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NO one listened to me yesterday!!!!
CellStar Corporation Reports Record First Quarter Results; Earnings Per
Diluted
Share Are $0.23 Before Non-Recurring Charge and Gains From Asset Sales
Tuesday, March 23, 1999 06:46 PM
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CARROLLTON, Texas, March 23 /PRNewswire/ -- CellStar Corporation
(Nasdaq: CLST) reported
revenues of $524.7 million for the quarter ended February 28, 1999, an
increase of 29.0 percent over
revenues of $406.7 million for the first quarter of 1998.
Net income for the first quarter of 1999 was $16.8 million, or $0.27 per
diluted share, compared with
net income of $14.2 million, or $0.23 per diluted share, for the same
quarter last year. Net income for
the most recent quarter was impacted by several non-operating items,
including a non-recurring charge
of $2.6 million, or $0.04 per diluted share, related to the conversion
of a U.S. dollar-denominated loan
into Brazilian reals; and after-tax gains totaling $5.1 million, or
$0.08 per diluted share, from the sale of
part of CellStar's equity and debt investment in Topp Telecom, Inc. and
the sale of CellStar's retail
stores in the Dallas-Fort Worth area.
Without the effects of these items, net income for the quarter would
have been $14.3 million, or $0.23
per diluted share.
First quarter gross profit as a percentage of revenues was up from the
fourth quarter of 1998, primarily
as a result of increased margins in the Company's North and Latin
American regions.
Selling, general and administrative expenses (SG&A) for the quarter were
lower than the prior quarter,
both in absolute dollars and as a percentage of revenues, in spite of a
small amount of "clean-up"
expense -- approximately $1.3 million -- as the Company continued to
reposition its operations to
focus on providing distribution and value-added services to wireless
carriers and manufacturers in direct
relationships. SG&A expenses were $26.2 million in the first quarter, an
increase of 15.1 percent over
those for the same period last year. However, SG&A costs were 5.0
percent of revenues in the first
quarter of 1999, a lower percentage of operating costs to revenues than
the Company achieved in any
quarter last year.
Net interest expense for the quarter was $3.7 million, down from $5.0
million in the fourth quarter last
year. The current quarter compares with net interest expense of $1.6
million in the first quarter last
year, with the year-over-year increase primarily reflecting the higher
level of borrowing to support growth
and the continuing high cost of borrowing in Brazil. The Company
continues to seek ways to finance
its business in Brazil more cost- effectively.
Regional Operations
Latin American Region: Latin American revenues reached $170.3 million in
the first quarter of 1999,
compared with $189.4 million in the same period last year. Brazil
continued as the region's largest
market in the most recent quarter, with $72.3 million in revenues,
compared with $68.9 million for the
fourth quarter last year and less than $1 million in the first quarter
of 1998. Venezuela was CellStar's
second largest market in Latin America in the quarter with revenues of
$30.3 million, compared with
$11.5 million for the first quarter last year. Mexico revenues for the
quarter were $28.3 million, down
from $38.7 million for the same period last year, due primarily to a
timing shift in a carrier promotional
event, which fell in the late first quarter of 1998, but in the second
quarter of 1999.
Revenues from CellStar's Miami distribution operation were significantly
lower than the first quarter last
year, reflecting the continuing decline in sales to exporters. CellStar
de-emphasized this sales channel
last quarter as part of the strategic repositioning of the Company.
Despite currency fluctuations and some economic instability, Latin
American demand for
telecommunications products remained solid in early 1999, and the
Company continues to expand its
carrier relationships in the region. Since the beginning of the first
quarter of 1999, the Company has
announced new distribution agreements with Tess and BCP Telecomunicacoes
in Brazil; Telefonica
del Peru; and Movilnet in Venezuela.
While increasingly confident of the region's performance, the Company
has taken steps to limit its risk
in Latin America, including more restrictive payment terms, currency
exposure protection, and
reductions in accounts receivable exposure.
Asia-Pacific Region: First quarter revenues in the Asia-Pacific Region
were $143.1 million, dominated
by the People's Republic of China (PRC), including Hong Kong, and
Taiwan. The PRC accounted for
first quarter revenues of $95.7 million, compared with $57.8 million for
the same period last year.
