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Fiscal 2000 Third Quarter
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER 31, 1999
COMMISSION FILE NO. 0-18706
BLACK BOX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3086563
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1000 Park Drive
Lawrence, Pennsylvania 15055
(Address of principal executive offices)
724-746-5500
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
--- ---
The number of shares outstanding of the Registrant's common stock, $.001 par
value, as of January 31, 2000 was 19,580,300 shares.
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PART I FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
BLACK BOX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
December 31, March 31,
ASSETS 1999 1999
------------ -----------
Current assets:
Cash and cash equivalents $ 5,194 $ 5,946
Accounts receivable, net of allowance for doubtful
accounts of $5,372 and $4,023, respectively 92,851 62,841
Inventories, net 41,854 32,258
Other current assets 27,822 16,172
--------- ---------
Total current assets 167,721 117,217
Property, plant and equipment, net of accumulated depreciation
of $24,026 and $20,741, respectively 34,491 24,190
Intangibles, net of accumulated amortization of $33,499 and
$29,219, respectively 162,918 104,208
Other assets 1,447 660
--------- ---------
Total assets $ 366,577 $ 246,275
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt $ 2,756 $ 1,511
Accounts payable 33,044 18,210
Other accrued expenses 25,751 19,549
Accrued income taxes 9,675 4,685
--------- ---------
Total current liabilities 71,226 43,955
Long-term debt 72,755 204
Deferred Taxes 9,945 9,051
Other liabilities 375 413
Stockholders' equity:
Preferred Stock authorized 5,000,000; par value $1.00;
none issued and outstanding
Common stock authorized 40,000,000; par value $.001;
issued 19,506,816 and 18,147,358, respectively 19 18
Additional paid-in capital 112,042 59,272
Retained earnings 171,726 137,204
Treasury Stock, at cost, 1,500,000 shares (67,254) --
Cumulative foreign currency translation adjustments (4,257) (3,842)
--------- ---------
Total stockholders' equity 212,276 192,652
--------- ---------
Total liabilities and stockholders' equity $ 366,577 $ 246,275
========= =========
See Notes to Consolidated Financial Statements
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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
Three month period ended Nine month period ended
December 31, December 31,
1999 1998 1999 1998
--------- ------- -------- --------
Revenues $ 127,128 $84,789 $342,537 $237,015
Cost of sales 71,731 42,716 190,390 120,161
--------- ------- -------- --------
Gross profit 55,397 42,073 152,147 116,854
Selling, general and administrative expenses 33,093 24,579 89,651 69,069
Intangibles amortization 1,625 1,155 4,280 3,091
--------- ------- -------- --------
Operating income 20,679 16,339 58,216 44,694
Interest expense, net 1,012 237 1,609 519
Other (income)/expenses, net (195) 92 22 27
--------- ------- -------- --------
Income before income taxes 19,862 16,010 56,585 44,148
Provision for income taxes 7,557 6,405 22,063 17,495
--------- ------- -------- --------
Net income $ 12,305 $ 9,605 $ 34,522 $ 26,653
========= ======= ======== ========
Basic earnings per common share $ 0.68 $ 0.55 $ 1.95 $ 1.54
========= ======= ======== ========
Diluted earnings per common share $ 0.65 $ 0.53 $ 1.85 $ 1.47
========= ======= ======== ========
Weighted average common shares 18,127 17,318 17,727 17,266
========= ======= ======== ========
Weighted average common and
common equivalent shares 19,076 18,235 18,627 18,122
========= ======= ======== ========
See Notes to Consolidated Financial Statements
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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(Dollars in thousands)
Cumulative
Common Stock Additional Foreign
-------------------- Treasury Paid-in Retained Currency
Shares Amount Stock Capital Earnings Translation Total
------------- ------ ----------- ---------- ---------- ------------ ----------
Balance at March 31, 1998 17,233,021 $17 -- $ 34,117 $ 99,733 $(3,619) $ 130,248
Net income -- -- -- -- 38,145 -- 38,145
Issuance of common stock 567,592 1 -- 18,317 -- -- 18,318
Exercise of options 346,745 -- -- 3,732 -- -- 3,732
Tax benefit from exercised options -- -- -- 3,106 -- -- 3,106
Foreign currency translation
adjustment -- -- -- -- -- (223) (223)
Dividends declared to former
shareholders prior to mergers -- -- -- -- (674) -- (674)
---------- --- -------- -------- --------- ------- ---------
Balance at March 31, 1999 18,147,358 18 -- 59,272 137,204 (3,842) 192,652
Net income -- -- -- -- 34,522 -- 34,522
Purchase of treasury stock -- -- (67,254) -- -- -- (67,254)
Issuance of common stock 803,683 1 -- 41,987 -- -- 41,988
Exercise of options 555,775 -- -- 7,009 -- -- 7,009
Tax benefit from exercised options -- -- -- 3,774 -- -- 3,774
Foreign currency translation
adjustment -- -- -- -- -- (415) (415)
---------- --- -------- -------- --------- ------- ---------
Balance at December 31, 1999 19,506,816 $19 $(67,254) $112,042 $ 171,726 $(4,257) $ 212,276
========== === ======== ======== ========= ======= =========
See Notes to Consolidated Financial Statements
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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
Nine month period ended
December 31,
1999 1998
-------- --------
Cash flows from operating activities:
Net income $ 34,522 $ 26,653
Adjustments to reconcile net income to cash provided
by operating activities:
Intangibles amortization 4,280 3,091
Depreciation 3,478 2,333
Other (103) 122
Changes in working capital items:
Account receivable, net (10,097) 4,646
Inventories, net (5,585) (2,004)
Other current assets (5,534) 112
Accounts payable and accrued liabilities 2,826 (8,169)
-------- --------
Cash provided by operating activities 23,787 26,784
-------- --------
Cash flows from investing activities:
