10-K 1 d292627d10k.htm FORM 10-K Form 10-K
Table of Contents

 

 

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

 

 

Form 10-K

 

x ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

FOR THE FISCAL YEAR ENDED DECEMBER 31, 2011

OR

 

¨ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

1-12845

(Commission File no.)

 

 

Brightpoint, Inc.

(Exact name of registrant as specified in its charter)

 

Indiana   35-1778566

(State or other jurisdiction of

Incorporation or organization)

 

(I.R.S. Employer

Identification No.)

 

7635 INTERACTIVE WAY, SUITE 200, INDIANAPOLIS, INDIANA 46278

(Address of principal executive offices including zip code)

Registrant’s telephone number, including area code: (317) 707-2355

Securities registered pursuant to Section 12(b) of the Act:

Title of each class

 

Name of each exchange on which registered

Common Stock, $.01 Par value   The NASDAQ Stock Market LLC (NASDAQ Global Select Market)
Preferred Share Purchase Rights  

Securities registered pursuant to Section 12(g) of the Act:

NONE

 

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.    Yes  x    No  ¨

Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act.    Yes  ¨    No  x

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.    Yes  x    No  ¨

Indicate by check mark whether the Registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).    Yes  x    No  ¨

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.    ¨

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act. (Check one):

 

Large accelerated filer   ¨    Accelerated filer   x
Non-accelerated filer   ¨  (Do not check if a smaller reporting company)    Smaller reporting company   ¨

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).    Yes  ¨    No  x

The aggregate market value of the registrant’s Common Stock held by non-affiliates as of June 30, 2011 which was the last business day of the registrant’s most recently completed second fiscal quarter was $541,465,740.

The number of shares of Common Stock outstanding as of February 24, 2012: 68,952,837

 

 

DOCUMENTS INCORPORATED BY REFERENCE:

Portions of the registrant’s proxy statement in connection with its annual meeting of shareholders to be held in 2012, are incorporated by reference in Items 10, 11, 12, 13 and 14 of Part III of this Form 10-K.

 

 

 


Table of Contents

PART I

Item 1. Business.

General

Brightpoint, Inc. is a global leader in providing device lifecycle services to the wireless industry. We provide customized logistic services, including demand planning, procurement, inventory management, software loading, kitting and customized packaging, fulfillment, credit services, receivables management, call center services, activation services, website hosting, e-fulfillment solutions, repair, refurbish and recycle services, reverse logistics, transportation management and other services within the global wireless industry. In 2011, we handled approximately 112.2 million wireless devices, including tablets. We handled approximately 89.1 million wireless devices through our logistic services business and approximately 23.0 million wireless devices through our distribution business.

Our customers include mobile network operators, mobile virtual network operators (MVNOs), resellers, retailers and wireless equipment manufacturers. We provide value-added distribution channel management and other supply chain solutions for wireless products manufactured by companies such as Apple, HTC, Huawei, Kyocera, LG Electronics, Motorola, Nokia, Research in Motion, Samsung, Sony Ericsson and ZTE.

We have operations centers and/or sales offices in various countries, including Australia, Austria, Belgium, Denmark, Finland, Germany, Hong Kong, India, the Netherlands, New Zealand, Norway, the Philippines, Poland, Portugal, Puerto Rico, Singapore, Slovakia, South Africa, Spain, Sweden, Switzerland, the United Arab Emirates, the United Kingdom and the United States. We also have a presence in several Latin America countries through our investment in Intcomex, Inc. (Intcomex), a leading distributor of information technology and wireless products and services focused solely on serving Latin America and the Caribbean.

We were incorporated under the laws of the State of Indiana in August 1989 under the name Wholesale Cellular USA, Inc. and reincorporated under the laws of the State of Delaware in March 1994. In September 1995, we changed our name to Brightpoint, Inc. In June 2004, we reincorporated under the laws of the State of Indiana under the name of Brightpoint, Inc.

Our website is www.BrightPoint.com. We make available, free of charge, at this website our Code of Business Conduct, annual reports on Form 10-K, quarterly reports on Form 10-Q, current reports on Form 8-K, and amendments to those reports filed or furnished pursuant to Section 13(a) or 15(d) of the Securities Exchange Act of 1934 as amended (“Exchange Act”), as soon as reasonably practicable after we electronically file such material with, or furnish it to, the United States Securities and Exchange Commission (SEC). The information on the website listed above is not and should not be considered part of this annual report on Form 10-K and is not incorporated by reference in this document.

In addition, we will provide, at no cost, paper or electronic copies of our reports and other filings made with the SEC. Requests for such filings should be directed to Investor Relations, Brightpoint, Inc., 7635 Interactive Way, Suite 200, Indianapolis, Indiana 46278, telephone number: (877) 447-2355.

Unless the context otherwise requires, the terms “BrightPoint,” “Company,” “we,” “our” and “us” mean Brightpoint, Inc. and its consolidated subsidiaries.

2011 Significant Developments

Intcomex. On April 19, 2011, we completed an investment in the U.S. based company Intcomex. Intcomex is a leading distributor of information technology and wireless products and services focused solely on the Latin America and the Caribbean markets. We invested cash of $13.0 million and contributed our Colombia and Guatemala operations and certain of our other Latin America operations, in exchange for an approximate 23% share of the outstanding common stock of Intcomex. We also hold a seat on the Intcomex Board of Directors. The investment is an equity method investment.

Touchstone Wireless Operations Relocation. On May 17, 2011, we announced a plan to relocate our Touchstone Wireless operations from Bristol, Tennessee and consolidate the operations into our existing facilities in Fort Worth, Texas and Plainfield, Indiana. The relocation of operations and shut-down activities occurred during the second half of 2011. We also closed an office of the former Touchstone Wireless operations in Hatfield, Pennsylvania during the fourth quarter of 2011. We incurred $5.2 million of restructuring costs during 2011 in relation to the aforementioned activities. Touchstone Wireless was acquired in December 2010 to expand our breadth of repair and reverse logistics services available through our existing North America operations.

 

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Our Business

We believe that we are the largest dedicated provider of customized supply chain solutions to mobile operators, MVNOs, resellers, retailers and wireless equipment manufacturers. We have three reportable segments based on management responsibility of our geographic divisions: the Americas, Asia-Pacific and Europe, the Middle East, and Africa (EMEA). Each segment generates revenue from two primary product lines: product distribution and logistic services. Financial information about our operating segments, including geographic information, is included in Note 1 of the Notes to Consolidated Financial Statements.

Product Distribution (which we sometimes refer to as “Channel Sales and Services”). In our product distribution activities, we provide distribution services to leading wireless device manufacturers through the purchase of a wide variety of wireless voice and data products for delivery to our customers. Product distribution requires an investment of working capital due to the fact that in these arrangements we take ownership of the products and receive them in our facilities or have them drop-shipped directly to our customers. We actively market and sell these products to our worldwide customer base of approximately 25,000 business-to-business (B2B) customers. Product distribution revenue includes the value of the product sold and typically generates significantly higher revenue per unit, as compared to our logistic services revenue, which does not include the value of the product. We frequently review and evaluate wireless voice and data products in determining the mix of products purchased for distribution and attempt to acquire distribution rights for those products that we believe have the potential for enhanced financial return and significant market penetration. Cost of revenue for product distribution includes the costs of the products sold and other direct and indirect costs such as freight, labor and rent expense.

The wireless devices we distribute include a variety of devices designed to operate on various operating platforms and feature brand names such as Apple, HTC, Huawei, Kyocera, LG Electronics, Motorola, Nokia, Research In Motion, Samsung, Sony Ericsson and ZTE. We also distribute accessories used in connection with wireless devices, such as batteries, chargers, memory cards, car-kits, cases and “hands-free” products. We purchase and resell original equipment manufacturer (OEM) and aftermarket accessories, either prepackaged or in bulk. Our accessory packaging services provide mobile operators and retail chains with custom packaged and/or branded accessories based on the specific requirements of those customers.

Product Distribution Overview

 

     2011     2010     2009  

% of Total revenue

     90     91     89

% of Wireless devices handled

     21     20     23

% of Gross profit

     46     48     43

Gross margin

     3.7     4.6     4.2

Wireless devices sold (millions)

     23.0        19.4        19.1   

Handset average selling price

   $ 192      $ 159      $ 135   

Smartphone % to total handsets sold

     57     41     n/a   

Logistic Services (which we sometimes refer to as “Supply Chain Solutions”). Our logistic services include procurement, inventory management, software loading, kitting and customized packaging, fulfillment, credit services, receivables management, call center services, activation services, website hosting, e-fulfillment solutions, repair, refurbish and recycle services, reverse logistics, transportation management, sale of prepaid airtime, and other services. Generally, logistic services are fee-based services. In many of our markets, we have contracts with mobile operators and wireless equipment manufacturers to which we provide our logistic services. These customers include, but are not limited to, operating companies or subsidiaries of Debitel (Denmark and Germany), MetroPCS (United States), MTN (Africa), Research in Motion (United States and Slovakia), Sprint (United States), Tele2 (Sweden), T-Mobile USA (United States), T-Mobile Slovensko (Slovakia), TracFone (United States), and Vodafone (Australia, New Zealand and Germany). Cost of revenue for logistic services is primarily composed of costs such as freight, labor and rent expense. Since we generally do not take ownership of the inventory in our logistic services arrangements and the accounts receivable are lower due to the fee-based nature of these services, the invested capital requirements and the risks assumed in providing logistic services generally are significantly lower than for our distribution business.

Repair, Refurbish and Recycle Services. In our repair, refurbish and recycle services business, we test, identify, and prepare wireless devices and accessories for resale, as well as repair, refurbish and repackage wireless devices and accessories to customers’ required specifications. We have contracts with various mobile operators and wireless equipment manufacturers to provide these services, which primarily include T-Mobile and Alltel Wireless.

 

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Fees earned from repair, refurbish and recycle services are included in logistic services revenue. The cost of revenue for repair, refurbish and recycle services includes the cost of spare parts and other direct and indirect costs such as freight, labor and rent expense. Wireless devices handled through our repair, refurbish and recycle services are not included in our reported wireless devices handled as this business primarily handles used devices.

Activation Services. In our activation services business, we provide wireless activation solutions for our clients through retail, enterprise and online channels. We market these services under the Actify brand name in the United States and have activation agreements with AT&T, Sprint, T-Mobile, Sprint Prepaid (under the Boost and Virgin Mobile brands), and Verizon Wireless to support the activation of wireless converged, embedded and mobile broadband devices. We establish and manage a network of authorized channel partners that include retailers, corporate enterprises, value added resellers and OEMs. We provide our channel partners with access to authorized products and support them through commissions management, e-commerce procurement solutions, sales and marketing programs, merchandising programs, training programs, incentive programs and cooperative advertising. As our channel partners activate or upgrade subscribers through our agency agreements, they earn commissions. Through these agreements, we manage commissions from the mobile operators and pay the channel partners their pro-rata portion of the commissions after deducting our fees. For the mobile operators, we provide them with incremental points of sale and alternative distribution under a variable-cost model subscribers acquisition and retention. Sales of wireless devices and related accessories to our network of channel partners are included in product distribution revenues and fees earned from commissions management services are included in logistic services revenue.

Prepaid Airtime. Through our prepaid airtime business model, we participate in the ongoing revenue stream generated by prepaid subscribers. We earn a commission from purchasing electronic activation codes from mobile operators and MVNOs and distributing them to retail channels. Much of our activity in the prepaid airtime business model is in our EMEA and Americas divisions. Sales of electronic activation codes to retail customers are included in logistic services revenue. We distribute prepaid airtime in many of our operations on behalf of mobile operators and MVNOs such as: Boost (United States), Virgin Mobile (United States), Sonofon (Denmark), Tele2 (Sweden) and TeliaSonera (Sweden).

Logistic Services Overview

 

     2011     2010     2009  

% of Total revenue

     10     9     11

% of Wireless devices handled

     79     80     77

% of Gross profit

     54     52     57

Gross margin

     37.4     49.0     43.9

Wireless devices handled (millions)

     89.1        79.4        64.2   

Global Wireless Industry

The global wireless industry’s primary purpose is to provide mobile voice and data connectivity to subscribers. From 2010 to 2011, the estimated number of worldwide wireless subscribers increased from approximately 4.6 billion to approximately 4.9 billion. At the end of 2011, wireless penetration was estimated to be approximately 70% of the world’s population. During 2011, shipments of wireless handsets in the global wireless industry increased by approximately 11% to an estimated 1.6 billion wireless handsets. The replacement cycle remains the single biggest factor driving global wireless device sell-in demand. Compelling data centric services over fast networks should continue to fuel the future global demand for wireless devices. Ease of use and increased functionality of devices will continue to drive consumer demand for wireless devices and hence the replacement cycle. The convergence of telecommunications, computing and media is further accelerating the replacement cycle and driving demand. The industry data contained in this paragraph and elsewhere in this subsection is based on Company and industry analyst estimates.

We believe the following major trends are taking place within the global wireless industry. We plan to participate in these trends, although there are no assurances we will benefit from them:

Smartphones. We believe that some of the key drivers for the growth in volume of replacement devices shipped will be the migration to next generation systems and devices (3G, 3.5G and 4G) with full Internet capabilities, compelling display technologies and touch screen enhancements, which should result in increasing penetration of smartphones. Mobile data

 

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(mobile music, mobile TV, mobile banking, mobile advertising, and mobile social networking) and the availability of compelling content and enhanced device capabilities will continue to drive the replacement cycle. We estimate that smartphones were approximately 30% of total wireless handsets shipped in 2011, and we expect smartphones to be approximately 40% of the total wireless handsets shipped in 2012. While the new features, enhanced functionalities, smartphone penetration and migration to next generation systems are anticipated to increase both replacement device shipments and total wireless device shipments, general economic conditions, consumer acceptance, component shortages, manufacturing difficulties, supply constraints, network capacity and other factors could negatively impact anticipated wireless device shipments.

Increasing Subscribers. We expect the number of subscribers worldwide to continue to increase. Increased wireless service availability or lower cost of wireless service compared to conventional fixed line systems and reductions in the cost of wireless devices may result in an increase in subscribers. In particular, markets or regions such as Africa, India, China and Eastern Europe are expected to significantly increase their number of subscribers. The emergence of new wireless technologies, related applications, and increasing penetration of machine-to-machine appliances might further increase the number of subscribers in markets that have historically had high penetration rates. More mobile operators may offer services including seamless roaming, increased coverage, improved signal quality and greater and faster data handling capabilities through increased bandwidth, thereby attracting more subscribers to mobile operators that offer such services.

Next Generation Systems. In order to provide a compelling service offering for their current and prospective subscribers, mobile operators continue to expand and enhance their systems by migrating to next generation systems such as 3G, 3.5G and 4G. These systems allow subscribers to send and receive email, capture and transmit digital images and video recordings (multimedia messages), play games, browse the Internet, watch television and take advantage of services such as monitoring services, point-of-sale transaction processing, machine-to-machine communications, location monitoring, sales force automation and customer relationship management. In order to realize the full advantage of these services and capabilities, many current subscribers will need to replace their wireless devices. As a result, the continued rollout of next generation systems is expected to be a key driver for replacement sales of wireless devices. 4G networks began rolling out in the United States during 2010 and expanded both in the United States and to other countries during 2011. The ability and timing of mobile operators to rollout these new services and manufacturers to provide devices, which use these technologies, might have a significant impact on consumer adoption and the rate of sale of replacement devices.

New or Expanding Industry Participants. With the opportunities presented by enhanced voice and data capabilities and an expanding market for wireless devices, many companies are entering or expanding their presence in the global wireless industry. In addition, companies such as Google and Microsoft (wireless device operating systems providers) and HTC, Research in Motion, and Apple (wireless device manufacturers) are bringing feature-rich operating systems or wireless devices to market in order to provide subscribers with capabilities that emulate their desktop computer. HTC, Google, Microsoft, Research in Motion and Apple continue to heighten competition with other existing manufacturers by providing consumers with more feature-rich products, broader selection and new market channels, which could result in increased wireless device shipments.

Pricing Factors and Average Selling Prices. Industry estimates suggest the global wireless industry’s average selling price for wireless devices increased in 2011 from 2010. The primary factor for the increase in average selling price was the increased percentage of smartphone devices shipped compared to the prior year. The increase in average selling prices of wireless devices could have a positive impact on our distribution revenue and gross profit. Changes in average selling prices of wireless devices have little to no impact on our revenue from logistic services, which are typically fee-based services.

Customers

We provide our products and services to a base of approximately 25,000 B2B customers consisting of mobile operators, MVNOs, manufacturers, independent agents and dealers, retailers, and other distributors.

In 2011, 2010 and 2009, aggregate revenues generated from our five largest customers accounted for approximately 29%, 16% and 22% of our total revenue. No customer accounted for 10% or more of our total revenue in 2011, 2010 or 2009. Aggregate revenues from our three largest customers in the Asia-Pacific region accounted for 16% of our total revenue and 46% of the Asia-Pacific division’s revenue during 2011.

We generally sell our products pursuant to customer purchase orders and subject to our terms and conditions. We generally ship products on the same day orders are accepted from the customer. Unless otherwise requested, substantially all of our

 

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products are delivered by common freight carriers. Backlog is generally not material to our business because orders are generally filled shortly after acceptance. Our logistic services are typically provided pursuant to agreements with terms between one and three years and generally may be terminated by either party subject to a short notice period.

Purchasing and Suppliers

We have established key relationships with leading manufacturers of wireless voice and data equipment such as Apple, HTC, Huawei, Kyocera, LG Electronics, Motorola, Nokia, Research In Motion, Samsung, Sony Ericsson and ZTE. We generally negotiate directly with manufacturers and suppliers in order to obtain inventories of brand name products. Inventory purchases are based on customer demand, product availability, brand name recognition, price, service, features, and quality. Certain of our suppliers may provide favorable purchasing terms to us, including trade credit, price protection, cooperative advertising, volume incentive rebates, stock balancing and marketing allowances. Product manufacturers typically provide limited warranties directly to the end consumer or to us, which we generally pass through to our customers.

Total Distribution Wireless Devices Handled by Supplier

 

     2011     2010     2009  

Nokia

     27     44     57

Research in Motion

     20     <10     <10

Samsung

     19     15     11

HTC

     15     10     <10

None of the products we sold from other suppliers accounted for 10% or more of our total distribution units handled in 2011, 2010 and 2009. Wireless devices handled by our logistic services product line is not impacted by supplier concentration as our logistic services customers have contracts directly with the suppliers.

We maintain agreements with certain of our significant suppliers, all of which relate to specific geographic areas. Certain agreements are subject to retention by manufacturers of certain direct accounts and restrictions regarding our sale of products supplied by certain other competing manufacturers and to certain mobile operators. Typically our agreements with suppliers are non-exclusive. Our supply agreements may require us to satisfy purchase requirements based upon forecasts provided by us, in which a portion of these forecasts might be binding. Our supply agreements generally can be terminated on short notice by either party. We purchase products from manufacturers pursuant to purchase orders placed from time to time in the ordinary course of business. Purchase orders are typically filled, subject to product availability, and shipped to our designated warehouses by common freight carriers.

Sales and Marketing

We promote our product lines and our capabilities through five service offerings: plan, market, customize, move and recover. We advertise in trade publications and attend various international, national and regional trade shows, as well as use direct mail solicitation, media advertising and telemarketing activities. Our suppliers and customers use a variety of methods to promote their products and services directly to consumers, including Internet, print, television, and radio advertising.

