During the third quarter ended August 31, 2000, the Company decided,
based on the current and future economic and political outlook in
Venezuela, to divest its operations in Venezuela. For the quarter ended
August 31, 2000, the Company recorded an impairment charge of $4.9 million
to reduce the carrying value of certain Venezuela assets, primarily
goodwill, to their estimated fair value. In December 2000, the Company
completed the sale of its Venezuela operations and recorded a gain of $1.1
million.
The Company's sales from its Miami operations to customers exporting
into South American countries continue to decline as a result of increased
in-country manufactured product availability in South America, primarily
Brazil. In the second quarter of 2000, the Company phased out a major
portion of its redistributor business in Miami. In connection with its
previously announced intent, the Company restructured its Miami facilities
in the second quarter of 2001 to reduce the size and cost of those
operations, resulting in a charge of $0.8 million, primarily related to the
impairment of leasehold improvements.
18
As a result of the continuing deterioration in the Malaysia market,
the Company intends to limit further exposure by divesting its 49%
ownership in CellStar Amtel. The carrying value of the investment at May
31, 2001 was $35,000. During the quarter ended February 28, 2001, the
Company incurred a $0.7 million loss related to the operations of CellStar
Amtel. No additional losses were incurred in the quarter ended May 31,
2001. The Company will be required to recognize future losses, if any, of
CellStar Amtel up to the amount of debt and payables of CellStar Amtel
guaranteed by the Company. The Company currently estimates the remaining
exposure to be up to $1.0 million.
In April 2000, the Company curtailed a significant portion of its
U.K. international trading operations following third party theft and fraud
losses. The trading business involves the purchase of products from
suppliers other than manufacturers and the sale of those products to
customers other than network operators or their dealers and other
representatives.
Liquidity and Capital Resources
During the six months ended May 31, 2001, the Company relied
primarily on cash available at November 30, 2000, funds generated from
operations and borrowings under its Multicurrency Revolving Credit
Facility (the "Facility") to fund working capital, capital expenditures
and expansions. At May 31, 2001, the Company had borrowed $16.1 million
under the Facility.
As of January 30, 2001, the Company had negotiated an amendment to
its Facility that reduced the amount of the Facility from $100.0 million
to $86.4 million.
On February 27, 2001, the Company and its banking syndicate
negotiated and executed a Second Amended and Restated Credit Agreement
that further reduced the amount of the Facility to $85.0 million on
February 27, 2001, $74.0 million on July 31, 2001, $65.0 million on
September 30, 2001, and $50.0 million on December 15, 2001. Such Second
Amended and Restated Credit Agreement further (i) increases the applicable
interest rate margin by 25 basis points, (ii) shortens the term of the
Facility from June 1, 2002 to March 1, 2002, (iii) provides additional
collateral for such Facility in the form of additional stock pledges and
mortgages on real property, (iv) provides for dominion of funds by the
banks for the Company's U.S. operations, (v) limits the borrowing base,
and (vi) tightens restrictions on the Company's ability to fund its
operations, particularly its non-U.S. operations.
As of July 3, 2001, the Company had negotiated an additional
amendment to the Facility that reduced the borrowing capacity under the
Facility from $85.0 million to $40.0 million and waived compliance with a
covenant for the quarter ended May 31, 2001.
At July 9, 2001 the Company had available $29.5 million of unused
borrowing capacity under the Facility.
At May 31, 2001, the Company's operations in the PRC had three lines
of credit, one for USD $12.5 million, the second for RMB 215 million
(approximately USD $26.0 million) and the third for RMB 50 million
(approximately USD $6.0 million), bearing interest at 7.16%, 5.85% and
2.34% respectively. The loans have maturity dates through August 2001. The
first two lines of credit are fully collateralized by U.S. dollar cash
deposits. The cash deposit was made via an intercompany loan from the
operating entity in Hong Kong as a mechanism to secure repatriation of
these funds. The third line of credit is supported by a RMB 15.0 million
cash collateral deposit and a promissory note. At May 31, 2001, the U.S.
dollar equivalent of $30.8 million had been borrowed against the lines of
credit in the PRC. As a result of this method of funding operations in the
PRC, the consolidated balance sheet at May 31, 2001 reflects USD $41.3
million in cash that is restricted as collateral on these advances and a
corresponding USD $30.8 million in notes payable. The Company anticipates
renewing these loans in the normal course of business.
