1
Fiscal 2002 First 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 JUNE 30,
2001 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 July 31, 2001 was 19,742,759 shares.
2
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BLACK BOX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
June 30, March 31,
2001 2001
-------------- --------------
ASSETS
Current assets:
Cash and cash equivalents $ 10,513 $ 6,209
Accounts receivable, net of allowance for doubtful
accounts of $10,270 and $7,777, respectively 150,249 160,917
Inventories, net 52,834 51,086
Costs and estimated earnings in excess of billings
on uncompleted contracts 30,401 30,067
Other current assets 25,012 19,069
--------- ---------
Total current assets 269,009 267,348
Property, plant and equipment, net of accumulated depreciation
of $34,364 and $32,792, respectively 44,735 44,661
Intangibles, net of accumulated amortization of $48,335 and
$48,366, respectively 369,779 337,180
Other assets 3,378 3,741
--------- ---------
Total assets $ 686,901 $ 652,930
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt $ 3,213 $ 5,371
Accounts payable 65,869 70,255
Billings in excess of costs and estimated earnings
on uncompleted contracts 6,838 6,013
Other accrued expenses 28,481 33,137
Accrued income taxes 11,562 13,650
--------- ---------
Total current liabilities 115,963 128,426
Long-term debt 130,757 124,066
Other liabilities 9,380 11,487
Stockholders' equity:
Preferred stock authorized 5,000,000; par value $1.00;
none issued and outstanding
Common stock authorized 100,000,000; par value $.001;
issued 21,837,816 and 21,406,367, respectively 22 21
Additional paid-in capital 275,476 248,053
Retained earnings 265,329 250,246
Treasury stock, at cost, 2,105,000 shares (100,355) (100,355)
Accumulated other comprehensive income (loss) (9,671) (9,014)
--------- ---------
Total stockholders' equity 430,801 388,951
--------- ---------
Total liabilities and stockholders' equity $ 686,901 $ 652,930
========= =========
See Notes to Consolidated Financial Statements
2
3
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
Three month period ended
June 30,
2001 2000
-------- --------
Revenues $207,116 $171,133
Cost of sales 128,172 100,608
-------- --------
Gross profit 78,944 70,525
Selling, general and administrative expenses 52,654 42,503
Intangibles amortization -- 2,648
-------- --------
Operating income 26,290 25,374
Interest expense, net 2,109 2,213
Other expense, net 248 --
-------- --------
Income before income taxes 23,933 23,161
Provision for income taxes 8,850 9,033
-------- --------
Net income $ 15,083 $ 14,128
======== ========
Basic earnings per common share $ 0.77 $ 0.76
======== ========
Diluted earnings per common share $ 0.73 $ 0.72
======== ========
Weighted average common shares 19,495 18,625
======== ========
Weighted average common and
common equivalent shares 20,616 19,758
======== ========
See Notes to Consolidated Financial Statements
3
4
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(Dollars in thousands)
Accumulated
Common Stock Additional Other
------------------- Treasury Paid-in Retained Comprehensive
Shares Amount Stock Capital Earnings Income(Loss) Total
---------- ------ --------- -------- -------- ----------- ----------
Balance at March 31, 2000 19,940,217 $20 ($ 67,253) $144,828 $186,056 ($5,324) $ 258,327
Net income -- -- -- -- 64,190 -- 64,190
Purchase of treasury stock -- -- (33,102) -- -- -- (33,102)
Issuance of common stock 1,290,455 1 -- 95,598 -- -- 95,599
Exercise of options 175,695 -- -- 4,916 -- -- 4,916
Tax benefit from exercised options -- -- -- 2,711 -- -- 2,711
Comprehensive loss -- -- -- -- -- (3,690) (3,690)
---------- --- --------- -------- -------- ------- ---------
