CellStar announces third quarter results; Company reports $12.3 million loss on $223.6 million in revenue.CARROLLTON, Texas--(BUSINESS WIRE)--October 15, 1996-- Loss Attributed to South American Operations 'South American' operation Surgical oncology A radical operation for 'frozen' pelvis, which consists of en bloc resection of the uterus and rectum. See Frozen pelvis. Cf 'All-American' and 'North American' operations. Improvement of Internal Controls and Processes Continues in 1996 CellStar Corporation (NASDAQ NASDAQ in full National Association of Securities Dealers Automated Quotations U.S. market for over-the-counter securities. Established in 1971 by the National Association of Securities Dealers (NASD), NASDAQ is an automated quotation system that reports on :CLST CLST Celestial ) today reported a 12.8% increase in revenues to $223.6 million for the third quarter ended Aug. 31, 1996, as compared to $198.3 million recorded in the prior year's third quarter. The company reported a net loss of $12.3 million compared to net income of $6.2 million in the year-earlier period. Net loss per share was $.64, compared to net income of $.33 per share in the year-earlier period. CellStar attributed the net loss primarily to $14.9 million of unusual expenses incurred in its South American operations. In addition, the company continued to experience unprofitable performance associated with operating its Communication Centers in Sam's Club Sam's Club is a membership-only warehouse club owned and operated by Wal-Mart Stores, Inc. History The first Sam's Club opened in April 1983 in Midwest City, Oklahoma in the United States.[1] Sam's Club is named after Sam Walton. locations. The losses incurred in CellStar's South American operations were caused by several factors including a continued deterioration de·te·ri·o·ra·tion n. The process or condition of becoming worse. in its trade accounts receivable accounts receivable n. the amounts of money due or owed to a business or professional by customers or clients. Generally, accounts receivable refers to the total amount due and is considered in calculating the value of a business or the business' problems in paying , an increase in the provision for inventory obsolescence ob·so·les·cent adj. 1. Being in the process of passing out of use or usefulness; becoming obsolete. 2. Biology Gradually disappearing; imperfectly or only slightly developed. and a related write-off of a deferred tax asset. In order to reduce CellStar's exposure to future receivables losses, the company added $8.5 million to its allowance for doubtful South American accounts. $3.3 million of this allowance resulted from the bankruptcy of one of CellStar's large customers, a Brazilian retailer. The company also wrote off a $2.0 million deferred tax asset in Brazil due to the uncertainty of CellStar's ability to generate sufficient future taxable income Under the federal tax law, gross income reduced by adjustments and allowable deductions. It is the income against which tax rates are applied to compute an individual or entity's tax liability. The essence of taxable income is the accrual of some gain, profit, or benefit to a taxpayer. to utilize the tax benefit in the near future. The company said the ongoing high cost of running CellStar's Communication Center operations has resulted in continued unprofitable performance in its domestic retail operations. As part of CellStar's decision to focus on its wholesale business, CellStar has entered into a definitive agreement to sell its Communication Center operations to MCI (1) (Media Control Interface) A high-level programming interface from Microsoft and IBM for controlling multimedia devices. It provides commands and functions to open, play and close the device. (2) (Microwave Communications Inc. Telecommunications Communicating information, including data, text, pictures, voice and video over long distance. See communications. Corporation. The agreement includes a provision for MCI to enter into a two-year distribution agreement to supply MCI with cellular phones and accessories for the Communication Centers. The transaction is expected to close by the end of fiscal year 1996. Proceeds from the sale will be used to reduce bank debt and for general working capital purposes. The company is continuing to strengthen its internal controls to reduce its exposure to financial and operating risks Operating risk The inherent or fundamental risk of a firm, without regard to financial risk. The risk that is created by operating leverage. Also called business risk. . The company announced in April 1996 that it was encountering problems with its financial control systems. Since then, CellStar has implemented a program to build stronger financial and information technology control systems. CellStar expects to see a positive impact from these changes by the end of fiscal year 1996. Total revenues for the third quarter were $223.6 million. Of this, $195.7 million were from net product sales, an increase of 11.8% from the year-earlier quarter, reflecting strong domestic sales out of CellStar's Miami warehouse to customers that export to South America South America, fourth largest continent (1991 est. pop. 299,150,000), c.6,880,000 sq mi (17,819,000 sq km), the southern of the two continents of the Western Hemisphere. . Activation activation /ac·ti·va·tion/ (ak?ti-va´shun) 1. the act or process of rendering active. 