Capital expenditures (8,065) (6,872)
Mergers, net of $3,128 and $1,132 cash acquired, respectively (30,067) (24,602)
-------- --------
Cash (used) in investing activities (38,132) (31,474)
-------- --------
Cash flows from financing activities:
Repayment of borrowings (10,374) (26,922)
Proceeds from borrowings 80,891 18,140
Proceeds from exercise of options 10,784 3,685
Purchase of Treasury Stock (67,254) --
Dividends paid to former shareholders prior to mergers -- (674)
-------- --------
Cash provided by/(used) in financing activities 14,047 (5,771)
-------- --------
Foreign currency translation adjustment (454) 1,661
-------- --------
(Decrease) in cash and cash equivalents (752) (8,800)
Cash and cash equivalents at beginning of period 5,946 11,166
-------- --------
Cash and cash equivalents at end of period $ 5,194 $ 2,366
======== ========
Interest paid $ 1,498 $ 988
-------- --------
Income taxes paid $ 10,850 $ 9,801
-------- --------
See Notes to Consolidated Financial Statements
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
NOTE 1 - BASIS OF PRESENTATION
The Financial Statements presented herein and these notes are
unaudited. Certain information and footnote disclosures normally included in the
financial statements prepared in accordance with generally accepted accounting
principles have been condensed or omitted pursuant to the rules and regulations
of the Securities and Exchange Commission ("SEC"). Although Black Box
Corporation (the "Company") believes that all adjustments necessary for a fair
presentation have been made, interim periods are not necessarily indicative of
the results of operations for a full year. As such, these financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's most recent Form 10-K which was filed with the SEC for
the fiscal year ended March 31, 1999. Certain prior year amounts have been
reclassified to conform to the current year financial statement presentation.
NOTE 2 - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market. The net inventory balances are as follows:
December 31, March 31,
1999 1999
-------- --------
Raw materials $ 2,597 $ 2,231
Work-in-process 118 31
Finished goods 42,096 33,552
Inventory reserve (2,957) (3,556)
-------- --------
Inventory, net $ 41,854 $ 32,258
======== ========
NOTE 3 - FINANCIAL DERIVATIVES
The Company has entered and will continue in the future, on a selective
basis, to enter into forward exchange contracts to reduce the foreign currency
exposure related to certain intercompany transactions. On a monthly basis, the
open contracts are revalued to the current exchange rates and the resulting
gains and losses are recorded in other income. These gains and losses offset the
revaluation of the related foreign currency denominated receivables.
At December 31, 1999, the open foreign exchange contracts were in Yen,
Euro, Sterling Pound and Canadian Dollars. These open contracts were valued at
approximately $4,406, with contract rates of 102.02 Yen per U.S. dollar, 1.0235
to 1.0245 Euro per U.S. dollar, 1.6237 to 1.6273 Sterling Pound per U.S. dollar
and 1.4791 to 1.4804 Canadian dollar per U.S. dollar, and will expire over the
next two months. The effect of these contracts on net income for the three and
nine month periods ended December 31, 1999 was not material.
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
NOTE 4 - COMPREHENSIVE INCOME
In the first quarter of Fiscal 1999, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income," which established standards for reporting and displaying comprehensive
income and its components in financial statements. Comprehensive income is
defined as net income and all nonowner changes in shareholders' equity.
Accumulated other comprehensive income consists entirely of foreign currency
translation adjustments. Total comprehensive income for the three and nine month
periods ended December 31, 1999 and three and nine month periods ended December
31, 1998 were $11,683, $34,107, $9,769 and $28,313, respectively.
NOTE 5 - EARNINGS PER SHARE
Basic earnings per common share were computed based on the weighted
average number of common shares issued and outstanding during the relevant
periods. Diluted earnings per common share were computed under the treasury
stock method based on the weighted average number of common shares issued and
outstanding, plus additional shares assumed to be outstanding to reflect the
dilutive effect of common stock equivalents. The following table details this
calculation:
Three month period ended Nine month period ended
December 31, December 31,
1999 1998 1999 1998
-------- -------- -------- --------
Net income for earnings per share
Computation $ 12,305 $ 9,605 $ 34,522 $ 26,653
Basic earnings per common share:
Weighted average common shares 18,127 17,318 17,727 17,266
-------- -------- -------- --------
Basic earnings per common share $ 0.68 $ 0.55 $ 1.95 $ 1.54
======== ======== ======== ========
Diluted earnings per common share:
Weighted average common shares 18,127 17,318 17,727 17,266
Shares issuable from assumed conversion
of common stock equivalents 1,556 1,099 1,385 1,001
Shares buyable with tax savings from
compensation expense of exercised options (607) (182) (485) (145)
-------- -------- -------- --------
Weighted average common and common
equivalent shares 19,076 18,235 18,627 18,122
-------- -------- -------- --------
Diluted earnings per common share $ 0.65 $ 0.53 $ 1.85 $ 1.47
======== ======== ======== ========
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
NOTE 6 - ADOPTION OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities,"
amended by SFAS No. 137, which establishes accounting and reporting standards
for derivative instruments and requires that an entity recognize all derivatives
as either assets or liabilities and measure those instruments at fair value. The
Company is currently evaluating the effects of SFAS No. 133 and does not
expect its adoption to have a material effect on the Company's financial
statements or results of operations.