Balance at March 31, 2001 21,406,367 21 (100,355) 248,053 250,246 (9,014) 388,951
Net income -- -- -- -- 15,083 -- 15,083
Issuance of common stock 309,189 1 -- 24,153 -- -- 24,154
Exercise of options 122,260 -- -- 1,995 -- -- 1,995
Tax benefit from exercised options -- -- -- 1,275 -- -- 1,275
Comprehensive loss -- -- -- -- -- (657) (657)
---------- --- --------- -------- -------- ------- ---------
Balance at June 30, 2001 21,837,816 $22 ($100,355) $275,476 $265,329 ($9,671) $ 430,801
========== === ========= ======== ======== ======= =========
See Notes to Consolidated Financial Statements
4
5
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
Three month period ended
June 30,
2001 2000
-------- --------
Cash flows from operating activities:
Net income $ 15,083 $ 14,128
Adjustments to reconcile net income to cash provided
by operating activities:
Intangibles amortization -- 2,648
Depreciation 2,018 1,861
Other -- 68
Changes in working capital items:
Accounts receivable, net 14,007 (5,630)
Inventories, net (1,263) (1,957)
Other current assets (3,996) (9,993)
Accounts payable and accrued liabilities (19,100) 3,477
-------- --------
Cash provided by operating activities 6,749 4,602
-------- --------
Cash flows from investing activities:
Capital expenditures (804) (3,385)
Mergers, net of cash acquired (8,290) (26,202)
-------- --------
Cash (used in) investing activities (9,094) (29,587)
-------- --------
Cash flows from financing activities:
Revolving credit borrowings, net 4,512 23,222
Proceeds from exercise of options 3,270 1,282
-------- --------
Cash provided by financing activities 7,782 24,504
-------- --------
Foreign currency exchange impact on cash (1,133) (1,143)
-------- --------
Increase (decrease) in cash and cash equivalents 4,304 (1,624)
Cash and cash equivalents at beginning of period 6,209 8,643
-------- --------
Cash and cash equivalents at end of period $ 10,513 $ 7,019
======== ========
Cash paid for interest $ 2,036 $ 2,011
-------- --------
Cash paid for income taxes $ 13,005 $ 3,470
-------- --------
See Notes to Consolidated Financial Statements
5
6
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, 2001. 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:
June 30, March 31,
2001 2001
-------------------------------------------------------------------
Raw materials $ 2,331 $ 2,476
Work-in-process 9 11
Finished goods 52,965 51,863
Inventory reserve (2,471) (3,264)
-------------------------------------------------------------------
Inventory, net $ 52,834 $ 51,086
-------------------------------------------------------------------
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 fair market value, and the resulting gains and
losses are recorded in accumulated other comprehensive income. These gains and
losses offset the revaluation of the related foreign currency denominated
receivables, which are also included in accumulated other comprehensive income.
At June 30, 2001, the open foreign exchange contracts were in Yen,
Euro, Sterling pound, Canadian dollars, Swiss francs and Australian dollars.
These open contracts, valued at approximately $19,288, have a fair value of
$18,855 and will expire over the next six months, with the exception of the
contracts related to the Company's acquisition of Data Specialties Europe Ltd.,
which expire on April 30, 2002. The open contracts have contract rates of 117.89
to 125.30 Yen, 0.8439 to 0.8983 Euro, 1.3716 to 1.5318 Sterling pound, 1.5230 to
1.5479 Canadian dollar, 1.7778 to 1.7981 Swiss franc and 0.5060 to 0.5103
Australian dollar, all per U.S. dollar. The effect of these contracts on net
income for the three month period ended June 30, 2001 was an increase of
approximately $55.
