10-Q/A 1 d10qa.txt FORM 10-Q/A - 05/31/2000 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-Q/A [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended May 31, 2000 or [_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from ____________to______________ Commission File Number 0-22972 CELLSTAR CORPORATION (Exact name of registrant as specified in its charter) Delaware 75-2479727 -------- ---------- (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 1730 Briercroft Court 75006 Carrollton, Texas ----- ----------------- (Zip Code) (Address of principal executive offices) (972) 466-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ On July 12, 2000 there were 60,142,221 outstanding shares of Common Stock, $0.01 par value per share. 1 CELLSTAR CORPORATION Introductory Note CellStar Corporation (the "Company" or "CellStar") hereby amends and restates in its entirety the Company's Quarterly Report on Form 10-Q for the second quarter ended May 31, 2000 filed with the Securities and Exchange Commission on July 17, 2000. This Form 10-Q/A is being filed to include restated financial information and disclosures related to the Company's accounting restatement announced on June 28, 2001. The specific items amended to reflect the impact of the accounting restatement are Items 1 and 2 below. INDEX TO FORM 10-Q/A
Page PART I - FINANCIAL INFORMATION Number ------------------------------ ------ Item 1. FINANCIAL STATEMENTS CONSOLIDATED BALANCE SHEETS (unaudited) May 31, 2000 and November 30, 1999 3 CONSOLIDATED STATEMENTS OF OPERATIONS (unaudited) Three and six months ended May 31, 2000 and 1999 4 CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY AND COMPREHENSIVE LOSS (unaudited) 5 Six months ended May 31, 2000 CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Six months ended May 31, 2000 and 1999 6 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (unaudited) 7 Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 11 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK 16 PART II - OTHER INFORMATION --------- ------------------- Item 1. LEGAL PROCEEDINGS 17 Item 6. EXHIBITS AND REPORTS ON FORM 8-K 17
2 PART I - FINANCIAL INFORMATION Item 1. Financial Statements CellStar Corporation and Subsidiaries Consolidated Balance Sheets (Unaudited) (Dollars in thousands, except per share data)
May 31, November 30, 2000 1999 ------------ ------------ As restated (note 2) Assets Current assets: Cash and cash equivalents $ 79,684 95,498 Accounts receivable (less allowance for doubtful accounts of $56,968 and $33,152, respectively) 302,613 306,235 Inventories 275,566 189,866 Deferred income tax assets 28,565 15,127 Prepaid expenses 26,759 32,029 -------- ------- Total current assets 713,187 638,755 Property and equipment, net 25,320 27,481 Goodwill (less accumulated amortization of $11,385 and $10,483, respectively) 31,222 32,584 Other assets 12,631 7,618 -------- ------- $782,360 706,438 ======== ======= Liabilities and Stockholders' Equity Current liabilities: Accounts payable $289,996 212,999 Notes payable to financial institutions 97,486 50,609 Accrued expenses 25,502 24,864 Income taxes payable 1,781 8,646 Deferred income tax liabilities 1,453 8,796 -------- ------- Total current liabilities 416,218 305,914 Long-term debt 150,000 150,000 -------- ------- Total liabilities 566,218 455,914 Stockholders' equity: Preferred stock, $.01 par value, 5,000,000 shares authorized; none issued - - Common stock, $.01 par value, 200,000,000 shares authorized; 60,142,221 and 60,057,096 shares issued and outstanding, respectively 602 601 Additional paid-in capital 81,298 80,929 Accumulated other comprehensive loss - foreign currency translation adjustments (10,283) (8,509) Retained earnings 144,525 177,503 -------- ------- Total stockholders' equity 216,142 250,524 -------- ------- $782,360 706,438 ======== =======
See accompanying notes to unaudited consolidated financial statements. 3 CellStar Corporation and Subsidiaries Consolidated Statements of Operations (Unaudited) (In thousands, except per share data)
Three months Six months ended May 31, ended May 31, ------------------- ----------------------- 2000 1999 2000 1999 -------- ------- --------- --------- As restated As restated (note 2) (note 2) Revenues $561,370 570,325 1,151,229 1,085,673 Cost of sales 558,233 521,267 1,099,809 992,976 -------- ------- --------- --------- Gross profit 3,137 49,058 51,420 92,697 Selling, general and administrative expenses 58,059 28,304 90,298 53,922 Restructuring charge - 2,868 (157) 2,868 -------- ------- --------- --------- Operating income (loss) (54,922) 17,886 (38,721) 35,907 Other income (expense): Equity in income (loss) of affiliated companies (466) 100 (381) 6,123 Gain on sale of assets - 6,047 - 8,247 Interest expense (4,702) (5,396) (8,773) (10,077) Other, net 182 (716) 396 (2,303) -------- ------- --------- --------- Total other income (expense) (4,986) 35 (8,758) 1,990 -------- ------- --------- --------- Income (loss) before income taxes (59,908) 17,921 (47,479) 37,897 Provision (benefit) for income taxes (17,484) 3,952 (14,501) 8,337 -------- ------- --------- --------- Net income (loss) $(42,424) 13,969 (32,978) 29,560 ======== ======= ========= ========= Net income (loss) per share: Basic $(0.71) 0.23 (0.55) 0.50 ======== ======= ========= ========= Diluted $(0.71) 0.23 (0.55) 0.48 ======== ======= ========= =========
See accompanying notes to unaudited consolidated financial statements. 4 CellStar Corporation and Subsidiaries Consolidated Statement of Stockholders' Equity and Comprehensive Loss Six months ended May 31, 2000 (Unaudited) (In thousands)
Accumulated Additional other Common Stock paid-in comprehensive Retained Shares Amount capital loss earnings Total ------ ------ ---------- ------------- -------- ------- Balance at November 30, 1999 60,057 $601 80,929 (8,509) 177,503 250,524 Comprehensive loss: Net loss -- as restated (note 2) - - - - (32,978) (32,978) Foreign currency translation adjustment - - - (1,774) - (1,774) ------- Total comprehensive loss (34,752) Common stock issued under stock option plans 85 1 369 - - 370 ------ ------ ---------- ------- ------- ------- Balance at May 31, 2000 -- as restated (note 2) 60,142 $602 81,298 (10,283) 144,525 216,142 ====== ====== ========== ======== ======= =======
See accompanying notes to unaudited consolidated financial statements. 5 CellStar Corporation and Subsidiaries Consolidated Statements of Cash Flows Six months ended May 31, 2000 and 1999 (Unaudited) (In thousands)
2000 1999 -------- -------- As restated (note 2) Cash flows from operating activities: Net income (loss) $(32,978) 29,560 Adjustments to reconcile net income (loss) to net cash provided by (used in) operating activities: Depreciation and amortization 6,394 5,862 Equity in (income) loss of affiliated companies, net 381 (6,123) Gain on sale of assets - (8,247) Deferred income taxes (20,781) (2,770) Changes in operating assets and liabilities net of effects from acquisitions of businesses: Accounts receivable 2,351 72,066 Inventories (85,700) 87,206 Prepaid expenses 5,270 (5,059) Other assets (5,962) (896) Accounts payable 76,997 (145,900) Accrued expenses 638 (21,665) Income taxes payable (6,865) (1,674) -------- -------- Net cash provided by (used in) operating activities (60,255) 2,360 Cash flows from investing activities: Proceeds from sale of assets - 14,148 Purchases of property and equipment (2,722) (4,402) Acquisitions of businesses, net of cash acquired (84) - -------- -------- Net cash provided by (used in) investing activities (2,806) 9,746 Cash flows from financing activities: Net borrowings on notes payable to financial institutions 46,877 5,624 Net proceeds from issuance of common stock 370 600 -------- -------- Net cash provided by financing activities 47,247 6,224 Net increase (decrease) in cash and cash equivalents (15,814) 18,330 Cash and cash equivalents at beginning of period 95,498 47,983 -------- -------- Cash and cash equivalents at end of period $ 79,684 66,313 ======== ========