NOTE 7 - CHANGES IN BUSINESS
In April 1999, the Company merged Con-Optic, Inc. ("Con-Optic") into
Key-Four, Inc. ("Key-Four"), a wholly owned subsidiary of the Company. Based in
Atlanta, Georgia, privately held Con-Optic provides services similar to
Key-Four, including technical design, installation and maintenance services for
premise cabling and related products to customers throughout Georgia. The
results of operations and financial position of Con-Optic are not material to
the Company's consolidated results of operations or financial position.
On May 17, 1999, the Company effected a merger with C-Tel Corporation
("C-Tel"). Established in 1987 in Columbus, Ohio, privately held C-Tel provides
technical design, installation and maintenance services for premise cabling and
related products to customers primarily in Ohio. C-Tel was subsequently merged
into Midwest Communications Technologies, Inc. ("MCT"), a wholly owned
subsidiary of the Company, providing similar services. The results of operations
and financial position of C-Tel are not material to the Company's consolidated
results of operations or financial position.
On July 8, 1999 the Company effected a merger of American Cabling &
Equipment Services, Inc. ("American Cabling") into Atimco Network Services,
Inc., a wholly owned subsidiary of the Company. Established in 1988 in
Pittsburgh, Pennsylvania, privately held American Cabling provides technical
design, installation and maintenance services for premise cabling and related
products to customers in Western Pennsylvania and surrounding areas. The results
of operations and financial position of American Cabling are not material to the
Company's consolidated results of operations or financial position.
On July 30, 1999 the Company effected a merger with Comm Line, Inc.
("Comm Line"). Comm Line, based in Cincinnati, Ohio, provides technical design,
installation and maintenance services for premise cabling and related products
to customers primarily in Cincinnati, Columbus and Dayton, Ohio; Indianapolis,
Indiana and Austin, Texas. The results of operations and financial position of
Comm Line are not material to the Company's consolidated results of operations
or financial position.
On September 3, 1999 the Company effected a merger with Florida
Intranet Group, Inc. ("FIG"). Established in 1986 in Miami, Florida, FIG
provides technical design, installation and maintenance services for premise
cabling and related network products to customers in Southern
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
Florida and surrounding areas. The results of operations and financial position
of FIG are not material to the Company's consolidated results of operations or
financial position.
On September 29, 1999 the Company effected a merger with Business
Communication Concepts, Inc. ("BusCom"). BusCom, based in Sterling, Virginia,
provides technical design, installation and maintenance services for premise
cabling and related products to customers in the Dulles Corridor - which
includes the District of Columbia metropolitan area, Northern Virginia and
Central Maryland. The results of operations and financial position of BusCom are
not material to the Company's consolidated results of operations or financial
position.
On September 30, 1999, the Company acquired 50% of the shares of Black
Box Comunicaciones SA Spain ("Black Box Spain") bringing its ownership in Black
Box Spain to 100%. Black Box Spain was established in 1989 in Madrid, Spain as a
joint venture between the Company and Payma Comunicaciones SA Spain. The results
of operations and financial position of Black Box Spain are not material to the
Company's consolidated results of operations or financial position.
On October 22, 1999, the Company effected a merger with Koncepts
Communications of L.I., Corp. ("Koncepts"). Established in 1982 in Westbury, New
York, Koncepts provides technical design, installation and maintenance services
for premise cabling and related products to customers in the New York, New
Jersey and Connecticut "tri-state" area. The results of operations and financial
position of Koncepts are not material to the Company's consolidated results of
operations or financial position.
On October 27, 1999, the Company effected a merger with Communication
Contractors, Inc. ("CCInc."). CCInc., based in Chicago, Illinois, provides
technical design, installation and maintenance services for premise cabling and
related products to customers throughout the greater Chicago region. The results
of operations and financial position of CCInc. are not material to the Company's
consolidated results of operations or financial position.
On November 12, 1999, the Company effected a merger with DataCom-Link,
Inc. and T&U Electric Service, Inc. ("DataCom"). Based in Indianapolis, Indiana,
DataCom provides technical design, installation and maintenance for premise
cabling and electrical services to customers throughout the greater Indianapolis
region. The results of operations and financial position of DataCom are not
material to the Company's consolidated results of operations or financial
position.
On November 19, 1999, the Company effected a merger with American
Communications Network Corporation ("ACN"). Established in 1982 in Cincinnati,
Ohio, ACN provides technical design, installation and maintenance services for
premise cabling and related network products to customers in the greater
Cincinnati region. ACN was subsequently merged into Comm Line, a wholly owned
subsidiary of the Company. The results of operations and financial position of
ACN are not material to the Company's consolidated results of operations or
financial position.