In-country revenues in the PRC, not including Hong Kong, increased from
$16.9 million last year to
$57.9 million in the first quarter of 1999. This reflected stronger
sales of in-country manufactured
products.
CellStar recently announced a significant new distribution agreement
with EverBright Telecom-land, the
largest telecommunications chain store network in the PRC. EverBright
currently operates 300 telecom
stores and plans to open another 700 this year.
First quarter revenues in Taiwan were $36.4 million, 189.7 percent
higher than the same period last
year. Growth in this market was driven primarily by the 1998 launch of
several new PCS carrier
systems in Taiwan. CellStar expects continued strong growth in Taiwan,
due in part to the Company's
recently announced distribution agreement with KG Telecommunication Co
Ltd., a fast-growing cellular
carrier that operates throughout the island.
CellStar continued to meet the strong growth in handset demand in the
PRC and Taiwan, primarily with
in-region manufactured product from Motorola, Inc. and Nokia. The
Company has received handset
supplies to meet its growing sales demand, and does not anticipate
shortages in the near term.
North American Region: North American revenues were $102.1 million for
the first quarter, compared
with $104.2 million for the same period last year. CellStar repositioned
its operations in the fourth
quarter of 1998 to heighten the focus on its core strategy. As a result,
the Company sold its retail
stores in the Dallas-Fort Worth area in the first quarter and increased
its emphasis on higher-margin
businesses, such as value-added services and sales to large carrier
customers. An example was the
Company's first quarter agreement to serve as the primary distributor of
custom-packaged retail
accessories for SBC Wireless, Inc., the wireless subsidiary of SBC
Communications, Inc.
During the period, CellStar also sold a part of its equity and debt
investment in Topp Telecom, Inc.
Telefonos de Mexico purchased a majority interest in Topp, providing
additional capital to support
Topp's rapid growth. CellStar emerged from the transaction with $7
million in cash, a 19.5 percent
equity interest in Topp, and a $22.5 million note receivable from Topp.
CellStar recorded a pre-tax gain
in the first quarter of $5.8 million related to the transaction and
continues to serve as Topp's primary
distributor.
European Region: European revenues for the first quarter were $109.3
million, compared with $34.8
million in the first period of 1998. This growth primarily reflected
continued strong international sales by
the Company's operations in the United Kingdom and the impact of
acquisitions in Sweden and Poland
in early 1998.
Global Services: CellStar also expanded its presence in the satellite-
based global services segment
early in 1999. The Company completed an agreement under which it will
distribute wireless handsets,
fixed terminals and accessories for AirTouch Satellite Services, Inc.
customers on the Globalstar
satellite communications network. CellStar also signed an agreement with
ORBCOMM International
Partners, L.P. and ORBCOMM USA, L.P., the international and U.S.
marketing arms of ORBCOMM
Global, L.P., to distribute subscriber communicators and related
accessories to ORBCOMM
customers throughout the world. CellStar expects these two agreements to
begin generating revenues
in the second half of 1999.
1999 Performance Targets
"We set specific operating targets by which management is being measured
and compensated in 1999," said Dick Gozia, president and chief operating
officer. "We will measure our success against these targets at the end
of
each quarter and share that information with our investors." The 1999
targets, to be achieved by year-end, focus on CellStar's core carrier-
and
manufacturer-driven strategy, on reducing costs and on managing assets
and
capital.
Target First Quarter 1999
-- Revenue growth rate: At least 20-to-25 percent 29.0 percent
-- SG&A expenses: Not to exceed 4.5 percent of revenues 5.0 percent
-- Operating margin: At least 4.0 percent of revenues 3.7 percent
-- Diluted EPS for full year: At least $1.00, without
non-recurring charge and gains from asset sales $0.23
-- Accounts receivable: Average 40 DSOs or less 53 days
-- Inventory turns: At least 12 times 7.4 times
-- Return on capital employed (ROCE): At least 20 percent 20.0 percent
For the first quarter, CellStar was on track to achieve or exceed its
1999 targets in each specific area.
The Company is making significant progress on the revenue, SG&A percent,
operating margin, diluted
EPS and ROCE targets.
