8-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 8-K

CURRENT REPORT

Pursuant To Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 12, 2007

CELLSTAR CORPORATION

(Exact name of registrant as specified in its charter)

Commission File Number:  0-22972

Delaware	75-2479727
(State or other jurisdiction of incorporation)	(I.R.S. Employer Identification No.)

601 S. Royal Lane, Coppell, Texas 75019

(Address of principal executive offices)         (Zip Code)

(972) 462-2700

(Registrant’s telephone number, including area code)

Not Applicable

(Former name or former address, if changed since last report)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions (see General Instruction A.2. below):

o            Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

x           Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o            Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o            Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

Item 8.01 Other Events.

On February 13, 2007, CellStar Corporation (“CellStar”) held its Management Review of the Fourth Quarter and Fiscal 2006 Results Conference Call (the “Conference Call”) and webcast.   On the Conference Call, certain CellStar executives discussed portions of the preliminary proxy statement filed with the Securities and Exchange Commission (the “SEC”) on January 23, 2007, describing the proposed sale of substantially all of the assets of CellStar’s U.S. and Miami-based Latin American operations and the proposed sale of CellStar’s Mexico operations to buyers identified in the preliminary proxy statement.  Prior to and in connection with the Conference Call, CellStar issued, after the close of the market, a press release dated February 12, 2007.  The press release and the transcript are filed as Exhibits 99.1 and 99.2, respectively, to this Current Report on Form 8-K, and are incorporated by reference into this Item 8.01.

Additional Information and Where to Find It

In connection with stockholder approval of the proposed transactions, CellStar filed a preliminary proxy with the SEC on January 23, 2007. Stockholders of CellStar are advised to read the preliminary proxy statement and any other relevant documents filed with the SEC when they become available, because those documents will contain important information about the proposed transactions.  Stockholders may obtain a free copy of the proxy statement when it becomes available, and other documents filed with the SEC, at the SEC’s web site at http://www.sec.gov. Free copies of the proxy statement, when it becomes available, and CellStar’s other filings with the SEC, may also be obtained from CellStar by directing a request to CellStar Corporation, 601 S. Royal Lane, Coppell, Texas 75019, Attention: Secretary, or by visiting CellStar’s website at http://www.cellstar.com.

CellStar and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies from CellStar’s stockholders in favor of the proposed transactions. Information regarding CellStar’s directors and executive officers is available in Amendment No. 1 to CellStar’s Annual Report on Form 10-K for the fiscal year ended November 30, 2005, filed with the SEC on March 30, 2006. Additional information regarding the interests of such potential participants has been included in the preliminary proxy statement and will be included in other relevant documents filed with the SEC when they become available.

Item 9.01 Financial Statements and Exhibits.

(d) Exhibits

Exhibit 99.1	CellStar Corporation press release, dated February 12, 2007.
Exhibit 99.2	Written transcript from Conference Call held on February 13, 2007.

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Signature(s)

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	CELLSTAR CORPORATION
	By:	/s/ Elaine Flud Rodriguez
Date: February 13, 2007		Elaine Flud Rodriguez
		Senior Vice President and General Counsel

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Exhibit Index

Exhibit	Description
EX-99.1	CellStar Corporation press release, dated February 12, 2007.
EX-99.2	Written transcript from Conference Call held on February 13, 2007.

4

EX-99.1

Exhibit 99.1

	News Release
FOR IMMEDIATE RELEASE		2007 - 02

CELLSTAR REPORTS RESULTS FOR THE FOURTH QUARTER
AND FISCAL YEAR 2006

·Consolidated revenues of $943.1 million in fiscal 2006; $282.9 million in the fourth quarter of 2006

·Consolidated net income of $4.8 million in fiscal 2006; consolidated net loss of $1.0 million in the fourth quarter

·Generated cash from operations of $15.6 million in fiscal 2006

            COPPELL, TEXAS – February 12, 2007 – CellStar Corporation (OTC Pink Sheets: CLST) today reported results for the fourth quarter and fiscal 2006. 

      Fourth Quarter 2006 Compared to Fourth Quarter 2005                                                                                              

The Company reported revenues in the fourth quarter of 2006 of $282.9 million, compared to $221.1 million in 2005.  Revenues in the Latin American Region increased by $92.8 million and were partially offset by a decline of $31.0 million in the U.S. compared to the fourth quarter of 2005.  For the quarter ended November 30, 2006, the Company reported a consolidated net loss of $1.0 million, or $0.05 per diluted share, compared to a consolidated net loss of $3.2 million, or $0.16 per diluted share in 2005.  The net loss in 2005 included a loss from discontinued operations of $3.1 million related to the Company’s operations in the Asia-Pacific Region. 

      Revenues for the fourth quarter of 2006 in the U.S. Region were $95.5 million, compared to $126.5 million in 2005. The decrease in revenues in the U.S. was primarily related to the decline in the region’s insurance replacement and Associated Carrier Group (“ACG”) businesses, partially offset by increases in the indirect channel. The ACG was formed in April of 2006, when several independent rural carriers, many of which were customers of the Company, formed a consortium and signed a preferred supplier agreement with Brightpoint.  The U.S. Region represented 34% of the Company’s total revenues compared to 57% in the fourth quarter of 2005.  The Company’s U.S. Region generated operating income of $2.4 million in the fourth quarter, compared to $4.0 million for the same period of 2005. The drop in operating income was primarily associated with the revenue declines mentioned above.