6
7
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
NOTE 4 - COMPREHENSIVE INCOME
Comprehensive income consisted of the following:
Three month period ended
June 30,
----------------------------
2001 2000
- ----------------------------------------------------------------------------------------
Net income $ 15,083 $ 14,128
Other comprehensive income:
Foreign currency translation adjustment (710) (796)
Unrealized gains on derivative designated and
qualified as cash flow hedges 53 --
- ----------------------------------------------------------------------------------------
Comprehensive income $ 14,426 $ 13,332
- ----------------------------------------------------------------------------------------
The components of accumulated other comprehensive income (loss) consisted of the
following:
June 30, March 31,
2001 2001
- ----------------------------------------------------------------------------------------
Unrealized gains on derivative designated and
qualified as cash flow hedges $ 53 $ --
Foreign currency translation adjustment (9,724) (9,014)
- ----------------------------------------------------------------------------------------
Total accumulated other comprehensive
income (loss) $(9,671) $(9,014)
- ----------------------------------------------------------------------------------------
On April 1, 2001, the Company adopted Statement of Financial Accounting
Standards ("SFAS") No. 133, "Accounting for Derivative Instruments and Hedging
Activities," which resulted in an increase in accumulated other comprehensive
income (loss) of $53.
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:
7
8
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
Three month period ended
June 30,
-------------------------
2001 2000
- --------------------------------------------------------------------------------
Net income for earnings per share computation $15,083 $14,128
Basic earnings per common share:
Weighted average common shares 19,495 18,625
- --------------------------------------------------------------------------------
Basic earnings per common share $ 0.77 $ 0.76
- --------------------------------------------------------------------------------
Diluted earnings per common share:
Weighted average common shares 19,495 18,625
Shares issuable from assumed conversion
of common stock equivalents 1,121 1,133
- --------------------------------------------------------------------------------
Weighted average common and common
equivalent shares 20,616 19,758
- --------------------------------------------------------------------------------
Diluted earnings per common share $ 0.73 $ 0.72
- --------------------------------------------------------------------------------
Excluded from the calculation above are ten thousand shares for the
three month period ended June 30, 2001 as the exercise price was greater than
the average market price for the time period.
NOTE 6 - ADOPTION OF NEW ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations," which establishes new accounting and
reporting standards for business combinations. The Company is currently
evaluating the effects of SFAS No. 141 and does not expect its adoption to have
a material effect on the Company's financial statements or results of
operations. The Company will adopt the new standard in the second quarter of
Fiscal 2002.
NOTE 7 - CHANGES IN BUSINESS
During the three months ended June 30, 2001, the Company successfully
completed six business combinations which have been accounted for using the
purchase method of accounting: April 2001 - Haddad Electronic Supply, Inc., FBS
Communications, L.P. and Integrated Cabling Systems, Inc.; May 2001 - Computer
Cables and Accessories Ltd; June 2001 - Vivid Communications, Inc. and DESIGNet,
Inc. In connection with the above six business combinations, the Company issued
an aggregate of 243 thousand shares of its common stock and used approximately
$12,500 in cash to acquire all of the outstanding shares of the above six
companies.
8
9
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
The aggregate purchase price of the above six companies was
approximately $31,800 and resulted in goodwill of approximately $26,800, after
the allocation of purchase price to assets acquired and liabilities assumed.
As of June 30, 2001, certain merger agreements provide for contingent
payments, of up to $42,020, of which $7,350 have been satisfied and paid. Upon
meeting the future performance goals, goodwill will be adjusted for the amount
of the contingent payments.
As of June 30, 2001, certain merger agreements, which are included in
the previous paragraph, provide a total of 225 thousand contingently issuable
shares of common stock. Issuance of these shares is contingent on the market
price of the Company's common stock over time. There will be no change in the
dollar amount of stockholders' equity if such shares are issued. These shares
are included as common equivalent shares when calculating diluted earnings per
common share.