During 2011 we hired a Chief Marketing Officer and expanded our professional marketing staff to undertake a number of key marketing initiatives and emphasize our diverse services offerings. Our sales efforts are coordinated in each of our three regional divisions by key personnel responsible for that particular division. Divisional management devotes a substantial amount of their time to developing and maintaining relationships with our customers and suppliers. In addition to managing the overall operations of the divisions, each division’s sales and operations centers are managed by either general or country managers who report to the appropriate member of divisional management and are responsible for the daily sales and operations of their particular location. Each country has sales associates who specialize in or focus on sales of our products and services to a specific customer or customer category (e.g., mobile operator, MVNOs, dealers and agents, reseller, retailer, subscriber, etc.). In addition, in many markets we have a dedicated sales force to manage most of our mobile operator relationships and to promote our logistic services, including our activation services and prepaid airtime business models.

 

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Seasonality

The operating results of each of our three divisions may be influenced by a number of seasonal factors in the different countries and markets in which we operate. These factors may cause our revenue and operating results to fluctuate on a quarterly basis. These fluctuations are a result of several factors, including, but not limited to:

 

   

promotions and subsidies by mobile operators;

 

   

the timing of local holidays and other events affecting consumer demand;

 

   

the timing of the introduction of new products by our suppliers and competitors;

 

   

purchasing patterns of customers in different markets;

 

   

general economic conditions; and

 

   

product availability and pricing.

Consumer electronics and retail sales in many geographic markets tend to experience increased volumes of sales at the end of the calendar year, largely because of gift-giving holidays. This and other seasonal factors have contributed to increases in our revenue during the fourth quarter in certain markets. Conversely, we have experienced decreases in demand in the first quarter subsequent to the higher level of activity in the preceding fourth quarter. Our operating results may continue to fluctuate significantly in the future. If unanticipated events occur, including delays in securing adequate inventories of competitive products at times of peak sales or significant decreases in sales during these periods, it could have a material adverse effect on our operating results. In addition, as a result of seasonal factors, interim results may not be indicative of annual results.

Competition

We operate in a highly competitive industry and market and believe that such competition may intensify in the future. The markets for wireless voice and data products are characterized by intense price competition and significant price erosion over the lives of products. We compete principally on the basis of value in terms of price, capability, time, product knowledge, reliability, customer service and product availability. Our competitors may possess substantially greater financial, marketing, personnel and other resources than we do, which may enable them to withstand substantial price competition, launch new products and implement extensive advertising and promotional campaigns.

The distribution of wireless devices and the provision of logistic services within the global wireless industry have, in the past, been characterized by relatively low barriers to entry. Our ability to continue to compete successfully will be largely dependent on our ability to anticipate and respond to various competitive and other factors affecting the industry, including new or changing outsourcing requirements; new information technology requirements; new product introductions; inconsistent or inadequate supply of product; changes in consumer preferences; demographic trends; international, national, regional and local economic conditions; and discount pricing strategies and promotional activities by competitors.

The markets for wireless communications products and integrated services are characterized by rapidly changing technology and evolving industry standards, often resulting in product obsolescence, short product life cycles and changing competition. Accordingly, our success is dependent upon our ability to anticipate and identify technological changes in the industry and successfully adapt our offering of products and services to satisfy evolving industry and customer requirements. The wireless device industry is increasingly segmenting its product offerings and introducing products with enhanced functionality that compete with other consumer electronic products. In addition, products that reach the market outside of normal distribution channels, such as gray market resellers, may also have an adverse impact on our operations.

Our current competition varies by service line and division as follows:

Logistic Services. Our logistic services business competes with general logistic services companies who provide logistic services to multiple industries and specialize more in the warehousing and transportation of finished goods. Manufacturers can also offer fulfillment services to our customers. Certain mobile operators have their own distribution and logistics infrastructure that competes with our outsource solutions.

 

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For logistic services, specific competitors and the division in which they generally compete with us include Brightstar Corporation (all divisions), GENCO-ATC (Americas), New Breed Logistics (Americas), UPS Logistics (Americas), Arvato Logistics Services (EMEA), CEVA Logistics (EMEA) and Kuehne + Nagel (EMEA).

Repair, Refurbish and Recycle Services. Our repair, refurbish and recycle services business competes with companies that specialize in these services as well as general logistic services companies that provide repair, refurbish and recycle services as part of their service offerings.

For repair, refurbish and recycle services, specific competitors and the division in which they generally compete with us include Foxconn (Americas), GENCO-ATC (Americas), Moduslink-PTS (Americas), New Breed Logistics (Americas), and Valutech Outsourcing (Americas).

Activation Services. Our activation services business competes with other specialists who establish and manage independent authorized retailers and value-added resellers and with mobile operators who have the infrastructure necessary to manage their indirect channels.

For activation services, specific competitors and the division in which they generally compete with us include Vincent Huang & Associates (Americas), VIP Wireless (Americas), Ingram Micro (Americas), QDI (Americas), Wireless Advocates (Americas), Wireless Channels (Americas) and Avenir S.A. (EMEA).

Prepaid Airtime. Our prepaid airtime business competes with broad-based wireless distributors who sell prepaid airtime, specialty distributors who focus on prepaid airtime and companies who manufacture or distribute electronic in-store terminals capable of delivering prepaid airtime. To a lesser extent we compete with mobile operators themselves as they distribute prepaid airtime through their own retail channels.

For prepaid airtime, specific competitors and the division in which they generally compete with us include InComm (Americas), Vincent Huang & Associates (Americas), Alphyra (EMEA) and Euronet (EMEA).

Product Distribution. Our product distribution business competes with broad-based wireless distributors who carry similar product lines and specialty distributors who may focus on segments within the wireless industry such as WLAN, Wi-Fi, navigation, and accessories. To a lesser extent we compete with information technology distribution companies who offer wireless devices in certain markets. Manufacturers also sell their products directly to large mobile operators and as mobile operator customers grow in scale, manufacturers may pose a competitive threat to our business.

For product distribution, specific competitors and the divisions that they generally compete with us include Brightstar Corporation (all divisions), Aerovoice (Americas), Tessco Technologies (Americas), Superior Communications (Americas), Reliance (Americas), PCD (Americas), Cellnet Group Ltd. (Asia-Pacific), Axcom (EMEA), 20:20 Logistics (EMEA) and Ingram Micro (all divisions).

Employees

As of December 31, 2011, we had 4,008 full-time employees and 2,168 temporary laborers. Details of employees and temporary laborers by division are as follows:

 

     Full-time
Employees
     Temporary
Employees
 

Americas

     2,168         1,733   

Asia-Pacific

     691         185   

EMEA

     1,018         250   

Corporate

     131         —     
  

 

 

    

 

 

 

Total

     4,008         2,168   
  

 

 

    

 

 

 

Worldwide, our employees are not covered by a single collective bargaining agreement, although our employees are covered by collective bargaining agreements of various scopes and levels (industry, company, regional and/or national) in the following countries: Australia, Austria, Finland, Germany, New Zealand, Spain, Sweden and Switzerland.

 

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Segment and Geographic Financial Information

Financial information concerning our segments and other geographic financial information is included in Note 1 to the Consolidated Financial Statements of this Annual Report on Form 10-K.

Item 1A. Risk Factors.

There are many important factors that have affected, and in the future could affect our business, including the factors discussed below, which should be reviewed carefully, in conjunction with the other information contained in this Form 10-K. Some of these factors are beyond our control and future trends are difficult to predict. In addition, various statements, discussions and analyses throughout this Form 10-K are not based on historical fact and contain forward-looking statements. These statements are also subject to certain risks and uncertainties, including those discussed below, which could cause our actual results to differ materially from those expressed or implied in any forward-looking statements made by us. Readers are cautioned not to place undue reliance on any forward-looking statement contained in this Form 10-K and should also be aware that we undertake no obligation to update any forward-looking information contained herein to reflect events or circumstances after the date of this Form 10-K or to reflect the occurrence of unanticipated events.

General risks related to our operations

Our operations could be harmed by fluctuations in regional demand patterns and economic factors. In prior years, the demand for our products and services has fluctuated and may continue to vary substantially within the regions served by us. Economic slow-downs in regions served by us, changes in promotional programs offered by mobile operators, or the reduction or elimination of subsidies on wireless devices sold by mobile operators may lower consumer demand, lengthen the replacement cycle and create higher levels of inventories in our distribution channels, which results in lower than anticipated demand for the products and services that we offer and can decrease our gross and operating margins. A prolonged economic slow-down in the United States or any other region in which we have significant operations could have severe negative implications to our business that may exacerbate many risk factors including, but not limited to, the following:

 

   

Counterparty risk:

 

   

Our customers, vendors and their suppliers (e.g., component manufacturers) may become insolvent and file for bankruptcy, which could negatively impact our results of operations.

 

   

Liquidity:

 

   

Liquidity could be reduced and this could have a negative impact on financial institutions and the global financial system, which would, in turn, have a negative impact on us, our customers and our creditors.

 

   

Credit insurers could drop coverage on our customers and increase premiums, deductibles and co-insurance levels on our remaining or prospective coverage.

 

   

Our suppliers could tighten trade credit which could negatively impact our liquidity.

 

   

We may not be able to borrow additional funds under our existing credit facilities if participating banks become insolvent or their liquidity is limited or impaired. In addition, we may not be able to retain our current accounts receivable factoring arrangements in Spain and Germany or secure new accounts receivable factoring agreements.

 

   

Demand:

 

   

A global or regional recession could result in severe job losses and lower consumer confidence, which could cause a decrease in demand for our products and services.

 

   

Prices:

 

   

Certain markets could experience deflation, which could negatively impact our average selling price and revenue.

We buy a significant amount of our products from a limited number of suppliers, and they may not provide us with competitive products at reasonable prices when we need them in the future. We purchase wireless devices, accessories, and spare parts that we sell from wireless communications equipment manufacturers, network operators and distributors. We depend on these suppliers to provide us with adequate inventories of currently popular brand name products on a timely basis and on favorable pricing and other terms. Our agreements with our suppliers are generally non-exclusive, require us to satisfy minimum purchase requirements, can be terminated on short notice and provide for certain territorial restrictions, as is common in our industry.

 

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We generally purchase products pursuant to purchase orders placed from time to time in the ordinary course of business. In the future, our suppliers may not offer us competitive products on favorable terms. From time to time we have been unable to obtain sufficient product supplies from manufacturers in many markets in which we operate. Any future failure or delay by our suppliers in supplying us with products on favorable terms would severely diminish our ability to obtain and deliver products to our customers on a timely and competitive basis. If we lose any of our principal suppliers, or if these suppliers are unable to fulfill our product needs, or if any principal supplier imposes substantial price increases and alternative sources of supply are not readily available, this may result in a loss of customers and cause a decline in our results of operations.

Rapid technological changes in the global wireless industry could render our services or the products we handle obsolete or less marketable. The technology relating to wireless voice and data equipment changes rapidly resulting in product obsolescence or short product life cycles. We are required to anticipate future technological changes in our industry and to continually identify, obtain and market new products in order to satisfy evolving industry and customer requirements. Competitors or manufacturers of wireless equipment may market products or services that have perceived or actual advantages over our service offerings or the products that we handle or render those products or services obsolete or less marketable. We have made and continue to make significant working capital investments in accordance with evolving industry and customer requirements including maintaining levels of inventories of currently popular products that we believe are necessary based on current market conditions. These concentrations of working capital increase our risk of loss due to product obsolescence.

Our business growth strategy includes acquisitions. We have acquired businesses in the past and plan to continue to do so in the future based on our global business strategy. Prior or future acquisitions may not meet the expectations that we had at the time of purchase, which could adversely affect our operations causing operating losses and subsequent write-downs due to asset impairments.

On April 19, 2011, we completed an investment in the U.S. based company Intcomex. Intcomex is a leading distributor of information technology and wireless products and services focused solely on the Latin America and the Caribbean markets. The investment is an equity method investment and our share of earnings (losses) in Intcomex is included in “other expense (income)” in the consolidated statement of income three months in arrears in order to meet our reporting deadlines. We can give no assurances that the investment in Intcomex will have a positive impact on our future earnings.

We rely to a great extent on trade secret and copyright laws and agreements with our key employees and other third parties to protect our proprietary rights. Our business success is substantially dependent upon our proprietary business methods and software applications relating to our information systems. We currently hold six patents relating to certain of our business methods.

With respect to other business methods and software, we rely on trade secret and copyright laws to protect our proprietary knowledge. We regularly enter into non-disclosure agreements with our key customers and suppliers and employees. We also limit access to and distribution of our trade secrets and other proprietary information. These measures may not prove adequate to prevent misappropriation of our technology. Our competitors could also independently develop technologies that are substantially equivalent or superior to our technology, thereby eliminating one of our competitive advantages. We also have offices and conduct our operations in a wide variety of countries outside the United States. The laws of some other countries do not protect our proprietary rights to the same extent as the laws in the United States. In addition, although we believe that our business methods and proprietary software have been developed independently and do not infringe upon the rights of others, third parties may assert infringement claims against us in the future or our business methods and software might be found to infringe upon the proprietary rights of others.

The global wireless industry is intensely competitive and we may not be able to continue to compete successfully in this industry. We compete for sales of wireless voice and data equipment, and expect that we will continue to compete, with numerous well-established mobile operators, distributors and manufacturers, including our own suppliers. As a provider of logistic services, we also compete with other distributors, logistic services companies and electronic manufacturing services companies. Many of our competitors possess greater financial and other resources than we do and may market similar products or services directly to our customers. The global wireless industry has generally had low barriers to entry. As a result, additional competitors may choose to enter our industry in the future. The markets for wireless handsets and

 

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accessories are characterized by intense price competition and significant price erosion over the life of a product. Many of our competitors have the financial resources to withstand substantial price competition and to implement extensive advertising and promotional programs, both generally and in response to efforts by additional competitors to enter into new markets or introduce new products. Our ability to continue to compete successfully will depend largely on our ability to maintain our current industry relationships. We may not be successful in anticipating or responding to competitive factors affecting our industry, including new or changing outsourcing requirements, the entry of additional well-capitalized competitors, new products that might be introduced, changes in consumer preferences, demographic trends, international, national, regional and local economic conditions and competitors’ discount pricing and promotion strategies. As wireless telecommunications markets mature and as we seek to enter into new markets and offer new products in the future, the competition that we face might change and grow more intense.

The loss or reduction in orders from principal customers or a reduction in the prices we are able to charge these customers could cause our revenues to decline and impair our cash flows. Many of our customers in the markets we serve have experienced severe price competition or have been acquired and, for these and other reasons, may seek to obtain products or services from us at lower prices than we have been able to provide these customers in the past. The loss of any of our principal customers, a reduction in the amount of product or services our principal customers order from us or our inability to maintain current terms, including prices, with these or other customers could cause our revenues to decline and impair our cash flows. Although we have entered into contracts with certain of our largest logistic services customers, we previously have experienced losses of certain of these customers through expiration or cancellation of our contracts with them, and there can be no assurance that any of our customers will continue to purchase products or services from us or that their purchases will be at the same or greater levels than in prior periods.

Our business could be harmed by consolidation of mobile operators. The past several years have witnessed a consolidation within the mobile operator community, and this trend is expected to continue. This trend could result in a reduction or elimination of promotional activities by the remaining mobile operators as they seek to reduce their expenditures, which could, in turn, result in decreased demand for our products or services. Moreover, consolidation of mobile operators reduces the number of potential contracts available to us and other providers of logistic services. We could also lose business or face price pressures if mobile operators that are our customers are acquired by other mobile operators that are our customers or not our customers.

We face potential risks associated with loss, theft or damage of our property or property of our customers.

For some customers, we house consigned inventory that is under their ownership. We face financial exposure to those customers if such inventory is lost, damaged or stolen. Although we take precautions against loss, theft or damage of our property and our customers’ property and we may insure against a portion of these risks, such insurance is expensive, may not be applicable to every loss we may experience and, even if applicable, may not be sufficient to cover every loss. Further, deductibles for such insurance may be substantial and may adversely affect our operations if we were to experience a loss, even if insured.

We depend on our computer and communications systems. As a multi-national corporation, we rely on our computer and communication network to operate in an efficient and secure manner. Any interruption of this service from power loss, telecommunications failure, weather, natural disasters or any similar event could negatively impact our business and operations. Additionally, hackers and computer viruses have disrupted operations at many major companies. We may be vulnerable to similar acts of sabotage and face penalties for not complying with information security standards, which could materially harm our business and operations.

We make significant investments in the technology used in our business and rely on that technology to function effectively without interruptions. We have made significant investments in information systems technology and have focused on the application of this technology to provide customized distribution channel management and logistic services to wireless communications equipment manufacturers and network operators. Our ability to meet our customers’ technical and performance requirements is highly dependent on the effective functioning of our information technology systems. Further, certain of our contractual arrangements to provide services contain performance measures and criteria that if not met could result in early termination of the agreement and claims for damages. In connection with the implementation of this technology we have incurred significant costs and have experienced significant business interruptions. Business interruptions can cause us to fall below acceptable performance levels pursuant to our customers’ requirements and could result in the loss of the related business relationship or could result in incurring penalties for not meeting minimum performance levels. We may experience additional costs and periodic business interruptions related to our information systems as we implement new information systems in our various operations. Our sales and marketing efforts, a large part of which are telemarketing based, are highly dependent on computer and telephone equipment. We anticipate that we will need to continue to invest significant

 

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amounts to enhance our information systems in order to maintain our competitiveness and to develop new logistic services. Our property and business interruption insurance may not compensate us adequately, or at all, for losses that we may incur if we lose our equipment or systems either temporarily or permanently. In addition, a significant increase in the costs of additional technology or telephone services that are not recoverable through an increase in the price of our services could negatively impact our results of operations.

Our future operating results will depend on our ability to continue to increase volumes and maintain margins. A large percentage of our total revenues is derived from sales of wireless devices, a part of our business that operates on a high-volume, low-margin basis. Our ability to generate these sales is based upon demand for wireless voice and data products and our having adequate supply of these products. The gross margins that we realize on sales of wireless devices could be reduced due to increased competition or a growing industry emphasis on cost containment. However, a sales mix shift to fee-based logistic services may place negative pressure on our revenue growth while having a positive impact on our gross margins. Therefore, our future profitability will depend on our ability to maintain our margins or to increase our sales. We may not be able to maintain existing margins for products or services offered by us or increase our sales. Even if our sales rates do increase, the gross margins that we receive from our sales may not be sufficient to make our future operations profitable.

Natural disasters, epidemics, hostilities and terrorist acts could disrupt our operations. Although we have implemented policies and procedures and have obtained insurance to minimize the effects of natural disasters, epidemics, outbreak of hostilities or terrorist attacks in markets served by us or on our facilities, the actual effect of any such events on our operations cannot be determined at this time. However, we believe any of these events could disrupt our operations and negatively impact our business.

Our business depends on the continued tendency of wireless equipment manufacturers and network operators to outsource aspects of their business to us in the future. We provide functions such as distribution channel management, inventory management, fulfillment, customized packaging, prepaid and e-commerce solutions, activation management and other outsourced services for many wireless manufacturers and network operators. Certain wireless equipment manufacturers and network operators have elected, and others may elect, to undertake these services internally. Additionally, our customer service levels, industry consolidation, competition, deregulation, technological changes or other developments could reduce the degree to which members of the global wireless industry rely on outsourced logistic services such as the services we provide. Any significant change in the market for our outsourced services could harm our business. Our outsourced services are generally provided under multi-year renewable contractual arrangements. Service periods under certain of our contractual arrangements are expiring or will expire in the near future. The failure to obtain renewals or otherwise maintain these agreements on terms, including price, consistent with our current terms could cause a reduction in our revenues and cash flows.