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601 S. Royal Lane ∙ Coppell, Texas ∙75019 ∙ 972/ 462-2700 ∙ 800/ 723-9070

      The Company’s operations in the Latin American Region provided $187.4 million of revenues in the fourth quarter of 2006, compared to $94.6 million in 2005. The increases in the region were primarily in the Company’s operations in Mexico and Chile.  The operations in Mexico reported an increase in revenues of $55.1 million, or 114.0%, compared to the fourth quarter of 2005, primarily as a result of vendor promotions, including financing promotions received by the Company and passed on to customers.  The operations in Chile reported record revenues for the quarter with an increase of $32.7 million compared to the fourth quarter of 2005.  The increase in the fourth quarter of 2006 was primarily related to increased activity by a carrier customer.  The Company expects significantly lower revenues in the operations in Chile in the first quarter of 2007.  The Latin American Region represented 66% of the Company’s total revenues in the fourth quarter, compared to 43% in 2005.  Operating income in the region was $2.4 million in the fourth quarter of 2006, compared to $0.3 million in 2005.  Although revenues in the Mexico operations were up 114.0%, operating income was impacted by the timing of approximately $1.5 million in vendor credits.    In the operations in Mexico, certain products are sold to certain customers below cost.  Approximately 30 days later, the operations receive credit from the vendor that includes the operations’ product margin related to those sales.  Due to the timing of the receipt of the credits related to the sales in the fourth quarter of 2006, the Company will not be able to recognize the credits until the first quarter of 2007. 

            “We are pleased to report the Company’s first profitable year since 1999,” said Robert Kaiser, Chairman of the Board and Chief Executive Officer.  “As we entered 2006, our primary focus was to restore stability and profitability to the Company.  We got off to a good start, however the loss of the insurance replacement business and the decline in the ACG business from earlier this year prevented us from sustaining the profitable run rate we attained the first nine months of the year.  Although we were able to significantly reduce our operating expenses in the U.S. and Corporate , it was not sufficient to offset the losses in our customer base.”

            Consolidated gross profit increased to $14.9 million in the fourth quarter of 2006 compared to $13.9 million in 2005.  Gross profit as a percentage of revenues was 5.3% compared to 6.3% in the fourth quarter of 2005.  The increase in gross profit was in the Latin American Region, partially offset by a decline in the U.S. Region.

            Consolidated selling, general and administrative expenses (“SG&A”) increased $1.1 million in the fourth quarter to $13.6 million, compared to $12.5 million in 2005. The increase in expenses was primarily in the Mexico operations related to the joint venture. 

      Interest expense in the fourth quarter was $1.2 million compared to $0.9 million in the prior year period.  Interest expense in 2006 increased primarily as a result of the interest related to the Company’s term loan with CapitalSource Finance LLC.  The cost of factoring accounts receivable was $0.8 million compared to $0.5 million in 2005.

Fiscal 2006 Compared to Fiscal 2005

            The Company recorded revenues of $943.1 million in fiscal 2006 compared to $987.7 million in 2005.  Revenues in Latin America increased $9.5 million and revenues in the U.S.

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601 S. Royal Lane ∙ Coppell, Texas ∙75019 ∙ 972/ 462-2700 ∙ 800/ 723-9070

declined $54.1 million compared to 2005.  The Company was profitable in fiscal 2006 and reported net income of $4.8 million, or $0.23 per diluted share, compared to a net loss of $24.6 million, or $1.20 per diluted share, in 2005. The net income in 2006 included income from discontinued operations of $0.6 million and the net loss in 2005 included a loss from discontinued operations of $17.3 million. 

            Revenues in the U.S. Region for fiscal 2006 were $408.5 million compared to $462.6 million in 2005. The decline in revenues was due primarily to the loss of the insurance replacement business and a decline in the indirect channel, partially offset by an increase in the regional carrier group.  The U.S. Region represented 43% of the Company’s total revenues compared to 47% for fiscal 2005.  The Company’s U.S. Region generated operating income of $15.4 million in fiscal 2006, compared to $5.5 million in 2005.  The improvement in operating income was driven primarily by an overall improvement in gross profit and gross profit as a percent of revenues and an 18 % decline in SG&A expenses. A $1.4 million recovery of a favorable settlement related to a theft of consigned inventory in 2001 was included in the SG&A expenses for 2006. 

      Revenues in the Latin American Region were $534.6 million compared to $525.1 million in 2005.  Revenues in the Company’s Miami export operations declined $81.3 million and were offset by increased revenues in the operations in Mexico of $56.0 million and $34.8 million in the operations in Chile.  During 2005, the operations in Miami supported the transition of a major carrier customer in Colombia from CDMA to GSM technology.  The transition to GSM was substantially completed in 2005, therefore the revenues from this customer returned to more normal levels in 2006.  Revenues in Mexico increased 24% to $290.7 million in 2006 from $234.7 million in 2005 primarily due to the Company’s joint venture.  The Company’s operations in Chile reported record revenues in 2006 of $52.8 million.  During 2006, the operations in Chile had increased sales to a carrier customer as a result of the customer’s purchase by a larger carrier that initiated aggressive promotions in the country.  The Company expects revenues in future periods to increase relative to 2005 levels. The Latin American Region represented 57% of the Company’s total revenues compared to 53% in fiscal 2005.  Operating income in the Company’s Latin American Region in 2006 was $12.6 million compared to $8.7 million in 2005. 

            Consolidated gross profit in fiscal 2006 increased to $65.4 million from $50.3 million in 2005. Gross profit as a percentage of revenues was 6.9% in fiscal 2006, compared to 5.1% in 2005.  Gross profit and gross profit as a percentage of revenues increased in both the U.S. and Latin American Regions.