The Company has consolidated the results of operations for each of the
acquired companies as of the respective merger date. The following table reports
pro forma information as if all Fiscal Year 2001 and 2002 acquisitions had been
completed at the beginning of the stated periods:
Three month period ended June 30,
----------------------------------
2001 2000
(unaudited) (unaudited)
- ----------------------------------------------------------------------------------------------
Revenue As reported $207,116 $171,133
Pro forma 211,082 223,616
- ----------------------------------------------------------------------------------------------
Net income As reported $ 15,083 $ 14,128
Pro forma 15,271 18,666
- ----------------------------------------------------------------------------------------------
Diluted earnings per share As reported $ 0.73 $ 0.72
Pro forma $ 0.74 $ 0.89
- ----------------------------------------------------------------------------------------------
NOTE 8 - TREASURY STOCK
From March 31, 1999 through June 30, 2001, the Company announced its
intention to repurchase up to 2.5 million shares of its Common Stock. As of June
30, 2001, the Company had repurchased 2.1 million shares at prevailing market
prices for an aggregate purchase price of $100,355. The Company's most recent
announcement was on July 21, 2000 to repurchase an additional 500 thousand
shares of its Common Stock, of which 105 thousand were repurchased as of June
30, 2001 under this plan, and are included in the totals above. Funding for
these stock repurchases came from existing cash flow and borrowings under credit
facilities.
NOTE 9 - INDEBTEDNESS
On April 4, 2000, Black Box simultaneously entered into a $120,000
Revolving Credit Agreement ("Long Term Revolver") and a $60,000 Short Term
Credit Agreement ("Short Term Revolver") (together the "Syndicated Debt") with
Mellon Bank, N.A. and a group of lenders.
9
10
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
The Long Term Revolver is scheduled to expire on April 4, 2003 and the Short
Term Revolver is scheduled to expire on April 4, 2002. Upon its expiration, the
Company has the option to convert the Short Term Revolver into a one-year term
note with substantially similar terms. The interest on the borrowings is
variable based on the Company's option of selecting the banks prime rate plus an
applicable margin as defined in the agreement or the Euro-dollar rate plus an
applicable margin as defined in the agreement.
The Company's total debt at June 30, 2001 was comprised of $113,900
under the Mellon Long Term Revolver, $14,100 under the Mellon Short Term
Revolver, and $5,970 of various other loans. The weighted average interest rate
on all indebtedness of the Company as of June 30, 2001 was approximately 5.4%
compared to 6.8% as of March 31, 2001.
NOTE 10 - SEGMENT REPORTING
The Company manages the business primarily on a product and service
line basis. Its reportable segments are comprised of On-Site Services and Phone
Services. The Other operating segment includes expenses related to tradename and
trademark protection, costs directly related to the Company's on-going mergers
and acquisitions program and a special expense of $5,027 incurred in the First
Quarter of Fiscal Year 2002 related primarily to the reserve of two receivables
from on-site customers who filed for bankruptcy protection in the quarter. 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 Operating Income." A segment's Worldwide Operating Income is its
earnings before interest, taxes and amortization. Revenues and the related
profits on intercompany transactions are reported by the segment providing the
third-party revenues. Intersegment sales are not reviewed by management and are
not presented below. Certain costs incurred in phone services are directly
related to the Company's business development through mergers and acquisitions,
and therefore are reclassified to the Other operating segment in the information
presented below. Segment interest income, segment interest expense and
expenditures for segment assets are not presented to or reviewed by management,
and therefore are not presented in the information below.