Our implementation and continuing operation of European and North American Centers of Excellence may not be successful. The success of our strategy to optimize our European and North American operational and financial structure relies in large part on continuing the implementation and effectively operating our Centers of Excellence (supply chain delivery centers). The implementation of these Centers of Excellence requires substantial capital expenditures and requires significant time and attention from our management and operational personnel. In the event we are unsuccessful at the implementation or operating these Centers of Excellence or in the event the Centers of Excellence fail to yield the anticipated operational efficiencies then our strategy and operating results could be negatively impacted.

Our business strategy includes entering into relationships and financing that may provide us with minimal returns or losses on our investments. We have entered into several relationships with wireless equipment manufacturers, mobile operators and other participants in our industry. We intend to continue to enter into similar relationships as opportunities arise. We may enter into distribution or logistic services agreements with these parties and may provide them with equity or debt financing. Our ability to achieve future profitability through these relationships will depend in part upon the economic viability, success and motivation of the entities we select as partners and the amount of time and resources that these partners devote to our alliances. We may ultimately receive only minimal or no business from these relationships and joint ventures, and any business we receive may not be significant or at the level we anticipated. The returns we receive from these relationships, if any, may not offset possible losses, our investments or the full amount of financings that we make upon entering into these relationships. We may not achieve acceptable returns on our investments with these parties within an acceptable period or at all.

We may have difficulty collecting our accounts receivable. We currently offer and intend to offer open account terms to certain of our customers, which may subject us to credit risks, particularly in the event that any receivables represent sales to

 

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a limited number of customers or are concentrated in particular geographic markets. The collection of our accounts receivable and our ability to accelerate our collection cycle through the sale of accounts receivable is affected by several factors, including, but not limited to:

 

   

our credit granting policies,

 

   

contractual provisions,

 

   

our customers’ and our overall credit rating as determined by various credit rating agencies,

 

   

industry and economic conditions,

 

   

the ability of the customer to provide security, collateral or guarantees relative to credit granted by us,

 

   

the customer’s and our recent operating results, financial position and cash flows; and

 

   

our ability to obtain credit insurance on amounts that we are owed.

Adverse changes in any of these factors, certain of which may not be wholly in our control, could create delays in collecting or an inability to collect our accounts receivable, which could impair our cash flows and our financial position and cause a reduction in our results of operations. To mitigate credit risk we have obtained credit insurance on the majority of our receivables and in certain jurisdictions, we have entered into agreements with third-parties to factor certain accounts receivables.

We may not be able to grow at our historical or current rates or effectively manage future growth. During 2010 and 2011, we experienced domestic and international growth. There can be no assurances as to our ability to achieve future growth. We will need to manage our expanding operations effectively, maintain or accelerate our growth as planned and integrate any new businesses which we may acquire into our operations successfully in order to continue our desired growth. If we are unable to do so, particularly in instances in which we have made significant capital investments, it could materially harm our operations. Our inability to absorb, through revenue growth, the increasing operating costs that we have incurred and continue to incur in connection with our activities and the execution of our strategy could cause our future earnings to decline. In addition, our growth prospects could be harmed by a decline in the global wireless industry generally or in one of our regional divisions, either of which could result in a reduction or deferral of expenditures by prospective customers.

We are subject to certain personnel related issues. Our success depends in large part on the abilities and continued service of our executive officers and other key employees. Although we have entered into employment agreements with several of our officers and employees, we may not be able to retain their services. We also have non-competition agreements with our executive officers and some of our existing key personnel. However, courts are sometimes reluctant to enforce non-competition agreements. The loss of executive officers or other key personnel could impede our ability to fully and timely implement our business plan and future growth strategy. In addition, in order to support our continued growth, we will be required to effectively recruit, develop and retain additional qualified management. Competition for such personnel is intense, and there can be no assurance that we will be able to successfully attract, assimilate or retain sufficiently qualified personnel. The failure to retain and attract necessary personnel could also delay or prevent us from executing our planned growth strategy.

We are subject to a number of regulatory and contractual restrictions governing our relations with certain of our employees, including national collective labor agreements for certain of our employees who are employed outside of the United States and individual employer labor agreements. These arrangements address a number of specific issues affecting our working conditions including hiring, work time, wages and benefits, and termination of employment. We could be required to make significant payments in order to comply with these requirements. The cost of complying with these requirements could be material.

Our business is labor-intensive, and we periodically experience high personnel turnover in certain functional areas. In addition, we are from time to time subject to shortages in the available labor force in certain geographical areas where we operate. A significant portion of our labor force is contracted through temporary agencies and a significant portion of our costs consists of wages to hourly workers. Growth in our business, together with seasonal increases in units, requires that from time to time we must recruit and train personnel at an accelerated rate. We may not be able to continue to hire, train and retain a significant labor force of qualified individuals when needed, or at all. Our inability to do so, or an increase in hourly costs, employee benefit costs, employment taxes or commission rates, could cause our operating results to decline. In addition, if the turnover rate among our labor force increases further, we could be required to increase our recruiting and training efforts and costs, and our operating efficiencies and productivity could decrease.

 

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We depend on third parties to manufacture products that we distribute and, accordingly, rely on their quality control procedures. Product manufacturers typically provide limited warranties directly to the end consumer or to us, which we generally pass through to our customers. If a product we distribute for a manufacturer has quality or performance problems, our ability to provide products to our customers could be disrupted, causing a delay and/or reduction in our revenues.

We have debt facilities that could prevent us from borrowing additional funds, if needed. Our Global Credit Facility (credit facility) is secured by primarily all of our domestic assets and certain other foreign assets and stock pledges. Our borrowing availability is based primarily on a leverage ratio test, measured quarterly as total funded indebtedness over adjusted EBITDA, as defined in the credit facility agreement. Consequently, any significant decrease in adjusted EBITDA could limit our ability to borrow additional funds to adequately finance our operations and expansion strategies. The terms of our global credit facility also include negative covenants that, among other things, may limit our ability to incur additional indebtedness, sell certain assets and make certain payments, including but not limited to, dividends, repurchases of our common stock and other payments outside the normal course of business, as well as prohibiting us from merging or consolidating with another corporation or selling all or substantially all of our assets in the United States or assets of any other named borrower. If we violate any of these loan covenants, default on these obligations or become subject to a change of control, our indebtedness under the credit facility agreement would become immediately due and payable, and the banks could foreclose on their security.

We rely on our suppliers to provide trade credit and terms to adequately fund our on-going operations and product purchases. Our business is dependent on our ability to obtain adequate supplies of currently popular product at favorable pricing and on other favorable terms. Our ability to fund our product purchases is dependent on our principal suppliers providing favorable payment terms that allow us to increase the efficiency of our capital usage. The payment terms we receive from our suppliers are dependent on several factors, including, but not limited to:

 

   

pledged cash requirements;

 

   

our payment history with the supplier;

 

   

the supplier’s credit granting policies and contractual provisions;

 

   

our overall credit rating as determined by various credit rating agencies;

 

   

industry conditions;

 

   

our recent operating results, financial position and cash flows; and

 

   

the supplier’s ability to obtain credit insurance on amounts that we owe them.

Adverse changes in any of these factors, some of which may not be in our control, could harm our operations.

A significant percentage of our revenues are generated outside of the United States in countries that may have volatile currencies or other risks. We maintain operations centers and sales offices in territories and countries outside of the United States. The fact that our business operations are conducted in many countries exposes us to several additional risks, including, but not limited to:

 

   

potentially significant changes in wireless product prices;

 

   

increased credit risks, customs duties, import quotas and other trade restrictions;

 

   

potentially greater inflationary pressures;

 

   

shipping delays;

 

   

the risk of failure or material interruption of wireless systems and services; and

 

   

possible wireless product supply interruption.

 

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In addition, changes to our detriment may occur in social, political, regulatory and economic conditions or in laws and policies governing foreign trade and investment in the territories and countries where we currently have operations. U.S. laws and regulations relating to investment and trade in foreign countries could also change to our detriment. Any of these factors could have a negative impact on our business and operations. We purchase and sell products and services in a number of foreign currencies, many of which have experienced fluctuations in currency exchange rates. In the past, we entered into forward exchange swaps, futures or options contracts as a means of hedging our currency transaction and balance sheet translation exposures. However, our local management has limited experience in engaging in these types of transactions. Even if done well, hedging may not effectively limit our exposure to a decline in operating results due to foreign currency translation. We cannot predict the effect that future exchange rate fluctuations will have on our operating results. We have ceased operations or divested several of our foreign operations because they were not performing to acceptable levels. These actions resulted in significant losses to us. We may in the future decide to divest certain existing foreign operations, which could result in our incurring significant additional losses.

Our operating results frequently vary significantly and respond to seasonal fluctuations in purchasing patterns. The operating results of each of our three divisions may be influenced by a number of seasonal factors in the different countries and markets in which we operate. These factors may cause our revenue and operating results to fluctuate on a quarterly basis. These fluctuations are a result of several factors, including, but not limited to:

 

   

promotions and subsidies by mobile operators;

 

   

the timing of local holidays and other events affecting consumer demand;

 

   

the timing of the introduction of new products by our suppliers and competitors;

 

   

purchasing patterns of customers in different markets;

 

   

general economic conditions; and

 

   

product availability and pricing.

Consumer electronics and retail sales in many geographic markets tend to experience increased volumes of sales at the end of the calendar year, largely because of gift-giving holidays. This and other seasonal factors have contributed to increases in our sales during the fourth quarter in certain markets. Conversely, we have experienced decreases in demand in the first quarter subsequent to the higher level of activity in the preceding fourth quarter. Our operating results may continue to fluctuate significantly in the future. If unanticipated events occur, including delays in securing adequate inventories of competitive products at times of peak sales or significant decreases in sales during these periods, our operating results could be harmed. In addition, as a result of seasonal factors, interim results may not be indicative of annual results.

The market price of our common stock may be volatile. The market price of our common stock has fluctuated significantly from time to time. The trading price of our common stock could experience significant fluctuations in the future due to a variety of factors, including but not limited to:

 

   

actual or anticipated variations in our quarterly operating results or financial position;

 

   

repurchases of common stock;

 

   

commencement of litigation;

 

   

the introduction of new services, products or technologies by us, our suppliers or our competitors;

 

   

changes in other conditions or trends in the wireless voice and data industry;

 

   

changes in governmental regulation and the enforcement of such regulation;

 

   

changes in the assessment of our credit rating as determined by various credit rating agencies;

 

   

changes in securities analysts’ estimates of our future performance or that of our competitors or our industry in general; and

 

   

consolidation of mobile operators.

 

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General market price declines or market volatility in the prices of stock for companies in the global wireless industry or in the distribution or logistic services sectors of the global wireless industry could also cause the market price of our common stock to decline.

There are amounts of our securities issuable pursuant to our Amended and Restated 2004 Long-Term Incentive Plan that, if issued, could result in dilution to existing shareholders, reduce earnings and earnings per share in future periods and reduce the market price of our common stock. We have reserved a significant number of shares of common stock that may be issuable pursuant to our Amended and Restated 2004 Long-Term Incentive Plan. Grants made under this plan could result in dilution to existing shareholders.

Item 1B. Unresolved Staff Comments.

None.

Item 2. Properties.

We provide our wireless device lifecycle services from our sales and operations centers located in various countries including Australia, Austria, Belgium, Denmark, Finland, Germany, Hong Kong, India, the Netherlands, New Zealand, Norway, the Philippines, Poland, Portugal, Puerto Rico, Singapore, Slovakia, South Africa, Spain, Sweden, Switzerland, the United Arab Emirates, the United Kingdom and the United States. All of these facilities are occupied pursuant to operating leases except for three North American operations facilities that we own. The table below summarizes information about our sales and operations centers by operating division.

 

     Number of
Locations(1)
     Aggregate
Square  Footage
 

Americas

     10         2,365,406   

Asia-Pacific

     8         197,788   

Europe, Middle East and Africa

     18         545,440   
  

 

 

    

 

 

 
     36         3,108,634   
     

 

 

 

 

(1) Refers to facilities operated by the Company that are greater than 1,000 square feet.

We believe that our existing facilities are adequate for our current requirements and that suitable additional space will be available as needed to accommodate future expansion of our operations.

Item 3. Legal Proceedings.

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 12 Legal Proceedings and Contingencies, in the Notes to Consolidated Financial Statements.

Item 4. Mine Safety Disclosures

None

 

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PART II

Item 5. Market for Registrant’s Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities.

Our common stock is listed on the NASDAQ Global Select Market under the symbol CELL. The following tables set forth, for the periods indicated, the high and low sale prices for our common stock as reported by the NASDAQ Stock Market.

 

2011

   High      Low  

First Quarter

   $ 13.22       $ 8.77   

Second Quarter

     11.20         7.40   

Third Quarter

     10.54         7.37   

Fourth Quarter

     11.33         8.76   

2010

   High      Low  

First Quarter

   $ 8.00       $ 5.71   

Second Quarter

     8.45         6.98   

Third Quarter

     8.17         5.85   

Fourth Quarter

     9.42         6.83   

At February 24, 2012, there were 287 shareholders of record.

We did not pay cash dividends during 2011 or 2010. Our credit facility agreement requires that we meet various compliance requirements prior to declaring or paying cash dividends, making capital contributions or other payments to shareholders. The Board of Directors intends to continue a policy of retaining earnings to finance the growth and development of the business and does not expect to declare or pay any cash dividends in the foreseeable future.

The information regarding equity compensation plans is incorporated by reference to Item 12 of this Form 10-K, which incorporates by reference the information set forth in the Company’s Definitive Proxy Statement in connection with the 2012 Annual Meeting of Shareholders, which will be filed with the Securities and Exchange Commission no later than 120 days following the end of the 2011 fiscal year.

Purchases of Equity Securities by the Issuer and Affiliated Purchasers

As of December 31, 2011, there was approximately $36.6 million of availability remaining under the previously announced share repurchase program that allows for share repurchases of up to $130 million. The share repurchase program expires on December 31, 2012.

We did not repurchase any shares of common stock under the share repurchase program during the fourth quarter of 2011. As of December 31, 2011, we have repurchased 15,382,164 shares at a weighted average price of $6.07 per share under the share repurchase program. This includes the repurchase of 3.0 million Brightpoint, Inc. shares from NC Telecom Holding A/S for $15.5 million in October 2009 as well as 9.2 million Brightpoint, Inc. shares from Partner Escrow Holding A/S, an affiliate of NC Telecom Holding A/S for $6.20 per share, for an aggregate of $57.3 million in January 2010.

 

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The following line graph compares, from January 1, 2007 through December 31, 2011, the cumulative total shareholder return on the Company’s Common Stock with the cumulative total return on the stocks comprising the S&P SmallCap 600 Index, NASDAQ Market Value Index, and the Morningstar Group Index (Electronics Distribution). The comparison assumes $100 was invested on January 1, 2007 in the Company’s Common Stock and in each of the foregoing indices and assumes reinvestment of all cash dividends, if any, paid on such securities. The Company has not paid any cash dividends and, therefore, the cumulative total return calculation for the Company is based solely upon share price appreciation and not upon reinvestment of cash dividends. Historical share price is not necessarily indicative of future stock price performance.

COMPARISON OF FIVE YEAR CUMULATIVE TOTAL RETURN AMONG BRIGHTPOINT, INC., NASDAQ

MARKET INDEX, S&P SMALLCAP 600 INDEX AND MORNINGSTAR GROUP INDEX

 

LOGO

Assumes $100 invested on January 1, 2007

Assumes dividends reinvested

Fiscal Years Ended December 31

 

     2006      2007      2008      2009      2010      2011  

Brightpoint, Inc.

   $ 100.00       $ 114.21       $ 32.34       $ 54.64       $ 64.90       $ 79.99   

NASDAQ Market Index

   $ 100.00       $ 110.65       $ 66.41       $ 96.54       $ 114.06       $ 113.16   

S&P SmallCap 600

   $ 100.00       $ 99.70       $ 68.72       $ 86.29       $ 108.98       $ 110.09   

Morningstar Group Index

   $ 100.00       $ 109.05       $ 56.36       $ 87.45       $ 112.36       $ 104.53   

 

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Item 6. Selected Financial Data.

 

 

(Amounts in thousands, except per share data)

     Years Ended December 31,  
     2011(1)      2010(1)     2009(1)     2008(1)     2007(1)  

Revenue

   $ 5,244,383       $ 3,593,239      $ 3,166,579      $ 4,331,252      $ 4,089,625   

Gross profit

     375,833         314,623        274,527        323,883        259,255   

Operating income (loss) from continuing operations

     72,688         60,409        36,633        (282,124     62,428   

Income (loss) from continuing operations

     47,891         38,845        40,825        (325,450     46,158   

Total gain (loss) from discontinued operations, net of income taxes

     941         (8,727     (14,269     (16,303     1,582   

Net income (loss) attributable to common shareholders

     48,832         30,118        26,556        (342,114     47,394   

Earnings (loss) per share - basic:

           

Income (loss) from continuing operations

   $ 0.71       $ 0.56      $ 0.51      $ (4.16   $ 0.75   

Discontinued operations

     0.01         (0.12     (0.18     (0.21     0.03   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 0.72       $ 0.44      $ 0.33      $ (4.37   $ 0.78   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Earnings (loss) per share - diluted:

           

Income (loss) from continuing operations

   $ 0.70       $ 0.55      $ 0.50      $ (4.16   $ 0.73   

Discontinued operations

     0.01         (0.12     (0.17     (0.21     0.02   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 

Net income (loss)

   $ 0.71       $ 0.43      $ 0.33      $ (4.37   $ 0.75   
  

 

 

    

 

 

   

 

 

   

 

 

   

 

 

 
     2011      2010     2009     2008     2007  

Working capital

   $ 200,367       $ 30,312      $ 148,452      $ 234,741      $ 525,778   

Total assets

     1,506,911         1,247,841        1,013,991        1,146,360        1,972,361   

Long-term obligations

     246,542         90,000        97,017        175,607        441,521   

Total liabilities

     1,215,746         1,003,488        737,064        895,796        1,370,778   

Shareholders’ equity

     291,165         244,353        276,927        250,564        600,765   

 

(1) The consolidated statements of operations reflect the reclassification of the results of operations of our Italy, France, Poland, Philippines, Turkey and locally branded PC notebook business in Slovakia to discontinued operations for all periods presented in accordance with U.S. generally accepted accounting principles. Operating data includes certain items that were recorded in the years presented as follows: restructuring charges in 2011, 2010, 2009, 2008 and 2007; the results of operations of the acquired Touchstone Wireless business in 2011; $3.0 million charge in 2011 related to a contingency from a contract that was acquired with the purchase of Dangaard Telecom in 2007; $3.1 million of expense in accordance with a mutual separation agreement between the Company and its former Chief Financial Officer in 2011; $3.0 million of non-taxable, non-cash gain related to the investment in Intcomex in 2011; $7.7 million non-cash gain on settlement of an indemnification claim in 2009; $16.3 million of tax benefits in 2009; $325.9 million goodwill impairment charge in 2008; $18 million of charges related to valuation allowances on certain tax assets that are no longer expected to be utilized in 2008; and $16.1 million of tax benefits in 2007. See Item 7, “Management’s Discussion and Analysis of Financial Condition and Results of Operations.”

 

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Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations.