Consolidated SG&A expenses declined to $50.5 million from $51.2 million in fiscal 2005.  SG&A expenses declined in the U.S. and Corporate segments $6.9 million and were offset by increases in the Latin American Region of $6.2 million.  SG&A expenses declined in nearly every category in the U.S and Corporate segments driven primarily by reductions in payroll and benefits and facility expenses due to assets being fully depreciated as well as the move of the Company’s corporate headquarters.  Also, during 2006 the U.S. region recorded a $1.4 million recovery of a favorable settlement related to a theft of consigned inventory in 2001. The increases in the Latin American Region were related primarily to the joint venture in Mexico.

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601 S. Royal Lane ∙ Coppell, Texas ∙75019 ∙ 972/ 462-2700 ∙ 800/ 723-9070

      Interest expense in fiscal 2006 was $3.9 million compared to $3.8 million in the prior year.  The cost to factor accounts receivable was $2.6 million compared to $2.4 million in 2005. 

      Consolidated Balance Sheet

      Cash and cash equivalents at November 30, 2006, were $28.6 million, compared to $10.7 million at November 30, 2005.

      Accounts receivable increased from $98.4 million in 2005 to $114.3 million at November 30, 2006.  The increase was primarily in Mexico and Chile.  Accounts receivable days sales outstanding for the quarter ended November 30, 2006, based on monthly accounts receivable balances, were 30.4, compared to 36.7, for the quarter year ended November 30, 2005.

      Inventory decreased to $68.8 million at November 30, 2006, from $81.5 million at November 30, 2005.  Inventory declined primarily in the Company’s U.S. operations as a result of the decrease in revenues in the region’s insurance replacement business.  Inventory turns for the quarter ended November 30, 2006, based on monthly inventory balances, were 12.3 turns, compared to 10.8 for the quarter ended November 30, 2005. 

      Accounts payable increased to $158.4 million at November 30, 2006, compared to $146.3 million at November 30, 2005.  Accounts payable increased $40.7 million in the Company’s Latin American Region as a result of the increased business in the fourth quarter of 2006 in the Company’s operations in Mexico and Chile.  This increase was partially offset by a drop in the U.S. region as a result of the decline in the insurance replacement business.

Liquidity

            The Company’s continuing operations generated net cash from operating activities of $15.0 million for the year ended November 30, 2006, compared to $4.1 million for the year ended November 30, 2005. The Company’s discontinued operations generated net cash of $0.6 million from operating activities during 2006 compared to $42.8 million in 2005.  During 2005, the cash generated from discontinued operations was a result of a reduction in receivables and inventory as the revenue base was drastically decreased.  The cash was used primarily in the Asia-Pacific Region to pay down notes payable and to fund the operating losses in the region. 

            As of November 30, 2006, the Company had borrowed $33.5 million under its domestic revolving credit facility compared to $30.5 million at November 30, 2005.  The Company had additional borrowing availability under the credit facility of $6.0 million at November 30, 2006.

            On August 31, 2006, the Company entered into a term loan and security agreement with CapitalSource Finance LLC to provide financing to purchase and/or redeem its $12.4 million of 12% Senior Subordinated Notes due January 2007.  As of November 30, 2006, the Company had borrowed $10.4 million and had an additional borrowing availability of $1.9 million under the term loan and security agreement.  On December 15, 2006, the Company redeemed, at par, the remaining $1.9 million of Senior Notes.

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601 S. Royal Lane ∙ Coppell, Texas ∙75019 ∙ 972/ 462-2700 ∙ 800/ 723-9070

Proposed Transactions to Sell U.S., Miami-Based Latin American and Mexico Operations      

            On December 18, 2006, the Company entered into a definitive agreement with a wholly- owned subsidiary of Brightpoint, Inc. to sell substantially all of the assets of its operations in the U.S. and its Miami-based Latin American operations and for the buyer to assume certain liabilities related to those operations (the “U.S. Sale”).  Also on December 18, 2006, the Company entered into a definitive agreement with Soluciones Inalámbricas, S.A. de C.V. and Prestadora de Servicios en Administración y Recursos Humanos, S.A. de C.V., two affiliated Mexican companies, to sell its operations in Mexico (the “Mexico Sale”).  The agreements are subject to stockholder approval.  On January 23, 2007, the Company filed a preliminary proxy statement with the SEC which more fully describes the proposed transactions.  In addition, the proxy statement includes a proposal to dissolve the Company.

Stockholder Meeting

The Company plans to hold the stockholders’ meeting on March 28, 2007 in Dallas, Texas and to mail the Proxy Statement on or about February 21, 2007. 

Conference Call Information

            CellStar will conduct its fourth quarter 2006 conference call for investors on Tuesday, February 13, 2007, at 10:00 a.m. CDT.  The dial in number is 877-381-5128 for domestic calls.  Investors will have the opportunity to listen to the conference call via the link on CellStar's Investor Relations web site, and over the Internet through PR Newswire at http://www.videonewswire.com/event.asp?id=37802. This call will also be directly available from the Bloomberg Professional Service, www.bloomberg.com and over the First Call Network.  To listen to the live call, please go to the web site at least 15 minutes early to register, download and install any necessary audio software. 

            For those who cannot listen to the live broadcast, a replay will be available for 30 days after the conclusion of the call through the CellStar Investor Relations web site or through PR Newswire.  Replay will also be available one hour after the conclusion of the call until 6:00 p.m. on Tuesday, February 20th by dialing 800-642-1687 (Domestic) and entering the reservation number 8342955.