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
On November 29, 1999, the Company effected a merger with Datech
Holdings, Limited ("Datech"). Established in 1980 in Nottingham, England, Datech
provides technical design, installation and maintenance services for premise
cabling and related products to customers throughout the UK. The results of
operations and financial position of Datech are not material to the Company's
consolidated results of operations or financial position.
On December 3, 1999, the Company effected a merger with U.S. Premise
Networking Services, Inc. ("USP"). Based in Minneapolis, Minnesota, USP provides
technical design, installation and maintenance services for premise cabling and
related products to customers throughout the greater Minneapolis region. The
results of operations and financial position of USP are not material to the
Company's consolidated results of operations or financial position.
On December 30, 1999, the Company effected a merger with TennMark
Telecommunications, Inc. ("TennMark"). Established in 1983 near Nashville,
Tennessee, TennMark provides telecommunication planning, engineering,
installation and maintenance services. TennMark services selective regions of
the Southeast and Southwest United States. The results of operations and
financial position of TennMark are not material to the Company's consolidated
results of operations or financial position.
The Company issued an aggregate of 810,249 shares of its common stock
in exchange for all of the outstanding shares of Con-Optic, C-Tel, American
Cabling, Comm Line, FIG, BusCom, Black Box Spain, Koncepts, CCInc., DataCom,
ACN, Datech, USP and TennMark. In addition, an aggregate of $33,195 in cash was
used to acquire the above companies. The aggregate purchase price was $75,627
and resulted in goodwill after assumed liabilities of approximately $63,221,
which is being amortized over twenty-five years.
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
NOTE 8 - TREASURY STOCK
On March 31, 1999, the Company announced its intention to repurchase up
to 1 million shares of its Common Stock. As of June 1999, the Company had
repurchased all 1 million shares at prevailing market prices for an aggregate
purchase price of $41,981. On July 15, 1999, the Company announced its intention
to repurchase an additional 500,000 shares of its Common Stock. As of November
1999, the Company had repurchased all 500,000 shares under this plan at
prevailing market rates for an aggregate purchase price of $25,273. Funding for
these stock repurchases came from existing cash flow and borrowings under credit
facilities maintained with Mellon Bank, N.A.
NOTE 9 - DEBT
The Mellon Credit Facility, dated as of February 12, 1999, provides a
revolving line of credit up to $49,000 and expires September 30, 2002. On August
27, 1999, the Company signed an agreement providing an additional $30 million
revolving credit facility with Mellon Bank, N.A. (the "New Mellon Facility").
The New Mellon Facility will expire on August 25, 2000. Upon its expiration, the
Company has the option to convert the New Mellon Facility into a three-year note
with substantially similar terms. The interest on the borrowings is variable, as
defined in the underlying agreements.
The Company's total debt at December 31, 1999 was comprised of $46,800
under the Mellon Credit Facility, dated as of February 12, 1999, $24,300 under
the New Mellon Facility, and $4,411 of various other loans. The weighted average
interest rate on all indebtedness of the Company as of December 31, 1999 was
approximately 6.6% compared to 6.0% as of December 31, 1998.
NOTE 10 - SEGMENT REPORTING
Since the annual report for the fiscal year ended March 31, 1999, the
Company has changed its basis of segmentation from a geographic basis to a
product and service line basis. The Company now manages the business primarily
on a product and service line basis. Its reportable segments are comprised of
On-Site Support and Phone Support. The Other operating segment includes
corporate expenses. Corporate expenses include costs related to tradename and
trademark protection and various administrative items. The Company reports its
segments separately because of differences in the ways the product and service
lines are managed and operated. Consistent with SFAS No. 131, "Disclosures about
Segments of an Enterprise and Related Information," the Company aggregates
similar operating segments into reportable segments.
The Company evaluates the performance of each segment based on
"Worldwide EBITA." A segment's Worldwide EBITA is its earnings before interest,
taxes and amortization with all profit on intercompany sales allocated to the
segment providing the third-party revenues. Intersegment sales are not reviewed
by management and are not included in the total revenues
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
reported below. Certain costs included in the Phone Support segment are incurred
for the benefit of the On-Site Support segment but are not allocated for
internal management reporting and are, therefore, not allocated herein. These
unallocated costs include certain order fulfillment, shipping and various
overhead items. Segment interest income, interest expense and expenditures for
segment assets are not presented to or reviewed by management, and therefore are
not presented.