2. the transformation of a proenzyme into an active enzyme by the action of a kinase or another enzyme. 3. income was $24.5 million, an increase of 21.4% compared to the year-earlier quarter. Domestic revenues grew $55.6 million, or 60.7% from $91.6 million to $147.2 million. This increase was due primarily to increased product sales from the company's Miami warehouse to customers exporting into South American countries List of American countries Nations:
Total international revenues decreased 28.4% from $106.7 million to $76.4 million. The decrease results primarily from lower sales in CellStar's Asia-Pacific and South American operations. Net product sales in Hong Kong Hong Kong (hŏng kŏng), Mandarin Xianggang, special administrative region of China, formerly a British crown colony (2005 est. pop. 6,899,000), land area 422 sq mi (1,092 sq km), adjacent to Guangdong prov. declined $34.3 million, from $65.3 million in 1995 to $31.0 million in 1996 due to several factors including the unavailability of digital PCS (1) (Personal Communications Services) Refers to wireless services that emerged after the U.S. government auctioned commercial licenses in 1994 and 1995. This radio spectrum in the 1. phones and increased competition that caused downward pressure on selling prices. In Singapore, sales increased by 18.3% to $12.3 million from $10.4 million in 1995. South American sales declined $1.2 million, or 6.1% from $19.7 million in 1995 to $18.5 million in 1996. The decline resulted from lower levels of net product sales in each of the company's South American operations, with the exception of the company's operations in Argentina and Ecuador, which commenced business in November 1995 and had combined net product sales of $5.4 million in 1996. CellStar has changed its business strategy to sell to customers exporting into South America directly from U.S. operations. As a result, the Company will continue to participate in the growing South American markets, but with a lower asset base. As of Aug. 31, 1996, the company had $10.8 million of cash and cash equivalents, a decrease of $20.7 million since Nov. 30, 1995, reflecting a reduction of credit obligations and domestic and South American operating losses operating loss The excess of operating expenses over revenue. As with operating income, operating losses exclude revenues and expenses from operations that are not considered a regular part of the business. Also called deficit. Compare operating income. . Bank debt was reduced by $27.2 million during the nine months ended Aug. 31, 1996 by effectively managing inventory levels downward primarily in its domestic and South American operations. Following the sale of the Communication Centers, which is expected to close by November 30, 1996, CellStar does not anticipate that it will need capital in excess of its current credit facilities credit facilities npl → facilidades fpl de crédito credit facilities npl → facilités fpl de paiement credit facilities in the near future to fund its operations, capital expenditures and near-term business expansion. Al Goldfield Goldfield, small town, SW Nev., a former gold-mining center. Gold was discovered there in 1902, and after an early period of disappointment, large yields of high quality gold were extracted. , chief executive officer of CellStar said, "CellStar's continued strong growth in the domestic wholesale business was offset by the losses incurred in our South American and Communication Center operations. The sale of the Communication Centers will allow us to reduce our operating costs operating costs npl → gastos mpl operacionales and focus primarily on our core wholesale business." Dick Gozia, executive vice president -- Administration and chief financial officer, said, "During the quarter CellStar has taken steps to improve its operating procedures including tighter inventory management, closer supervision and monitoring of international operations Internal Operations (I.O., IO or I/O) is a fictional American Intelligence Agency in Wildstorm comics. It was originally called International Operations. I.O. first appeared in WildC.A.T.S. volume 1 #1 (August, 1992) and was created by Brandon Choi and Jim Lee. and the upgrading of CellStar's information technology including the hiring of a new chief information officer. We expect to see a positive impact from these changes by the end of fiscal 1996." CellStar announced the addition of Sheldon Stein to the company's Board of Directors. Stein is a senior managing director of Bear, Stearns & Co. Inc. and oversees the firm's Southwestern Corporate Finance Department. Prior to joining Bear, Stearns, Stein was a partner with the Dallas law firm of Hughes & Luce, where he specialized spe·cial·ize v. spe·cial·ized, spe·cial·iz·ing, spe·cial·iz·es v.intr. 1. To pursue a special activity, occupation, or field of study. 