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1997 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, 1996
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)
412-746-5500
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
----- -----
Indicate by check mark whether the registrant has filed all documents and
reports required to be filed by Sections 12, 13 or 15(d) of the Securities
Exchange Act of 1934 subsequent to the distribution of securities under a plan
confirmed by a court.
Yes X No
----- -----
The number of shares outstanding of the Registrant's common stock, $.001 par
value, as of January 31, 1997 was 16,493,016 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 1996 1996
--------------- --------------
Current assets:
Cash and cash equivalents $ 1,567 $ 1,924
Accounts receivable, net of allowance for doubtful
accounts of $2,552 and $2,407, respectively 36,279 34,804
Inventories, net 25,135 18,781
Other current assets 8,169 7,333
-------- --------
Total current assets 71,150 62,842
Property, plant and equipment, net of accumulated depreciation
of $11,076 and $9,623, respectively 12,300 12,299
Intangibles, net of accumulated amortization of $20,219 and
$17,396, respectively 76,135 78,958
Other assets 1,548 1,445
-------- --------
Total assets $161,133 $155,544
======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt $ 8,540 $ 8,184
Accounts payable 12,923 12,580
Accrued expenses 9,765 10,081
Accrued income taxes 4,449 1,948
-------- --------
Total current liabilities 35,677 32,793
Long-term debt 24,734 41,142
Other liabilities 12,580 14,468
Stockholders' equity:
Common stock authorized 20,000,000; par value $.001; issued
and outstanding 16,488,516 and 16,302,254, respectively 16 16
Additional paid-in capital 29,322 25,904
Retained earnings 59,350 42,209
Cumulative foreign currency translation adjustments (546) (988)
-------- --------
Total stockholders' equity 88,142 67,141
-------- --------
Total liabilities and stockholders' equity $161,133 $155,544
======== ========
See Notes to Consolidated Financial Statements
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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
(UNAUDITED)
Three month period ended Nine month period ended
December 31, December 31,
1996 1995 1996 1995
----------- ----------- ----------- ----------
Revenues $57,657 $47,243 $166,677 $138,181
Cost of sales 27,037 21,066 77,514 61,639
------- ------- -------- --------
Gross profit 30,620 26,177 89,163 76,542
Selling, general and
administrative expenses 18,321 15,980 53,602 47,079
Intangibles amortization 945 894 2,835 2,728
------- ------- -------- --------
Operating income 11,354 9,303 32,726 26,735
Interest expense, net 845 1,435 3,023 4,440
Other income, net (26) (126) (176) (301)
------- ------- -------- --------
Income before income taxes 10,535 7,994 29,879 22,596
Provision for income taxes 4,425 3,517 12,738 9,940
------- ------- -------- --------
Net income $ 6,110 $ 4,477 $ 17,141 $ 12,656
======= ======= ======== ========
Earnings per share $ 0.35 $ 0.27 $ 0.99 $ 0.76
======= ======= ======== ========
Weighted average common and
common equivalent shares 17,691 16,785 17,365 16,738
======= ======= ======== ========
See Notes to Consolidated Financial Statements
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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
(UNAUDITED)
Common Stock Additional
------------------- Paid-in Retained Translation
Shares Amount Capital Earnings Adjustment Total
---------- ------ ------- -------- ---------- -----
Balance at March 31, 1995 16,061,557 $16 $23,169 $23,931 $ (1) $47,115
Net income for the year
ended March 31, 1996 - - 18,278 - 18,278
Exercise of options 240,697 - 2,057 - - 2,057
Tax benefit from exercised options - - 678 - - 678
Foreign currency translation -
adjustments - - - - (987) (987)
---------- --- ------- ------- ------ -------
Balance at March 31, 1996 16,302,254 16 25,904 42,209 (988) 67,141
Net income for the nine month
period ended December 31, 1996 - - - 17,141 - 17,141
Exercise of options 186,262 - 2,251 - - 2,251
Tax benefit from exercised options - - 1,167 - - 1,167
Foreign currency translation -
adjustments - - - - 442 442
---------- --- ------- ------- ----- -------
Balance at December 31, 1996 16,488,516 $16 $29,322 $59,350 $(546) $88,142
========== === ======= ======= ===== =======
See Notes to Consolidated Financial Statements
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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in thousands)
(UNAUDITED)
Nine month period ended
December 31,
1996 1995
-------- --------
Cash flows from operating activities:
Net Income $ 17,141 $ 12,656
Adjustments to reconcile net income to cash provided
by operating activities:
Intangibles amortization 2,835 2,728
Depreciation 1,712 1,765
Joint venture income (77) (159)
Changes in working capital items:
Account receivable, net (1,475) (1,657)
Inventories, net (6,320) (1,714)
Other current assets (972) (1,647)
Accounts payable 343 2,512
Accrued expenses 297 (3,049)
-------- --------
Cash provided by operating activities 13,484 11,435
-------- --------
Cash flows from investing activities:
Capital expenditures (1,713) (1,964)
Dividends from joint ventures 64 54
-------- --------
Cash used in investing activities (1,649) (1,910)
-------- --------
Cash flows from financing activities:
Repayment of borrowings (55,725) (36,009)
Proceeds from borrowings 39,673 25,845
Proceeds from exercise of options 3,418 916
-------- --------
Cash used in financing activities (12,634) (9,248)
-------- --------
Foreign currency translation adjustment 442 (656)
-------- --------
Decrease in cash and cash equivalents (357) (379)
Cash and cash equivalents at beginning of period 1,924 2,546
-------- --------
Cash and cash equivalents at end of period $ 1,567 $ 2,167
======== ========
See Notes to Consolidated Financial Statements
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands)
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. Although 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 for the fiscal year ended March 31, 1996.