10
11
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
Summary information by reportable segment is as follows:
Three month period ended
June 30,
---------------------------------
2001 2000
- -------------------------------------------------------------------------
On-Site Services
Revenues $ 121,051 $ 80,041
Worldwide operating margin 14,915 10,574
- -------------------------------------------------------------------------
Phone Services
Revenues $ 86,065 $ 91,092
Worldwide operating margin 17,388 18,160
- -------------------------------------------------------------------------
Other
Revenues $ -- $ --
Worldwide operating margin (6,013) (712)
- -------------------------------------------------------------------------
The following is a reconciliation between the reportable segment data and the
corresponding consolidated amount for Worldwide operating margin:
WORLDWIDE OPERATING MARGIN
Three month period
ended June 30,
--------------------------------
2001 2000
- -------------------------------------------------------------------------
Total Worldwide operating margin
for reportable segments $ 32,303 $ 28,734
Other Worldwide operating margin (6,013) (712)
- -------------------------------------------------------------------------
Total Consolidated Worldwide
operating margin $ 26,290 $ 28,022
- -------------------------------------------------------------------------
The following is summary information of assets by reportable segment and a
reconciliation to the consolidated assets:
11
12
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
ASSETS
June 30, March 31,
2001 2001
- ------------------------------------------------------------------------------------
On-Site Services $ 494,966 $ 430,721
Phone Services 519,784 502,582
- ------------------------------------------------------------------------------------
Total assets for reportable segments 1,014,750 933,303
Other assets 632,625 578,906
Corporate eliminations (960,474) (859,279)
- ------------------------------------------------------------------------------------
Total consolidated assets $ 686,901 $ 652,930
- ------------------------------------------------------------------------------------
Information about geographic areas is as follows:
REVENUES
Three month period ended June 30,
---------------------------------
2001 2000
- ------------------------------------------------------------------------------------
North America $ 154,120 $ 125,239
Europe 39,070 30,763
Pacific Rim 8,701 10,187
Latin America 5,225 4,944
- ------------------------------------------------------------------------------------
Total revenues $ 207,116 $ 171,133
- ------------------------------------------------------------------------------------
ASSETS
June 30, March 31,
2001 2001
- ------------------------------------------------------------------------------------
North America $ 563,973 $ 524,349
Europe 97,020 98,860
Pacific Rim 14,160 17,579
Latin America 11,748 12,142
- ------------------------------------------------------------------------------------
Total consolidated assets $ 686,901 $ 652,930
- ------------------------------------------------------ -----------------------------
NOTE 11 - INTANGIBLE ASSETS
At the beginning of Fiscal Year 2002, the Company adopted SFAS No. 142,
"Goodwill and Other Intangible Assets," under which goodwill and other
intangible assets with indefinite lives are not amortized. Such intangibles will
be evaluated for impairment as of April 1, 2001 (any such impairment at the date
of adoption will be reflected as a change in accounting). In addition, each
year, the Company will evaluate the intangible assets for impairment with any
resulting impairment reflected as an operating expense. The Company's only
intangible, other than goodwill, is its trademark, which the Company currently
believes has an indefinite life. The
12
13
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
Company is currently in the process of evaluating whether impairment exists with
respect to its intangible assets. The first stage of this evaluation will be
completed as of the end of the second quarter of Fiscal Year 2002.
As of March 31, 2001, the Company's trademark had a gross carrying
amount of $35,942 and accumulated amortization of $8,253.
The changes in the carrying amount of goodwill, by reporting segment,
for the three months ended June 30, 2001, are as follows:
Three month period ended June 30, 2001
-----------------------------------------
Phone On-Site Total
- ---------------------------------------------------------------------------------------------
Balance as of March 31, 2001 $64,017 $245,474 $309,491
Goodwill related to acquisitions and earnout
payments during the current fiscal year 22 32,577 32,599
- ---------------------------------------------------------------------------------------------
Balance as of June 30, 2001 $64,039 $278,051 $342,090
- ---------------------------------------------------------------------------------------------
The following table reports pro forma information as if SFAS No. 142
had been adopted in all periods presented:
Three month period ended June 30,
2001 2000
- -------------------------------------------------------------------------------
Reported net income $15,083 $14,128
Goodwill amortization -- 1,951
Trademark amortization -- 181
- -------------------------------------------------------------------------------
Adjusted net income $15,083 $16,260
- -------------------------------------------------------------------------------
Basic earnings per share $ 0.77 $ 0.76
Goodwill amortization -- 0.10
Trademark amortization -- 0.01
- -------------------------------------------------------------------------------
Adjusted basic earnings per share $ 0.77 $ 0.87
- -------------------------------------------------------------------------------
Diluted earnings per share $ 0.73 $ 0.72
Goodwill amortization -- 0.10
Trademark amortization -- --
- -------------------------------------------------------------------------------
Adjusted diluted earnings per share $ 0.73 $ 0.82
- -------------------------------------------------------------------------------
NOTE 12 - SUBSEQUENT EVENTS
In July 2001, the Company merged with J.C. Informatica Integral,
Consultoria en Redes S.A. de C.V. and SIC Comunicaciones S.A. de C.V. (" Grupo
Gresco"). Established in 1990 in Puebla, Mexico, Grupo Gresco provides technical
design, installation and maintenance services
13
14
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
for premise cabling and related products to customers in Southeastern Mexico,
including Mexico City. The results of operations and financial position of Grupo
Gresco are not material to the Company's consolidated results of operations or
financial position.