2. in corporate finance, mergers and acquisitions. He also serves on the board of several other publicly held companies. Goldfield said, "Sheldon strengthens our Board's financial and legal expertise. He also has significant experience in advising companies in the communications and distribution industries. We look forward to benefiting from the expertise that he brings to CellStar's board." CellStar Corp. is an integrated wholesale distributor and retailer of cellular telephones and related products, with operations in the United States, the United Kingdom, Mexico, South America, Hong Kong, Singapore, Malaysia and the Philippines. The company wholesales a diverse line of cellular products to cellular carriers, distributors, agents, mass merchandisers and automotive dealers and retails such products to end users through approximately 365 retail sales locations, including over 350 in Sam's Clubs nationwide. The company is one of the largest independent non-carrier distributors of Motorola, Nokia, NEC (NEC Corporation, Tokyo, www.nec.com, www.necus.com) An electronics conglomerate known in the U.S. for its monitors. In Japan, it had the lion's share of the PC market until the late 1990s (see PC 98). NEC was founded in Tokyo in 1899 as Nippon Electric Company, Ltd. , and Ericsson cellular telephones and accessories throughout the world. -0-
CellStar Corporation and Subsidiaries
Consolidated Balance Sheets
(in thousands, except share data)
Aug. 31, Nov. 30,
1996 1995
(unaudited)
Assets
Current assets:
Cash and cash equivalents $ 10,783 31,508
Accounts receivable (less
allowance for doubtful
accounts of $17,042 and
$3,738, respectively) 126,214 125,079
Inventories 94,825 109,287
Deferred income taxes 2,141 3,158
Prepaid expenses 1,705 2,124
Total current assets 235,668 271,156
Property and equipment, net 24,596 23,549
Goodwill (less accumulated
amortization of $1,093 and $437,
respectively) 16,834 17,047
Other assets 1,866 3,169
Total assets $ 278,964 314,921
Liabilities and Stockholders' Equity
Current liabilities:
Accounts payable $ 82,516 78,758
Notes payable to financial
institutions 71,874 98,603
Accrued expenses 13,705 8,446
Income taxes payable 7,686 10,355
Current portion of long-term debt 559 584
Total current liabilities 176,340 196,746
Long-term debt, less current
portion 6,447 6,880
Total liabilities 182,787 203,626
Stockholders' equity
Common stock, $.01 par value,
50,000,000 shares authorized;
19,274,000 shares issued and
outstanding 193 193
Additional paid-in capital 68,167 68,167
Common stock warrants 4 4
Foreign currency translation
adjustments (4,373) (3,901)
Retained earnings 32,186 46,832
Total stockholders' equity 96,177 111,295
Total liabilities and
stockholders' equity $278,964 314,921
CellStar Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited) (in thousands, except share data) Three months Nine months ended Aug. 31, ended Aug. 31, 1996 1995 1996 1995 Revenues: Net product sales $ 195,679 175,017 573,168 502,535 Activation income 24,454 20,145 70,786 55,335 Residual income Residual Income (also called Passive Income) is income earned on an ongoing basis for effort done once in the past. 3,457 3,138 10,182 9,079 Total revenues 223,590 198,300 654,136 566,949 Cost of sales 192,798 167,554 561,711 489,127 Gross profit 30,792 30,746 92,425 77,822 Selling, general and administrative expenses 37,285 21,012 97,872 55,258 Operating (loss) income (6,493) 9,734 (5,447) 22,564 Other income (expense): Interest expense (1,886) (1,856) (6,861) (3,606) Equity in earnings (undistributed Adj. 1. undistributed - (of investments) not distributed among a variety of securities undiversified - not diversified loss) of joint ventures 96 24 (554) 3,367 Other, net (1,332) 4 (167) (101) Total other income (expense) (3,122) (1,828) (7,582) (340) (Loss) income before income taxes (9,615) 7,906 (13,029) 22,224 Provision for income taxes 2,716 1,684 1,617 5,696 Net (loss) income $(12,331) 6,222 (14,646) 16,528 Net (loss) income per share $ (0.64) 0.33 (0.76) 0.89 Weighted average number of shares outstanding 19,274 18,895 19,274 18,673 CONTACT: CellStar Corporation, Carrollton Robert Mead mead (mēd), wine made of fermented honey and water, sometimes flavored with spices. It is highly intoxicating. Mead was known in classical Greece and Rome and was the favorite drink of the tribes of N and W Europe. , 212/484-6701 (media) Richard Gozia, 972/466-5018 (investor) |
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