About CellStar Corporation

CellStar Corporation is a leading provider of logistics and distribution services to the wireless communications industry.  CellStar has operations in North America and Latin America, and distributes handsets, related accessories and other wireless products from leading manufacturers to an extensive network of wireless service providers, agents, MVNOs, insurance/warranty providers and big box retailers.  CellStar specializes in completely integrated forward and reverse logistics solutions, repair and refurbishment services, and in some of its markets, provides activation services that generate new subscribers for wireless service providers.  For more information, visit www.cellstar.com.

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601 S. Royal Lane ∙ Coppell, Texas ∙75019 ∙ 972/ 462-2700 ∙ 800/ 723-9070

This news release contains forward-looking statements, as defined in the Private Securities  Litigation Reform Act of 1995.  A variety of risk factors, including the increased risk to our business if we do not obtain stockholder approval of the U.S. Sale and the Mexico Sale, the loss of or reduction in orders from any of our key customers,  our ability to manage cost-reduction actions, maintain our channels of distribution, continue to secure an adequate supply of competitive products on a timely basis and on commercially reasonable terms, maintain or improve our operating margins, secure adequate financial resources, maintain an adequate system of internal control, comply with debt covenants, and continually turn our inventories and accounts receivable, as well as changes in  foreign laws, regulations and tariffs, continued consolidation in the wireless market, new technologies, system implementation or continuation difficulties, competition, handset shortages or overages, terrorist acts or other unforeseen events, economic weakness in the U.S. and other countries in which we do business and other risk factors, are discussed in the Company's Annual Report on Form 10-K.  Any one, or a combination of these risk factors could cause CellStar's actual results to vary materially from anticipated results or other expectations expressed in the Company's forward-looking statements.

Contact:           Sherrian Gunn

                        972-462-3530
                        ir@cellstar.com

3 Tables Attached

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601 S. Royal Lane ∙ Coppell, Texas ∙75019 ∙ 972/ 462-2700 ∙ 800/ 723-9070

CELLSTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(In thousands, except per share data)

	Three months ended November 30,					Year ended November 30,
	2006			2005		2006			2005
Revenues	$	282,879		221,135		$	943,140		987,673
Cost of sales	267,996			207,234		877,754			937,331
Gross profit	14,883			13,901		65,386			50,342
Selling, general and administrative expenses	13,609			12,482		50,485			51,246
Operating income (loss)	1,274			1,419		14,901			(904	)
Other income (expense):
Interest expense	(1,164		)	(938	)	(3,916		)	(3,794	)
Loss on sale of accounts receivable	(819		)	(519	)	(2,578		)	(2,413	)
Gain on sale of assets	—			—		240			—
Gain on retirement of 12% Senior subordinated notes	566			—		566			—
Minority interest	(374		)	—		(2,390		)	—
Other, net	66			775		214			684
Total other income (expense)	(1,725		)	(682	)	(7,864		)	(5,523	)
Income (loss) from continuing operations before income taxes	(451		)	737		7,037			(6,427	)
Provision for income taxes	521			845		2,786			845
Income (loss) from continuing operations	(972		)	(108	)	4,251			(7,272	)
Discontinued operations	—			(3,131	)	585			(17,311	)
Net income (loss)	$	(972	)	(3,239	)	$	4,836		(24,583	)
Net loss per share:
Basic:
Income (loss) from continuing operations	$	(0.05	)	(0.01	)	$	0.21		(0.35	)
Discontinued operations	—			(0.15	)	0.03			(0.85	)
Net income (loss) per share	$	(0.05	)	(0.16	)	$	0.24		(1.20	)
Diluted:
Income (loss) from continuing operations	$	(0.05	)	(0.01	)	$	0.20		(0.35	)
Discontinued operations	—			(0.15	)	0.03			(0.85	)
Net income (loss) per share	$	(0.05	)	(0.16	)	$	0.23		(1.20	)
Weighted average number of shares:
Basic	20,419			20,562		20,415			20,463
Diluted	20,419			20,562		21,110			20,463

CELLSTAR CORPORATION AND SUBSIDIARIES

CONSOLIDATED BALANCE SHEETS
(Unaudited)
(In thousands)

	November 30,			November 30,
	2006			2005
ASSETS
Current assets:
Cash and cash equivalents	$	28,632		10,744
Accounts receivable, net	114,335			98,356
Inventories	68,830			81,547
Deferred income taxes	917			792
Prepaid expenses	5,847			1,834
Assets held for sale — Building	—			1,516
Total current assets	218,561			194,789
Property and equipment, net	2,510			3,689
Deferred income taxes	6,655			6,655
Goodwill	—			3,392
Other assets	8,254			5,334
Total assets	$	235,980		213,859
LIABILITIES
Current liabilities:
Notes payable	$	33,469		30,462
Current portion — Term loan	1,000			—
Accounts payable	158,365			146,292
Deferred revenue	824			416
Accrued expenses	11,747			13,609
Income taxes payable	716			—
Minority interest	2,014			—
Total current liabilities	208,135			190,779
12% Senior subordinated notes	1,915			12,374
Term loan	9,160			—
Other long-term liabilities	—			615
Total liabilities	219,210			203,768
STOCKHOLDERS’ EQUITY
Common stock	212			208
Additional paid-in capital	124,346			124,204
Unearned compensation	—			(650	)
Cumulative translation adjustment	(8,603		)	(7,673	)
Retained deficit	(99,091		)	(105,998	)
Treasury stock	(94		)	—
Total stockholders’ equity	16,770			10,091
Total liabilities and stockholders’ equity	$	235,980		213,859

CELLSTAR CORPORATION AND SUBSIDIARIES

Revenues By Region
(Unaudited)
(In thousands)