In August 2001, the Company merged with LJL Telephone and
Communication, Inc. ("LJL"). Established in 1987 in Lawrence, Massachusetts, LJL
provides technical design, installation and maintenance services for
telecommunication, premise cabling and related products to customers primarily
in New England. The results of operations and financial position of LJL are not
material to the Company's consolidated results of operations or financial
position.
14
15
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (dollars in thousands)
GENERAL
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 June 30,
----------------------------------
2001 2000
- -------------------------------------------------------------------------
Revenues $207,116 $171,133
- -------------------------------------------------------------------------
Revenues:
On-Site Services:
North America 52.7% 45.1%
International 5.7 1.7
- -------------------------------------------------------------------------
Total On-Site Services 58.4 46.8
- -------------------------------------------------------------------------
Phone Services:
North America 21.6 28.1
International 20.0 25.1
- -------------------------------------------------------------------------
Total Phone Services 41.6 53.2
- -------------------------------------------------------------------------
Total Revenues 100.0% 100.0%
- -------------------------------------------------------------------------
Revenues for the three month period ended June 30, 2001 (First Quarter
2002) were $207,116, an increase of $35,983, or 21% over the same period in the
prior year (First Quarter 2001). If exchange rates had remained constant from
First Quarter 2001, revenues for the three month period ended June 30, 2001
would have increased 23%.
15
16
Revenues from on-site services for the three months ended June 30, 2001
were $121,051, an increase of $41,010, or 51%, over revenues for the three
months ended June 30, 2000. If exchange rates had remained constant from First
Quarter 2001, on-site services revenues for the three month period ended June
30, 2001 would have increased 52%. Overall, on-site services revenue growth was
due to the Company's continued geographic expansion of its technical services
capabilities through merger and the growth of nationwide customer accounts.
On-site services revenues from North America for First Quarter 2002 were
$109,289, an increase of $32,174, or 42%, over revenues for First Quarter 2001.
International on-site services revenues for First Quarter 2002 were $11,762, an
increase of $8,836, or 302%, over revenues for First Quarter 2001. The growth of
North America and International on-site services revenues were both driven
primarily by the Company's continued geographic expansion of its technical
services capabilities through merger. If exchange rates had remained constant
from First Quarter 2001, International on-site services revenues for the three
month period ended June 30, 2001 would have increased 332%.
Revenues from the Company's phone services business for the three
months ended June 30, 2001 were $86,065, a decrease of $5,027, or 6%, compared
with revenues for the three months ended June 30, 2000. If exchange rates had
remained constant from First Quarter 2001, phone services revenues for the three
month period ended June 30, 2001 would have decreased 2%. The decrease in phone
services revenue was driven primarily by declining sales in the United States,
Europe and Japan. Phone services revenues from North America for First Quarter
2002 were $44,831, a decrease of $3,293, or 7%, compared with revenues for First
Quarter 2001. The decrease in North American phone services revenues was driven
by slowing economic conditions in the United States. International phone
services revenues for First Quarter 2002 were $41,234, a decrease of $1,734, or
4%, compared with revenues for First Quarter 2001. The decrease in International
phone services revenues was driven by slowing economic conditions in Europe and
Japan as well as the strengthening of the U.S. Dollar. If exchange rates had
remained constant from First Quarter 2001, International phone services revenues
for the three month period ended June 30, 2001 would have increased 3%.
Reported revenue dollar and percentage changes by geographic region
were as follows: Europe revenues increased $8,307, or 27%; Pacific Rim revenue
decreased $1,486, or 15%; and Latin American revenue increased $281, or 6%. If
the exchange rate relative to the U.S. dollar had remained unchanged from First
Quarter 2001, revenue growth for Europe and Latin America would have been 36%
and 8%, respectively, and Pacific Rim revenues would have decreased by 3%.
