CellStar Reports Fourth Quarter Results; CellStar Achieves Record Revenues for Fourth Quarter and Full Year; Record Net Income of $1.12 Diluted EPS for Fiscal 1999 - Company Financial Information

Cambridge Telcom Report, Jan 31, 2000

CellStar Corporation (Nasdaq: CLST) Tuesday reported record revenues of $687.9 million for the three months ended November 30, 1999, an increase of 7.2 percent over the same quarter last year. Revenues for the year ended November 30, 1999 were a record $2.33 billion, an increase of 16.9 percent from fiscal 1998.

Net income, excluding special items, for the fourth quarter was $12.0 million, or $0.20 per diluted share. This compares with net income, excluding special items, of $9.8 million, or $0.16 per diluted share, for the fourth quarter last year. Including special items, the Company reported net income of $24.5 million, or $0.39 per diluted share, for the quarter ended November 30, 1999, compared to a loss of $18.9 million, or $0.32 per diluted share, from the same quarter last year.

The fourth quarter special items included the previously announced sale of CellStar's remaining debt and equity interest in Topp Telecom, Inc. for $26.5 million in cash, resulting in an after tax gain of $16.7 million, or $0.25 per diluted share. That gain was partially offset by an after-tax charge of approximately $3.5 million, or $0.05 per diluted share, to reduce the carrying value of CellStar Poland Sp. z o.o. to its estimated net realizable value. As previously announced, the Company expects to sell its Polish operations this year.

Net income, excluding special items, for the year ended November 30, 1999 was $50.3 million, or $0.84 per diluted share. This compares with net income, excluding special items, of $49.0 million, or $0.81 per diluted share, for the prior fiscal year. Including special items, the Company reported record net income of $69.1 million, or $1.12 per diluted share, for the year ended November 30, 1999. For the prior fiscal year, net income was $14.4 million, or $0.24 per diluted share.

"We are pleased that we were able to deliver the most profitable year in CellStar's history," said Alan H. Goldfield, chairman of the board and chief executive officer of CellStar. "In addition to record revenues for the fourth quarter and the year, earnings per fully diluted share were $1.12, the highest in the Company's history."

"The outlook for 2000 is very positive," said Mr. Goldfield. "During the past year we have signed a number of new agreements to support major customers throughout the world. We have also taken steps to strengthen our management team, not only at the corporate level, but also at each of our regions. We have completed our regional restructuring and as you can see from this year's results, are focusing on asset management. CellStar begins this new millennium in the best position in its history to take advantage of the opportunities that we know exist. I'm excited about our team, our opportunities and our future."

Consolidated Operations Revenues in the fourth quarter from sales of handsets and accessories were $633.5 million and $36.7 million, respectively. Activation, residual and prepaid revenues were $13.9 million and other value-added service revenues were $3.8 million.

Gross margin was 7.7 percent of revenue in the fourth quarter of 1999, compared to 7.5 percent in the fourth quarter of 1998. Gross margin was 8.3 percent for 1999, compared to 8.8 percent for 1998.

Selling, general and administrative expenses (SG&A) for the three months ended November 30, 1999 were $33.0 million, or 4.8 percent of revenues, compared to $33.7 million, or 5.2 percent of revenues, for same quarter in 1998 after excluding special items. For the year ended November 30, 1999, SG&A expenses were $111.6 million, or 4.8 percent of revenues, compared to $107.6 million, or 5.4 percent of revenues, for the prior year after excluding special items.

Interest expense for the fourth quarter decreased from $5.8 million in 1998 to $4.6 million in 1999, reflecting cash received from the sale of Topp Telecom and the Company's focus on funding its growth from internally generated funds. Interest expense for the year was $19.0 million compared to $14.4 million for the prior year primarily due to an increase in debt related to the Company's operations in Brazil, as well as an increase in borrowings under the Company's multicurrency borrowing facility. However, CellStar was able to reduce its borrowings from banks from $85.0 million at November 30, 1998 to $50.6 million at November 30, 1999.

The Company's balance sheet and key ratios showed strong improvement over the prior year. The Company's accounts receivable days sales outstanding for the quarter decreased to 39 days from 43 days in the fourth quarter of 1998. Overall accounts receivable decreased from $349.8 million at November 30, 1998 to $306.2 million at November 30, 1999. Inventory turns improved from 8.6 in the prior year's fourth quarter to 14.7 in the current quarter. Inventory decreased from $274.4 million at November 30, 1998 to $189.9 million at November 30, 1999. These improvements reflect strong demand worldwide for the Company's products and CellStar's continued focus on asset management.