In addition, the Company has notes payable in Taiwan and Peru
totaling $10.9 million.
Cash, cash equivalents, and restricted cash as of May 31, 2001 were
$85.5 million, compared to $119.6 million at November 30 2000, primarily
reflecting the use of the cash to reduce the Facility.
Compared to November 30, 2000, accounts receivable decreased from
$346.0 million to $218.8 million at May 31, 2001. Inventories declined to
$165.9 million at May 31, 2001, from $265.6 million at November 30, 2000.
Management has worked aggressively to reduce accounts receivable and
inventory levels through tightening of credit policies, aggressive
collection efforts, and better purchasing and inventory management.
Accounts payable declined to $161.0 million at May 31, 2001, compared to
$361.0 million at November 30, 2000.
19
Based upon current and anticipated levels of operations, and
aggressive efforts to reduce inventories and accounts receivable, the
Company anticipates that its cash flow from operations, together with
amounts available under its Facility and existing unrestricted cash
balances, will be adequate to meet its anticipated cash requirements in
the foreseeable future. In the event that existing unrestricted cash
balances, cash flows and available borrowings under the Facility are not
sufficient to meet future cash requirements, the Company may be required
to reduce planned expenditures or seek additional financing. The Company
is evaluating alternatives with respect to the maturity of its Facility in
March 2002 and its $150.0 million in long-term debt that matures in
October 2002. The Company can provide no assurances that reductions in
planned expenditures would be sufficient to cover shortfalls in available
cash or that additional or alternative financing would be available or, if
available, offered on terms acceptable to the Company.
Accounting Pronouncement Not Yet Adopted
In December 1999, the SEC staff issued Staff Accounting Bulletin No.
101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101
summarizes certain of the staff's views in applying generally accepted
accounting principles to revenue recognition and accounting for deferred
costs in the financial statements and is effective no later than the fourth
quarter of fiscal years beginning after December 15, 1999. Based on the
Company's current revenue recognition policies, SAB 101 is not expected to
materially impact the Company's financial position and consolidated results
of operations.
Item 3. Quantitative and Qualitative Disclosures About Market Risk
Foreign Exchange Risk
For the quarters ended May 31, 2001 and 2000, the Company recorded
in other income (expense), net foreign currency gains and (losses) of
$20,000 and ($1.2) million, respectively. The losses in 2000 were primarily
due to the revaluations of foreign currency related to the Company's
European operations.
Regarding the intercompany advances from the Hong Kong entity to the
PRC entity, the Company has foreign exchange exposure on the funds as they
have been effectively converted into RMB.
The Company manages foreign currency risk by attempting to increase
prices of products sold at or above the anticipated exchange rate of the
local currency relative to the U.S. dollar, by indexing certain of its
accounts receivable to exchange rates in effect at the time of their
payment and by entering into foreign currency hedging instruments in
certain instances. The Company consolidates the bulk of its foreign
exchange exposure related to intercompany transactions in its international
finance subsidiary. These transactional exposures are managed using various
derivative alternatives depending on the length and size of the exposure.
The Company continues to evaluate foreign currency exposures and related
protection measures.
Derivative Financial Instruments
The Company uses various derivative financial instruments as part of
an overall strategy to manage the Company's exposure to market risk
associated with interest rate and foreign currency exchange rate
fluctuations. The Company periodically uses foreign currency forward
contracts to manage the foreign currency exchange rate risks associated
with international operations. The Company evaluates the use of interest
rate swaps and cap agreements to manage its interest risk on debt
instruments, including the reset of interest rates on variable rate debt.