	Three months ended
	November 30, 2006		Percent of Total		November 30, 2005		Percent of Total
North America	$	95,508	34	%	$	126,546	57	%
Latin America	187,371		66	%	94,589		43	%
Total	$	282,879	100	%	$	221,135	100	%
	Year ended
	November 30, 2006		Percent of Total		November 30, 2005		Percent of Total
North America	$	408,548	43	%	$	462,581	47	%
Latin America	534,592		57	%	525,092		53	%
Total	$	943,140	100	%	$	987,673	100	%

EX-99.2

Exhibit 99.2

CELLSTAR CORPORATION

FOURTH QUARTER AND FISCAL 2006

CONFERENCE CALL SCRIPT

TUESDAY, FEBRUARY 13, 2007

10:00 a.m. CT

CONFERENCE CALL OPERATOR

Good morning ladies and gentlemen, and welcome to CellStar Corporation’s Management Review of the Fourth Quarter and Fiscal 2006 Results Conference Call and webcast.  At this time, all participants are in a listen-only mode.  Later we will conduct a question-and-answer session.  At that time, if you have a question, you will need to press the star then the number “1” on your push-button phone and wait for your name to be announced.  CellStar management will also answer questions that are faxed to INVESTOR RELATIONS at 972-462-3566, or e-mailed to IR@cellstar.com.  As a reminder, this conference is being recorded today, Tuesday February 13, 2007.  I will now turn the conference over to Elaine Rodriguez, Senior Vice President and General Counsel of CellStar.

ELAINE RODRIGUEZ

Thank you, and good morning, everyone.

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Today CellStar’s executives will discuss certain subjects that will contain forward-looking information.  A variety of risk factors, including the increased risk to our business if we do not obtain stockholder approval of the U.S. Sale and the Mexico Sale, the loss of or reduction in orders from any of our key customers,  our ability to manage cost-reduction actions, maintain our channels of distribution, continue to secure an adequate supply of competitive products on a timely basis and on commercially reasonable terms, maintain or improve our operating margins, secure adequate financial resources, maintain an adequate system of internal control, comply with debt covenants, and continually turn our inventories and accounts receivable, as well as changes in  foreign laws, regulations and tariffs, continued consolidation in the wireless market, new technologies, system implementation or continuation difficulties, competition, handset shortages or overages, terrorist acts or other unforeseen events, economic weakness in the U.S. and other countries in which we do business and other risk factors, are discussed in the Company’s Annual Report on Form 10-K.  Any one, or a combination of these risk factors could cause CellStar’s actual results to vary materially from anticipated results or other expectations expressed in the Company’s forward-looking statements.

In connection with stockholder approval of the proposed U.S. Sale and the Mexico Sale transactions, CellStar filed a preliminary proxy statement with the SEC on January 23, 2007.  Stockholders of the Company are advised to read the

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proxy statement and any other relevant documents filed with the SEC when they become available, because those documents will contain important information about the proposed transactions. Stockholders may obtain a free copy of the proxy statement when it becomes available, and other documents filed with the SEC, at the SEC’s web site at www.sec.gov. Free copies of the proxy statement, when it becomes available, and the Company’s  other filings with the SEC, may also be obtained from the Company by directing a request to CellStar Corporation, 601 S. Royal Lane, Coppell, Texas 75019, Attention: Secretary, or by visiting the Company’s website at www.cellstar.com.

The Company and its directors, executive officers and other members of its management and employees may be deemed to be participants in the solicitation of proxies from the Company’s stockholders in favor of the proposed transactions. Information regarding the Company’s directors and executive officers is available in Amendment No. 1 to the Company’s Annual Report on Form 10-K for the fiscal year ended November 30, 2005, filed with the SEC on March 30, 2006.  Additional information regarding the interests of such potential participants has been included in the preliminary proxy statement and will be included in other relevant documents filed with the SEC when they become available.

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Now let me introduce Mr. Robert Kaiser, CellStar’s Chairman and Chief Executive Officer.

ROBERT KAISER

Thanks, Elaine.  Good morning, everyone, and thanks for joining us today.

In addition to Elaine, the following CellStar executives are also with me this morning:

—Mike Farrell, Executive Vice President of Finance and Chief Administrative Officer

—Raymond Durham, Senior Vice President and Chief Financial Officer

—Juan Martinez, Vice President and Corporate Controller

—Sherri Gunn, Vice President of Investor Relations

(pause…)

For the first time in seven years, CellStar has recorded a profitable year.  Even though we reported a loss of $1.0 million during the fourth quarter, we finished the year with net income of $4.8 million, or $0.23 per diluted share as a result of our profitable performance for the first nine months of the year.

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As we entered 2006, our primary objective for the year was to restore stability and profitability to the Company.  We had a pretty stable revenue base, however we needed to address our expenses, which we did with our consolidation plan.  As we ended the first quarter, we had a couple of new issues to address, the lock/line-Asurion merger and the formation of the Associated Carrier Group (“ACG”) group, both of which have significantly impacted our revenues and profits.  We were able to work around these events in the first three quarters and report profitable results; however, those successes could not be sustained throughout the fourth quarter.  I would like to discuss some of the significant events in more detail.

During 2005, our insurance replacement business with lock/line represented $115.0 million or 25% of our revenues in the U.S. and 12% of our consolidated revenues.  As we announced earlier in the year, lock/line merged with Asurion with Asurion assuming control.  Due to this merger, our total lock/line revenues in 2006 declined to $50.0 million and only $6.0 million of that was generated during the last six months of the year.  Also, during the fourth quarter of 2006, in an effort to close out that portion of the business, we recorded a write off of approximately $300,000.