NOTE 2 - FISCAL YEARS AND INTERIM PERIODS
The Company has a 52 or 53 week fiscal year that ends on the Sunday
nearest March 31. Each fiscal quarter consists of 13 weeks. The last quarter
is adjusted for those years which have 53 weeks. The ending dates for the
periods ended December 31, 1996, March 31, 1996 and December 31, 1995 were
actually December 29, 1996, March 31, 1996 and December 31, 1995, respectively.
NOTE 3 - 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,
1996 1996
------------ ---------
Raw materials $ 1,744 $ 1,440
Work-in-process 22 8
Finished goods 24,970 18,981
Inventory reserve (1,601) (1,648)
------- -------
Inventory, net $25,135 $18,781
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NOTE 4 - ACCOUNTING FOR STOCK-BASED COMPENSATION
In the first quarter of Fiscal 1997, the Company adopted Statement of
Financial Accounting Standards (SFAS) No. 123, "Accounting for Stock-Based
Compensation". As allowable under SFAS No. 123, the Company has elected to
disclose in the notes to the financial statements the impact on net income and
net income per share as if the fair value based compensation cost had been
recognized. The Company will reflect this disclosure in the notes to the March
31, 1997 fiscal year end consolidated financial statements.
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ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (dollars in thousands)
GENERAL
The table below should be read in conjunction with the following
discussion (percentages are based on total revenues).
Three month period ended December 31, Nine month period ended December 31,
1996 1995 1996 1995
----------------- ------------------ ------------------ -----------------
Revenues $57,657 $47,243 $166,677 $138,181
======= ======= ======== ========
Revenues:
North America 52.5% 56.2% 55.2% 59.7%
International 47.5 43.8 44.8 40.3
------- ------- -------- --------
Total 100.0 100.0 100.0 100.0
Cost of sales 46.9 44.6 46.5 44.6
------- ------- -------- --------
Gross profit 53.1 55.4 53.5 55.4
Selling, general and
administrative expenses 31.8 33.8 32.2 34.1
------- ------- -------- --------
Operating income
before amortization 21.3 21.6 21.3 21.3
Intangibles amortization 1.6 1.9 1.7 1.9
------- ------- -------- --------
Operating income 19.7% 19.7% 19.6% 19.4%
======= ======= ======== ========
RESULTS OF OPERATIONS
Revenues for the three and nine month periods ended December 31, 1996
increased 22.0% and 20.6% respectively over the comparable periods for the
prior year, reflecting strong growth worldwide. For the three and nine month
periods ended December 31, 1996, revenues from International operations
increased 32.3% and 34.1%, respectively over the comparable periods last year.
If exchange rates had remained constant from the three month period and the
nine month period ended December 31, 1995, International revenues would have
increased 37.5% and 42.3%, respectively. On a percentage basis and at constant
exchange rates, all international subsidiaries experienced double digit revenue
growth over the nine month period from last year. For the three and nine month
periods ended December 31, 1996, revenues from North America increased 14.0%
and 11.5%, respectively, over the same periods last year. International and
North American revenue growth for the quarter and year-to-date was driven
primarily by the introduction of new products.
Gross profit margin for the three and nine month periods ended
December 31, 1996 was 53.1% and 53.5% respectively, compared to 55.4% for both
of the same periods last year. The dollar increase was primarily due to
increased volumes. The decrease in gross profit margin is due to a change in
product mix and the revaluing of intercompany receivable amounts denominated in
currencies other than the U.S.