Summary information by reportable segment is as follows:
Three month period Nine month period
ended December 31, ended December 31,
------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
On-Site Support
- ---------------
Revenues $ 38,518 $ 5,773 $ 86,226 $ 16,665
Worldwide EBITA 5,101 442 11,243 1,614
Phone Support
- -------------
Revenues $ 88,610 $79,016 $ 256,311 $ 220,350
Worldwide EBITA 17,231 17,032 51,298 46,185
Other
- -----
Revenues $ 0 $ 0 $ 0 $ 0
Worldwide EBITA (28) 20 (45) (14)
- ---------------------------------------------------------------------------
The following is a reconciliation between the reportable segment data and the
corresponding consolidated amount for EBITA:
EBITA
Three month period Nine month period
ended December 31, ended December 31,
----------------------------------------
1999 1998 1999 1998
------ ------ ------ ------
Total Worldwide EBITA for reportable
segments $ 22,332 $17,474 $ 62,541 $ 47,799
Other EBITA (28) 20 (45) (14)
Total consolidated EBITA 22,304 17,494 62,496 47,785
- --------------------------------------------------------------------------------
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
The following is summary information of assets by reportable segment and a
reconciliation to the consolidated assets:
ASSETS
- ------------------------------------------------------------------------------
December 31, March 31,
Reportable Segments 1999 1999
-------- --------
On-Site Support $ 146,435 $ 37,626
Phone Support 285,184 256,826
------- -------
Total assets for reportable segments 431,619 294,452
Other assets 296,534 207,878
Corporate eliminations (361,576) (256,055)
--------- ---------
Total consolidated assets $ 366,577 $ 246,275
- ------------------------------------------------------------------------------
Due to the change in the composition of the reportable segments, prior period
amounts have been restated and will be shown in future periods on a comparable
basis.
Information about geographic areas is as follows:
REVENUES
Three month period Nine month period
ended December 31, ended December 31,
-------------------------------------------
1999 1998 1999 1998
-------- ------- -------- --------
North America $ 82,458 $44,640 $222,423 $133,876
International 44,670 40,149 120,114 103,139
-------- ------- -------- --------
Total Revenues $127,128 $84,789 $342,537 $237,015
- ---------------------------------------------------------------
ASSETS
December 31, March 31,
1999 1999
-------- --------
North America $286,525 $184,420
International 80,052 61,855
-------- --------
Total consolidated assets $366,577 $246,275
- ----------------------------------------------------------------
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
NOTE 11 - SUBSEQUENT EVENTS
On January 14, 2000, the Company effected a merger with Parrish
Communication Cabling, Inc. ("Parrish"). Established in 1990 in Seattle,
Washington, Parrish provides technical design, installation and maintenance
services for premise cabling and related products to customers throughout the
greater Seattle region. The results of operations and financial position of
Parrish are not material to the Company's consolidated results of operations or
financial position.
On January 20, 2000, the Company merged Structured Network Solutions,
Inc. ("SNS") into Comm Line, a wholly owned subsidiary of the Company.
Established in 1997 in Cincinnati, Ohio, SNS provides technical design,
installation and maintenance services for premise cabling and related network
products to customers in the greater Cincinnati region. The results of
operations and financial position of SNS are not material to the Company's
consolidated results of operations or financial position.
On January 24, 2000, the Company effected a merger with R&D Services,
Inc. ("R&D"). Established in 1974 in Westboro, Massachusetts, R&D provides
technical design, installation and maintenance services for premise cabling and
related products to customers throughout the greater Boston region. The results
of operations and financial position of R&D are not material to the Company's
consolidated results of operations or financial position.
On January 28, 2000, the Company effected a merger with The Delaney
Companies ("Delaney"). Established in 1985 in Philadelphia, Pennsylvania,
Delaney provides technical design, installation and maintenance for premise
cabling and related services to customers in the greater Philadelphia and
mid-Atlantic regions. The results of operations and financial position of
Delaney are not material to the Company's consolidated results of operations or
financial position.
In January 2000, the Company engaged Mellon Bank N.A. to act as its
agent in arranging syndication of a $150,000 revolving credit facility (the
"Syndicated Facility"). The Syndicated Facility will be used to pay off the
Mellon Credit Facility and the New Mellon Facility and for general corporate
purposes. At that time, Mellon Bank also extended an additional temporary
revolving credit facility in the amount of $30,000 (the "Bridge Financing") with
terms substantially similar to those of the Mellon Credit Facility and the New
Mellon Facility. The Bridge Financing expires upon closing the Syndicated
Facility and will be paid with proceeds of the Syndicated Facility.
On February 7, 2000, the Company effected a merger with K&A
Communications, Inc. ("K&A"). Established in 1986 in St. Louis, Missouri, K&A
provides technical design, installation and maintenance services for premise
cabling and related products to customers throughout the St. Louis Region. The
results of operations and financial position of K&A are not material to the
Company's consolidated results of operations or financial position.
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ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF GENERAL OPERATIONS (dollars in thousands)
FORWARD-LOOKING STATEMENTS
When included in this Quarterly Report on Form 10-Q or in documents
incorporated herein by reference, the words "expects," "intends," "anticipates,"
"believes," "estimates," and analogous expressions are intended to identify
forward-looking statements. Such statements are inherently subject to a variety
of risks and uncertainties that could cause actual results to differ materially
from those projected. Such risks and uncertainties include, among others,
general economic and business conditions, competition, changes in foreign,
political and economic conditions, fluctuating foreign currencies compared to
the U.S. dollar, rapid changes in technologies, customer preferences and various
other matters, many of which are beyond the Company's control. These
forward-looking statements are made pursuant to the safe harbor provisions of
the Private Securities Litigation Reform Act of 1995 and speak only as of the
date of this Quarterly Report on Form 10-Q. The Company expressly disclaims any
obligation or undertaking to release publicly any updates or any changes in the
Company's expectations with regard thereto or any change in events, conditions,
or circumstances on which any statement is based.