See accompanying notes to unaudited consolidated financial statements. 6 CellStar Corporation and Subsidiaries Notes to Consolidated Financial Statements (Unaudited) (1) Basis of Presentation Although the interim consolidated financial statements of CellStar Corporation and subsidiaries (the "Company") are unaudited, Company management is of the opinion that all adjustments (consisting of only normal recurring adjustments) necessary for a fair statement of the results have been reflected therein. Operating revenues and net income for any interim period are not necessarily indicative of results that may be expected for the entire year. These statements should be read in conjunction with the consolidated financial statements and related notes included in the Company's Annual Report on Form 10-K for the year ended November 30, 1999. Certain prior period financial statement amounts have been reclassified to conform to the current year presentation. (2) Financial Statement Restatement On June 28, 2001, the Company announced that its results for the three months and six months ended May 31, 2000 would be restated to reflect certain accounting adjustments. The restatement increases the previously reported net losses by $2.7 million ($0.05 per diluted share) to $42.4 million ($0.71 per diluted share) and $33.0 million ($0.55 per diluted share) for the three months and six months ended May 31, 2000, respectively. The Company determined in the second quarter of fiscal 2001 that it had incorrectly included as a reduction of cost of sales certain credits received from vendors for returned inventory. The accounting adjustments required to restate the Company's consolidated financial statements as of May 31, 2000, increase accounts payable by $4.3 million, increase deferred income tax assets by $1.5 million, and reduce retained earnings by $2.7 million. For the three months and six months ended May 31, 2000, the accounting adjustments increase cost of sales by $4.3 million and increase the income tax benefit by $1.5 million for each period. (3) Net Income (Loss) Per Share Basic net income (loss) per common share is based on the weighted average number of common shares outstanding for the relevant period. Diluted net income (loss) per common share is based on the weighted average number of common shares outstanding plus the dilutive effect of potentially issuable common shares pursuant to a warrant, stock options and convertible notes. A reconciliation of the numerators and denominators of the basic and diluted net income per share computations for the three and six months ended May 31, 2000 and 1999 follows (in thousands, except per share data): Three months ended May 31 2000 1999 ---- ---- As Restated (note 2) Basic: Net income (loss) $ (42,424) 13,969 ========= ====== Weighted average number of shares outstanding 60,137 59,614 ========= ====== Net income (loss) per share $ (0.71) 0.23 ========= ====== 7 Diluted: Net income (loss) $(42,424) 13,969 Interest on convertible notes, net of tax effect - 1,125 -------- ------ Adjusted net income (loss) $(42,424) 15,094 ======== ====== Weighted average number of shares outstanding 60,137 59,614 Effect of dilutive securities: Stock options and warrant - 653 Convertible notes - 5,422 -------- ------ Weighted average number of shares outstanding and effect of dilutive securities 60,137 65,689 ======== ====== Net income (loss) per share $(0.71) 0.23 ======== ====== Six months ended May 31 2000 1999 ---- ---- As Restated (note 2) Basic: Net income (loss) $(32,978) 29,560 ======== ====== Weighted average number of shares outstanding 60,121 59,564 ======== ====== Net income (loss) per share $ (0.55) 0.50 ======== ====== Diluted: Net income (loss) $(32,978) 29,560 Interest on convertible notes, net of tax effect - 2,250 -------- ------ Adjusted net income (loss) $(32,978) 31,810 ======== ====== Weighted average number of shares outstanding 60,121 59,564 Effect of dilutive securities: Stock options and warrant - 632 Convertible notes - 5,422 -------- ------ Weighted average number of shares outstanding and effect of dilutive securities 60,121 65,618 ======== ====== Net income (loss) per share $ (0.55) 0.48 ======== ====== Options to purchase 3.9 million shares of common stock for the three months ended May 31, 2000, and 3.1 million for the six months ended May 31, 2000, were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. The subordinated convertible notes were not dilutive for the three and six month periods ended May 31, 2000. Options to purchase 1.9 million shares of common stock for the three months ended May 31, 1999, and 2.0 million for the six months ended May 31, 1999, were not included in the computation of diluted EPS because the options' exercise price was greater than the average market price of the common shares. 8 (4) Segment and Related Information The Company operates predominantly within one industry, wholesale and retail sales of wireless telecommunications products. The Company's management evaluates operations primarily on income before interest and income taxes in the following reportable geographical regions: Asia- Pacific, Latin America, which includes Mexico and the Company's Miami, Florida operations ("Miami"), Europe, and North America. Revenues and operating results of Miami are included in Latin America since Miami's activities are primarily for export customers. The Corporate group includes headquarter operations and income and expenses not allocated to reportable segments. Intersegment sales and transfers are not significant. Segment information for the three and six months ended May 31, 2000 and 1999 follows (in thousands):
Asia- Latin North Pacific America Europe America Corporate Total ------------ --------- -------- -------- ---------- ---------- Three months ended May 31, 2000: Revenues from external customers $231,388 160,526 66,503 102,953 - 561,370 Income (loss) before interest and taxes -- as restated (note 2) 1,461 (28,095) (3,654) (19,962) (6,245) (56,495) Three months ended May 31, 1999: Revenues from external customers $193,580 186,877 89,063 100,805 - 570,325 Income (loss) before interest and taxes 9,222 15,655 1,908 1,015 (5,337) 22,463 2000 1999 --------- --------- Income (loss) before interest and income taxes per segment information $(56,495) 22,463 Interest expense per the consolidated statements of operations (4,702) (5,396) Interest income included in other, net in the consolidated statements of operations 1,289 854 --------- --------- Income (loss) before income taxes per the consolidated statements of operations $(59,908) 17,921 ========= ========= Asia- Latin North Pacific America Europe America Corporate Total ------------ -------- ------- ------- --------- --------- Six months ended May 31, 2000: Revenues from external customers $473,306 315,732 181,781 180,410 - 1,151,229 Income (loss) before interest and taxes -- as restated (note 2) 13,183 (23,072) (960) (19,117) (10,910) (40,876) Six months ended May 31, 1999: Revenues from external customers $327,283 357,129 198,318 202,943 - 1,085,673 Income (loss) before interest and taxes -- as restated (note 2) 17,333 20,537 4,807 12,859 (9,365) 46,171 2000 1999 --------- --------- Income (loss) before interest and income taxes per segment information -- as restated (note 2) $(40,876) 46,171 Interest expense per the consolidated statements of operations (8,773) (10,077) Interest income included in other, net in the consolidated statements of operations -- as restated (note 2) 2,170 1,803 -------- -------- Income (loss) before income taxes per the consolidated statements of operations $(47,479) 37,897 ======== =======