OVERVIEW AND RECENT DEVELOPMENTS

BrightPoint is a global leader in providing device lifecycle services to the wireless industry. We provide customized logistic services including demand planning, procurement, inventory management, software loading, kitting and customized packaging, fulfillment, credit services, receivables management, call center services, activation services, website hosting, e-fulfillment solutions, repair, refurbish and recycle services, reverse logistics, transportation management 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 provide value-added distribution channel management and other supply chain solutions for wireless products manufactured by companies such as Apple, HTC, Huawei, Kyocera, LG Electronics, Motorola, Nokia, Research in Motion, Samsung, Sony Ericsson, and ZTE. We have operations centers and/or sales offices in 24 countries and a presence in 13 Latin American countries through our investment in Intcomex.

We measure our performance by focusing on certain key performance indicators such as the number of wireless devices handled, gross margin by service line, operating income, cash flow, cash conversion cycle, and liquidity. We also use return on invested capital (ROIC) and return on tangible capital (ROTC) to measure the effectiveness of the use of invested capital and tangible capital.

Significant developments and events in 2011 include:

Revenue and units handled. Revenue increased 46% to $5.2 billion and total wireless devices handled, including tablets, increased 14% to 112.2 million units for the year ended December 31, 2011. The increases were primarily driven by:

 

   

increased demand for higher average selling priced smartphones,

 

   

increased product supply compared to what was experienced in the prior year,

 

   

the launch of tablet programs during 2011, and

 

   

favorable foreign currency fluctuations of $106.6 million.

Intcomex. On April 19, 2011, we completed an investment in the U.S.-based company Intcomex. Intcomex is a leading distributor of information technology and wireless products and services focused solely on the Latin America and the Caribbean markets. We invested cash of $13.0 million and contributed our Colombia and Guatemala operations and certain of our other Latin America operations, in exchange for an approximate 23% share of the outstanding common stock of Intcomex. We also hold a seat on the Intcomex Board of Directors. The investment is an equity method investment, and our share of earnings (losses) in Intcomex is included in “other expense (income)” in the consolidated statement of income three months in arrears in order to meet our reporting deadlines. Our share of Intcomex losses was immaterial for the year ended December 31, 2011. We recorded a $3.0 million non-cash, non taxable gain on investment for the difference between the fair value of the investment received in Intcomex and the carrying value of the assets we contributed.

Touchstone Wireless Operations Relocation. On May 17, 2011 we announced a plan to relocate our Touchstone Wireless operations from Bristol, Tennessee and consolidate the operations into our existing facilities in Fort Worth, Texas and Plainfield, Indiana. The relocation of operations and shut-down activities occurred during the second half of 2011. We also closed an office of the former Touchstone Wireless operations in Hatfield, Pennsylvania during the fourth quarter of 2011. We incurred $5.2 million of restructuring costs during 2011 in relation to the aforementioned activities.

Amendment to Global Credit Facility. On September 28, 2011 we entered into the fifth amendment to our credit facility agreement. The fifth amendment:

 

   

increased the total borrowing capacity to $500 million from the prior capacity of approximately $450 million,

 

   

extended the maturity date until September 2016,

 

   

allowed investments for joint ventures up to $30 million in the aggregate,

 

   

reduced the interest rate to 2.25% over LIBOR, or approximately 2.50%, as of December 31, 2011, which is approximately 50 basis points lower than under the previous credit facility agreement, and

 

   

increased the allowance for factored receivables to $250 million in operations outside of the U.S. from the prior allowance of $150 million.

 

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Developments in 2012:

Customer Transition. In February 2012, we announced that our North America operation was notified that one of its logistic services customers will begin transitioning to a different service provider in April, 2012. We handled 6.8 million wireless devices in 2011 and 6.4 million wireless devices in 2010 on behalf of this customer, which represented 8% of total logistic services wireless devices handled in both 2011 and 2010. The transition of this customer is not expected to have a material impact on revenue but may have an adverse impact on gross profit, operating income, and net income.

We expect a higher than normal seasonal decline in industry units in the first quarter of 2012, with units expected to be down 15% to 20% compared to the fourth quarter of 2011.

 

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2011 RESULTS OF OPERATIONS

Revenue and units handled by division and service line

 

     Years Ended December 31,        
     2011      % of
Total
    2010      % of
Total
    Change  
     (Amounts in 000s)        

Distribution revenue

            

Americas

   $ 609,642         13   $ 433,367         13     41

Asia-Pacific

     1,814,853         39     953,535         29     90

Europe, Middle East and Africa

     2,275,963         48     1,871,572         58     22
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

   $ 4,700,458         100   $ 3,258,474         100     44
  

 

 

    

 

 

   

 

 

    

 

 

   

Logistic services revenue

            

Americas

   $ 389,866         72   $ 222,178         66     75

Asia-Pacific

     46,074         8     38,430         12     20

Europe, Middle East and Africa

     107,985         20     74,157         22     46
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

   $ 543,925         100   $ 334,765         100     62
  

 

 

    

 

 

   

 

 

    

 

 

   

Total revenue

            

Americas

   $ 999,508         19   $ 655,545         18     52

Asia-Pacific

     1,860,927         35     991,965         28     88

Europe, Middle East and Africa

     2,383,948         46     1,945,729         54     23
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

   $ 5,244,383         100   $ 3,593,239         100     46
  

 

 

    

 

 

   

 

 

    

 

 

   
     Years Ended December 31,        
     2011      % of
Total
    2010      % of
Total
    Change  
     (Amounts in 000s)        

Wireless devices sold through distribution

            

Americas

     2,969         13     2,683         14     11

Asia-Pacific

     6,698         29     5,423         28     24

Europe, Middle East and Africa

     13,341         58     11,296         58     18
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     23,008         100     19,402         100     19
  

 

 

    

 

 

   

 

 

    

 

 

   

Wireless devices handled through logistic services

            

Americas

     73,380         82     67,337         85     9

Asia-Pacific

     4,123         5     3,662         5     13

Europe, Middle East and Africa

     11,642         13     8,401         10     39
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     89,145         100     79,400         100     12
  

 

 

    

 

 

   

 

 

    

 

 

   

Total wireless devices handled

       

Americas

     76,349         68     70,020         71     9

Asia-Pacific

     10,821         10     9,085         9     19

Europe, Middle East and Africa

     24,983         22     19,697         20     27
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     112,153         100     98,802         100     14
  

 

 

    

 

 

   

 

 

    

 

 

   

 

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The following table presents the percentage changes in revenue for the year ended December 31, 2011 by service line compared to the prior year, including the impact to revenue from changes in wireless devices handled, average selling price, non-handset based revenue, foreign currency and acquisitions.

 

     2011 Percentage Change in Revenue vs. 2010  
     Wireless
devices
handled (1)
    Average
Selling
Price (2)
    Non-handset
based
revenue (3)
    Foreign
Currency
    Acquisitions (4)     Total
Percentage
Change in
Revenue
 

Year ended December 31, 2011:

            

Distribution

     13     27     1     3     0     44

Logistic services

     5     0     15     1     41     62

Total

     12     25     2     3     4     46

 

(1) Wireless devices handled represents the percentage change in revenue due to the change in quantity of handsets and tablets sold through our distribution business and the change in quantity of wireless devices handled through our logistic services business.
(2) Average selling price represents the percentage change in revenue due to the change in the average selling price of handsets and tablets sold through our distribution business and the change in the average fee per wireless device handled through our logistic services business.
(3) Non-handset distribution revenue represents the percentage change in revenue from accessories sold, freight and non-voice navigation devices sold through our distribution business. Non-handset based logistic services revenue represents the percentage change in revenue from the sale of prepaid airtime, freight billed, fees earned from repair and remanufacture services and fee based services other than fees earned from wireless devices handled. Changes in non-handset based revenue do not include changes in reported wireless devices.
(4) Acquisitions represent the percentage change in revenue from the incremental revenue generated from the acquisition of Touchstone Wireless that closed on December 23, 2010.

The increase in wireless devices sold through distribution for the year ended December 31, 2011 was primarily driven by an increase in wireless devices sold in our EMEA division due to improved availability of higher-end devices compared to the prior year, the ramp-up of a distribution agreement to sell wireless devices to a group of dealers of a major network operator in North America, an increase in wireless devices sold at our India operations due to an expanded relationship with a wireless device manufacturer that began in the fourth quarter of 2010, and a 25% increase in wireless devices sold in our Southeast Asia operations compared to the prior year. The launch of tablets by wireless device manufacturers during 2011 also contributed to the increase in wireless devices sold through distribution, generating $142.3 million in revenue for the year ended December 31, 2011.

The increase in distribution average selling price for the year ended December 31, 2011 was due to a higher mix of smartphones and tablets sold in all three divisions. The mix of smartphones sold through distribution increased from 41% of the total handsets sold for the year ended December 31, 2010 to 57% of the total handsets sold for the year ended December 31, 2011.

The increase in logistic services revenue for the year ended December 31, 2011 compared to prior year was partially due to the revenue generated from Touchstone Wireless. Excluding the impact of Touchstone Wireless, logistic services revenue increased approximately 21% primarily due to the increase in non-handset based revenue and an increase in wireless devices handled.

The increase in non-handset based logistic services revenue for the year ended December 31, 2011 was primarily due to increased revenue from non-handset fulfillment programs for a wireless device manufacturer in EMEA as well as increased volumes for non-handset based logistic services performed in our North America operation compared to prior year. The increase in wireless devices handled through logistic services for the year ended December 31, 2011 was primarily driven by increased services provided to existing customers in our North America operation, expanded services at our Sweden operation and new logistic services provided for tablets.

 

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Table of Contents

Gross Profit and Gross Margin

 

     Years Ended December 31,        
     2011     % of
Total
    2010     % of
Total
    Change  
     (Amounts in 000s)        

Distribution

   $ 172,650        46   $ 150,613        48     14%   

Logistic services

     203,183        54     164,010        52     24%   
  

 

 

   

 

 

   

 

 

   

 

 

   

Gross profit

   $ 375,833        100   $ 314,623        100     19%   
  

 

 

   

 

 

   

 

 

   

 

 

   

Distribution

     3.7       4.6       (0.9) points   

Logistic services

     37.4       49.0       (11.6) points   

Gross margin

     7.2       8.8       (1.6) points   

The increase in distribution gross profit for the year ended December 31, 2011 was primarily due to an increase in gross profit generated in the Asia-Pacific region as a result of a shift in the mix of wireless devices sold from feature phones to smartphones in our Southeast Asia operations and an increase in smartphones sold in our EMEA division as a result of improved product availability compared to the prior year. The increase in logistic services gross profit for the year ended December 31, 2011 was due to incremental gross profit generated from the acquired Touchstone Wireless operations and increased gross profit from non-handset fulfillment programs in EMEA.

The decrease in distribution gross margin for the year ended December 31, 2011 compared to the prior year was partially due to a shift in the mix of wireless devices sold in our Southeast Asia operations and a higher mix of business from these lower margin operations. This shift in the mix of wireless devices sold, as well as a higher mix of business from these operations, represented 0.1 percentage points of the decrease of distribution gross margin compared to the prior year. However, these operations generated a higher gross profit per unit in 2011 compared to the prior year and continues to generate a higher return on invested capital (ROIC) and a shorter cash conversion cycle than our distribution business in other divisions. In the future, we expect the shift in the Southeast Asia operations to continue to generate a lower distribution gross margin, higher gross profit per device and a higher ROIC as compared to our other operations but there can be no assurances that our expectations will be realized.

The decrease in distribution gross margin for the year ended December 31, 2011 was also partially due to a decrease in margins in the Americas and EMEA divisions. The reduction in distribution gross margin in the Americas division was primarily due to increased competition in the marketplace. The decrease in distribution gross margin in EMEA was due to increased competition in the distribution of smartphones and tablets and the decision to sell product at lower margins earlier in the year in an effort to gain market share. The gain in market share resulted in an increase in distribution wireless devices sold in our EMEA division of 18% for the year ended December 31, 2011 compared to the prior year.

The decrease in logistic services gross margin for the year ended December 31, 2011 was partially due to the Touchstone Wireless business that has a lower gross margin profile primarily due to a lower gross margin earned on spare parts used in repair services. Excluding the impact of Touchstone Wireless, logistic services gross margin was 42.6% for the year ended December 31, 2011. The decrease in logistic services gross margin excluding Touchstone Wireless was due to an increase in operating costs associated with expanding operational capacities in our Americas division and a shift in the mix of logistic services to lower margin non-handset based services provided in our EMEA division.

 

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Table of Contents

Selling, General and Administrative (SG&A) Expenses

 

     Years Ended December 31,         
     2011      2010      Change  
     (Amounts in 000s)         

SG&A expenses

   $ 269,662       $ 230,034         17

The increase in SG&A expenses for the year ended December 31, 2011 compared to the prior year was partially attributed to an incremental $10.5 million of SG&A expense for Touchstone Wireless, fluctuations in foreign currency that increased SG&A expense by $9.3 million, $3.1 million of separation expense for our former CFO, and a $3.0 million charge related to a contingency from a contract that was acquired with the purchase of Dangaard Telcom in 2007. The remainder of the increase is due to an increase in personnel expense and other costs to support certain global initiatives.

SG&A expenses for the year ended December 31, 2011 included $12.4 million of non-cash stock based compensation expense compared to $10.3 million for the prior year. The increase in non-cash stock based compensation compared to the prior year was primarily due to the expense from additional discretionary awards granted during the prior year.

Amortization Expense

Amortization expense was $23.6 million for the year ended December 31, 2011 compared to $15.0 million for the prior year. The increase in amortization expense for the year ended December 31, 2011 was primarily due to the amortization of finite-lived intangible assets acquired in the purchase of Touchstone Wireless in December 2010.

Restructuring Charge

Restructuring charges were $9.4 million for the year ended December 31, 2011. During the second quarter of 2011, we announced a plan to relocate our Touchstone Wireless operations from Bristol, Tennessee and consolidate the operations into our existing facilities in Fort Worth, Texas and Plainfield, Indiana. We also closed an office of the former Touchstone Wireless operations in Hatfield, Pennsylvania during the fourth quarter of 2011. We recorded $5.2 million of severance, lease termination, asset impairment and other charges in relation to this plan during the year ended December 31, 2011.

Severance, lease termination and asset impairment charges of $3.8 million were recorded for the year ended December 31, 2011 in connection with continued global entity consolidation and rationalization related to the implementation of Centers of Excellence and a Shared Services Center in the EMEA division. We recorded $0.6 million of severance charges for headcount reduction in our Asia-Pacific, Americas and Corporate divisions during 2011, as well as restructuring costs for the impairment of assets and severance charges to optimize the Latin America operations subsequent to the completion of the Intcomex investment. The continued optimization of our facilities may result in future restructuring charges.

Restructuring charges were $6.2 million for the year ended December 31, 2010. Restructuring charges primarily consist of lease termination and severance charges in connection with continued global entity consolidation and rationalization.

Operating Income (Loss) from Continuing Operations

 

     Years Ended December 31,        
     2011     % of
Total
    2010     % of
Total
    Change  
     (Amounts in 000s)        

Americas

   $ 59,074        81   $ 52,226        87     14

Asia-Pacific

     35,015        48     26,640        44     31

Europe, Middle East and Africa

     32,528        45     26,210        43     24

Corporate

     (53,929     (74 %)      (44,667     (74 %)      21
  

 

 

   

 

 

   

 

 

   

 

 

   

Total

   $ 72,688        100   $ 60,409        100     20
  

 

 

   

 

 

   

 

 

   

 

 

   

 

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Table of Contents

Operating income as a percent of revenue by division:

 

     Years Ended December 31,        
     2011     2010     Change  

Americas

     5.9     8.0     (2.1) points   

Asia-Pacific

     1.9     2.7     (0.8) points   

Europe, Middle East and Africa

     1.4     1.3     0.1 points   

Total

     1.4     1.7     (0.3) points   

The increase in operating income for the year ended December 31, 2011 was primarily due to increased business in our Southeast Asia operations, incremental operating income from the acquired Touchstone Wireless operations, increased gross profit generated by our EMEA division related to a new accessories fulfillment program that began in the third quarter of 2010 and increased distribution business due to a reduction in product supply constraints that were experienced in the prior year. These increases were partially offset by increases in SG&A expenses as described above.

Operating income as a percentage of revenue decreased 0.3 percentage points for the year ended December 31, 2011. The decline was primarily due to the shift in the mix of wireless devices sold in our Southeast Asia operations to a higher mix of devices with higher average selling prices, higher gross profit and lower gross margins, a decrease in distribution gross margin in the Americas division, and an increase in operating expenses in our Americas division associated with expanding operational capacities.

Interest, net

 

     Years Ended December 31,        
     2011     2010     Change  
     (Amounts in 000s)        

Interest expense

   $ 15,983      $ 9,166        74

Interest income

     (950     (1,400     (32 %) 
  

 

 

   

 

 

   

Interest, net

   $ 15,033      $ 7,766        94
  

 

 

   

 

 

   

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 year ended December 31, 2011 compared to the same period in the prior year was primarily due to an increase of borrowings on our credit facility and an increase in the interest rate on the credit facility of approximately 150 basis points as a result of the amendment to the credit facility agreement completed in the fourth quarter of 2010. On September 28, 2011, we entered into another amendment to our existing credit facility agreement that reduced the interest rate by approximately 50 basis points. Average daily debt was $340.3 million for the year ended December 31, 2011 compared to $230.7 million in the prior year. Average daily debt for the year ended December 31, 2011 includes the impact of the purchase of Touchstone Wireless in December 2010 for $75.7 million, the purchase of a facility in Plainfield, Indiana for $18.4 million in December 2010, the purchase of a facility in Reno, Nevada for $11.7 million in February 2011 and cash invested in Intcomex of $13.0 million in April 2011.

Gain on investment in Intcomex, Inc.

On April 19, 2011, we completed our investment in the U.S. based company Intcomex, Inc. Under this agreement, we invested cash of $13.0 million and contributed our Colombia and Guatemala operations and certain of our other Latin America operations, excluding certain legacy business in Puerto Rico, in exchange for an approximate 23% share of the outstanding common stock of Intcomex. We also hold a seat on the Intcomex Board of Directors. The investment is an equity method investment and our share of earnings (losses) in Intcomex is included in “other expense (income)” in the consolidated statement of income three months in arrears in order to meet our reporting deadlines. An immaterial amount of loss is included in earnings for the year ended December 31, 2011. The investment is included in “other assets” in the consolidated balance sheet. We recorded a $3.0 million non-cash, non taxable gain on investment for the difference between the fair value of the investment received in Intcomex and the carrying value of the assets contributed. The carrying value of our investment in Intcomex is greater than 23% of the book value of Intcomex’s equity. This difference is attributable to an unrecorded intangible asset to reflect the unique customers and geographic footprint of the Intcomex operations. The difference is being amortized over seven years and offsets our share of the income reported by Intcomex.

 

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Table of Contents

Other (Income) Expense

Other expense was $3.5 million for the year ended December 31, 2011 compared to other income of $0.1 million in the prior year. The increase in other expense for the year ended December 31, 2011 compared to the prior year was primarily due to an increase in foreign currency transaction losses and our portion of losses for equity method investees.

Income Tax Expense

 

     Years Ended December 31,        
     2011     2010     Change  
     (Amounts in 000s)        

Income tax expense

   $ 9,293      $ 12,997        (28%)   

Effective tax rate

     16.3     25.1     (8.8) points   

Income tax expense for the year ended December 31, 2011 included $4.3 million of income tax benefit for the reversal of valuation allowances on foreign tax credits that are expected to be utilized in the United States, $0.6 million of income tax benefit related to the expiration of the statute of limitations on certain tax positions and $0.5 million of income tax benefit for the reversal of a valuation allowance on net operating losses in certain countries that are now expected to be realized.