While the Company experienced an increase in average days sales
outstanding in accounts receivable
(DSOs) and a decrease in inventory turns for the quarter, CellStar
reduced accounts receivable by
$91.8 million and inventories by $30.8 million during the quarter. DSOs
and inventory turns for the
quarter were impacted negatively by the preferred method of using
average accounts receivable and
inventories in the calculations, which skews the calculations negatively
in a period marked by a normal
seasonal decline in revenues. CellStar currently expects these two
important ratios to be significantly
improved in the second quarter and at least at the levels experienced
for the fourth quarter of 1998.
Company management believes that all of these key performance targets
will be achieved or exceeded
by year-end 1999.
Outlook
CellStar's operating and new business development achievements in early
1999 directly support the
Company's strategic focus. CellStar expects strong growth in revenues
and earnings through the
remainder of the year, barring factors beyond the Company's control,
such as instability in international
economies or markets.
"We believe CellStar is positioned to achieve excellent results this
year," Gozia said. "We are
currently on track to achieve our operating targets, and in fact may
exceed some of them. Our
long-term objective is consistent revenue and earnings growth that will
produce significant value for our
shareholders."
CellStar is a leading global provider of distribution and value-added
logistics services to the wireless
communications industry, with operations in Latin America, Asia-Pacific,
North America and Europe.
CellStar facilitates the effective and efficient distribution of
handsets and related accessories from
leading manufacturers to network operators, agents, resellers, dealers
and retailers. CellStar reported
revenues of $2.0 billion for the year ended November 30, 1998.
Additional information about CellStar
may be found on its web site at www.cellstar.com.
This press release contains forward-looking statements, as defined in
the Private Securities Litigation
Reform Act of 1995. A variety of risk factors, including the disruption
of foreign economies, changes in
foreign laws, regulations and tariffs, new technologies, system
implementation difficulties, competition
and other risk factors, are discussed in the Company's Annual Report on
Form 10-K and most recent
Quarterly Report on Form 10-Q, which are on file with the SEC. Any
combination of these could cause
CellStar's actual results to vary materially from anticipated results or
other expectations expressed in
the Company's forward-looking statements.
CELLSTAR CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
Three months ended February 28, 1999 and 1998
(Unaudited)
(In thousands, except per share data)
1999 1998
Revenues $ 524,728 406,745
Cost of sales 478,997 365,335
Gross profit 45,731 41,410
Selling, general and
administrative expenses 26,163 22,737
Operating income 19,568 18,673
Other income (expense):
Equity in income of affiliated
companies 6,023 185
Gain on sale of assets 2,200 ---
Interest expense (4,681) (2,520)
Other, net (1,587) 424
Total other income (expense) 1,955 (1,911)
Income before income taxes 21,523 16,762
Provision for income taxes 4,735 2,514
Net income $ 16,788 14,248
Net income per share:
Basic $ 0.28 0.24
Diluted $ 0.27 0.23
Weighted average number of shares:
Basic 59,513 58,628
Diluted 65,546 65,898
CELLSTAR CORPORATION AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)
February 28, November 30,
1999 1998
Cash and cash equivalents $ 55,261 47,983
Accounts receivable, net 257,959 349,760
Inventories 243,615 274,438
Other current assets 52,009 35,476
Total current assets 608,844 707,657
Other assets 66,522 67,868
Total assets $ 675,366 775,525
Notes payable to financial
institutions $ 88,873 85,023
Other current liabilities 241,275 362,711
Total current liabilities 330,148 447,734
Long-term debt 150,000 150,000
Total liabilities 480,148 597,734
Stockholders' equity 195,218 177,791
Total liabilities and
stockholders' equity $ 675,366 775,525
CELLSTAR CORPORATION AND SUBSIDIARIES
REVENUES BY REGION
(Unaudited)
(In thousands)
Three months ended February 28,
Percent Percent
1999 of 1998 of
Total Total
Asia-Pacific $ 143,083 27% $ 78,364 19%
North America 102,138 20% 104,170 26%
Latin America 170,252 32% 189,393 47%
Europe 109,255 21% 34,818 8%
Total $ 524,728 100% $ 406,745 100%
SOURCE CellStar Corporation
CONTACT: J. Warren Henry, Investor Relations of CellStar Corporation,
972-466-5031
Quote for referenced ticker symbols: CLST
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