(5) United Kingdom International Trading Operations In April 2000, the Company curtailed a significant portion of its U.K. international trading operations following third party theft and fraud losses. The trading business involves the purchase of products from suppliers other than manufacturers and the sale of those products to customers other than network operators or their dealers and other representatives. As a result, the Company experienced a reduction in revenues for the Europe Region in the quarter ended May 31, 2000 and anticipates a reduction in revenues during the balance of the year ending November 30, 2000. 9 For the quarter ended May 31, 2000, the Company recorded a $4.4 million charge consisting of $3.2 million for third party theft and fraud losses during the purchase, transfer of title and transport of six shipments of wireless handsets and $1.2 million in inventory obsolescence expense for inventory price reductions incurred while the international trading business was curtailed pending investigation. The Company is negotiating to obtain an insurance settlement and is pursuing legal action where appropriate. However, the ultimate recovery, if any, in relation to these losses cannot be determined at this time. (6) Brazil Since 1998, the Company's Brazilian operations have been primarily conducted through a majority-owned joint venture. Following an extensive review of its operations in Brazil, the Company concluded that its joint venture structure, together with foreign exchange risk, the high cost of capital in that country, accumulated losses, and the prospect of ongoing losses, were not optimal for success in that market. As a result, the Company has elected to exit the Brazil market and intends to divest its 51% interest in its joint venture. The Company's operations in Brazil have incurred a $9.3 million loss in 2000, including the write down of certain assets to fair value. The Company has also fully reserved certain U.S. based accounts receivable, the collectibility of which has deteriorated significantly in the second quarter of 2000 and which were further affected by the decision to exit Brazil. (7) Redistributor Business The Company is phasing out a major portion of its redistributor business in the Miami and North American operations due to the volatility of the redistributor business, the relatively lower margins and higher credit risks. Redistributors are distributors that do not have existing direct relationships with manufacturers and who do not have long-term carrier or dealer/agent relationships. These distributors purchase product on a spot basis to fulfill intermittent customer demand and do not have long-term predictable product demand. Combined revenues for the six months ended May 31, 2000 and 1999 for the redistributor business were $31.5 million and $59.6 million, respectively. (8) Amendment to Multicurrency Revolving Credit Facility Based on results for the three months ended May 31, 2000, the Company would not have been in compliance with one of its covenants under its Multicurrency Revolving Credit Facility (the "Facility"). As of July 12, 2000, the Company had negotiated an amendment to the Facility that assists the Company in complying with the covenant. The relief provided by the amendment will be available through the third quarter of 2000. The amount of the Facility was also reduced from $115.0 million to $100.0 million. As a result of the July 12, 2000 amendment to the Facility, interest rates will increase by 25 basis points for the balance of the year. The Company and its banking syndicate have begun negotiations for a future amendment to address a longer-term solution to covenant concerns. However, no assurance can be given that the Company and its banking syndicate will achieve a longer-term solution. (9) Inventory Obsolescence Expense and Bad Debt Expense Inventory obsolescence expense of $21.8 million and $23.5 million for the three months and six months ended May 31, 2000, respectively, is included in cost of goods sold in the accompanying consolidated statements of operations. Bad debt expense of $25.5 million and $29.9 million for the three months and six months ended May 31, 2000, respectively, is included in selling, general and administrative expenses in the accompanying consolidated statements of operations. (10) Comprehensive Income (Loss) Comprehensive income (loss) consists of net income (loss) and foreign currency translation adjustment and aggregates $(43.8) million and $(34.8) million for the three and six month periods ended May 31, 2000, respectively. For the three and six month periods ended May 31, 1999 comprehensive income aggregates $13.1 million and $28.5 million, respectively. (11) Contingencies Refer to Part II, Item 1, "Legal Proceedings." 10 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations Overview The Company reported a net loss of $ 42.4 million, or $ 0.71 per diluted share, for the second quarter of 2000 compared with net income of $14.0 million or $0.23 per diluted share, for the same quarter last year. In the second quarter of 2000, the Company decided to divest its majority interest in its Brazil joint venture, phase out a major portion of its North America and Miami redistributor business, and substantially reduced international trading operations conducted by its U.K. subsidiary due to third party theft and fraud losses. Also during the second quarter of 2000, the Company recorded inventory obsolescence expense of $21.8 million, bad debt expense of $25.5 million, and $3.2 million in theft and fraud losses related to the U.K. international trading operations. In addition, the Company experienced a decline in gross margins due to a shift in geographic revenue mix and competitive margin pressures. The second quarter of 1999 was impacted by several non-operating items, including (i) a pre-tax charge of $2.9 million related to the reorganization and consolidation of the management for the Company's Latin American and North American Regions and the centralization of its Asia-Pacific Region's management, and (ii) pre-tax gains totaling $6.0 million from the sale of its prepaid operation in Venezuela and the sale of the Company's retail stores in the Kansas City area. Without the effects of these items, net income for the second quarter of 1999 would have been $11.4 million, or $0.19 per diluted share. Special Cautionary Notice Regarding Forward-Looking Statements This Quarterly Report on Form 10-Q contains forward-looking