Excluding these charges, the effective income tax rate for the year ended December 31, 2011 was 25.6%. Our annual effective tax rate for 2011 was lower than the United States statutory rate due to a higher mix of business in lower tax jurisdictions.

Discontinued Operations

The consolidated statements of income reflect the reclassification of the results of our operations in Italy to discontinued operations for all periods presented in accordance with U.S. generally accepted accounting principles. We abandoned our Italian operation in the first quarter of 2010. There were no material impairments of tangible or intangible assets related to this discontinued operation. Income from discontinued operations, net of income taxes, was $0.9 million for the year ended December 31, 2011, compared to a loss of $8.7 million for the year ended December 31, 2010.

 

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Table of Contents

2010 RESULTS OF OPERATIONS

Revenue and units handled by division and service line

 

     Years Ended December 31,        
     2010      % of
Total
    2009      % of
Total
    Change  
     (Amounts in 000s)        

Distribution revenue

            

Americas

   $ 433,367         13   $ 448,086         16     (3 %) 

Asia-Pacific

     953,535         29     834,906         30     14

Europe, Middle East and Africa

     1,871,572         58     1,527,362         54     23
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

   $ 3,258,474         100   $ 2,810,354         100     16
  

 

 

    

 

 

   

 

 

    

 

 

   

Logistic services revenue

            

Americas

   $ 222,178         66   $ 192,276         54     16

Asia-Pacific

     38,430         12     33,631         9     14

Europe, Middle East and Africa

     74,157         22     130,318         37     (43 %) 
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

   $ 334,765         100   $ 356,225         100     (6 %) 
  

 

 

    

 

 

   

 

 

    

 

 

   

Total revenue

            

Americas

   $ 655,545         18   $ 640,362         20     2

Asia-Pacific

     991,965         28     868,537         28     14

Europe, Middle East and Africa

     1,945,729         54     1,657,680         52     17
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

   $ 3,593,239         100   $ 3,166,579         100     13
  

 

 

    

 

 

   

 

 

    

 

 

   
     Years Ended December 31,        
     2010      % of
Total
    2009      % of
Total
    Change  
     (Amounts in 000s)        

Wireless devices sold through distribution

            

Americas

     2,683         14     2,974         15     (10 %) 

Asia-Pacific

     5,423         28     6,420         34     (16 %) 

Europe, Middle East and Africa

     11,296         58     9,659         51     17
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     19,402         100     19,053         100     2
  

 

 

    

 

 

   

 

 

    

 

 

   

Wireless devices handled through logistic services

            

Americas

     67,337         85     55,995         87     20

Asia-Pacific

     3,662         5     2,686         4     36

Europe, Middle East and Africa

     8,401         10     5,532         9     52
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     79,400         100     64,213         100     24
  

 

 

    

 

 

   

 

 

    

 

 

   

Total wireless devices handled

            

Americas

     70,020         71     58,969         71     19

Asia-Pacific

     9,085         9     9,106         11     0

Europe, Middle East and Africa

     19,697         20     15,191         18     30
  

 

 

    

 

 

   

 

 

    

 

 

   

Total

     98,802         100     83,266         100     19
  

 

 

    

 

 

   

 

 

    

 

 

   

 

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The following table presents the percentage changes in revenue for the year ended December 31, 2010 by service line compared to the prior year, including the impact to revenue from changes in wireless devices handled, average selling price, non-handset based revenue and foreign currency. The acquisition of Touchstone Wireless did not have a significant impact on total revenue for the year ended December 31, 2010.

 

     2010 Percentage Change in Revenue vs. 2009  
     Wireless
devices
handled (1)
    Average
Selling
Price (2)
    Non-handset
based
revenue (3)
    Foreign
Currency
    Total
Percentage
Change in
Revenue
 

Year ended December 31, 2010:

          

Distribution

     3     17     (3 %)      (1 %)      16

Logistic services

     7     (3 %)      (11 %)      1     (6 %) 

Total

     3     14     (4 %)      0     13

 

(1) Wireless devices handled represents the percentage change in revenue due to the change in quantity of handsets sold through our distribution business and the change in quantity of wireless devices handled through our logistic services business.
(2) Average selling price represents the percentage change in revenue due to the change in the average selling price of handsets sold through our distribution business and the change in the average fee per wireless device handled through our logistic services business.
(3) Non-handset distribution revenue represents the percentage change in revenue from accessories sold, freight and non-voice navigation devices sold through our distribution business. Non-handset based logistic services revenue represents the percentage change in revenue from the sale of prepaid airtime, freight billed, fees earned from repair and remanufacture services and fee based services other than fees earned from wireless devices handled. Changes in non-handset based revenue do not include changes in reported wireless devices.

The increase in wireless devices sold through distribution for the year ended December 31, 2010 was due to an increase in units sold in our EMEA division, offset by decreases in our Asia-Pacific and Americas divisions. The increase in EMEA was primarily driven by the Great Britain operation due to a new distribution agreement with a device manufacturer that began in the third quarter of 2009, an increase in units sold through our Middle East operation due to an expanded relationship with a device manufacturer, and an increase in wireless devices sold in Europe due to stronger market conditions and the availability of higher-end devices. The decrease in wireless devices sold through distribution in our Asia-Pacific division for the year ended December 31, 2010 was primarily driven by decreased volume of devices sold to customers served by our Singapore business as a result of a reduction of purchases from our primary supplier. The reduction in sales was due to many factors including: inventory shortages from this supplier driven by component supply shortages, foreign currency fluctuations that allowed traders from other regions to sell wireless devices into markets served by our Singapore business at lower prices than those available to us directly from this supplier; and a change in the supplier’s strategy in the market, resulting in its de-emphasizing distribution from our Singapore operations, which led to eliminating its allocation of saleable products to us in this market during the fourth quarter of 2010. The decrease in wireless devices sold through distribution was also impacted by the loss of a significant customer in Colombia during the third quarter of 2009.

The decrease in revenue resulting from the decrease in wireless devices sold was more than offset by an increase in average selling price, which was driven by a shift in mix to smartphones due to higher demand and better availability of these devices compared to the same period in the prior year as well as expanded relationships with certain wireless device manufacturers.

The increase in wireless devices handled through logistic services for the year ended December 31, 2010 was primarily driven by increased demand for prepaid and fixed-fee wireless subscriptions (the primary product offering of certain BrightPoint logistic services customers) and increased service offerings to existing customers in our Americas division. Non-handset based logistic services revenue for the year ended December 31, 2010 decreased due to the change in the reporting of revenue from the sale of prepaid airtime in Sweden. In the fourth quarter of 2009 we began reporting the revenue associated with these agreements on a net basis as defined by Accounting Standards Codification (ASC) Section 605-45 (formerly Emerging Issues Task Force Issue No. 99-19) as general inventory risk has been mitigated. The revenue under these agreements was previously reported on a gross basis within logistic services revenue. Had the revenue from these agreements been reported on a net basis, total logistic services revenue would have been approximately $295.3 million for the year ended December 31, 2009.

 

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Table of Contents

Gross Profit and Gross Margin

 

     Years Ended December 31,        
     2010     % of
Total
    2009     % of
Total
    Change  
     (Amounts in 000s)        

Distribution

   $ 150,613        48   $ 118,193        43     27%   

Logistic services

     164,010        52     156,334        57     5%   
  

 

 

   

 

 

   

 

 

   

 

 

   

Gross profit

   $ 314,623        100   $ 274,527        100     15%   
  

 

 

   

 

 

   

 

 

   

 

 

   

Distribution

     4.6       4.2       0.4 points   

Logistic services

     49.0       43.9       5.1 points   

Gross margin

     8.8       8.7       0.1 points   

The increase in gross profit and gross margin from distribution for the year ended December 31, 2010 was driven by a favorable mix of wireless devices sold compared to the prior year as well as one-time charges in Spain and the Netherlands recorded in 2009 that did not recur.

The increase in gross profit from logistic services for the year ended December 31, 2010 was primarily due to an increase in services provided to existing customers and the launch of new logistic services programs with network operators in the EMEA division. The increase in gross margin from logistic services for the year ended December 31, 2010 was driven by the change in reporting of revenue from the sale of prepaid airtime in Sweden described above. Had the revenue from these agreements been reported on a net basis for the year ended December 31, 2009, total gross margin would have been 8.8% and logistic services margin would have been 52.9%. Excluding the impact from the change in reporting of revenue described above, logistic services gross margin for the year ended December 31, 2010 declined 3.9 percentage points primarily due to a shift in the mix of services provided in our Americas division as well as the impact of renegotiated prices with key logistic services customers.

Selling, General and Administrative (SG&A) Expenses

 

     Years Ended December 31,         
     2010      2009      Change  
     (Amounts in 000s)         

SG&A expenses

   $ 230,034       $ 207,167         11.0

The increase in SG&A expenses for the year ended December 31, 2010 compared to the prior year was primarily due to the reinstatement of accrued cash bonuses for staff and executives, an increase in non-cash stock based compensation expense, and fluctuations in foreign currencies. SG&A expenses for accrued cash bonuses were $18.0 million for the year ended December 31, 2010 compared to $5.8 million in the prior year. Cash bonuses were reinstated during the third quarter of 2009. In 2009, we also suspended full year merit increases to base salaries and temporarily held down spending on other expenses such as travel and marketing.

SG&A expenses for the year ended December 31, 2010 included $10.3 million of non-cash stock based compensation expense compared to $6.4 million for the prior year. The increase in non-cash stock based compensation compared to the prior year was primarily due to an incremental $1.5 million of additional stock based compensation expense resulting from discretionary awards of restricted stock units granted by our Board of Directors in February 2010. These awards vested on the grant date.

Fluctuations in foreign currencies negatively impacted SG&A expenses for the year ended December 31, 2010 by approximately $3.6 million compared to 2009.

 

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Table of Contents

Amortization Expense

Amortization expense was $15.0 million for the year ended December 31, 2010 compared to $15.9 million for the prior year. The decrease in amortization expense was primarily due to fluctuations in foreign currencies.

Restructuring Charge

Restructuring charge was $6.2 million for the year ended December 31, 2010. The restructuring charge primarily consisted of lease termination and severance charges in connection with continued global entity consolidation and rationalization.

Restructuring charge was $13.4 million for the year ended December 31, 2009. The restructuring charge primarily consisted of severance charges in connection with the global workforce reduction implemented as part of our previously announced 2009 Spending and Debt Reduction Plan.

Operating Income (Loss) from Continuing Operations

 

     Years Ended December 31,        
     2010     % of
Total
    2009     % of
Total
    Change  
     (Amounts in 000s)        

Americas

   $ 52,226        87   $ 51,832        141     1

Asia-Pacific

     26,640        44     24,775        68     8

Europe, Middle East and Africa

     26,210        43     (3,567     (10 %)      NM   

Corporate

     (44,667     (74 %)      (36,407     (99 %)      (23 %) 
  

 

 

   

 

 

   

 

 

   

 

 

   

Total

   $ 60,409        100   $ 36,633        100     65
  

 

 

   

 

 

   

 

 

   

 

 

   

NM = Not meaningful

Operating Income as a Percent of Revenue by Division:

 

     Years Ended December 31,        
     2010     2009     Change  

Americas

     8.0     8.1     (0.1) points   

Asia-Pacific

     2.7     2.9     (0.2) points   

Europe, Middle East and Africa

     1.3     (0.2 %)      1.5 points   

Total

     1.7     1.2     0.5 points   

The increase in operating income and operating income as a percentage of revenue for the year ended December 31, 2010 was driven by an increase in operating income in the EMEA division due to incremental gross profit in Great Britain and the Middle East related to new distribution agreements with wireless device manufacturers entered into during the third quarter of 2009, increased profitability due to a larger mix of smartphones sold, improved market conditions, as well as a reduction of restructuring charges compared to the prior year. These changes were partially offset by increases in SG&A expenses as previously discussed.

Interest, net

 

     Years Ended December 31,        
     2010     2009     Change  
     (Amounts in 000s)        

Interest expense

   $ 9,166      $ 9,453        (3 %) 

Interest income

     (1,400     (776     80
  

 

 

   

 

 

   

 

 

 

Interest, net

   $ 7,766      $ 8,677        (11 %) 
  

 

 

   

 

 

   

 

 

 

 

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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 decrease in interest expense for the year ended December 31, 2010 compared to the prior year was due to lower interest rates on our Eurodollar denominated debt compared to the same period in the prior year. Had the terms of the fourth amendment of the credit facility agreement (entered into in November 2010) been in place since the beginning of 2010, interest expense would have been approximately $4.0 million higher. The fourth amendment increased the interest rate by 1.50% compared to the third amendment of the credit facility.

Legal settlement

During the third quarter of 2010, we incurred a charge of $0.9 million related to the settlement of a legal dispute with the landlord of the former headquarters of Dangaard Telecom in Denmark. This contingency was acquired with the 2007 acquisition of Dangaard Telecom.

Other Expense (Income)

 

     Years Ended December 31,         
     2010     2009      Change  
     (Amounts in 000s)         

Other expense (income)

   $ (51   $ 265         119

The decrease in other expense for the year ended December 31, 2010 was primarily due to an increase in foreign currency gains compared to the prior year.

Income Tax Expense (Benefit)

 

     Years Ended December 31,        
     2010     2009     Change  
     (Amounts in 000s)        

Income tax expense (benefit)

   $ 12,997      $ (5,434     NM   

Effective tax rate

     25.1     NM        NM   

NM = not meaningful

Income tax expense was $13.0 million for the year ended December 31, 2010 compared to income tax benefit of $5.4 million for the prior year.

Income tax expense for the year ended December 31, 2010 included $3.1 million of income tax expense related to valuation allowances on deferred tax assets resulting from previous net operating losses in certain countries that were no longer expected to be utilized, $1.4 million of tax expense related to valuation allowances on foreign tax credits that were no longer expected to be utilized in the United States in 2011 and future years due to tax law changes that removed the ability to claim foreign source income from our previous tax planning strategy, and $0.8 million of other income tax expense related to income tax return to provision adjustments and other discrete income tax expenses. Income tax expense for the year ended December 31, 2010 also included $3.8 million of tax benefit related to the reversal of valuation allowances on deferred tax assets that were expected to be utilized as a result of restructuring the legal ownership of certain European subsidiaries and $1.0 million of tax benefit related to the reversal of a valuation allowance on deferred tax assets that were expected to be utilized in Denmark.

Excluding these charges, the effective income tax rate for the year ended December 31, 2010 was 24.2%. Our annual effective tax rate for 2010 was lower than the United States statutory rate due to a higher mix of business in lower tax jurisdictions.

 

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Table of Contents

Discontinued Operations

The consolidated statements of income reflect the reclassification of the results of operations of our Italy and France businesses to discontinued operations for all periods presented in accordance with U.S. generally accepted accounting principles. We exited our Italy operation in the first quarter of 2010, our France operation in the third quarter of 2009, and our Poland and Turkey operations in the first quarter of 2009. Loss from discontinued operations, net of income taxes, was $8.7 million and $14.3 million for the years ended December 31, 2010 and 2009.

LIQUIDITY AND CAPITAL RESOURCES

Liquidity analysis

We measure liquidity as the total of unrestricted cash and unused borrowing availability and we use this measurement as an indicator of our access to cash 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. The table below shows our liquidity calculation.

 

     December 31,         
     2011      2010      % Change  
     (Amounts in 000s)         

Unrestricted cash

   $ 40,041       $ 41,103         (3 %) 

Unused borrowing availability

     292,774         405,588         (28 %) 
  

 

 

    

 

 

    

 

 

 

Liquidity

   $ 332,815       $ 446,691         (26 %) 
  

 

 

    

 

 

    

 

 

 

Capital expenditures were $60.3 million, $42.1 million and $49.2 million for 2011, 2010 and 2009. Included in capital expenditures are the following: the purchase of a new Center of Excellence facility for $11.7 million in 2011, the purchase of a new Center of Excellence facility for $18.4 million in 2010, and the purchase of our primary North American distribution facility for $31.0 million in 2009. The remaining capital expenditures for 2011, 2010 and 2009 were primarily related to investments in our information technology infrastructure and software upgrades, as well as equipment and leasehold improvements for new facilities.

Expenditures for capital resources historically have been composed of information systems, leasehold improvements and warehouse equipment. We have also purchased the three aforementioned facilities in the years noted. We expect our level of capital expenditures to be affected by our geographic expansion activity, the continued implementation of a new transportation and warehouse management system and the implementation of our Centers of Excellence in Europe and North America and related consolidation of existing facilities in Europe. We will assess opportunities to invest in additional facilities based on our capacity utilization, customer demand, market conditions and liquidity.

We believe that existing capital resources and cash flows provided by future operations will enable us to maintain our current level of operations and our planned operations including capital expenditures for the foreseeable future. We believe that our existing balances, our anticipated cash flows from operations and our unused borrowing availability will be sufficient to finance strategic initiatives, working capital needs, the $36.6 million remaining for potential share repurchases under our previously announced $130 million share repurchase program, and investment opportunities for the next twelve months. As of December 31, 2011, we had $39.5 million of cash and cash equivalents held by foreign subsidiaries. We consider any cash and cash equivalents held by foreign subsidiaries to be permanently reinvested to meet non-US liquidity needs. We would accrue and pay taxes on any repatriated funds.

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 our cash flows.

 

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Table of Contents
     Years Ended December 31,        
     2011     2010     Change  
     (Amounts in 000s)        

Net cash provided by (used in):

      

Operating activities

   $ (80,971   $ 160,446      $ (241,417

Investing activities

     (82,217     (119,274     37,057   

Financing activities

     162,051        (85,988     248,039   

Effect of exchange rate changes on cash and cash equivalents

     321        5,424        (5,103
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

   $ (816   $ (39,392   $ 38,576   
  

 

 

   

 

 

   

 

 

 

Net cash used in operating activities was $81.0 million in 2011, an increase of $241.4 million compared to prior year. During the fourth quarter of 2010, one of our key global vendors experienced invoicing issues that caused an unusually high accounts payable balance. Operating cash flow would have been approximately $53.0 million lower in 2010 and cash used in operations in 2011 would have been lower by approximately $53.0 million had these invoicing issues not have occurred. Excluding the impact of the invoicing issues noted above, net cash used in operating activities increased $135.4 million compared to the prior year due to the timing of payments to vendors and an increase in accounts receivables due to the expansion of distribution business in our Americas and EMEA divisions.

Net cash used in investing activities was $82.2 million in 2011, a decrease of $37.1 million compared to prior year. Net cash used for investing activities for the year ended December 31, 2011 includes an investment in Intcomex of $13.0 million, the purchase of a facility in Reno, Nevada for $11.7 million plus closing costs as well as a $2.6 million contingent earn-out payment related to the 2008 acquisition of Hugh Symons Group Ltd.’s wireless distribution business. The remaining portion of net cash used for investing activities primarily relates to the build out of facilities purchased in 2010 and 2011, investments in global information systems to replace legacy local systems, and other capital expenditures. Prior year investing activities included the purchase of Touchstone Wireless for $75.7 million in December 2010 and the purchase of a Center of Excellence facility in the United States for $18.4 million.

Net cash provided by financing activities was $162.1 million, an increase of $248.0 million compared to prior year primarily due to an increase in net debt borrowings of $168.9 million compared to the prior year to fund an increase in fourth quarter vendor payments and inventory purchases as well as the investing activities discussed above. The increase from prior year is also attributed to a decrease in treasury stock repurchases under a previously announced share repurchase program of $75.8 million.