The Company does not hold or issue derivative financial instruments for
trading purposes.
20
The risk of loss to the Company in the event of non-performance by
any counterparty under derivative financial instrument agreements is not
significant. Although the derivative financial instruments expose the
Company to market risk, fluctuations in the value of the derivatives are
mitigated by expected offsetting fluctuations in the matched instruments.
The Company uses foreign currency forward contracts to reduce
exposure to exchange rate risks primarily associated with transactions in
the regular course of the Company's international operations. The forward
contracts establish the exchange rates at which the Company purchases or
sells the contracted amount of local currencies for specified foreign
currencies at a future date. The Company uses forward contracts, which are
short-term in nature (45 days to one year), and receives or pays the
difference between the contracted forward rate and the exchange rate at the
settlement date.
At May 31, 2001, the Company had French franc forward contracts with
a contractual amount of $5.6 million. The carrying amount and fair value of
theses contracts are not significant. These derivatives are not accounted
for as hedges under Statement 133.
Interest Rate Risk
The interest rate of the Company's Facility is an index rate at the
time of borrowing plus an applicable margin on certain borrowings. The
interest rate is based on either the agent bank's prime lending rate or
the London Interbank Offered Rate. Additionally, the applicable margin is
subject to increases as the Company's ratio of consolidated funded debt to
consolidated cash flow increases. During the quarter ended May 31, 2001,
the interest rates of borrowings under the Facility ranged from 7.3% to
10.0%. A one percent change in variable interest rates will not have a
material impact on the Company. The Company manages its borrowings under
the Facility each business day to minimize interest expenses.
The Company has short-terms borrowings in the PRC as discussed in
Liquidity and Capital Resources. The note payable in Taiwan bears
interest at 5.85% and the note payable in Peru does not bear interest.
The Company's $150.0 million in long-term debt has a fixed coupon
interest rate of 5.0% and is due in October 2002.
Part II - OTHER INFORMATION
Item 1. Legal Proceedings
During the period from May 1999 through July 1999, seven purported
class action lawsuits were filed in the United States District Court for
the Southern District of Florida, Miami Division, styled as follows: (1)
Elfie Echavarri v. CellStar Corporation, Alan H. Goldfield, Richard M.
Gozia and Mark Q. Huggins; (2) Mark Krug v. CellStar Corporation, , Alan H.
Goldfield, Richard M. Gozia and Mark Q. Huggins; (3) Jewell Wright v.
CellStar Corporation, , Alan H. Goldfield, Richard M. Gozia and Mark Q.
Huggins; (4) Theodore Weiss v. CellStar Corporation, , Alan H. Goldfield,
Richard M. Gozia and Mark Q. Huggins; (5) Tony LaBella v. CellStar
Corporation, , Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins; (6)
Thomas F. Petrone v. CellStar Corporation, , Alan H. Goldfield, Richard M.
Gozia and Mark Q. Huggins; and (7) Adele Brody v. CellStar Corporation, ,
Alan H. Goldfield, Richard M. Gozia and Mark Q. Huggins. Each of the above
lawsuits sought certification as a class action to represent those persons
who purchased the publicly traded securities of the Company during the
period from March 19, 1998, to September 21, 1998. Each of these lawsuits
alleges that the Company issued a series of materially false and misleading
statements concerning the Company's results of operations and investment in
Topp Telecom, Inc. ("Topp"), resulting in violations of Section 10(b) and
20(a) of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), and Rule 10b-5 promulgated thereunder.
The Court entered an order on September 26, 1999 consolidating the
above lawsuits and appointing lead plaintiffs and lead plaintiffs' counsel.
On November 8, 1999, the lead plaintiffs filed a consolidated complaint.