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dollar. The revaluation of the intercompany receivables is primarily a
result of the strengthening U.S. dollar against the Japanese Yen.
Selling, general and administrative ("S,G&A") expense as a percentage
of revenues for the three and nine month periods ended December 31, 1996 was
31.8% and 32.2% respectively, compared to 33.8% and 34.1% for the same periods
last year. The dollar increase relates to additional marketing and personnel
costs. S,G&A decreased as a percentage of revenues as the Company was able to
leverage its existing support structure and improve the efficiency of its
marketing expenditures.
Operating income for the three and nine month periods ended
December 31, 1996 increased over the same periods for last year as a result
of higher revenues and gross profit, partially offset by higher S,G&A expenses.
Net interest expense for the three and nine month periods ended
December 31, 1996 decreased over the same periods for last year as a result of
lower average borrowings and lower average interest rates. Amortization
expense has remained constant from prior year, decreasing as a percentage of
revenues.
The Company's estimated annual effective income tax rate is 42.5%,
which is higher than the U.S. statutory rate of 35.0% primarily due to state
income taxes and the unfavorable impact of non-deductible intangibles
amortization. The effective tax rate for the three and nine month periods
ended December 31, 1996 differs from the annual effective rate as the Company
revised its estimate in Second Quarter Fiscal 1997, and is amortizing the
adjustment of the first quarter tax provision to the remaining three quarters
of the fiscal year.
LIQUIDITY AND CAPITAL RESOURCES
The Company continues to meet all of its cash requirements through
cash flow from operations. During the first nine months of Fiscal 1997, cash
flow from operations after investing activities of $11,835 plus the proceeds
from the exercise of stock options enabled the Company to reduce debt by
$16,052. As of December 31, 1996, the Company had $1,567 in cash and cash
equivalents, working capital of $35,473 and long-term debt of $24,734.
The Company's long-term debt at December 31, 1996 was comprised of
$8,600 under the Mellon Credit Agreement, $16,000 of Senior Notes, and $134 of
various other loans. The weighted average interest rate on all indebtedness of
the Company as of December 31, 1996 was approximately 8.3% compared to 8.4% as
of December 31, 1995. In addition, at December 31, 1996, the Company had
$1,297 of letters of credit outstanding and $30,103 of additional funds
available under the Mellon Credit Agreement.
The Company has entered into, on a selective basis, forward exchange
contracts to reduce foreign currency exposure related to certain intercompany
inventory transactions. At December 31, 1996, the open foreign exchange
contracts were exclusively in Yen. The value of such open contracts was
approximately $1,750. The effect of these contracts on net income for the
three and nine month periods ended December 31, 1996 was not material.
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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. This statement is made pursuant to the safe harbor
provisions of the Private Securities Litigation Reform Act of 1995, as there
are important factors that could cause the actual results to differ materially
from those in the forward-looking statement. Such factors include significant
changes in worldwide competition or the occurrence of significant downward
economic conditions in several of the large countries in which the Company
operates.
PART II - OTHER INFORMATION
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
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10.1 Subscription Agreement and Plan of Acquisition of BBOX
Holding Company by Black Box Corporation dated
November 21, 1996.
10.2 Modification of Note Purchase Agreements between
Black Box-PA and Holders, dated November 21, 1996.
10.3 Amendment to Guarantee Agreement between Black Box
Corporation and Holders, dated November 21, 1996.
10.4 Second Modification of Note Purchase Agreements
between Black Box-PA and Holders, dated November 21, 1996.
10.5 Holding Company Guarantee Agreement between BBOX
Holding Company and Holders, dated November 21, 1996.
10.6 Fourth Amendment to Credit Agreement between Black
Box-PA and Mellon, dated November 21, 1996.
10.7 Fifth Amendment to Credit Agreement between Black
Box-PA and Mellon, dated November 21, 1996.
10.8 Second Amendment to Guaranty and Suretyship
Agreement between Black Box Corporation and Mellon,
dated November 21, 1996.
10.9 Guaranty and Suretyship Agreement between BBOX
Holding Company and Mellon, dated November 21, 1996.
10.10 Amendment No. 3 to the Trademark License Agreement
between BB Technologies, Inc. and Black Box-PA, dated
as of July 1, 1995
21 List of Subsidiaries
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27.0 Financial Data Schedules
(b) Reports on Form 8-K.
--------------------
None.
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/ Frederick C. Young
-----------------------------
Frederick C. Young
Chief Operating Officer
February 12, 1997
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