Cash Conversion Cycle

 

     Years Ended December 31,  
     2011     2010  

Days sales outstanding in accounts receivable

     32        36   

Days inventory on-hand

     34        34   

Days payable outstanding

     (52     (72
  

 

 

   

 

 

 

Cash Conversion Cycle Days

     14        (2
  

 

 

   

 

 

 

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. The cash conversion cycle is measured by the number of days it takes to effect the cycle of investing in inventory, selling the inventory, paying suppliers and collecting cash from customers. The components in the cash conversion cycle are days sales outstanding in accounts receivable, days inventory on hand, and days payables outstanding. The cash conversion cycle, as we measure it, is the netting of days sales outstanding in accounts receivable and days inventory on hand with the days of payables outstanding. Circumstances when the cash conversion cycle decreases generally generate cash for us. Conversely, circumstances when the cash conversion cycle increases generally consume cash in the form of additional investment in working capital.

During 2011, the cash conversion cycle increased to 14 days from negative 2 days in 2010. The negative cash conversion cycle for the year ended December 31, 2010 was a result of invoicing issues with one of our key global vendors that caused an unusually high accounts payable balance as well as high days payable outstanding at December 31, 2010. The remainder of the decrease is due to the timing of payments to vendors.

 

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Table of Contents

The detailed calculation of the components of the cash conversion cycle is as follows:

(A) Days sales outstanding in accounts receivable = Ending accounts receivable for continuing operations divided by average daily revenue (inclusive of value-added taxes for foreign operations) for the period.

(B) Days inventory on-hand = Ending inventory for continuing operations divided by average daily cost of revenue (excluding indirect product and service costs) for the period.

(C) Days payables outstanding = Ending accounts payable for continuing operations divided by average daily cost of revenue (excluding indirect product and service costs) for the period.

 

(Dollar amounts in thousands)    Years Ended December 31,  
     2011     2010  

Days sales outstanding in accounts receivable:

    

Continuing operations revenue

   $ 5,244,383      $ 3,593,239   

Value-added taxes invoiced for continuing operations

     203,023        185,115   
  

 

 

   

 

 

 

Total continuing operations revenue and value-added taxes

   $ 5,447,406      $ 3,778,354   

Average daily revenue including value-added taxes

     15,132        10,352   

Continuing operations ending accounts receivable

   $ 566,724      $ 486,757   

Agency accounts receivable (1)

     (87,704     (109,569
  

 

 

   

 

 

 

Accounts receivable excluding agency receivables

   $ 479,020      $ 377,188   

Days sales outstanding in accounts receivable(A)

     32        36   
  

 

 

   

 

 

 

Days inventory on-hand:

    

Continuing operations cost of revenue

   $ 4,868,550      $ 3,278,616   

Indirect product and service costs

     (314,853     (195,451
  

 

 

   

 

 

 

Total continuing operations cost of products sold

   $ 4,553,697      $ 3,083,165   

Average daily cost of revenue

     12,649        8,447   

Continuing operations ending inventory

   $ 468,937      $ 311,857   

Agency inventory (1)

     (31,372     (29,055
  

 

 

   

 

 

 

Inventory excluding agency inventory

   $ 437,565      $ 282,802   

Days inventory on-hand(B)

     34        34   
  

 

 

   

 

 

 

Days payables outstanding in accounts payable:

    

Average daily cost of revenue

   $ 12,649      $ 8,447   

Continuing operations ending accounts payable

     767,047        743,916   

Agency accounts payable (1)

     (103,525     (136,657
  

 

 

   

 

 

 

Accounts payable excluding agency payables

   $ 663,522      $ 607,259   

Days payable outstanding(C)

     52        72   
  

 

 

   

 

 

 

Cash conversion cycle days (A+B-C)

     14        (2
  

 

 

   

 

 

 

 

(1) Agency accounts receivable, inventory and accounts payable represent amounts on our balance sheet that include the full value of the product for which the revenue associated with these transactions is recorded under the net method (excluding the value of the product sold).

 

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Table of Contents

Borrowings

The table below summarizes borrowing capacity that was available to us as of December 31, 2011 (in thousands):

 

     Gross
Availability
     Outstanding      Letters of
Credit &

Guarantees
     Net
Availability
 

Global Credit Facility

   $ 500,000       $ 247,067       $ 1,226       $ 251,707   

Other

     46,500         5,433         —           41,067   
  

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 546,500       $ 252,500       $ 1,226       $ 292,774   
  

 

 

    

 

 

    

 

 

    

 

 

 

We had $3.5 million of guarantees and $0.5 million of short-term borrowings that did not impact our net availability as of December 31, 2011. Average daily debt outstanding was approximately $340.3 million for the year ended December 31, 2011.

At December 31, 2011 we were in compliance with the covenants in our credit agreements. Our credit facility agreement contains two financial covenants that are sensitive to significant fluctuations in earnings: a maximum leverage ratio and a fixed charge coverage ratio. The leverage ratio is calculated at the end of each fiscal quarter, and is calculated as total debt (including guarantees and letters of credit) divided by trailing twelve month bank adjusted earnings before interest, taxes, depreciation and amortization (bank adjusted EBITDA). The fixed charge coverage ratio is also calculated as of the end of each fiscal quarter, and is calculated as trailing twelve month consolidated cash flow divided by trailing twelve months of consolidated fixed charges. Consolidated fixed charges are calculated as net cash outflow for interest, income taxes, and recurring dividends.

 

Ratio

   Global Credit Facility
covenant
   Company ratio at
December 31, 2011
 

Maximum leverage ratio

   Not to exceed 3.0:1.0      1.8:1.0   

Fixed charge coverage ratio

   Not below 2.0:1.0      4.3:1.0   

We believe that we will continue to be in compliance with our debt covenants for the next 12 months.

 

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Table of Contents

OFF-BALANCE SHEET ARRANGEMENTS

We have agreements with unrelated third-parties for the factoring of specific accounts receivable in Germany and Spain in order to reduce the amount of working capital required to fund such receivables. Our credit facility agreement permits the factoring of up to $250 million of receivables in operations outside of the U.S. The factoring of accounts receivable under these agreements is accounted for as a sale in accordance with ASC 860, Transfers and Servicing, and accordingly, is accounted for as an off-balance sheet arrangement. Proceeds on the transfer reflect the face value of the account less a discount. The discount is recorded as a charge in “interest, net” in the consolidated statements of income in the period of the sale.

Net funds received reduced accounts receivable outstanding while increasing cash. We are the collection agent on behalf of the third party for the arrangements in Germany and Spain. However, we have no significant retained interests or servicing liabilities related to the accounts receivable that have been sold in either Germany or Spain. We have obtained third party credit insurance on the majority of the factored accounts receivable to mitigate credit risk and the credit insurance has been assigned to the factor. The risk of loss is limited to factored accounts receivable not covered by credit insurance, which is immaterial.

In December 2010, we began factoring receivables under an agreement in Germany. This agreement (amended in April 2011 and December 2011) allows up to approximately $140 million in factored receivables, which is subject to the $250 million factoring allowance in our credit facility agreement. In accordance with the December 2011 amendment, the allowance for factored receivables will be reduced to approximately $80 million on February 29, 2012.

At December 31, 2011, we had sold $57.8 million of accounts receivable pursuant to these agreements, which represents the face amount of total outstanding receivables at those dates. At December 31, 2010, we had sold $28.4 million of accounts receivable under these agreements. Fees paid pursuant to these agreements were $1.8 million and $0.1 million for the years ended December 31, 2011 and 2010.

CONTRACTUAL OBLIGATIONS AND COMMITMENTS

Our disclosures regarding cash requirements of contractual obligations and commercial commitments are located in various parts of our regulatory filings. Information in the following table provides a summary of our contractual obligations and commercial commitments as of December 31, 2011.

 

     Payments due by Period  
     Total      Less than
1 Year
     1 to 3
Years
     3 to 5
Years
     Thereafter  
     (Amounts in 000s)  

Operating leases

   $ 57,030       $ 16,075       $ 22,577       $ 14,405       $ 3,973   

Total borrowings

     253,007         6,465         —           246,542         —     

Interest on third party debt and lines of credit (1)

     29,279         6,164         12,328         10,787         —     

Purchase obligations (2)

     100,255         100,255         —           —           —     

Pension obligation

     5,855         77         655         758         4,365   

Guarantees

     3,533         2,323         41         8         1,161   

Letters of credit

     1,226         —           1,226         —           —     
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

Total

   $ 450,185       $ 131,359       $ 36,827       $ 272,500       $ 9,499   
  

 

 

    

 

 

    

 

 

    

 

 

    

 

 

 

 

(1) Interest on third party debt is calculated based on the interest rate as of December 31, 2011 and repayments of outstanding debt in accordance with our credit facility agreement.
(2) Purchase obligations exclude agreements that are cancelable without penalty. $99.8 million of purchase obligations relates to legally binding purchase orders.

In addition to the amounts shown in the table above, $0.8 million of unrecognized tax benefits have been recorded as liabilities in accordance with FIN 48, and we are uncertain as to if or when such amounts may be settled.

 

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CRITICAL ACCOUNTING ESTIMATES

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities and related disclosures at the date of the financial statements and reported amounts of revenue and expenses during the reporting period. Some of those judgments can be subjective and complex. Consequently, actual results could differ from those estimates. We consider an accounting estimate to be critical if:

 

   

The accounting estimate requires us to make assumptions about matters that were highly uncertain at the time the estimate was made; and

 

   

Changes in the estimate are reasonably likely to occur from period to period as new information becomes available, or use of different estimates that we reasonably could have used in the current period, would have a material impact on our financial condition or results of operations.

We continually evaluate the accounting policies and estimates we use to prepare the consolidated financial statements. Our estimates are based on historical experience, relevant third-party information, and various other assumptions we believe to be reasonable. Management has discussed the development and selection of these critical accounting estimates with the Audit Committee and the Audit Committee has reviewed the foregoing disclosure. In addition, there are other items within our financial statements that require estimation, but are not deemed critical based on the criteria above. Changes in estimates used in these and other items could have a material impact on our financial statements.

Deferred Taxes and Effective Tax Rates

We estimate the effective tax rates and associated liabilities or assets for each legal entity in accordance with ASC 740. We use tax-planning to minimize or defer tax liabilities to future periods. In recording effective tax rates and related liabilities and assets, we rely upon estimates, which are based upon our interpretation of United States and local tax laws as they apply to our legal entities and our overall tax structure. Audits by local tax jurisdictions, including the United States Government, could yield different interpretations from our own and cause the Company to owe more or less taxes than originally recorded. We use internal and external skilled resources in the various tax jurisdictions to evaluate our position and to assist in our calculation of tax expense and related liabilities.

For interim periods, we accrue our tax provision at the effective tax rate that we expect for the full year. As the actual results from our various businesses vary from our estimates earlier in the year, we adjust the succeeding interim period’s effective tax rates to reflect our best estimate for the year-to-date results and for the full year. As part of the effective tax rate, if we determine that a deferred tax asset arising from temporary differences is not likely to be utilized, we will establish a valuation allowance against that asset to record it at the expected realizable value. A valuation allowance is established when management determines, based on available information, that it is more likely than not that deferred income tax assets will not be realized. Significant judgment is required in determining whether valuation allowances should be established as well as the amount of such allowances. When making such determinations, consideration is given to future taxable income, future reversals of existing taxable temporary differences, taxable income in prior carryback years and tax planning strategies. At December 31, 2011, total deferred tax assets were $42.5 million, net of $29.5 million of valuation allowances.

Goodwill and Long-lived Asset Impairment

We recognize goodwill as of an acquisition date and measure goodwill as the excess of (a) the consideration transferred, the fair value of any noncontrolling interest in the acquiree and, in a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree over (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill is not amortized but rather tested annually for impairment via a two step test. Step 1 involves calculating the fair value of a reporting unit and comparing the fair value of the reporting unit to its carrying value including goodwill. If the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired and we complete Step 2 in order to measure the impairment loss. Step 2 involves calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets (including unrecognized intangible assets) of the reporting unit from the fair value of the reporting unit as determined in Step 1. This implied fair value of goodwill is then compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is recognized equal to the difference.

We assess goodwill for impairment annually, or more frequently if indicators of impairment are present. We perform our annual impairment analysis during the fourth quarter. Reporting units are aggregated into geographic regions and assessed for

 

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impairment at the regional level. In our impairment analysis, we estimate the fair value of the geographic reporting units based on the present value of anticipated future cash flows. Based on the impairment analysis for the Americas, Asia-Pacific, and EMEA reporting units performed as of October 1, 2011, we determined that there was no impairment of the goodwill allocated to those reporting units. A 10% reduction in the anticipated future cash flows of each reporting unit would not have resulted in any impairment.

In September 2011, the FASB issued ASC update No. 2011-08, Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment, (“ASC Update No. 2011-08”). ASC Update No. 2011-08 amends existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If this is the case, companies will need to perform the aforementioned two-step goodwill impairment test. We will adopt this pronouncement on January 1, 2012. Our accounting policy will be to perform step one of the goodwill impairment test (calculation of the fair value of the reporting units) every three years unless there is a significant change in the business (e.g., an acquisition) or insufficient “cushion” between a reporting unit’s fair value and carrying value in the most recent goodwill impairment test.

Under U.S. generally accepted accounting principles, we test our long-lived assets for impairment whenever there are indicators that the carrying value of the assets may not be recoverable. For long-lived assets recoverability testing, we determine whether the sum of the estimated undiscounted cash flows attributable to the asset group is less than their carrying value. If less, we recognize an impairment loss based on the excess of the carrying amount of the asset group over their respective fair values. Fair value is determined by future cash flows, appraisals or other methods. If the assets determined to be impaired are to be held and used, we recognize an impairment charge to the extent the anticipated net cash flows attributable to the asset are less than the asset’s carrying value. The fair value of the asset then becomes the asset’s new carrying value, which we depreciate or amortize over the remaining estimated useful life of the asset.

We regularly evaluate lower profitability programs that do not currently meet our requirements for returns on invested capital. Exiting these programs might result in future impairment charges for the related long-lived assets.

SEASONALITY

We are subject to seasonal patterns that generally affect the wireless device industry. Wireless devices are generally used by businesses, governments and consumers. For businesses and governments, purchasing behavior is affected by fiscal year ends, while consumers are affected by holiday gift-giving seasons. For the global wireless device industry, seasonal patterns for wireless device units handled have been as follows:

 

Year

   1st Quarter     2nd Quarter     3rd Quarter     4th Quarter  

2011

     24     24     25     27

2010

     22     24     26     28

2009

     23     24     26     27

The industry data above is based on Company and industry analyst estimates.

The seasonal patterns for wireless devices handled by us have been as follows:

 

Year

   1st Quarter     2nd Quarter     3rd Quarter     4th Quarter  

2011

     24     24     24     28

2010

     23     23     25     29

2009

     22     23     26     29

FORWARD LOOKING AND CAUTIONARY STATEMENTS

Certain information in this Form 10-K may contain forward-looking statements regarding future events or the future performance of the Company. These risk factors include, without limitation, uncertainties relating to customer plans and commitments, including, without limitation (i) fluctuations in regional demand patterns and economic factors could harm our operations; (ii) we buy a significant amount of our products from a limited number of suppliers, and they may not provide us with competitive products at reasonable prices when we need them in the future; (iii) rapid technological changes in the wireless industry could render our services or the products we handle obsolete or less marketable; (iv) our ability to expand and implement our future growth strategy, including acquisitions; (v) our ability to protect our proprietary information; (vi)

 

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intense industry competition; (vii) the loss or reduction in orders from principal customers or a reduction in the prices we are able to charge these customers could cause our revenues to decline and impair our cash flows; (viii) our ability to retain existing logistic services customers at acceptable returns upon expiration or termination of existing agreements; (ix) our business could be harmed by consolidation of mobile operators; (x) we face potential risks associated with loss, theft or damage of our property or property of our customers;(xi) our dependence on our computer and communications systems; (xii) we make significant investments in the technology used in our business and rely on that technology to function effectively without interruptions; (xiii) our future operating results will depend on our ability to maintain volumes and margins; (xiv) the effect of natural disasters, epidemics, hostilities or terrorist attacks on our operations; (xv) uncertainty regarding whether wireless equipment manufacturers and wireless network operators will continue to outsource aspects of their business to us; (xvi) the current economic downturn could cause a severe disruption in our operations; (xvii) our implementation of European and American Centers of Excellence may not be successful; (xviii) our ability to continue to enter into relationships and financing that may provide us with minimal returns or losses on our investments; (xix) collections of our accounts receivable; (xx) our ability to manage and sustain future growth at our historical or current rates; (xxi) our ability to attract and retain qualified management and other personnel and the cost of complying with labor agreements and high rate of personnel turnover; (xxii) our reliance upon third parties to manufacture products that we distribute and reliance upon their quality control procedures; (xxiii) our debt facilities could prevent us from borrowing additional funds, if needed; (xxiv) our reliance on suppliers to provide trade credit facilities to adequately fund our on-going operations and product purchases; (xxv) a significant percentage of our revenues are generated outside of the United States in countries that may have volatile currencies or other risks; (xxvi) the impact that seasonality may have on our business and results; (xxvii) uncertainty regarding future volatility in our Common Stock price; (xxviii) potential dilution to existing shareholders from the issuance of securities under our long-term incentive plans; and (xxix) the existence of anti-takeover measures. Because of the aforementioned uncertainties affecting our future operating results, past performance should not be considered to be a reliable indicator of future performance, and investors should not use historical trends to anticipate future results or trends. The words “believe,” “expect,” “anticipate,” “estimates” “intend,” “likely,” “will,” “should” and “plan” and similar expressions identify forward-looking statements. Readers are cautioned not to place undue reliance on any of these forward-looking statements, which speak only as of the date that such statement was made. We undertake no obligation to update any forward-looking statement.

 

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Item 7A. Quantitative and Qualitative Disclosures about Market Risk

Concentration of Credit Risk

Financial instruments, which potentially subject us to concentrations of credit risk, consist principally of cash investments, forward currency contracts and accounts receivable. We maintain cash investments primarily in AAA rated money market mutual funds and overnight repurchase agreements, which have minimal credit risk. We use high credit-quality financial institutions when purchasing forward currency contracts in order to minimize credit risk exposure. Concentrations of credit risk with respect to accounts receivable are limited due to the large number of geographically dispersed customers. We perform ongoing credit evaluations of our customers’ financial condition and generally do not require collateral to secure accounts receivable. In many circumstances, we have obtained credit insurance to mitigate our credit risk.

Exchange Rate Risk Management

A substantial portion of our revenue and expenses are transacted in markets worldwide and may be denominated in currencies other than the U.S. dollar. Accordingly, our future results could be adversely affected by a variety of factors, including changes in specific countries’ political, economic or regulatory conditions and trade protection measures.

Our foreign currency risk management program is designed to reduce, but not eliminate, unanticipated fluctuations in earnings and cash flows caused by volatility in currency exchange rates by hedging. Generally, through the purchase of forward contracts, we hedge transactional currency risk, but do not hedge foreign currency revenue or future operating income. Also, we do not hedge our investment in foreign subsidiaries, where fluctuations in foreign currency exchange rates may affect our comprehensive income or loss. An adverse change (defined as a 10% strengthening of the U.S. dollar) in all exchange rates, relative to our foreign currency risk management program, would not have had a material impact on our results of operations for 2011 or 2010. The fair value of forward foreign currency contracts for forecasted inventory purchases denominated in foreign currency is an asset of $0.1 million as well as a liability of $2.1 million. Our sensitivity analysis of foreign currency exchange rate movements does not factor in a potential change in volumes or local currency prices of our products sold or services provided. Actual results may differ materially from those discussed above.