The Company filed a Motion to Dismiss the consolidated complaint and the
Court granted that motion on August 3, 2000. The plaintiffs filed a Second
Amended and Consolidated Complaint on September 1, 2000, essentially re-
alleging the violations of Sections 10(b) and 20(a) of the
21
Exchange Act, and Rule 10b-5 promulgated thereunder. The Company filed a
Motion to Dismiss plaintiffs' Second Amended and Consolidated Complaint on
November 2, 2000, but the Court has not yet rendered a decision. The
Company believes that is has fully complied with all applicable securities
laws and regulations and that it has meritorious defenses to the
allegations made in the Second Amended and Consolidated Complaint. The
Company intends to vigorously defend the consolidated action if its Motion
to Dismiss is denied.
On August 3, 1998, the Company announced that the Securities and
Exchange Commission (SEC) was conducting an investigation of the Company
relating to its compliance with federal securities laws. On June 28, 2001,
the Company announced that the SEC has terminated the investigation with no
enforcement action recommended.
The Company is a party to various other claims, legal actions and
complaints arising in the ordinary course of business.
Management believes that the disposition of these matters will not
have a materially adverse effect on the consolidated financial condition or
results of operations of the Company.
Item 6. Exhibits and Reports on Form 8-K
(A) Exhibits.
3.1 Amended and Restated Certificate of Incorporation of CellStar
Corporation ("Certificate of Incorporation"). (1)
3.2 Certificate of Amendment to Certificate of Incorporation. (7)
3.3 Amended and Restated Bylaws of CellStar Corporation. (8)
4.1 The Certificate of Incorporation, Certificate of Amendment to
Certificate of Incorporation and Amended and Restated Bylaws of
CellStar Corporation filed as Exhibits 3.1, 3.2, and 3.3 are
incorporated into this item by reference. (1)(7)(8)
4.2 Specimen Common Stock Certificate of CellStar Corporation. (2)
4.3 Rights Agreement, dated as of December 30, 1996, by and between
CellStar Corporation and ChaseMellon Shareholder Services, L.L.C.,
as Rights Agent ("Rights Agreement"). (4)
4.4 First Amendment to Rights Agreement, dated as of June 18, 1997. (5)
4.5 Form of Certificate of Designation, Preference and Rights of Series
A Preferred Stock of CellStar Corporation ("Certificate of
Designation"). (4)
22
4.6 Form of Rights Certificate. (4)
4.7 Certificate of Correction of Certificate of Designation. (5)
4.8 Indenture, dated as of October 14, 1997, by and between CellStar
Corporation and the Bank of New York, as Trustee. (6)
10.1 Second Amendment to Second Amended and Restated Credit Agreement,
dated as of July 3, 2001, by and among CellStar Corporation, the
Financial Institutions Signatory Thereto, and The Chase Manhattan
Bank, as Agent for such Financial Institutions. (8)
10.2 Separation Agreement and Release, dated as of July 5, 2001, by and
among CellStar Corporation and Alan H. Goldfield. (8)(9)
10.3 Consulting Agreement, dated as of July 5, 2001, by and among
CellStar Corporation and Alan H. Goldfield. (8)(9)
10.4 Employment Agreement, dated as of July 5, 2001, by and among
CellStar Corporation and Terry S. Parker. (8)(9)
__________________________
(1) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 31, 1995, and incorporated
herein by reference.
(2) Previously filed as an exhibit to the Company's Annual Report on
Form 10-K for the fiscal year ended November 30, 1995, and
incorporated herein by reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended February 29, 1996, and incorporated
herein by reference.
(4) Previously filed as an exhibit to the Company's Registration
Statement on Form 8 - A (File No. 000-22972), filed January 3, 1997,
and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Registration
Statement on Form 8-A/A, Amendment No.1 (File No. 000-22972), filed
June 30, 1997, and incorporated herein by reference.
(6) Previously filed as an exhibit to the Company's Current Report on
Form 8-K dated October 8, 1997, filed October 24, 1997, and
incorporated herein by reference.