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Earlier in the year, several independent rural carriers, many of which were our customers, formed an alliance, the ACG group, to pool their buying power for better pricing from the manufacturers.  Our sales team did a great job selling around the ACG group most of the year, but in the fourth quarter, we only sold $1.0 million to the alliance compared to $13.0 million in the fourth quarter of 2005 and we do not expect any significant purchases from them in the first quarter of this year.  This group of customers contributed $39.0 million and $30.0 million of revenues in fiscal 2006 and 2005, respectively.

In Mexico, although volume was up significantly this quarter compared to last quarter, operating income was down. As a result of delayed product during the quarter, many of our sales into our retail outlets were delayed until the last few weeks of November.   The good news is we shipped over $100.0 million of product for the quarter.  The disappointing news is we did not receive approximately $1.5 million of credits associated with those shipments in time to record them during the quarter, therefore impacting our fourth quarter income.  In the operations in Mexico, certain products are sold to certain customers below cost.  Approximately 30 days later, the operations receive credit from the vendor that includes the operations’ product margin related to those sales. We have received the credits and they were recorded in the month of December and will benefit us in the first quarter of 2007.

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As you may recall, when we completed the bond conversion in 2002, per Generally Accepted Accounting Principles, we were required to offset the interest expense for the years 2002 through 2006 against the gain on the conversion, therefore we have not been required to record interest expense related to the Senior Notes for the last several years.  In August we obtained a term loan from CapitalSource to refinance the Senior Notes.  In September, we redeemed $10.5 million of the Senior Notes at a 1% discount and we recognized a gain on the transaction of $0.6 million in the fourth quarter.   Beginning with  the fourth quarter of 2006 we are required to recognize interest expense associated with the term loan, which will be approximately $400,000 per quarter.

Later on the call, Mike and Raymond will lead you through a more detailed review of the fourth quarter and fiscal year end results.  Right now, I would like to spend a few minutes this morning discussing the announcement we made in December to sell substantially all of the Company in two separate transactions.  I would like to recap some of the key components of the transactions and share with you how we got to this point and why we made some of the decisions that we have.  First of all, before we can close the transactions we must get stockholder approval.  We plan to hold the stockholders’ meeting on March 28, 2007, in Dallas, Texas, and at this time, we expect the transactions to be approved.

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The proposed transaction with Brightpoint will result in the sale of substantially all of the assets of our U.S. and Miami-based Latin American operations for $88.0 million in cash, subject to adjustment based on net working capital.  Brightpoint will assume substantially all of the assets and trade payables associated with the operations.  They will also assume substantially all of the employees associated with those operations.  The revolving credit facility and term loan will not be assumed by them.    The transaction requires us to maintain an escrow account plus a minimum cash balance for seven months after the closing date.  Additionally, in the event CellStar terminates the agreement, we will be required to pay Brightpoint a breakup fee of $3.1 million plus expenses.

The proposed transaction with the buyers in Mexico will result in the sale of all of our Mexico operations for approximately $20.0 to $22.0 million in cash, based on the 2007 operating performance of the operations up to the closing date.  Prior to signing the agreement on December 18, the buyers were required to deliver to CellStar a $13.0 million letter of credit.  Under the terms of the transaction, the buyers will acquire all of the assets and liabilities related to the operations in Mexico as well as assume all of our employees.

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We expect the two transactions to result in a book gain of approximately $50.0 million.  Since we have approximately $135.0 million of net operating loss carryforwards, there will only be a limited amount of taxes due, as a significant portion of this gain will be offset by the utilization of these NOL’s.

In the preliminary proxy statement filed on January 23, we established the net proceeds to stockholders to be between $2.91 and $3.25 per share. In estimating this range we considered the gross sales proceeds and reduced them by the liabilities we retained and would be required to pay, including our revolving credit facility and term loan.  We also factored in the amounts we would receive from our remaining assets such as Chile and various notes receivables.  We also considered the expenses associated with the transaction.  As soon as possible after the closing of the transactions, we expect to pay an ordinary dividend of $1.00 per share to stockholders.  As soon as possible thereafter, we expect to pay liquidating distributions of substantially all of the remaining available cash in one or more payments as soon as possible thereafter. A more detailed analysis is included in the proxy.

The issues related to our operations in the PRC during 2005 left the Company with a weak balance sheet, poor financing alternatives, questions as to whether or not we could ever be profitable and considerable doubt concerning our

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financial stability.  During the first three quarters of 2006 we were profitable; however with the loss of the lock/line account and the formation of the ACG group, we were not able to sustain that level of profitability.

Also, we have not been able to achieve financial stability as we continually operate at or near our availability of our revolving credit facility as well as the limits on our vendor credit lines, leaving us highly dependent on the factoring of our receivables in the Latin American Region.  Carrier consolidations continued throughout 2006 with Telefonica and America Movil acquiring various smaller carriers.  This trend increases their buying power and places continued downward pressures on margins.  During the second half of 2006, it was not unusual for us to make a $20.0 million sale with 3% margins and 75 day terms.  It is difficult for a financially limited company to sustain a profitable business model in this environment.

The concentration of our customer base is another area of concern.  During 2006, one customer accounted for approximately 20% of the U.S. revenues, one customer accounted for approximately 59% of our Miami revenues and one customer accounted for approximately 76% of our revenues in Mexico. As a

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result, we remain vulnerable to a significant and dramatic loss of revenues in the event we should lose any additional major customers.