Interest Rate Risk Management

We are exposed to potential loss due to changes in interest rates. Investments with interest rate risk include short-term marketable securities. Debt with interest rate risk includes variable rate debt. To mitigate interest rate risks, we use interest rate swaps to convert certain portions of our variable rate debt to fixed interest rates.

We are exposed to interest rate risk associated with our borrowing arrangements. Our risk management program seeks to reduce the potentially adverse effects that market volatility may have on interest expense. At December 31, 2011, swaps with a total notional amount of $25.0 million were outstanding. These swaps matured in January 2012. These derivative instruments are designated as hedges under ASC 815, Derivatives & Hedging. Changes in market value, when effective, are recorded in “accumulated other comprehensive income” in our consolidated balance sheet. Amounts are recorded to interest expense as settled. A 10% increase in short-term borrowing rates during the quarter would have resulted in only a nominal increase in interest expense. The fair value liability associated with those swaps was $0.3 million at December 31, 2011.

 

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Item 8. Financial Statements and Supplementary Data.

Index to Consolidated Financial Statements

 

Consolidated Financial Statements of Brightpoint, Inc.    Page  

Consolidated Statements of Income

     43   

Consolidated Balance Sheets

     44   

Consolidated Statements of Cash Flows

     45   

Consolidated Statements of Shareholders’ Equity

     46   

Notes to Consolidated Financial Statements

     47   

Report of Independent Registered Public Accounting Firm

     70   

 

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Brightpoint, Inc.

Consolidated Statements of Income

 

(Amounts in thousands, except per share data)    Years Ended December 31,  
     2011     2010     2009  

Revenue

      

Distribution revenue

   $ 4,700,458      $ 3,258,474      $ 2,810,354   

Logistic services revenue

     543,925        334,765        356,225   
  

 

 

   

 

 

   

 

 

 

Total revenue

     5,244,383        3,593,239        3,166,579   

Cost of revenue

      

Cost of distribution revenue

     4,527,808        3,107,861        2,692,161   

Cost of logistic services revenue

     340,742        170,755        199,891   
  

 

 

   

 

 

   

 

 

 

Total cost of revenue

     4,868,550        3,278,616        2,892,052   
  

 

 

   

 

 

   

 

 

 

Gross profit

      

Distribution gross profit

     172,650        150,613        118,193   

Logistic services gross profit

     203,183        164,010        156,334   
  

 

 

   

 

 

   

 

 

 

Total gross profit

     375,833        314,623        274,527   
  

 

 

   

 

 

   

 

 

 

Selling, general and administrative expenses

     269,662        230,034        207,167   

Acquisition expenses

     486        2,931        —     

Impairment of long-lived assets

     —          —          1,452   

Amortization expense

     23,621        15,024        15,862   

Restructuring charge

     9,376        6,225        13,413   
  

 

 

   

 

 

   

 

 

 

Operating income from continuing operations

     72,688        60,409        36,633   

Interest

     15,033        7,766        8,677   

Gain on investment in Intcomex, Inc.

     (3,038     —          —     

Loss on legal settlement

     —          852        —     

Gain on indemnification settlement

     —          —          (7,700

Other expense (income)

     3,509        (51     265   
  

 

 

   

 

 

   

 

 

 

Income from continuing operations before income taxes

     57,184        51,842        35,391   

Income tax expense (benefit)

     9,293        12,997        (5,434
  

 

 

   

 

 

   

 

 

 

Income from continuing operations

     47,891        38,845        40,825   

Discontinued operations, net of income taxes:

      

Gain (loss) from discontinued operations

     634        (8,681     (13,746

Gain (loss) on disposal of discontinued operations

     307        (46     (523
  

 

 

   

 

 

   

 

 

 

Total discontinued operations, net of income taxes

     941        (8,727     (14,269
  

 

 

   

 

 

   

 

 

 

Net income attributable to common shareholders

   $ 48,832      $ 30,118      $ 26,556   
  

 

 

   

 

 

   

 

 

 

Earnings per share attributable to common shareholders - basic:

      

Income from continuing operations

   $ 0.71      $ 0.56      $ 0.51   

Discontinued operations, net of income taxes

     0.01        (0.12     (0.18
  

 

 

   

 

 

   

 

 

 

Net income

   $ 0.72      $ 0.44      $ 0.33   
  

 

 

   

 

 

   

 

 

 

Earnings per share attributable to common shareholders - diluted:

      

Income from continuing operations

   $ 0.70      $ 0.55      $ 0.50   

Discontinued operations, net of income taxes

     0.01        (0.12     (0.17
  

 

 

   

 

 

   

 

 

 

Net income

   $ 0.71      $ 0.43      $ 0.33   
  

 

 

   

 

 

   

 

 

 

Weighted average common shares outstanding:

      

Basic

     67,741        69,004        80,422   
  

 

 

   

 

 

   

 

 

 

Diluted

     69,073        70,194        81,247   
  

 

 

   

 

 

   

 

 

 

See accompanying notes

 

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Brightpoint, Inc.

Consolidated Balance Sheets

 

(Amounts in thousands, except per share data)    December 31,     December 31,  
     2011     2010  

ASSETS

    

Current Assets:

    

Cash and cash equivalents

   $ 40,842      $ 41,658   

Accounts receivable (less allowance for doubtful accounts of $8,236 in 2011 and $9,892 in 2010)

     568,947        487,376   

Inventories

     468,937        311,804   

Other current assets

     66,039        75,068   
  

 

 

   

 

 

 

Total current assets

     1,144,765        915,906   

Property and equipment, net

     145,948        111,107   

Other intangibles, net

     98,693        122,122   

Other assets

     37,927        19,885   

Goodwill

     79,578        78,821   
  

 

 

   

 

 

 

Total assets

   $ 1,506,911      $ 1,247,841   
  

 

 

   

 

 

 

LIABILITIES AND SHAREHOLDERS’ EQUITY

    

Current liabilities:

    

Accounts payable

   $ 766,825      $ 744,995   

Accrued expenses

     171,108        140,191   

Lines of credit and other short-term borrowings

     6,465        408   
  

 

 

   

 

 

 

Total current liabilities

     944,398        885,594   

Long-term liabilities:

    

Lines of credit, long-term

     246,542        90,000   

Other long-term liabilities

     24,806        27,894   
  

 

 

   

 

 

 

Total long-term liabilities

     271,348        117,894   
  

 

 

   

 

 

 

Total liabilities

     1,215,746        1,003,488   

Commitments and contingencies

    

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; 91,470 issued in 2011 and 90,354 issued in 2010

     915        904   

Additional paid-in-capital

     656,533        641,895   

Treasury stock, at cost, 23,226 shares in 2011 and 22,917 shares in 2010

     (168,064     (164,242

Accumulated deficit

     (207,142     (255,974

Accumulated other comprehensive income

     8,923        21,770   
  

 

 

   

 

 

 

Total shareholders’ equity

     291,165        244,353   
  

 

 

   

 

 

 

Total liabilities and shareholders’ equity

   $ 1,506,911      $ 1,247,841   
  

 

 

   

 

 

 

See accompanying notes

 

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Brightpoint, Inc.

Consolidated Statements of Cash Flows

 

(Amounts in thousands)    Years Ended December 31,  
     2011     2010     2009  

Operating activities

      

Net income

   $ 48,832      $ 30,118      $ 26,556   

Adjustments to reconcile net income to net cash provided by (used in) operating activities:

      

Depreciation and amortization

     46,741        34,676        35,171   

Impairment of long-lived assets

     —          —          1,452   

Non-cash compensation

     12,430        10,343        6,484   

Restructuring charge

     9,376        6,225        15,523   

Change in deferred taxes

     (2,833     7,736        (18,773

Gain on investment in Intcomex, Inc.

     (3,038     —          —     

Gain on indemnification settlement

     —          —          (7,700

Other non-cash

     2,880        926        1,096   

Changes in operating assets and liabilities, net of effects from acquisitions and divestitures:

      

Accounts receivable

     (97,018     (80,220     152,024   

Inventories

     (176,807     (93,846     90,172   

Other operating assets

     13,148        447        (1,343

Accounts payable and accrued expenses

     65,318        244,041        (136,848
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) operating activities

     (80,971     160,446        163,814   

Investing activities

      

Capital expenditures

     (60,308     (42,108     (49,178

Acquisitions, net of cash acquired

     (19,761     (76,075     —     

Increase in other assets

     (2,148     (1,091     (1,184
  

 

 

   

 

 

   

 

 

 

Net cash used in investing activities

     (82,217     (119,274     (50,362

Financing Activities

      

Net proceeds from (repayments on) lines of credit

     165,229        90,000        (1,578

Repayments on Global Term Loans

     —          (93,939     (78,159

Net proceeds from short-term financing

     99        408        —     

Deferred financing costs paid

     (1,634     (3,283     (392

Purchase of treasury stock

     (3,822     (79,603     (16,955

Excess (deficient) tax benefit from equity based compensation

     1,785        (862     (1,116

Proceeds from common stock issuances under employee stock option plans

     394        1,291        225   
  

 

 

   

 

 

   

 

 

 

Net cash provided by (used in) financing activities

     162,051        (85,988     (97,975

Effect of exchange rate changes on cash and cash equivalents

     321        5,424        8,347   
  

 

 

   

 

 

   

 

 

 

Net increase (decrease) in cash and cash equivalents

     (816     (39,392     23,824   

Cash and cash equivalents at beginning of period

     41,658        81,050        57,226   
  

 

 

   

 

 

   

 

 

 

Cash and cash equivalents at end of period

   $ 40,842      $ 41,658      $ 81,050   
  

 

 

   

 

 

   

 

 

 

See accompanying notes

 

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Brightpoint, Inc.

Consolidated Statements of Shareholders’ Equity

 

(Amounts in thousands)    Years ended December 31,  
     2011     2010     2009  

Common stock:

            

Balance at beginning of year

   $ 904        $ 893        $ 887     

Issued in connection with employee stock plans and related income tax benefit

     11          11          6     
  

 

 

     

 

 

     

 

 

   

Balance at end of year

     915          904          893     
  

 

 

     

 

 

     

 

 

   

Additional paid-in capital:

            

Balance at beginning of year

     641,895          631,027          625,415     

Issued in connection with employee stock plans and related income tax benefit

     14,638          10,868          5,612     
  

 

 

     

 

 

     

 

 

   

Balance at end of year

     656,533          641,895          631,027     
  

 

 

     

 

 

     

 

 

   

Accumulated deficit:

            

Balance at beginning of year

     (255,974       (286,092       (312,648  

Net income attributable to common shareholders

     48,832      $ 48,832        30,118      $ 30,118        26,556      $ 26,556   
  

 

 

     

 

 

     

 

 

   

Balance at end of year

     (207,142       (255,974       (286,092  
  

 

 

     

 

 

     

 

 

   

Accumulated other comprehensive income (loss):

            

Balance at beginning of year

     21,770          15,738          (3,108  

Currency translation of foreign investments

       (13,542       5,337          18,293   

Unrealized gain on derivative instruments, net of tax:

            

Net gain arising during the period

       720          755          818   

Reclassification adjustment for gains included in net income

       —            —            (65

Pension benefit obligation, net of tax:

            

Net loss arising during period

       (78       (60       (200

Reclassification adjustment for losses included in net income

       53          —            —     
    

 

 

     

 

 

     

 

 

 

Other comprehensive income (loss)

     (12,847     (12,847     6,032        6,032        18,846        18,846   
    

 

 

     

 

 

     

 

 

 

Total comprehensive income

     $ 35,985        $ 36,150        $ 45,402   
  

 

 

   

 

 

   

 

 

   

 

 

   

 

 

   

 

 

 

Balance at end of year

     8,923          21,770          15,738     
  

 

 

     

 

 

     

 

 

   

Treasury stock:

            

Balance at beginning of year

     (164,242       (84,639       (59,983  

Purchase of treasury stock

     (3,822       (79,603       (24,656  
  

 

 

     

 

 

     

 

 

   

Balance at end of year

     (168,064       (164,242       (84,639  
  

 

 

     

 

 

     

 

 

   

Total shareholders’ equity

   $ 291,165        $ 244,353        $ 276,927     
  

 

 

     

 

 

     

 

 

   

See accompanying notes

 

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Brightpoint, Inc.

Notes to Consolidated Financial Statements

1. Nature of Business and Summary of Significant Accounting Policies

Nature of Business

Brightpoint, Inc. is a global leader in providing device lifecycle services to the wireless industry. The Company provides customized logistic services, including procurement, inventory management, software loading, kitting and customized packaging, fulfillment, credit services, receivables management, call center services, activation services, website hosting, e-fulfillment solutions, repair, refurbish and recycle services, reverse logistics, transportation management and other services within the global wireless industry. The Company’s customers include mobile network operators, mobile virtual network operators (MVNOs), resellers, retailers and wireless equipment manufacturers. The Company provides value-added distribution channel management and other supply chain solutions for wireless products manufactured by companies such as Apple, HTC, Huawei, Kyocera, LG Electronics, Motorola, Nokia, Research in Motion, Samsung, Sony Ericsson and ZTE. The Company has operations centers and/or sales offices in various countries, including Australia, Austria, Belgium, Denmark, Finland, Germany, Hong Kong, India, the Netherlands, New Zealand, Norway, the Philippines, Poland, Portugal, Puerto Rico, Singapore, Slovakia, South Africa, Spain, Sweden, Switzerland, the United Arab Emirates, the United Kingdom and the United States. The Company also has a presence in several Latin America countries through its investment in Intcomex, Inc. (Intcomex), a distributor of computer information technology products focused solely on serving Latin America and the Caribbean.

The Company is incorporated under the laws of the State of Indiana.

Principles of Consolidation

The Consolidated Financial Statements include the accounts of the Company and its subsidiaries, all of which are wholly-owned, with the exception of Intcomex in which the Company has 23% ownership. The investment in Intcomex is accounted for under the equity method and the Company’s share of Intcomex’s earnings (loss) is included in “other expense (income)” in the consolidated statement of income, three months in arrears in order to meet the Company’s reporting deadlines. On December 23, 2010 the Company completed its acquisition of Touchstone Wireless Repair and Logistics, L.P. (Touchstone Wireless). Results of operations related to this acquisition are included in the Company’s consolidated statements of income beginning on December 24, 2010. See Note 3 for further details regarding these acquisitions. Significant intercompany accounts and transactions have been eliminated in consolidation.

The Company has evaluated subsequent events through the date these financial statements were issued.

Use of Estimates

The preparation of financial statements in conformity with U.S. generally accepted accounting principles requires management 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, the Company reviews its estimates and assumptions. The Company’s estimates were based on its historical experience and various other assumptions that the Company believes to be reasonable under the circumstances. Actual results are likely to differ from those estimates under different assumptions or conditions, but management does not believe such differences will materially affect the Company’s financial position or results of operations.

Revenue Recognition

The Company recognizes revenue in accordance with Financial Accounting Standards Board (FASB) Accounting Standard Codification (ASC) Section 605-10-S99. Revenue is recognized when the title and risk of loss have passed to the customer, there is persuasive evidence of an arrangement, delivery has occurred or services have been rendered, the sales price is fixed or determinable, and collectibility is reasonably assured. The amount of revenue is determined based on either the gross method or the net method. The amount under the gross method includes the value of the product sold while the amount under the net method does not include the value of the product sold.

For distribution revenue, which is recorded using the gross method, the criteria of FASB ASC 605-10-S99 are generally met upon shipment to customers, including title transfer; and therefore, revenue is recognized at the time of shipment. In some circumstances, the customer may take legal title and assume risk of loss upon delivery; and therefore, revenue is recognized on the delivery date. In certain countries, title is retained by the Company for collection purposes only, which does not

 

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Brightpoint, Inc.

Notes to Consolidated Financial Statements

 

impact the timing of revenue recognition in accordance with the provisions of FASB ASC 605-10-S99. Sales are recorded net of discounts, rebates, returns and allowances. The Company does not have any material post-shipment obligations (e.g., customer acceptance) or other arrangements.

For logistic services revenue, the criteria of FASB ASC 605-10-S99 are met when the Company’s logistic services have been performed and, therefore, revenue is recognized at that time. In general, logistic services are fee-based services. The Company has certain arrangements for which it records receivables, inventory and payables based on the gross amount of the transactions; however, the Company records revenue for these logistic services at the amount of net margin because it is acting as an agent, as defined by FASB ASC 605-45, for mobile operators. Performance penalty clauses may be included in certain contracts whereby the Company provides logistic services. In general, these penalties are in the form of reduced per unit fees or a specific dollar amount. In the event the Company has incurred performance penalties, revenues are reduced accordingly within each calendar month.

Gross Profit

The Company determines its gross profit as the difference between revenue and cost of revenue. Cost of revenue includes the direct product costs and other costs such as freight, warehouse labor and rent expense. Gross profit excludes depreciation and amortization expense, except for depreciation allocated to Company-owned facilities.

Vendor Programs

The Company has three major types of incentive arrangements with various suppliers: price protection, volume incentive rebates, and marketing, training and promotional funds. The Company follows FASB ASC 605-50, in accounting for vendor programs. To the extent that the Company receives excess funds from suppliers for reimbursement of its costs, the Company recognizes the excess as a liability due to the supplier, which is applied to future costs incurred on behalf of the supplier.

 

 

Price protection: consideration is received from certain, but not all, suppliers in the form of a credit memo based on market conditions as determined by the supplier. The amount is determined based on the difference between original purchase price from the supplier and revised list price from the supplier. The terms of the price protection varies by supplier and product, but is typically less than one month from original date of purchase. This amount is accrued as a reduction of trade accounts payable until a credit memo is received and applied as a debit to the outstanding accounts payable. This same amount is either a reduction of inventory, if still on-hand, or a reduction of the cost of revenue for those wireless devices already sold.

 

 

Volume incentive rebates: consideration is received from certain suppliers when purchase or sell-through targets are attained or exceeded within a specified time period. The amount of rebate earned in any financial reporting period is accrued as a vendor receivable, which is classified as a reduction of trade accounts payable. This same amount is either a reduction of inventory, if still on-hand, or a reduction of the cost of revenue for those devices already sold. In certain markets, the amount of the rebate is determined based on actual volumes purchased for the incentive period to date at the established rebate percentage without minimum volume purchase requirements. In other markets, where the arrangement has a tiered rate structure for increasing volumes, the rate of the rebate accrual is determined based on the actual volumes purchased plus reasonable, predictable estimates of future volumes within the incentive period. In the event the future volumes are not reasonably estimable, the Company records the incentive at the conclusion of the rebate period or at the point in time when the volumes are reasonably estimable. Upon expiration of the rebate period an adjustment is recognized through inventory or cost of revenue for devices already sold, if there is any variance between estimated rebate receivable and actual rebate earned. To the extent that the Company passes-through rebates to its customers, the amount is recognized as a liability in the period that it is probable and reasonably estimable.

 

 

Marketing, training and promotional funds: consideration is received from certain suppliers for cooperative arrangements related to market development, training and special promotions agreed upon in advance. The amount received is generally in the form of a credit memo, which is applied to trade accounts payable. The same amount is recorded as a current liability. Expenditures made pursuant to the agreed upon activity reduce this liability. To the extent that the Company incurs costs in excess of the established supplier fund, the Company recognizes the amount as a selling expense.

 

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Brightpoint, Inc.

Notes to Consolidated Financial Statements

 

Cash and Cash Equivalents

All highly liquid investments with original maturities of three months or less are considered to be cash equivalents.