RESULTS OF OPERATIONS
The table below should be read in conjunction with the following
discussion (percentages are based on total revenues).
Three month period ended Nine month period ended
December 31, December 31,
------------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues $127,128 $84,789 $342,537 $237,015
======== ======= ======== ========
Revenues:
On-Site Support 30.3% 6.8% 25.2% 7.0%
Phone Support:
North America 35.3 45.8 40.2 49.5
International 34.4 47.4 34.6 43.5
---- ---- ---- ----
Total Phone Support 69.7 93.2 74.8 93.0
---- ---- ---- ----
Total Revenues 100.0 100.0 100.0 100.0
Cost of sales 56.4 50.4 55.6 50.7
---- ---- ---- ----
Gross profit 43.6 49.6 44.4 49.3
Selling, general and
administrative expenses 26.0 29.0 26.2 29.1
---- ---- ---- ----
Operating income before
Amortization 17.6 20.6 18.2 20.2
Intangibles amortization 1.3 1.3 1.2 1.3
---- ---- ---- ----
Operating income 16.3% 19.3% 17.0% 18.9%
==== ==== ==== ====
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Revenues for the three and nine month periods ended December 31, 1999
were $127,128 and $342,537, respectively, an increase of $42,339, or 49.9%, and
$105,522, or 44.5%, respectively, over the same period in the prior year.
Revenues from on-site support for the three months ended December 31, 1999
(Third Quarter 2000) were $38,518, an increase of $32,745, or 567.2%, over
revenues for the three months ended December 31, 1998 (Third Quarter 1999). For
the nine months ended December 31, 1999, revenues from on-site support were
$86,226, an increase of $69,561, or 417.4%, over revenues for the nine months
ended December 31, 1998. On-site support revenue growth for the quarter and
year-to-date was primarily due to the Company's continued expansion by merger of
its on-site technical support capabilities as well as strong demand for on-site
services from customers of existing on-site service providers.
Revenues from the Company's phone support business for Third Quarter
2000 were $88,610, an increase of $9,594, or 12.1%, over revenues for Third
Quarter 1999. For the nine months ended December 31, 1999, revenues from the
phone support business were $256,311, an increase of $35,961, or 16.3%, over
revenues for the nine months ended December 31, 1998. Overall, phone support
revenue growth was driven by strong sales in all geographic regions. Phone
support revenues from North America for Third Quarter 2000 were $44,862, an
increase of $5,998, or 15.4%, over revenues for Third Quarter 1999. For the nine
months ended December 31, 1999, phone support revenues from North America were
$137,677, an increase of $20,466, or 17.5%, over revenues for the nine months
ended December 31, 1998. The growth of North America phone support revenues is
driven primarily by continued strong demand for cables and connectors,
ServSwitch, racks and cabinets, power protection, and LAN products from
customers of all sizes. International phone support revenues for Third Quarter
2000 were $43,748, an increase of $3,596, or 9.0%, over revenues for the same
period in the prior year. For the nine months ended December 31, 1999,
International phone support revenues were $118,634, an increase of $15,495, or
15.0%, over revenues for the nine months ended December 31, 1998. International
phone support revenue growth for the quarter was driven by strong customer
demand for cables and connectors, ServSwitch, LAN products, power protection and
racks and cabinets while the nine month growth was driven primarily by strong
demand for cables and connectors, ServSwitch, modems and LAN products. If
exchange rates had remained constant from the corresponding periods in the prior
year, International phone support revenues for the three and nine month periods
ended December 31, 1999 would have increased 11.9% and 15.5%, respectively.
Reported revenue dollar and percentage growth of the Company's largest
subsidiaries over the comparable periods in the prior year were as follows:
Japan revenues were $9,046, up $1,895, or 26.5%, in Third Quarter 2000 and were
$24,345, up $5,366, or 28.3%, year-to-date; United Kingdom revenues were $8,729,
up $297, or 3.5%, in Third Quarter 2000 and were $25,261, up $2,332, or 10.2%,
year-to-date; and France revenues were $6,379, up $93, or 1.5%, in Third Quarter
2000 and were $16,647, up $730, or 4.6%, year-to-date. Excluding Japan, United
Kingdom and France, the remaining international business grew $1,311, or 7.2%,
in Third Quarter 2000 and increased $7,067, or 15.6%, year-to-date. Japan
revenues increased, in part, due to the strengthening of the Japanese Yen
compared to the U.S. Dollar. If exchange rates had remained constant from the
corresponding periods in the prior year, Japan revenues would have increased
9.9%, for the three months ended December 31, 1999 and increased 9.6%, for the
nine months ended December 31, 1999; United Kingdom revenues would have
increased 6.5%, for the three months ended December 31, 1999 and increased
13.5%, for the nine months ended December 31, 1999; and France revenues would
have increased 15.3%, for the
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three months ended December 31, 1999 and increased 13.2% for the nine months
ended December 31, 1999.