statements relating to such matters as anticipated financial performance and business prospects. When used in this Quarterly Report, the words "should", "may," "intends", "expects," "anticipates," "will" and similar expressions are intended to be among the statements that identify forward-looking statements. From time to time, the Company may also publish forward-looking statements. The Private Securities Litigation Reform Act of 1995 provides a safe harbor for forward- looking statements. In order to comply with the terms of the safe harbor, the Company notes that a variety of factors, including foreign currency risks, revaluation, devaluation and fluctuations in relative exchange rates, political instability, changes in foreign laws, regulations and tariffs, new technologies, competition, customer and vendor relationships, unstable channels of distribution, seasonality, inventory obsolescence and availability, "gray market" resales, and inflation could cause the Company's actual results and experience to differ materially from anticipated results or other expectations expressed in the Company's forward-looking statements. Results of Operations The following table sets forth certain unaudited consolidated statements of operations data for the Company expressed as a percentage of revenues for the three and six months ended May 31, 2000 and 1999:
Three months Six months ended May 31 ended May 31 ------------------ ------------- 2000 1999 2000 1999 ----- ----- ----- ----- As Restated As Restated (note 2) (note 2) Revenues 100.0% 100.0 100.0 100.0 Cost of sales 99.5 91.4 95.5 91.5 ----- ----- ----- ----- Gross profit 0.5 8.6 4.5 8.5 Operating expenses: Selling, general and administrative expenses 10.3 5.0 7.8 5.0 Restructuring charge - 0.5 - 0.2 ----- ----- ----- ----- Operating income (loss) (9.8) 3.1 (3.3) 3.3 Other income (expense): Equity in income (loss) of affiliated companies (0.1) - - 0.6 Gain on sale of assets - 1.1 - 0.7 Interest expense (0.8) (1.0) (0.8) (0.9) Other, net - (0.1) - (0.2) ----- ----- ----- ----- Total other income (expense) (0.9) - (0.8) 0.2 ----- ----- ----- ----- Income (loss) before income taxes (10.7) 3.1 (4.1) 3.5 Provision (benefit) for income taxes (3.1) 0.7 (1.3) 0.8 ----- ----- ----- ----- Net income (loss) (7.6)% 2.4 (2.8) 2.7 ===== ===== ===== =====
11 Three Months Ended May 31, 2000 Compared to Three Months Ended May 31, 1999 Revenues. The Company's revenues decreased $8.9 million, or 1.6%, from $570.3 million to $561.4 million. Revenues in the Asia-Pacific Region increased $37.8 million, or 19.5%, from $193.6 million to $231.4 million. The Company's operations in the People's Republic of China, including Hong Kong ("PRC"), provided $153.2 million in revenue, an increase of $26.2 million or 20.6%, from $127.0 million. This increase was due to continued strong demand in the PRC and the build-up of extensive sales channels. The Company's operations in Taiwan provided $48.8 million of revenue, a decrease of $4.0 million, from $52.8 million. Demand decreased in Taiwan due to the political uncertainty surrounding the presidential election in March and Taiwan's relationship with the PRC. In the Philippines, revenues for the quarter increased $14.7 million to $19.0 million due to carrier promotions and receipt by the Company in the fourth quarter of 1999 of certain distribution rights to Nokia products in the Philippines. Latin America Region revenues were $160.5 million for the second quarter ended May 31, 2000, a 14.1% decrease from the prior year revenues of $186.9 million. Revenues in Brazil declined $45.9 million. In 2000, sales to the Company's major customer in Brazil were greatly reduced due to the increased availability of in- country manufactured product. The Company has elected to exit the Brazil market (see "International Operations"). Revenues in Venezuela declined $11.1 million, reflecting continuing market softness caused by political and economic instability due to upcoming local elections. Revenues from the Miami export operations were down $12.7 million, reflecting the Company's decision to phase out a major portion of its redistributor channel, and the declining export market due to increasing availability of in-country manufactured product. The Company is phasing out a major portion of its redistributor business in the Miami and North American operations due to the volatility of the redistributor business, the relatively lower margins and higher credit risks. Also, supply shortages in the third and fourth quarters of 1999 significantly weakened the redistributor channel, reducing the number of financially viable redistributors and creating operating and financial difficulties for others. Combined revenues for the quarter for the redistributor business were $13.3 million in 2000 and $33.9 million in 1999. Revenues in Mexico increased $36.7 million, or 58.1%, due primarily to an aggressive new subscriber promotion by PEGASO during the quarter. Combined revenues from CellStar's Argentina, Colombia and Peru operations more than doubled to $15.3 million. North America Region revenues were $103.0 million, up 2.1% from $100.8 million for the prior year. This was the region's first revenue increase since the fourth quarter of 1998. The region's revenues have been impacted by a major customer that began coordinating its distribution directly with manufacturers. Excluding revenues from that customer, second quarter 2000 revenues for the region increased $35.2 million, or 51.9%. Revenues for the Europe Region decreased to $66.5 million in the second quarter from $89.1 million in the prior comparable quarter, due to the Company's decision to curtail its U.K. international trading operations (see "International Operations"). Quarterly results included a $3.6 million increase in revenues from Sweden, as well as revenues of $6.8 million from the Company's operations in The Netherlands, which was acquired in the third quarter of 1999. Gross Profit. Gross profit decreased $46.0 million, or 93.7%, from $49.1 million to $3.1 million. The decrease in gross profit was primarily due to $21.8 million in inventory obsolescence as a result of price declines during the quarter and $3.2 million in third party theft and fraud losses related to the U.K. international trading operations. Excluding these provisions, the decrease in gross profit as a percentage of revenues was primarily due to a shift in geographic revenue mix, lack of digital handsets in North America, competitive margin pressures including an oversupply of analog handsets in North America and an oversupply of handsets in Asia Pacific, and a delay in the introduction of new models by manufacturers, including WAP enabled phones. Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $29.8 million, or 105.3% from $28.3 million to $58.1 million. This increase was principally due to bad debt expense of $25.5 million, up from $4.0 million for the second quarter last year. The increase was primarily from certain U.S. based accounts receivable, the collectibility of which has deteriorated significantly in the second quarter of 2000 and which were further affected by the Company's decision to sell its majority interest in its joint venture in Brazil and the phase out of a major portion of the redistributor business in its Miami and North America operations. The increase in selling, general and administrative expenses was also attributable to costs associated with business expansion activities and professional expenses. Overall selling, general and administrative expenses as a percentage of revenues increased to 10.3% from 5.0%. Restructuring Charge. The Company's results of operations for the second quarter of 1999 include a pre-tax restructuring charge of $2.9 million associated with the reorganization and consolidation of the management for the Company's Latin American and North American Regions as well as the centralization of the management in the Asia-Pacific Region. Gain on Sale of Assets. In the second quarter of 1999, the Company recorded a pre-tax gain of $6.0 million associated with the sale of its prepaid operations in Venezuela and the sale of the Company's retail stores in the Kansas City area. 12 Interest Expense. Interest expense decreased to $4.7 million from $5.4 million primarily as a result of lower interest expense in Brazil. Other, Net. Other, net increased from expense of $0.7 million in the second quarter of 1999 to income of $0.2 million in 2000. This increase was primarily due to lower foreign currency losses related to Brazil. Income Taxes. Income tax expense decreased from a provision of $4.0 million in 1999 to a benefit of $17.5 million in 2000. The annual effective tax rate increased to 30.5% from 22.0%. The higher effective tax rate was attributable to changes in the expected geographical mix of income (loss) before income taxes. Six Months Ended May 31, 2000 Compared to Six Months Ended May 31, 1999 Revenues. The Company's revenues increased $65.5 million, or 6.0%, from $1,085.7 million to $1,151.2 million. Revenues in the Asia-Pacific Region increased $146.0 million, or 44.6%, from $327.3 million to $473.3 million. The Company's operations in the PRC provided $321.2 million in revenue, an increase of $98.5 million, or 44.2%, from $222.7 million. This increase was due to continued strong demand in the PRC and the build-up of extensive sales channels. The Company's operations in Taiwan provided $102.4 million of revenue, an increase of $22.6 million, or 28.3%, from $79.8 million. Demand in Taiwan increased due to the introduction of new high- end handsets in the first quarter of 2000, but was slowed in the second quarter of 2000 due to the political uncertainty surrounding the presidential election in March and Taiwan's relationship with the PRC. In the Philippines, revenues increased $22.6 million to $31.0 million due to carrier promotions and receipt by the Company in the fourth quarter of 1999 of certain distribution rights to Nokia products in the Philippines. The Latin American Region provided $315.7 million of revenues, compared to $357.1 million, or an 11.6% decrease. Revenues in Mexico increased $91.2 million due primarily to increased carrier business. Revenues for Brazil were down $105.0 million from last year. In 1999, the recently completed privatization of the telecommunications industry was driving rapid growth in carrier sales. In 2000, sales to the Company's major customer in Brazil were greatly reduced due to the increased availability of in-country manufactured product. The Company has elected to exit the Brazil market (see "International Operations"). Revenues from the Venezuela operations declined $23.8 million. The decline was a result of the effects of the torrential floods in late 1999, the positive impact on last year's first quarter of a special carrier promotion, and continuing market softness caused by political and economic instability due to upcoming local elections. Revenues from the Company's operations in Miami decreased $19.2 million from 1999 as increased product availability from in-country manufacturers in Latin America continued to reduce export sales from Miami. The Company is phasing out a major portion of its redistributor business in its Miami and North American operations due to the volatility of the redistributor business, the relatively lower margins, and higher credit risks. Also, supply shortages in the third and fourth quarters of 1999 significantly weakened the redistributor channel, reducing the number of financially viable redistributors and creating operating and financial difficulties for others. Combined revenues from the redistributor business were $31.5 million and $59.6 million in 2000 and 1999, respectively. Combined revenues from the operations in Argentina, Chile, Colombia and Peru increased $15.6 million. North American Region revenues were $180.4 million, a decrease of $22.5 million, or 11.1% when compared to $202.9 million. The decrease was primarily a result of a decline in product sales to a major customer that began coordinating its distribution directly with manufacturers. Excluding revenues from that customer, revenues increased $41.0 million or 30.6% from 1999. The Company's Europe Region recorded revenues of $181.8 million, a decrease of $16.5 million, or 8.3%, from $198.3 million, primarily due to the Company's decision to curtail its U.K. international trading operations in April 2000 (see "International Operations"). Revenues from Sweden declined $4.6 million primarily due to product shortages in the first quarter of 2000. Revenues from The Netherlands, which was acquired in the third quarter of 1999, were $15.6 million. Gross Profit. Gross profit decreased $41.3 million, or 44.6% from $92.7 million to $51.4 million. The decrease in gross profit is primarily due to $23.5 million in inventory obsolescence primarily as a result of price declines during the second quarter and $3.2 million in third party theft and fraud losses related to the U.K. international trading operations. Excluding these provisions, the decrease in gross profit as a percentage of revenues was primarily due to a shift in geographic revenue mix, lack of digital handsets in North America, competitive margin pressures including an oversupply of analog handsets in North America and an oversupply of handsets in Asia Pacific, and a delay in the introduction of new models by manufacturers, including WAP enabled phones. 13 Selling, General and Administrative Expenses. Selling, general and administrative expenses increased $36.4 million, or 67.5% from $53.9 million to $90.3 million. This increase was primarily due to bad debt expense of $29.9 million, up from $6.5 million for the same period last year. The increase was primarily from certain U.S. based accounts receivable, the collectibility of which has deteriorated significantly in the second quarter of 2000 and which were further affected by the Company's decision to sell its majority interest in its joint venture in Brazil and the phase out of a major portion of the redistributor business in its Miami and North America operations. The increase in selling, general and administrative expenses was also attributable to costs associated with business expansion activities and professional expenses. Overall selling, general and administrative expenses as a percentage of revenues increased to 7.8% from 5.0%. Restructuring Charge. The Company's results of operations include a pre-tax restructuring charge of $2.9 million in 1999 associated with the reorganization and consolidation of the management for the Company's Latin American and North American Regions as well as the centralization of management in the Asia-Pacific Region. Equity in Income (Loss) of Affiliated Companies. Equity in income (loss) of affiliated companies decreased from income of $6.1 million in 1999 to a loss of $0.4 million in 2000. In February 1999, the Company sold part is its equity investment in Topp Telecom, Inc. ("Topp") to a wholly owned subsidiary of Telefonos de Mexico S.A. de C.V. ("TelMex"). At the closing, the Company also sold a portion of its debt investment to certain other shareholders of Topp. As a result of these transactions, the Company recorded a pre-tax gain of $5.8 million. In September 1999, the Company sold its remaining debt and equity interest in Topp to the TelMex subsidiary for a pre-tax gain of $26.1 million. Gain on Sale of Assets. In 1999, the Company recorded a pre-tax gain of $8.2 million associated with the sale of its prepaid operations in Venezuela and the sale of the Company's retail stores in the Dallas-Fort Worth and Kansas City areas. Interest Expense. Interest expense decreased to $8.8 million from $10.1 million primarily as a result of cash received from the sale of the Company's remaining debt and equity interest in Topp in September 1999 and lower interest rates in Brazil compared to 1999. Other, Net. Other, net changed from an expense of $2.3 million to income of $0.4 million. This change was primarily due to a $2.6 million foreign currency transaction loss realized in 1999 from the conversion of U.S. dollar denominated debt in Brazil into a Brazilian real denominated credit facility. Income Taxes. Income tax expense decreased from $8.3 million in 1999 to a benefit of $14.5 million in 2000. The Company's effective tax rate increased to 30.5% from 22.0%. The higher effective tax rate was attributable to changes in the expected geographical mix of income (loss) before income taxes. International Operations The Company's foreign operations are subject to various political and economic risks including, but not limited to, the following: political instability, currency controls, currency devaluations, exchange rate fluctuations, potentially unstable channels of distribution, increased credit risks, export control laws that might limit markets the Company can enter, inflation, changes in laws related to foreign ownership of business abroad, foreign tax laws, changes in import/export regulations, including enforcement policies, "gray market" resales, and tariff and freight rates. Political and other factors beyond the control of the Company, including trade disputes among nations, currency fluctuations or internal political or economic instability in any nation where the Company conducts business, could have a materially adverse effect on the Company. During the second half of 1998, the Company's sales from Miami to customers exporting into South American countries began to decline as a result of increased in-country manufactured product availability in South America, primarily Brazil. The Company expects to focus its efforts on servicing large, financially sound carrier partners from the Company's Latin American subsidiaries. Since 1998, the Company's Brazilian operations have been primarily conducted through a majority-owned joint venture. Following an extensive review of its operations in Brazil, the Company concluded that its joint venture structure, together with foreign exchange risk, the high cost of capital in that country, alternative uses of capital, accumulated losses, and the prospect of ongoing losses, were not optimal for success in that market. As a result, the Company has elected to exit the Brazil market and intends to divest its 51% interest in its joint venture. The Company's operations in Brazil have incurred a $9.3 million loss in 2000 including the write down of certain assets to fair value. The Company has also fully reserved certain U.S. based accounts receivable, the collectibility of which has deteriorated significantly in the second quarter, and which were further affected by the decision to exit Brazil. 14 In April 2000, the Company curtailed a significant portion of its U.K. international trading operations following third party theft and fraud losses. The trading business involves the purchase of products from suppliers other than manufacturers and the sale of those products to customers other than network operators or their dealers and other representatives. The Company experienced a reduction in revenues for the Europe Region in the quarter ended May 31, 2000 and anticipates a reduction in revenues during the balance of the year ending November 30, 2000. For the quarter ended May 31, 2000, the Company recorded a $4.4 million charge consisting of $3.2 million from third party theft and fraud losses during the purchase, transfer of title and transport of six shipments of wireless handsets, and $1.2 million in inventory obsolescence expense for inventory price reductions incurred while the international trading business was curtailed pending investigation. The Company is negotiating to obtain an insurance settlement and is pursuing legal action where appropriate. However, the ultimate recovery in relation to these losses, if any, cannot be determined at this time. Liquidity and Capital Resources During the six months ended May 31, 2000, the Company relied on cash available at November 30, 1999, cash generated from operations, and borrowings under its Multicurrency Revolving Credit Facility (the "Facility") to fund working capital, capital expenditures and expansions. At July 12, 2000 the Company had available $46.5 million of unused borrowing capacity under the Facility. Compared to November 30, 1999, accounts receivable decreased $3.6 million, while inventories and accounts payable increased $85.7 million and $77.0 million, respectively. This increase in inventory and accounts payable was primarily in North America and Miami and primarily relates to a series of purchases from a major supplier that granted extended payment terms in conjunction with these purchases. As of May 31, 2000 and June 30, 2000, the Company's Brazilian operations had borrowed $13.0 million and $20.8 million, respectively, using credit facilities denominated in Brazilian reals with Brazilian banks. The Company has $9.2 million of letters of credit outstanding against its Facility to guarantee the repayment of the principal and accrued interest and all other contractual obligations of its Brazilian operations to several Brazilian banks. At May 31, 2000, the Company's operations in the PRC had two lines of credit available to them, one for USD $12.5 million and the second for RMB $180 million ($21.9 million equivalent), bearing interest at 5.52% and 5.85%, respectively. The loans mature through March 2001 and are fully collateralized by a U.S. dollar cash deposit. The cash deposit was made via an intercompany loan from the operating entity in Hong Kong as a mechanism to secure the repatriation of these funds. At May 31, 2000 and June 30, 2000, $34.2 million and $40.2 million, respectively, had been borrowed against the lines of credit in the PRC. As a result of this method of funding operations in the PRC, the consolidated balance sheet at May 31, 2000 reflects $35.4 million in cash that is restricted as collateral on these advances and a corresponding $34.2 million in notes payable. Subsequent to the end of the quarter, the Hong Kong operating entity increased its intercompany advance to the PRC by $11.0 million for a total funding of $46.4 million to support the PRC's