Concentrations of Risk

Customers

Financial instruments that potentially expose the Company to concentrations of credit risk consist primarily of trade accounts receivable. These receivables are generated from product sales and services provided to mobile operators, agents, resellers, dealers and retailers in the global wireless industry and are dispersed throughout the world. The Company performs periodic credit evaluations of its customers and provides credit in the normal course of business to a large number of its customers. In many instances, the Company obtains credit insurance to mitigate its credit risk. Consistent with industry practice, the Company does not generally require collateral from its customers to secure trade accounts receivable.

No customer accounted for 10% or more of the Company’s total revenue in 2011, 2010 or 2009. Aggregate revenues from the three largest customers in the Asia-Pacific region accounted for 16% of total revenue and 46% of the Asia-Pacific division’s revenue during 2011. The loss or a significant reduction in business activities by the Company’s customers could have a material adverse effect on the Company’s revenue and results of operations.

Suppliers

For its distribution business, the Company is dependent on the ability of its suppliers to provide an adequate supply of products on a timely basis and on favorable pricing terms. The loss of certain principal suppliers or a significant reduction in product availability from principal suppliers could have a material adverse effect on the Company. The Company also relies on its suppliers to provide trade credit facilities and favorable payment terms to adequately fund its on-going operations and product purchases. In certain circumstances, the Company has issued cash-secured letters of credit on behalf of certain of its subsidiaries in support of their vendor credit facilities. The payment terms received from the Company’s suppliers is dependent on several factors, including, but not limited to, the Company’s payment history with the supplier, the supplier’s credit granting policies, contractual provisions, the Company’s overall credit rating as determined by various credit rating agencies, the Company’s recent operating results, financial position and cash flows and the supplier’s ability to obtain credit insurance on amounts that the Company owes them. Adverse changes in any of these factors, certain of which may not be wholly in the Company’s control, could have a material adverse effect on the Company’s operations. The Company believes that its relationships with its suppliers are satisfactory; however, it has periodically experienced inadequate supply of certain models from certain wireless device manufacturers.

Allowance for Doubtful Accounts

The Company evaluates the collectibility of its accounts receivable on an on-going basis. In circumstances where the Company is aware of a specific customer’s inability to meet its financial obligations, the Company records a specific allowance against amounts due to reduce the net recognized receivable to the amount the Company reasonably believes will be collected. For all other customers, the Company recognizes allowances for doubtful accounts based on the length of time the receivables are past due, the current business environment and the Company’s historical experience. In the majority of circumstances, the Company has obtained credit insurance to mitigate its credit risk.

Inventories

Inventories primarily consist of wireless devices and accessories and are stated at the lower of cost (first-in, first-out method) or market. In-bound freight expense is capitalized for inventory held in stock and expensed at the time the inventory is sold. At each balance sheet date, the Company evaluates its ending inventories for excess quantities and obsolescence, considering any stock balancing, price protection or rights of return that it may have with certain suppliers. This evaluation includes analyses of sales levels by product and projections of future demand. The Company writes off inventories that are considered obsolete. Remaining inventory balances are adjusted to approximate the lower of cost or market. The Company had no individually significant inventory valuation adjustments during the years ended December 31, 2011, 2010 and 2009.

Derivative Instruments and Hedging Activities

The Company is exposed to certain risks relating to its ongoing business activities. The primary risks managed by the use of derivative instruments are interest rate risk and foreign currency fluctuation risk. Interest rate swaps are entered into in order

 

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Brightpoint, Inc.

Notes to Consolidated Financial Statements

 

to manage interest rate risk associated with the Company’s variable rate borrowings. Forward contracts are entered into to manage the foreign currency risk associated with various commitments arising from trade accounts receivable, trade accounts payable and fixed purchase obligations. The volume of these contracts is immaterial. The Company holds the following types of derivatives at December 31, 2011 that have been designated as hedging instruments:

 

Derivative

  

Risk Being Hedged

Interest rate swaps    Cash flows of interest payments on variable rate debt
Forward foreign currency contracts    Cash flows of forecasted inventory purchases denominated in foreign currency

Derivatives are held only for the purpose of hedging such risks, not for speculation. Generally, the Company enters into hedging relationships such that the cash flows of items and transactions being hedged are expected to be offset by corresponding changes in the values of the derivatives. At December 31, 2011, a hedging relationship exists related to $25.0 million of the Company’s variable rate debt. These swaps are accounted for as cash flow hedges. These interest rate swap transactions effectively lock in a fixed interest rate for variable rate interest payments. These swaps matured in January 2012 and the Company has not entered into new interest rate swaps. Under the terms of the swaps, the Company paid a fixed rate and received a variable rate based on the three month USD LIBOR rate plus a credit spread. The unrealized gain associated with the effective portion of the interest rate swaps included in other comprehensive income was $1.0 million for the year ended December 31, 2011.

The Company enters into foreign currency forward contracts with the objective of reducing exposure to cash flow volatility from foreign currency fluctuations associated with anticipated purchases of inventory. Certain of these contracts are accounted for as cash flow hedges. The unrealized loss associated with the effective portion of these contracts included in other comprehensive income was approximately $0.3 million for the year ended December 31, 2011, all of which is expected to be reclassified into earnings during the year ending December 31, 2012. Certain of the foreign currency forward contracts are not designated as hedges under U.S. GAAP. The objective of these contracts is to offset the gain or loss from remeasurement with the gain or loss from the fair value market valuation of the forward contracts.

The fair value of interest rate swaps in the consolidated balance sheets is a liability of $0.3 million. The fair value of the interest rate swap maturing within one year is included in “accrued expenses” in the consolidated balance sheets. The fair value of forward foreign currency contracts for forecasted inventory purchases denominated in foreign currency is an asset of $0.1 million included in “other current assets” in the consolidated balance sheets as well as a liability of $2.1 million included in “accrued expenses” in the consolidated balance sheets.

Fair Value of Financial Instruments

The carrying amounts at December 31, 2011 and 2010, of cash and cash equivalents, pledged cash, accounts receivable, other current assets, accounts payable and accrued expenses approximate their fair values because of the short maturity of those instruments. The carrying amount at December 31, 2011 and 2010 of the Company’s borrowings approximate their fair value because these borrowings bear interest at a variable (market) rate.

The Company uses a fair value hierarchy that prioritizes the inputs to valuation techniques used to measure fair value of certain financial assets and financial liabilities 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.

 

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Brightpoint, Inc.

Notes to Consolidated Financial Statements

 

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):

 

     Balance at
December 31, 2011
     Quoted prices in
active markets

(Level 1)
     Significant other
observable inputs
(Level 2)
 

Financial instruments classified as assets

        

Forward foreign currency contracts

   $ 110       $ —         $ 110   

Financial instruments classified as liabilities

        

Interest rate swaps

   $ 277       $ —         $ 277   

Forward foreign currency contracts

     2,140         —           2,140   
     Balance at
December 31, 2010
     Quoted prices in
active markets

(Level 1)
     Significant other
observable  inputs
(Level 2)
 

Financial instruments classified as assets

        

Forward foreign currency contracts

   $ 2,893       $ —         $ 2,893   

Financial instruments classified as liabilities

        

Interest rate swaps

   $ 2,046       $ —         $ 2,046   

Forward foreign currency contracts

     1,702         —           1,702   
        

Property and Equipment

Property and equipment are stated at cost and depreciation is computed using the straight-line method over the estimated useful lives of the assets. Buildings are depreciated over 30 to 40 years, and other property and equipment are generally depreciated over three to seven years. Leasehold improvements are stated at cost and depreciated ratably over the shorter of the lease term of the associated property or the estimated life of the leasehold improvement. Maintenance and repairs are charged to expense as incurred.

Long-Lived Tangible and Finite-Lived Intangible Assets

The Company follows the principles of FASB ASC 360. The Company periodically considers whether indicators of impairment of long-lived tangible and finite-lived intangible assets are present. If such indicators are present, the Company determines whether the sum of the estimated undiscounted cash flows attributable to the asset group is less than their carrying value. If less, the Company recognizes an impairment loss based on the excess of the carrying amount of the asset group over their respective fair values. Fair value is determined by discounted future cash flows, appraisals or other methods. If the assets determined to be impaired are to be held and used, the Company recognizes an impairment charge to the extent the asset’s carrying value is greater than the anticipated future cash flows attributable to the asset. The fair value of the asset then becomes the asset’s new carrying value, which, if applicable, the Company depreciates or amortizes over the remaining estimated useful life of the asset. At December 31, 2011 and 2010, finite-lived intangible assets total $98.7 million and $122.1 million, net of accumulated amortization of $78.9 million and $58.1 million, and are currently being amortized over three to thirteen years. Fluctuations in foreign currencies decreased intangible assets by approximately $1.7 million in 2011 compared to 2010. The following sets forth amortization expense for finite-lived intangible assets the Company expects to recognize over the next five years (in thousands):

 

2012

   $  21,879   

2013

     18,579   

2014

     12,635   

2015

     10,838   

2016

     7,882   

 

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Brightpoint, Inc.

Notes to Consolidated Financial Statements

 

For the years ended December 31, 2011 and 2010, the Company incurred no impairment charges for long-lived tangible and finite-lived intangible assets. In the third quarter of 2009, the Company lost a significant product distribution customer within its Latin America operation. As a result, the Company evaluated the long-lived assets of the Latin America operations for recoverability. The Company determined that the finite-lived intangible asset acquired in conjunction with the acquisition of certain assets of CellStar was impaired. Accordingly, the Company recognized a $1.5 million impairment charge, which represented the carrying value of the asset.

Goodwill

The Company follows the principles of FASB ASC 350-20. The Company recognizes goodwill as of an acquisition date and measures goodwill as the excess of (a) the consideration transferred, the fair value of any noncontrolling interest in the acquiree and, in a business combination achieved in stages, the acquisition-date fair value of the acquirer’s previously held equity interest in the acquiree over (b) the net of the acquisition-date amounts of the identifiable assets acquired and the liabilities assumed. Goodwill is not amortized but rather tested annually for impairment via a two step test. Step 1 involves calculating the fair value of a reporting unit and comparing the fair value of the reporting unit to its carrying value including goodwill. If the carrying value exceeds the fair value, the goodwill of the reporting unit is potentially impaired and the Company completes Step 2 in order to measure the impairment loss. Step 2 involves calculating the implied fair value of goodwill by deducting the fair value of all tangible and intangible net assets (including unrecognized intangible assets) of the reporting unit from the fair value of the reporting unit as determined in Step 1. This implied fair value of goodwill is then compared to the carrying value of goodwill. If the implied fair value of goodwill is less than the carrying value of goodwill, an impairment loss is recognized equal to the difference. In September 2011 the FASB issued ASC update No. 2011-08, which amends the existing goodwill impairment guidance. The Company will adopt the principles of this update on January 1, 2012. See Recently Issued Accounting Pronouncements below for more information regarding this update.

The Company’s reporting units are its three geographic segments, the Americas, EMEA and Asia-Pacific. The Company recorded $2.6 million of goodwill during 2011 from the contingent earn-out payment related to the 2008 acquisition of Hugh Symons Group Ltd.’s wireless distribution business. This increase in goodwill was netted with a reduction in goodwill related to working capital adjustments for the Touchstone Wireless acquisition of $1.0 million and $0.8 million of goodwill contributed in the investment of Intcomex. On October 1, 2011, 2010, and 2009, the Company performed an annual impairment test on goodwill for each of its reporting segments, noting there were no changes or events that occurred that would more likely than not reduce the fair value of a reporting unit below its carrying cost. The annual test resulted in no impairment of goodwill during 2011, 2010 or 2009.

 

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Table of Contents

Brightpoint, Inc.

Notes to Consolidated Financial Statements

 

The changes in the carrying amount of goodwill by reportable segment for the years ended December 31, 2011 and 2010 are as follows (in thousands):

 

     Americas     EMEA     Asia-Pacific     Total  

Balance at December 31, 2009:

        

Aggregate goodwill acquired

   $ 49,898      $ 325,947      $ 1,979      $ 377,824   

Accumulated impairment losses

     —          (325,947     —          (325,947
  

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill at December 31, 2009

     49,898        —          1,979        51,877   

Changes in goodwill during 2010:

        

Goodwill from acquisitions

     24,618        2,079        —          26,697   

Effects of foreign currency fluctuation

     —          (14     261        247   
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2010:

        

Aggregate goodwill acquired

     74,516        328,012        2,240        404,768   

Accumulated impairment losses

     —          (325,947     —          (325,947
  

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill at December 31, 2010

     74,516        2,065        2,240        78,821   

Changes in goodwill during 2011:

        

Goodwill from acquisitions

     (979     2,576        —          1,597   

Goodwill contributed to investment

     (816     —          —          (816

Effects of foreign currency fluctuation

     —          (18     (6     (24
  

 

 

   

 

 

   

 

 

   

 

 

 

Balance at December 31, 2011:

        

Aggregate goodwill acquired

     72,721        330,570        2,234        405,525   

Accumulated impairment losses

     —          (325,947     —          (325,947
  

 

 

   

 

 

   

 

 

   

 

 

 

Goodwill at December 31, 2011

   $ 72,721      $ 4,623      $ 2,234      $ 79,578   
  

 

 

   

 

 

   

 

 

   

 

 

 

Foreign Currency

The functional currency for most of the Company’s foreign subsidiaries is the respective local currency. Revenue and expenses denominated in foreign currencies are translated to the U.S. dollar at average exchange rates in effect during the period, and assets and liabilities denominated in foreign currencies are translated to the U.S. dollar at the exchange rate in effect at the end of the period. Foreign currency transaction gains and losses are included in the consolidated statements of income as a component of “other (income) expenses.” Currency translation of assets and liabilities (foreign investments) from the functional currency to the U.S. dollar are included as a component of “accumulated other comprehensive income” in the consolidated balance sheet and the consolidated statement of shareholders’ equity.

Income Taxes

The Company accounts for income taxes under the asset and liability method, which requires the recognition of deferred tax assets and liabilities for the expected future tax consequence of events that have been recognized in the Company’s financial statements or income tax returns. Income taxes are recognized during the year in which the underlying transactions are reflected in the consolidated statements of income. Deferred taxes are provided for temporary differences between amounts of assets and liabilities as recorded for financial reporting purposes and amounts recorded for tax purposes. After determining the total amount of deferred tax assets, the Company determines whether it is more likely than not that some portion of the deferred tax assets will not be realized. If the Company determines that a deferred tax asset is not likely to be realized, a valuation allowance will be established against that asset to record it at its expected realizable value.

The Company recognizes uncertain tax positions when it is more likely than not that the tax position will be sustained upon examination by relevant taxing authorities, based on the technical merits of the position. The amount recognized is measured as the largest amount of benefit that is greater than 50 percent likely of being realized upon ultimate settlement.

 

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Brightpoint, Inc.

Notes to Consolidated Financial Statements

 

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):

 

     Years December 31,  
     2011      2010     2009  

Income from continuing operations attributable to common shareholders

   $ 47,891       $ 38,845      $ 40,825   

Discontinued operations, net of income taxes

     941         (8,727     (14,269
  

 

 

    

 

 

   

 

 

 

Net income attributable to common shareholders

   $ 48,832       $ 30,118      $ 26,556   
  

 

 

    

 

 

   

 

 

 

Earnings per share - basic:

       

Income from continuing operations attributable to common shareholders

   $ 0.71       $ 0.56      $ 0.51   

Discontinued operations, net of income taxes

     0.01         (0.12     (0.18
  

 

 

    

 

 

   

 

 

 

Net income attributable to common shareholders

   $ 0.72       $ 0.44      $ 0.33   
  

 

 

    

 

 

   

 

 

 

Earnings per share - diluted:

       

Income from continuing operations attributable to common shareholders

   $ 0.70       $ 0.55      $ 0.50   

Discontinued operations, net of income taxes

     0.01         (0.12     (0.17
  

 

 

    

 

 

   

 

 

 

Net income attributable to common shareholders

   $ 0.71       $ 0.43      $ 0.33   
  

 

 

    

 

 

   

 

 

 

Weighted average shares outstanding for basic earnings per share

     67,741         69,004        80,422   

Net effect of dilutive share options, restricted share units, and restricted shares based on the treasury share method using average market price

     1,332         1,190        825   
  

 

 

    

 

 

   

 

 

 

Weighted average shares outstanding for diluted earnings per share

     69,073         70,194        81,247   
  

 

 

    

 

 

   

 

 

 

At December 31, 2011, 2010 and 2009, approximately 1.1 million, 0.1 million and 0.6 million stock options and restricted stock units were excluded from the computation of dilutive earnings per share because the effect of including these shares would have been anti-dilutive.

Recently Issued Accounting Pronouncements

In June 2011, the FASB issued ASC update No. 2011-05, Comprehensive Income (Topic 220): Presentation of Comprehensive Income, (“ASC Update No. 2011-05”). ASC Update No. 2011-05 amends existing guidance by allowing only two options for presenting the components of net income and other comprehensive income: (1) in a single continuous financial statement, statement of comprehensive income or (2) in two separate but consecutive financial statements, consisting of an income statement followed by a separate statement of other comprehensive income. ASC Update No. 2011-05 requires retrospective application, and it is effective for fiscal years, and interim periods within those years, beginning after December 15, 2011, with early adoption permitted. The Company will adopt this pronouncement for the fiscal year beginning January 1, 2012. The adoption of this update is not expected to have a material impact on the Company’s financial statements.

In September 2011, the FASB issued ASC update No. 2011-08, Intangibles — Goodwill and Other (Topic 350): Testing Goodwill for Impairment, (“ASC Update No. 2011-08”). ASC Update No. 2011-08 amends existing guidance by giving an entity the option to first assess qualitative factors to determine whether it is more likely than not that the fair value of a reporting unit is less than its carrying amount. If this is the case, companies will need to perform a more detailed two-step goodwill impairment test, which is used to identify potential goodwill impairments and to measure the amount of goodwill impairment losses to be recognized, if any. ASC Update No. 2011-08 will be effective for annual and interim goodwill impairment tests performed for fiscal years beginning after December 15, 2011, with early adoption permitted. The Company will adopt this pronouncement for the fiscal year beginning January 1, 2012. The adoption of this update is not expected to have a material impact on the Company’s financial statements.

Operating Segments

The Company has operations centers and/or sales offices in various countries. 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 Middle East, and Africa (EMEA). The Company’s operating components have been aggregated into these three geographic reporting segments.

 

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Table of Contents

Brightpoint, Inc.

Notes to Consolidated Financial Statements

 

The Company evaluates the performance of and allocates resources to these segments based on income from continuing operations before income taxes. A summary of the Company’s operations by segment is presented below (in thousands) for the years ended December 31, 2011, 2010 and 2009:

 

                         Corporate        

2011:

   Americas      Asia-Pacific      Europe
Middle East
and Africa
    and
Reconciling
Items
    Total  

Distribution revenue

   $ 609,642       $ 1,814,853       $ 2,275,963      $ —        $ 4,700,458   

Logistic services revenue

     389,866         46,074         107,985        —          543,925   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Total revenue from external customers

   $ 999,508       $ 1,860,927       $ 2,383,948      $ —        $ 5,244,383   
  

 

 

    

 

 

    

 

 

   

 

 

   

 

 

 

Income (loss) from continuing operations before income taxes

   $ 56,658       $ 34,781       $ 15,791      $ (50,046   $ 57,184   

Depreciation and amortization

     21,623         2,710         20,618        1,790        46,741   

Capital expenditures

     41,404         4,292