Our attempts to refinance our $12.4 million of Senior Notes had limited success.  We had originally expected to complete the refinancing of the debt in the first quarter of 2006 on an unsecured basis with a lower interest rate.  During that time, we approached a number of potential lenders regarding the refinancing of the  debt, and most of them were unwilling to pursue the refinancing on those terms due to our financial and operational situation. An attempt to accomplish the refinancing through our current revolving credit facility also proved unsuccessful. Ultimately, the Company was successful in closing the refinancing of the Senior Notes on August 31 of 2006, but at a higher interest rate and on a fully secured basis.

  We believe there are many synergies between CellStar and the acquiring companies that we, as a standalone Company, cannot achieve.  Prior to making the announcement in December of last year, we looked at other opportunities that may have provided the same synergies, but none of them provided a better value to our stockholders, nor were we confident that any of them could be closed.  Also, keep in mind, we announced the transactions nearly two months ago, and we have not received a superior offer to date.  The financial and

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operating issues that we have discussed this morning have limited the Company’s ability to pursue new opportunities and were among the factors that led our board of directors to conclude that the proposed sales of our U.S., Miami and Mexico operations are advisable and in the best interests of our stockholders.

At this time, I will turn the call over to Mike and Raymond for discussions of our financial results.

Mike Farrell 

Thanks Robert and Good Morning everyone.

We began 2006 with a clear vision of what we needed to accomplish, return stability to the Company and deliver a profitable bottom line, and I’m pleased that we delivered a profitable year in 2006 with consolidated net income of $4.8 million for the year compared to a consolidated net loss of $25.0 million in 2005.  The net loss in 2005 included a $17.0 million loss from discontinued operations, related primarily to our operations in the Asia-Pacific Region.

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We reported revenues for fiscal 2006 of $943.0 million compared to $988.0 million in 2005.  U.S. revenues declined from $463.0 million in 2005 to $409.0 million in 2006.  As Robert mentioned earlier, the decline was related primarily to  the insurance replacement and ACG businesses.  Excluding the insurance replacement business, in 2006 the region showed overall growth of approximately 6% in the remaining segments of the business, with a 9% year-over-year uptick in the regional carrier channel over 2005.  The U.S. region represented 43% of the Company’s total revenues for fiscal 2006 compared to 47% in 2005.

Revenues in Latin America increased to $535.0 million from $525.0 million in 2006, representing revenue upside year-over-year of approximately $10.0 million. While revenues were down $81.0 million in our Miami operations, Mexico and Chile more than offset the drop with revenues of $56.0 million and $35.0 million, respectively.  The drop in revenues in Miami was due primarily to the completion of Telefonica’s migration to GSM during most of 2005.  Revenues in Mexico increased as a result of our joint venture. Revenues in Chile increased as a result of the purchase of one of our customers by a major carrier that has initiated aggressive promotions in the country.  The carrier purchased a significant amount of inventory in anticipation of their launch, and we do not expect the customer to purchase nearly as much of the product in the first quarter of this year as this inventory moves through the channel and inventory

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levels normalize.   The region represented 57% of the Company’s total revenues for fiscal 2006 compared to 53% in 2005.

All of the operations reported improved operating income over fiscal 2005.  The U.S. reported $15.0 million compared to $5.0 million in 2005 and Latin America reported $13.0 million compared to $9.0 million in 2005.  The U.S. showed overall improvement in both gross profit and gross profit percentage and a reduction in SG&A expenses.  The improvement in Latin America was primarily in our operations in Mexico due to our joint venture, which generates higher margins than our base distribution business.

SG&A expenses declined to $50.5 million from $51.2 million in 2005.  Much of the reduction was in the U.S. and Corporate segments which were down by $7.0 million during 2006 compared to the prior year.  While expenses were reduced in nearly every category, the major reductions were in payroll and benefits and facility expenses, primarily as a result of the consolidation of our corporate headquarters into our U.S. facility in January of 2006.  SG&A in 2006 also included a $1.4 million favorable recovery of a liability related to the theft of consigned inventory in 2001.  The reductions in the U.S. and Corporate segments were partially offset by increased expenses in Mexico as a result of the joint venture.

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Overall the regions reported solid results for 2006.  I would like to take this opportunity to thank all of our employees for a job well done in 2006.  Thank you for staying the course, remaining focused and delivering a profitable year.

Now I will turn over the call to Raymond for a review of the Company’s consolidated financial results for the fourth quarter.

RAYMOND DURHAM

Thanks Mike and good morning everyone.

Revenues in the fourth quarter of 2006 were $283.0 million, compared to $221.0 million in 2005.  Revenues in the Latin American Region increased by $93.0 million and were partially offset by a decline of $31.0 million in the U.S.  For the quarter ended November 30, 2006, the Company reported a consolidated net loss of $1.0 million, or $0.05 per diluted share, compared to a consolidated net loss of $3.2 million, or $0.16 per diluted share in 2005.  The net loss in 2005 included a loss from discontinued operations of $3.1 million related to the Company’s operations in the Asia-Pacific Region.

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Revenues for the fourth quarter of 2006 in the U.S. Region were $96.0 million, compared to $127.0 million in 2005.  The decrease in revenues in the U.S. was primarily related to the decline in the region’s insurance replacement and ACG businesses partially offset by an increase in the indirect channel. The U.S. Region generated operating income of $2.4 million in the fourth quarter, compared to $4.0 million for the same period of 2005. The drop in operating income was primarily associated with the revenue declines previously mentioned.