Gross profit in First Quarter 2002 increased to $78,944, or 38.1% of
revenues, from $70,525, or 41.2% of revenues, in First Quarter 2001. The decline
in gross profit margin was due primarily to the increase in percentage of
revenues from the Company's on-site services which provide lower gross margins.
The realization of foreign denominated intercompany receivables had little
impact on gross profit margin. Excluding the impact of the realization of
intercompany receivables, the gross profit margin was 38.2% for First Quarter
2002 compared to 41.2% for First Quarter 2001.
Selling, general and administrative ("SG&A") expenses in First Quarter
2002 were $52,654, or 25.4% of revenues, an increase of $10,151 over SG&A
expenses of $42,503, or 24.8% of revenues, in First Quarter 2001. SG&A expense
as a percentage of revenues increased from last year primarily due to a special
expense of approximately $5,000, which is primarily attributable to the Company
reserving for two accounts receivable from customers that filed for Chapter 11
bankruptcy protection during the
16
17
quarter. Without the special expense, SG&A expense as a percentage of revenues
would have been 23.0%. The dollar increase over the prior year related primarily
to the $5,000 special expense and additional costs from newly-merged operations
which are included in First Quarter 2002 but not in First Quarter 2001.
Operating income before amortization in First Quarter 2002 was $26,290,
or 12.7% of revenues, compared to $28,022, or 16.4% of revenues, in First
Quarter 2001. The decline in margin was due primarily to the $5,000 special
expense and the increase in percentage of total revenues from the Company's
on-site services which operate at slightly lower margins. Without the special
expense, operating income as a percentage of revenues would have been 15.1%. Due
to the Company's First Quarter 2002 adoption of SFAS No. 142 "Goodwill and Other
Intangible Assets," First Quarter 2002 amortization expense was zero compared to
$2,648 for the First Quarter 2001.
Net interest expense in First Quarter 2002 decreased to $2,109 from
$2,213 in First Quarter 2001, due to a decrease in interest rates.
The tax provision in First Quarter 2002 was $8,850, or an effective tax
rate of 37.0%, compared to $9,033, or an effective tax rate of 39.0%, in First
Quarter 2001. The decrease in the effective tax rate is due to the Company's
adoption of SFAS No. 142, "Goodwill and Other Intangible Assets," during First
Quarter 2002, as pretax income in Fiscal Year 2002 excludes amortization that is
not deductible for tax purposes.
Net income for First Quarter 2002 was $15,083 compared to $14,128 in
First Quarter 2001, an increase of 7%. This growth was primarily due to revenue
growth, the successful expansion of the Company's technical services by merger
and the Company's First Quarter 2002 adoption of SFAS No. 142, "Goodwill and
Other Intangible Assets," under which goodwill and other intangible assets with
indefinite lives are not amortized. The increase in net income for the above
mentioned reasons was in part offset by the $5,000 special expense in First
Quarter 2002.
LIQUIDITY AND CAPITAL RESOURCES
In the First Quarter 2002, the Company's net proceeds from borrowings
increased by $4,533 as a result of borrowings used to continue expansion of its
on-site services by merger. As of June 30, 2001, the Company had cash and cash
equivalents of $10,513, working capital of $153,046, and total debt of $133,970.
On April 4, 2000, Black Box simultaneously entered into a $120,000
Revolving Credit Agreement ("Long Term Revolver") and a $60,000 Short Term
Credit Agreement ("Short Term Revolver") (together the "Syndicated Debt") with
Mellon Bank, N.A. and a group of lenders. The Long Term Revolver is scheduled to
expire on April 4, 2003 and the Short Term Revolver is scheduled to expire on
April 4, 2002. Upon its expiration, the Company has the option to convert the
Short Term Revolver into a one-year term note with substantially similar terms.