(7) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 31, 1998, and incorporated
herein by reference.
(8) Filed herewith.
(9) The exhibit is a management contract or compensatory plan or
arrangement.
(B) Reports on Form 8-K
1. Form 8-K dated June 28, 2001 and filed on June 28, 2001
pursuant to Items 5 and 7.
23
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934,
as amended, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
CELLSTAR CORPORATION
/s/ AUSTIN P. YOUNG
___________________________________
By: Austin P. Young
Senior Vice President, Chief Financial Officer
and Treasurer
(Principal Financial Officer)
/s/ RAYMOND L. DURHAM
_____________________________________
By: Raymond L. Durham
Vice President, Corporate Controller
(Principal Accounting Officer)
Date: July 11, 2001
24
EXHIBIT INDEX
-------------
Exhibit
No. Description
------- -------------------------------------------------------------
3.1 Amended and Restated Certificate of Incorporation of CellStar
Corporation ("Certificate of Incorporation").(1)
3.2 Certificate of Amendment to Certificate of Incorporation.(7)
3.3 Amended and Restated Bylaws of CellStar Corporation.(8)
4.1 The Certificate of Incorporation, Certificate of Amendment to
Certificate of Incorporation and Amended and Restated Bylaws of
CellStar Corporation filed as Exhibits 3.1, 3.2, and 3.3 are
incorporated into this item by reference. (1)(7)(8)
4.2 Specimen Common Stock Certificate of CellStar Corporation.(2)
4.3 Rights Agreement, dated as of December 30, 1996, by and between
CellStar Corporation and ChaseMellon Shareholder Services, L.L.C., as
Rights Agent ("Rights Agreement").(4)
4.4 First Amendment to Rights Agreement, dated as of June 18, 1997. (5)
4.5 Form of Certificate of Designation, Preference and Rights of Series A
Preferred Stock of CellStar Corporation ("Certificate of
Designation"). (4)
4.6 Form of Rights Certificate. (4)
4.7 Certificate of Correction of Certificate of Designation. (5)
4.8 Indenture, dated as of October 14, 1997, by and between CellStar
Corporation and the Bank of New York, as Trustee. (6)
10.1 Second Amendment to Second Amended and Restated Credit Agreement,
dated as of July 3, 2001, by and among CellStar Corporation, the
Financial Institutions Signatory Thereto, and The Chase Manhattan
Bank, as Agent for such Financial Institutions. (8)
10.2 Separation Agreement and Release, dated as of July 5, 2001, by and
among CellStar Corporation and Alan H. Goldfield. (8)
10.3 Consulting Agreement, dated as of July 5, 2001, by and among CellStar
Corporation and Alan H.Goldfield. (8)
10.4 Employment Agreement, dated as of July 5, 2001, by and among Cellstar
Corporation and Terry S. Parker. (8)
___________________________
(1) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended August 31, 1995, and incorporated
herein by reference.
(2) Previously filed as an exhibit to the Company's Annual Report on Form
10-K for the fiscal year ended November 30, 1995, and incorporated
herein by reference.
(3) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended February 29, 1996, and incorporated
herein by reference.
(4) Previously filed as an exhibit to the Company's Registration
Statement on Form 8 - A (File No. 000-22972), filed January 3, 1997,
and incorporated herein by reference.
(5) Previously filed as an exhibit to the Company's Registration
Statement on Form 8-A/A, Amendment No.1 (File No. 000-22972), filed
June 30, 1997, and incorporated herein by reference.
25
(6) Previously filed as an exhibit to the Company's Current Report on
Form 8-K dated October 8, 1997 filed October 24, 1997, and
incorporated herein by reference.
(7) Previously filed as an exhibit to the Company's Quarterly Report on
Form 10-Q for the quarter ended May 31, 1998, and incorporated herein
by reference.
(8) Filed herewith.
26