growth. Based on results for the three months ended May 31, 2000, the Company would not have been in compliance with one of its covenants under its Facility. As of July 12, 2000, the Company had negotiated an amendment to the Facility that assists the Company in complying with the covenant. The relief provided by the amendment will be available through the third quarter of 2000. The amount of the Facility was also reduced from $115.0 million to $100.0 million. As a result of the July 12, 2000 amendment to the Facility, interest rates will increase by 25 basis points for the balance of the year. The Company and its banking syndicate have begun negotiations for a future amendment to address a longer-term solution to covenant concerns. However, no assurance can be given that the Company and its banking syndicate will achieve a longer- term solution. The Company anticipates that it should have sufficient cash available to meet its current capital requirements and expansion plans. Capital is expected to be provided by available cash on hand, cash generated from operations, amounts available under the Facility, amounts available from new debt sources, and various other funded debt sources. The Company believes that it should have the ability to expand its borrowing sources to accommodate expected capital needs in the future. Accounting Pronouncements Not Yet Adopted In June 1998, the Financial Accounting Standards Board (FASB) issued Statement No. 133 "Accounting for Derivative Instruments and Hedging Activities" ("Statement 133"), which was amended by Statement 137 issued in July 1999 and Statement 138 issued in June 2000. Statement 137 delayed the effective date of Statement 133. Statement 133 is now effective for all interim and annual periods of the Company commencing December 1, 2000. Given the Company's current and anticipated derivative activities, management does not believe the adoption of Statement 133 should have a material effect on the Company's consolidated financial position and results of operations. 15 FASB issued Interpretation No. 44, "Accounting for Certain Transactions Involving Stock Compensation - an Interpretation of APB Opinion No. 25" ("FIN 44") in March 2000. Among other issues, this interpretation clarifies the definition of employee for purposes of applying APB Opinion No. 25, "Accounting for Stock Issued to Employees" ("APB 25"), the criteria for determining whether a plan qualifies as a non-compensatory plan, the accounting consequence of various modifications to the terms of previously fixed stock options or awards and the accounting for an exchange of stock compensation awards in a business combination. The Interpretation is effective July 1, 2000, but certain conclusions in the Interpretation cover specific events that occurred after either December 15, 1998 or January 12, 2000. Management believes that FIN 44 will not have a material effect on the Company's financial position and consolidated results of operations upon adoption. In December 1999, the SEC staff issued Staff Accounting Bulletin No. 101, "Revenue Recognition in Financial Statements" ("SAB 101"). SAB 101 summarizes certain of the staff's views in applying general accepted accounting principles to revenue recognition and accounting for deferred costs in the financial statements. Based on the Company's current revenue recognition policies, SAB 101 is not expected to materially impact the Company's consolidated financial position and results of operations. Item 3. Quantitative and Qualitative Disclosures About Market Risk Foreign Exchange Risk For the quarter ended May 31, 2000, the Company recorded in other income (expense), net foreign currency losses of $1.2 million primarily due to the revaluations of foreign currency related to the Company's Europe operations. Regarding the intercompany advances from the Hong Kong entity to the PRC entity, the Company has foreign exchange exposure on the funds as they have been effectively converted into RMB. As of May 31, 2000 and June 30, 2000, the Company's Brazilian operations had borrowed $13.0 million and $20.8 million, respectively, using credit facilities denominated in Brazilian reals with Brazilian banks. The Company continues to evaluate foreign currency exposures and related protection measures. Derivative Financial Instruments The Company uses various derivative financial instruments as part of an overall strategy to manage the Company's exposure to market risk associated with interest rate and foreign currency exchange rate fluctuations. The Company uses foreign currency forward contracts to manage the foreign currency exchange rate risks associated with international operations. The Company evaluates the use of interest rate swaps and cap agreements to manage its interest risk on debt instruments, including the reset of interest rates on variable rate debt. The Company does not hold or issue derivative financial instruments for trading purposes. The major currency exposures hedged by the Company are the British pound, Dutch guilder, Euro and Swedish Krona. The carrying amount and fair value of these contracts are not significant. Contractual amounts of the Company's forward exchange contracts at May 31, 2000 and June 30, 2000, respectively are $11.7 million and $13.9 million. Interest Rate Risk The interest rate of the Company's Facility is an index rate at the time of borrowing plus an applicable margin on certain borrowings. The interest rate is based on either the agent bank's prime lending rate or the London Interbank Offered Rate. Additionally, the applicable margin is subject to increases as the Company's ratio of consolidated funded debt to consolidated cash flow increases. During the six months ended May 31, 2000, the interest rates of borrowings under the Facility ranged from 7.74% to 9.75%. As a result of the July 12, 2000 amendment to the Facility, interest rates will increase by 25 basis points for the balance of the year. The Company manages its borrowings under the Facility each business day to minimize interest expense. The borrowings of the Company's Brazilian operations are short-term in nature, typically less than six months. Through May 31, 2000, annual rates on borrowings by the Brazilian joint venture operations ranged from approximately 30% to 36%. The Brazilian operations' borrowings at May 31, 2000, were $13.0 million. The Company has short-term borrowings in the PRC as discussed in Liquidity and Capital Resources. The Company's $150.0 million in long-term debt has a fixed coupon interest rate of 5.0% and is due in October 2002. 