The interest on the borrowings is variable based on the Company's option of
selecting the bank's prime rate plus an applicable margin as defined in the
agreement or the Euro-dollar rate plus an applicable margin as defined in the
agreement.
17
18
The Company's total debt at June 30, 2001 was comprised of $113,900
under the Mellon Long Term Revolver, $14,100 under the Mellon Short Term
Revolver, and $5,970 of various other loans. The weighted average interest rate
on all indebtedness of the Company as of June 30, 2001 was approximately 5.4%
compared to 6.8% as of March 31, 2001. In addition, at June 30, 2001, the
Company had $957 of letters of credit outstanding and $51,043 of additional
funds available under the Syndicated Debt.
From March 31, 1999 through June 30, 2001, the Company announced its
intention to repurchase up to 2.5 million shares of its Common Stock. As of June
30, 2001, the Company had repurchased 2.1 million shares at prevailing market
prices for an aggregate purchase price of $100,355. The Company's most recent
announcement was on July 21, 2000 to repurchase an additional 500 thousand
shares of its Common Stock, of which 105 thousand were repurchased as of June
30, 2001 under this plan, and are included in the totals above. Funding for
these stock repurchases came from existing cash flow and borrowings under credit
facilities.
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 Austria, Brazil, Chile,
Finland, Mexico, Norway and Sweden 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 accumulated other
comprehensive income.
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 fair market value, and the resulting gains and
losses are recorded in accumulated other comprehensive income. These gains and
losses offset the revaluation of the related foreign currency denominated
receivables, which are also included in accumulated other comprehensive income.
At June 30, 2001, the open foreign exchange contracts were in Yen, Euro,
Sterling pound, Canadian dollars, Swiss francs and Australian dollars. These
open contracts, valued at approximately $19,288, have a fair value of $18,855
and will expire over the next six months, with the exception of the contracts
related to the Company's acquisition of Data Specialties Europe Ltd., which
expire on April 30, 2002. The open contracts have contract rates of 117.89 to
125.30 Yen, 0.8439 to 0.8983 Euro, 1.3716 to 1.5318 Sterling pound, 1.5230 to
1.5479 Canadian dollar, 1.7778 to 1.7981 Swiss franc and 0.5060 to 0.5103
Australian dollar, all per U.S. dollar. The effect of these contracts on net
income for the three month period ended June 30, 2001 was an increase of
approximately $55.
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.
ACCOUNTING STANDARDS
In June 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 141, "Business Combinations," which establishes new accounting and
reporting standards for business
18
19
combinations. The Company is currently evaluating the effects of SFAS No. 141
and does not expect its adoption to have a material effect on the Company's
financial statements or results of operations. The Company will adopt the new
standard in the second quarter of Fiscal 2002.
At the beginning of Fiscal Year 2002, the Company adopted SFAS No. 142,
"Goodwill and Other Intangible Assets," under which goodwill and other
intangible assets with indefinite lives are not amortized. The Company is
currently in the process of evaluating whether impairment exists with respect to
its intangible assets. The first stage of this evaluation will be completed as
of the end of the second quarter of Fiscal Year 2002.
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.
19
20
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 June 30, 2001, the Company had open contracts valued at
approximately $19,288 with a fair value of approximately $18,855.
In the ordinary course of business, the Company is also exposed to
risks that interest rate increases may adversely affect funding costs associated
with the $128,000 of variable rate debt. For the three months ended June 30,
2001 and June 30, 2000, an instantaneous 100 basis point increase in the
interest rate would reduce the Company's expected earnings in the subsequent
three months by $202 and $188, respectively, assuming the Company employed no
intervention strategies.
20
21
PART II OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
21.1 Subsidiaries of the Company
(b) Reports on Form 8-K.
None.
21
22
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
August 14, 2001 By: /s/ Anna M. Baird
------------------------------
Anna M. Baird, Vice President,
Chief Financial Officer, Treasurer,
and Principal Accounting Officer
22
23
EXHIBIT INDEX
Exhibit No.
21.1 Subsidiaries of the Company