The Latin American Region generated revenues in the fourth quarter of $187.0 million, compared to $95.0 million in 2005. The increases in the region were primarily in Mexico and Chile.  The operations in Mexico reported an increase of $55.0 million, or 114.0%, compared to the fourth quarter of 2005, primarily as a result of vendor promotions, including financing promotions received by the Company and passed on to customers.  The operations in Chile reported record revenues for the quarter with an increase of $33.0 million compared to the fourth quarter of 2005.  As Mike mentioned, we do not expect this increase  to repeat in the first quarter of this year.  Operating income in the region was $2.4 million in the fourth quarter of 2006, compared to $300,000 in 2005.  Although revenues in the Mexico operations were up 114.0%, operating income was impacted by the timing of approximately $1.5 million of vendor credits that we will not be able to recognize until the first quarter of 2007.

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Consolidated gross profit increased to $15.0 million in the fourth quarter of 2006 compared to $14.0 million in 2005.  Gross profit as a percentage of revenues was 5.3% compared to 6.3% in the fourth quarter of 2005.  The increase in gross profit was in the Latin American Region, partially offset by a decline in the U.S. Region.

Consolidated SG&A increased $1.1 million in the fourth quarter to $13.6 million, compared to $12.5 million in 2005. The increase in expenses was primarily in the Mexico operations related to the joint venture.

Moving on to the Balance Sheet

Cash and cash equivalents at November 30, 2006, were $29.0 million, compared to $11.0 million at November 30, 2005.  The increase in cash in 2006 was due primarily to the timing of collections at the end of quarter.

Accounts receivable increased from $98.0 million in 2005 to $114.0 million at November 30, 2006.  The increase was primarily in Mexico and Chile.  Accounts

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receivable days sales outstanding for the quarter ended November 30, 2006, based on monthly accounts receivable balances, were 30.0 days, compared to 37.0 in 2005.

Inventory decreased to $69.0 million at November 30, 2006, from $82.0 million in  2005.  Inventory declined primarily in the U.S. operations as a result of the decreases in revenues in the insurance replacement business.  Inventory turns for the quarter ended November 30, 2006, based on monthly inventory balances, were 12.0 turns, compared to 11.0 in 2005.

Accounts payable increased to $158.0 million at November 30, 2006, compared to $146.0 million in 2005.  Accounts payable increased $41.0 million as a result of the increased business in the fourth quarter of 2006 in the Company’s operations in Mexico and Chile.  This increase was partially offset by a drop in the U.S. Region as a result of the decline in the insurance replacement business.

Continuing operations generated net cash from operating activities of $15.0 million for the year ended November 30, 2006, compared to $4.0 million for the year ended November 30, 2005.  The Company’s discontinued operations generated net cash of $600,000 from operating activities during 2006 compared

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to $43.0 million in 2005.  During 2005, the cash generated from discontinued operations was a result of a reduction in working capital as the revenue base was drastically decreased.  The cash was used primarily in the Asia-Pacific Region to pay down notes payable and to fund the operating losses in the region.

As of November 30, 2006, the Company had borrowed $34.0 million under its domestic revolving credit facility compared to $31.0 in 2005.  The Company had additional borrowing availability under the credit facility of $6.0 million at November 30, 2006.

On August 31, 2006, the Company entered into a term loan with CapitalSource Finance to provide financing to purchase or redeem the $12.4 million of 12% Senior Subordinated Notes due January 2007.  At November 30, 2006, the Company had borrowed $10.4 million and had additional borrowing availability of $1.9 million under the term loan.  On December 15, 2006, the Company redeemed, at par, the remaining $1.9 million of Senior Notes.

That concludes my remarks related to the financial results and now I will turn the call over to Robert for his closing remarks.

ROBERT KAISER

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Thanks Raymond.

In closing, I would like to take a few minutes to discuss next steps regarding the transactions.  The Preliminary Proxy Statement was filed with the SEC on January 23, 2007.  We plan to mail the final Proxy Statement on or about February 21, 2007, and hold the stockholders meeting on March 28, 2007, in Dallas, Texas.  I would like to ask you to read the Proxy Statement and carefully consider the information.  The proxy goes into a more detailed discussion of the reasons for the two transactions.  It provides more details regarding the two agreements and what will most likely happen if one or both of the transactions are not approved.  The proxy also provides a question and answer section regarding the two proposed transactions.  Again, I urge you to carefully read the information as the board of directors unanimously recommends that you vote for the proposals to approve the two transactions to sell substantially all of the U.S. and Miami operations to Brightpoint, and the Mexico operations to a group in Mexico.  The board of directors also recommends that you vote for the proposals to approve the plan of dissolution, the proposal to change the Company’s name and the proposal to adjourn or postpone the special meeting.  Thank you and we look forward to hearing from you at the stockholders’ meeting in late March.

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That concludes our comments this morning, now we will give you the opportunity to ask your questions.

CONFERENCE CALL OPERATOR

Once again, if you have a question during the Q&A, you will need to press the star then the number “1” on your push-button phone and wait for your name to be announced.  As a reminder, if you are on a speakerphone, please pick up your handset before presenting your question.  If your question has already been asked and answered, you may withdraw your question by pressing the pound key.   Web-conference listeners may fax questions to INVESTOR RELATIONS at 972-462-3566, or e-mail them to IR@cellstar.com.

(When no more questions in the queue, or at the one-hour mark, cue closing remarks):

ROBERT KAISER (closing remarks)

Thank you, operator.  With that, we’ll close our remarks for today.  Thanks to all of you for joining us today.

CONFERENCE CALL OPERATOR

Ladies and gentlemen, this concludes today’s conference call.  A rebroadcast of this management review will be available one hour after the conclusion of today’s call until 6:00 p.m. on Tuesday, February 20, 2007.  The domestic dial-in number

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is 800-642-1687.  The reservation number is 8342955. This rebroadcast is also available for the next 30 days through the CellStar Investor Relations site at www.cellstar.com, or through PR Newswire at www.videonewswire.com

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