16 PART II - OTHER INFORMATION Item 1. Legal Proceedings During the period from May 1999 through July 1999, seven purported class action lawsuits were filed in the United States District Court for the Southern District of Florida, Miami Division. Each lawsuit sought certification as a class action to represent those persons who purchased the publicly traded securities of the Company during the period from March 19, 1998 to September 21, 1998. Each lawsuit alleges that the Company issued a series of materially false and misleading statements concerning the Company's results of operations and investment in Topp, resulting in violations of Sections 10(b) and 20(a) of the Securities Exchange Act of 1934, as amended, and Rule 10b-5 promulgated thereunder. The Court entered an order on September 26, 1999 consolidating the lawsuits and appointing lead plaintiffs and lead plaintiffs' counsel. On November 8, 1999, the lead plaintiffs filed a consolidated complaint. The Company has filed a Motion to Dismiss the consolidated complaint, but the court has not yet rendered a decision. The Company believes that it has fully complied with all applicable securities laws and regulations and that it has meritorious defenses to the allegations made in the consolidated complaint. The Company intends to vigorously defend the consolidated action if its Motion to Dismiss is denied. On August 3, 1998, the Company announced that the Securities and Exchange Commission is conducting an investigation of the Company relating to its compliance with federal securities laws. The Company believes that it has fully complied with all securities laws and regulations and is cooperating with the commission staff in its investigation. The Company's 51% joint venture in Brazil has received an assessment of approximately $4.9 million from the Brazil state tax authorities related to disallowed ICMS tax credits on purchased products. The Company believes the joint venture has complied with all applicable tax rules and regulations and has valid defenses. The joint venture is vigorously contesting the assessment. Accordingly, an accrual for this assessment is not reflected in the accompanying financial statements. If the joint venture is unsuccessful in defending against such assessment, the joint venture would be subject to penalties and interest. The Company is a party to various other claims, legal actions and complaints arising in the ordinary course of business. Management believes that the disposition of these other matters will not have a materially adverse effect on the consolidated financial condition or results of operations of the Company. Item 6. Exhibits and Reports on Form 8-K (A) Exhibits. 3.1 Amended and Restated Certificate of Incorporation of CellStar Corporation ("Certificate of Incorporation"). (1) 3.2 Certificate of Amendment to Certificate of Incorporation. (7) 3.3 Amended and Restated Bylaws of CellStar Corporation. (3) 4.1 The Certificate of Incorporation, Certificate of Amendment to Certificate of Incorporation and Amended and Restated Bylaws of CellStar Corporation filed as Exhibits 3.1, 3.2 and 3.3 are incorporated into this item by reference. (1)(7)(3) 4.2 Specimen Common Stock Certificate of CellStar Corporation. (2) 4.3 Rights Agreement, dated as of December 30, 1996, by and between CellStar Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights Agent ("Rights Agreement"). (4) 4.4 First Amendment to Rights Agreement, dated as of June 18, 1997. (5) 4.5 Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock of CellStar Corporation ("Certificate of Designation"). (4) 4.6 Form of Rights Certificate. (4) 4.7 Certificate of Correction of Certificate of Designation. (5) 4.8 Indenture, dated as of October 14, 1997, by and between CellStar Corporation and the Bank of New York, as Trustee. (6) 17 10.1 Second Amendment to Amended and Restated Credit Agreement, dated July 12, 2000, among CellStar Corporation and each of the banks and lending institutions signatory thereto. (8) 27.1 Financial Data Schedule. (9) (1) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1995, and incorporated herein by reference. (2) Previously filed as an exhibit to the Company's Annual Report on Form 10- K for the fiscal year ended November 30, 1995, and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference. (4) Previously filed as an exhibit to the Company's Registration Statement on Form 8 - A (File No. 000-22972), filed January 3, 1997, and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Registration Statement on Form 8 -A/A, Amendment No. 1 (File No. 000-22972), filed June 30, 1997, and incorporated herein by reference. (6) Previously filed as an exhibit to the Company's Current Report on Form 8- K dated October 8, 1997, filed October 24, 1997, and incorporated herein by reference. (7) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1998, and incorporated herein by reference. (8) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2000 filed on July 17, 2000 and incorporated herein by reference. (9) Filed herewith. (B) Reports on Form 8-K. None. 18 Signature Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. CELLSTAR CORPORATION /s/ AUSTIN P. YOUNG --------------------------------------------------- By: Austin P. Young Senior Vice President, Chief Financial Officer and Treasurer (Principal Financial Officer) /s/ RAYMOND L. DURHAM --------------------------------------------------- By: Raymond L. Durham Vice President, Corporate Controller (Principal Accounting Officer) Date: July 5, 2001 19 EXHIBIT INDEX Exhibit No. Description --- ----------- 3.1 Amended and Restated Certificate of Incorporation of CellStar Corporation ("Certificate of Incorporation"). (1) 3.2 Certificate of Amendment to Certificate of Incorporation. (7) 3.3 Amended and Restated Bylaws of CellStar Corporation. (3) 4.1 The Certificate of Incorporation, Certificate of Amendment to Certificate of Incorporation and Amended and Restated Bylaws of CellStar Corporation filed as Exhibits 3.1, 3.2 and 3.3 are incorporated into this item by reference. (1)(7)(3) 4.2 Specimen Common Stock Certificate of CellStar Corporation. (2) 4.3 Rights Agreement, dated as of December 30, 1996, by and between CellStar Corporation and ChaseMellon Shareholder Services, L.L.C., as Rights Agent ("Rights Agreement"). (4) 4.4 First Amendment to Rights Agreement, dated as of June 18, 1997. (5) 4.5 Form of Certificate of Designation, Preferences and Rights of Series A Preferred Stock of CellStar Corporation ("Certificate of Designation"). (4) 4.6 Form of Rights Certificate. (4) 4.7 Certificate of Correction of Certificate of Designation. (5) 4.8 Indenture, dated as of October 14, 1997, by and between CellStar Corporation and the Bank of New York, as Trustee. (6) 10.1 Second Amendment to Amended and Restated Credit Agreement, dated July 12, 2000, among CellStar Corporation and each of the banks and lending institutions signatory thereto. (8) 27.1 Financial Data Schedule. (9) (1) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended August 31, 1995, and incorporated herein by reference. (2) Previously filed as an exhibit to the Company's Annual Report on Form 10- K for the fiscal year ended November 30, 1995, and incorporated herein by reference. (3) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended February 29, 1996, and incorporated herein by reference. (4) Previously filed as an exhibit to the Company's Registration Statement on Form 8 - A (File No. 000-22972), filed January 3, 1997, and incorporated herein by reference. (5) Previously filed as an exhibit to the Company's Registration Statement on Form 8-A/A, Amendment No. 1 (File No. 000-22972), filed June 30, 1997, and incorporated herein by reference. (6) Previously filed as an exhibit to the Company's Current Report on Form 8- K dated October 8, 1997, filed October 24, 1997, and incorporated herein by reference. (7) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 1998, and incorporated herein by reference. 20 (8) Previously filed as an exhibit to the Company's Quarterly Report on Form 10-Q for the quarter ended May 31, 2000 filed on July 17, 2000 and incorporated herein by reference. (9) Filed herewith. 21