Gross profit in Third Quarter 2000 increased to $55,397, or 43.6% of
revenues, from $42,073, or 49.6% of revenues, in Third Quarter 1999. Gross
profit for the nine month period ended December 31, 1999 increased to $152,147,
or 44.4% of revenues, from $116,854, or 49.3%, of revenues over the same period
in the prior year. The decline in gross profit margin for the quarter and the
nine months ended December 31, 1999 was due primarily to the increase in mix of
revenue from the Company's on-site support services which provides slightly
lower gross margins. Gross profit margins in the phone support business also
declined in the three month period ending December 31, 1999 compared to the
prior year primarily as a result of price reductions on non-Black Box labeled
products in North America. Phone support gross profit margins for the nine month
period ending December 31, 1999 were comparable to the same period in the prior
year. The revaluation of foreign denominated intercompany receivables had an
unfavorable impact on gross profit margin when compared to the prior year.
Excluding the impact of revaluing the intercompany receivables, the gross profit
margin was 43.8% for Third Quarter 2000 compared to 48.6% for Third Quarter 1999
and 44.5% for the nine months ended December 31, 1999 compared to 49.0% for the
nine months ended December 31, 1998.
Selling, general and administrative ("SG&A") expenses in Third Quarter
2000 were $33,093, or 26.0% of revenues, an increase of $8,514 over SG&A
expenses of $24,579, or 29.0% of revenues, in Third Quarter 1999. SG&A expenses
for the nine month period ended December 31, 1999 were $89,651, or 26.2% of
revenues, an increase of $20,582 over SG&A expenses of $69,069, or 29.1% of
revenues over the same period in the prior year. SG&A expense as a percentage of
revenues decreased from last year primarily due to the increase in mix of
revenue from the Company's on-site support services which provides slightly less
operating expense relative to revenues. The dollar increases from the same
periods in the prior year related primarily to additional marketing and
personnel costs worldwide and additional support costs related to the addition
of the Company's on-site technical services product line.
Operating income before amortization in Third Quarter 2000 was $22,304,
or 17.6% of revenues, compared to $17,494, or 20.6% of revenues, in Third
Quarter 1999. The decline in margin was due primarily to the increase in mix of
revenues from the Company's on-site support services which provides slightly
lower operating margins. Operating income before amortization for the nine month
period ended December 31, 1999 was $62,496, or 18.2% of revenues, compared to
$47,785, or 20.2% of revenues over the same period in the prior year. Intangible
amortization for the three and nine month periods ended December 31, 1999 were
$1,625, an increase of $470, or 40.7%, and $4,280, an increase of $1,189, or
38.5%, respectively. The increase in amortization is due to additional goodwill
related to the Company's continued expansion by merger of its on-site support
providers.
Net interest expense for the three and nine month periods ended
December 31, 1999 was $1,012 and $1,686 respectively, an increase from the same
periods last year of $775 and $1,166, respectively, due to an increase in
borrowings for the repurchase of the Company's Common Stock and the continued
expansion by merger of its on-site support providers.
The tax provision in Third Quarter 2000 was $7,557, or an effective tax
rate of 38.0%, compared to $6,405, or an effective tax rate of 40.0%, in Third
Quarter 1999. The tax provision for the
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nine month period ended December 31, 1999 was $22,063, or an effective tax rate
of 39.0%, compared to $17,495, or an effective tax rate of 39.6% for the nine
month period ended December 31, 1998. The decline in tax rate for the nine month
period is primarily a result of improved profitability in Brazil and Mexico. The
rate decrease for the three month period resulted from the reduction in the nine
month rate.
Net income for Third Quarter 2000 was $12,305 compared to $9,605 in
Third Quarter 1999, an increase of 28.1%. Net income for the nine month period
ended December 31, 1999 was $34,522 compared to $26,653 for the nine month
period ended December 31, 1998, an increase of 29.5%. This growth was primarily
due to strong revenue growth, the Company's ability to leverage its existing
cost structure and the successful expansion by merger of the Company's on-site
support offering.
LIQUIDITY AND CAPITAL RESOURCES
In Third Quarter 2000, the Company's net proceeds from borrowings
increased by $23,575 and by $70,517 for the three and nine month periods ended
December 31, 1999, respectively, as a result of borrowings used to finance the
repurchase of its Common Stock and to continue expansion by merger of its
on-site support providers. As of December 31, 1999, the Company had cash and
cash equivalents of $5,194, working capital of $96,495, and total debt of
$75,511.
On August 27, 1999, the Company signed an agreement providing an
additional $30 million revolving credit facility with Mellon Bank, N.A. (the
"New Mellon Facility"). The New Mellon Facility provides additional liquidity
for future stock repurchases and operations. The terms of the New Mellon
Facility are substantially similar to the existing Mellon Credit Facility except
that the New Mellon Facility will expire on August 25, 2000. Upon its
expiration, the Company has the option to convert the facility into a three-year
term note with substantially similar terms.
The Company's total debt at December 31, 1999 was comprised of $46,800
under the Mellon Credit Facility, dated as of February 12, 1999, between the
Company and Mellon Bank, N.A., $24,300 under the New Mellon Facility, and $4,411
of various other loans. The weighted average interest rate on all indebtedness
of the Company as of December 31, 1999 was approximately 6.6% compared to 6.0%
as of December 31, 1998. In addition, at December 31, 1999, the Company had
$1,200 of letters of credit outstanding and $6,700 of additional funds available
under the Mellon Credit Facility and the New Mellon Facility.
In January 2000, the Company engaged Mellon Bank N.A. to act as its
agent in arranging syndication of a $150,000 revolving credit facility (the
"Syndicated Facility"). The Syndicated Facility will be used to pay off the
Mellon Credit Facility and the New Mellon Facility and for general corporate
purposes. At that time, Mellon Bank also extended an additional temporary
revolving credit facility in the amount of $30,000 (the "Bridge Financing") with
terms substantially similar to those of the Mellon Credit Facility and the New
Mellon Facility. The Bridge Financing expires upon closing the Syndicated
Facility and will be paid with proceeds of the Syndicated Facility.
On March 31, 1999, the Company announced its intention to repurchase up
to 1 million shares of its Common Stock. As of June 1999, the Company had
repurchased all 1 million shares in the open market at a total cost of $41,981.
On July 15, 1999, the Company announced its intention to
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repurchase an additional 500,000 shares of its Common Stock. As of November
1999, the Company had repurchased all 500,000 shares under this plan at
prevailing market rates for an aggregate purchase price of $25,273. Funding for
these stock repurchases came from existing cash flow and borrowings under the
Mellon Credit Facility and New Mellon Facility.
The Company has operations, customers and suppliers worldwide, thereby
exposing the Company's financial results to foreign currency fluctuations. In an
effort to reduce this risk, the Company generally sells and purchases inventory
based on prices denominated in U.S. dollars. Intercompany sales to subsidiaries
are generally denominated in the subsidiaries' local currency, although
intercompany sales to the Company's subsidiaries in Brazil and Mexico are
denominated in U.S. dollars. The gains and losses resulting from the revaluation
of the intercompany balances denominated in foreign currencies are recorded to
gross profit to the extent the intercompany transaction resulted from an
intercompany sale of inventory.
The Company has entered and will continue in the future, on a selective
basis, to enter into forward exchange contracts to reduce the foreign currency
exposure related to certain intercompany transactions. On a monthly basis, the
open contracts are revalued to the current exchange rates and the resulting
gains and losses are recorded in other income. These gains and losses offset the
revaluation of the related foreign currency denominated receivables discussed
above. At December 31, 1999, the open foreign exchange contracts were in Yen,
Euro, Sterling Pound and Canadian Dollars. These open contracts were valued at
approximately $4,373, with contract rates ranging from 102.02 to 102.02 Yen per
U.S. dollar, 1.0235 to 1.0245 Euro to U.S. dollar, 1.6237 to 1.6273 Sterling
Pound per U.S. dollar and 1.4791 to 1.4804 Canadian dollar per U.S. dollar, and
the last contract will expire in February 2000. The effect of these contracts on
net income for the three-and nine-month periods ended December 31, 1999 was not
material.
The Company believes that its cash flow from operations and existing
credit facilities will be sufficient to satisfy its liquidity needs for the
foreseeable future.
YEAR 2000
The year 2000 issue refers to the potential for disruption to business
activities caused by system and processing failures of date-related
calculations, and is the result of computer-controlled systems using two digits
rather than four to define the applicable year. For example, computer programs
that have time-sensitive software may recognize a date using "00" as the year
1900 rather than the year 2000. This could result in system failure or
miscalculation causing disruptions of operations, including among other things,
a temporary inability to process transactions, send invoices, or engage in
similar normal business activities.
To date, the Company has not experienced any material business
disruptions related to the year 2000. Additionally, the Company has no reason to
believe that any material third parties with whom it deals have had any material
year 2000 issues. However, the Company cannot give assurance that it will
not experience any disruption due to year 2000 in the future. The Company will
continue to monitor its systems and third parties for any year 2000 problems.
Total costs for system modifications directly related to preparing systems for
the year 2000 were $400 and were expensed as incurred. The Company does not
expect to incur material cost related to year 2000 in the future.
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CONVERSION TO THE EURO CURRENCY
On January 1, 1999, certain members of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency, the Euro. The Company conducts business in member
countries. The transition period for the introduction of the Euro will be
between January 1, 1999 and June 30, 2002. The Company is assessing the issues
involved with the introduction of the Euro, and it does not expect Euro
conversion to have a material impact on its operations or financial results.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks in the ordinary course of
business that include foreign currency exchange rates. In an effort to mitigate
the risk, the Company, on a selective basis, will enter into forward exchange
contracts. At December 31, 1999, the Company had open contracts valued at
approximately $4,406 and with a fair value of approximately $4,373.
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PART II - OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
---------
10.1 1992 Stock Option Plan, as amended
10.2 1992 Director Stock Option Plan, as amended
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule - December 31, 1999
(b) Reports on Form 8-K.
--------------------
None.
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SIGNATURE
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 thereunto duly authorized.
BLACK BOX CORPORATION
By: /s/ Anna M. Baird
------------------------------
Anna M. Baird, Vice President,
Chief Financial Officer, Treasurer,
and Principal Accounting Officer
February 11, 1999
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EXHIBIT INDEX
Exhibit No.
10.1 1992 Stock Option Plan, as amended
10.2 1992 Director Stock Option Plan, as amended
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule - December 31, 1999