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1998 Second 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 SEPTEMBER 30, 1997
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 ______
The number of shares outstanding of the Registrant's common stock, $.001 par
value, as of October 31, 1997 was 16,687,805 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)
September 30, March 31,
ASSETS 1997 1997
------------- -------------
Current assets:
Cash and cash equivalents $ 1,245 $ 1,353
Accounts receivable, net of allowance for doubtful
accounts of $2,408 and $2,499, respectively 45,842 43,900
Inventories, net 36,273 30,435
Other current assets 11,224 8,227
--------- ---------
Total current assets 94,584 83,915
Property, plant and equipment, net of accumulated depreciation
of $13,034 and $9,939, respectively 13,210 12,923
Intangibles, net of accumulated amortization of $23,036 and
$21,165, respectively 74,084 75,955
Other assets 470 486
--------- ---------
Total assets $ 182,348 $ 173,279
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt $ 9,321 $ 8,128
Accounts payable 18,313 19,924
Other accrued expenses 9,955 11,815
Accrued income taxes 6,470 5,816
--------- ---------
Total current liabilities 44,059 45,683
Long-term debt 17,359 21,175
Other liabilities, primarily deferred taxes 11,984 12,157
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
and outstanding 16,602,141 and 16,518,682, respectively 17 17
Additional paid-in capital 30,884 29,897
Retained earnings 80,678 66,504
Cumulative foreign currency translation adjustments (2,633) (2,154)
--------- ---------
Total stockholders' equity 108,946 94,264
--------- ---------
Total liabilities and stockholders' equity $ 182,348 $ 173,279
========= =========
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 Six month period ended
September 30, September 30,
1997 1996 1997 1996
----------- ---------- ------------ ------------
Revenues $ 68,931 $56,912 $ 133,129 $110,700
Cost of sales 34,020 26,317 65,220 51,127
-------- ------- --------- --------
Gross profit 34,911 30,595 67,909 59,573
Selling, general and administrative expenses 20,783 18,460 40,329 36,081
Intangibles amortization 952 963 1,906 1,926
-------- ------- --------- --------
Operating income 13,176 11,172 25,674 21,566
Interest expense, net 739 1,040 1,547 2,166
Other (income)/expense, net (262) 82 (166) 56
-------- ------- --------- --------
Income before income taxes 12,699 10,050 24,293 19,344
Provision for income taxes 5,252 4,225 10,119 8,314
-------- ------- --------- --------
Net income $ 7,447 $ 5,825 $ 14,174 $ 11,030
======== ======= ========= ========
Earnings per share $ 0.42 $ 0.34 $ 0.81 $ 0.64
======== ======= ========= ========
Weighted average common and
common equivalent shares 17,687 17,293 17,604 17,161
======== ======= ========= ========
See Notes to Consolidated Financial Statements
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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(Dollars in thousands)
Common Stock Additional
----------------------- Paid-in Retained Translation
Shares Amount Capital Earnings Adjustment Total
--------------- ------- ------------ ---------- ------------ ---------
Balance at March 31, 1996 16,302,254 $16 $25,904 $42,209 $ (988) $ 67,141
Net income for the year
ended March 31, 1997 -- -- -- 24,295 -- 24,295
Exercise of options 216,428 1 2,473 -- -- 2,474
Tax benefit from exercised options -- -- 1,520 -- -- 1,520
Foreign currency translation
adjustments -- -- -- -- (1,166) (1,166)
---------- --- ------- ------- ------- ---------
Balance at March 31, 1997 16,518,682 17 29,897 66,504 (2,154) 94,264
Net income for the six month
period ended September 30, 1997 -- -- -- 14,174 -- 14,174
Exercise of options 83,459 -- 642 -- -- 642
Tax benefit from exercised options -- -- 345 -- -- 345
Foreign currency translation
adjustments -- -- -- -- (479) (479)
---------- --- ------- ------- ------- ---------
Balance at September 30, 1997 16,602,141 $17 $30,884 $80,678 $(2,633) $ 108,946
========== === ======= ======= ======= =========
See Notes to Consolidated Financial Statements
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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
Six month period ended
September 30,
1997 1996
---------- --------
Cash flows from operating activities:
Net income $ 14,174 $ 11,031
Adjustments to reconcile net income to
cash provided by operating activities:
Intangibles amortization 1,871 1,890
Depreciation 1,242 1,127
Other 32 (46)
Changes in working capital items:
Account receivable, net (1,943) (2,009)
Inventories, net (5,862) (4,113)
Other current assets (2,961) (81)
Accounts payable (1,611) 2,172
Accrued expenses (1,061) 1,444
-------- --------
Cash provided by operating activities 3,881 11,415
-------- --------
Cash flows from investing activities:
Capital expenditures (1,529) (1,041)
Cash flows from financing activities:
Repayment of borrowings (62,186) (39,141)
Proceeds from borrowings 59,563 28,776
Proceeds from exercise of options 642 761
-------- --------
Cash used in financing activities (1,981) (9,604)
-------- --------
Foreign currency translation adjustment (479) (462)
-------- --------
Change in cash and cash equivalents (108) 308
Cash and cash equivalents at beginning of period 1,353 1,924
-------- --------
Cash and cash equivalents at end of period $ 1,245 $ 2,232
======== ========
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 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, 1997.
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 September 30, 1997, March 31, 1997 and September 30, 1996 were actually
September 28, 1997, March 30, 1997 and September 29, 1996, 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:
September 30, March 31,
1997 1997
---- ----
Raw materials $ 2,273 $ 2,152
Work-in-process 51 28
Finished goods 35,828 29,865
Inventory reserve (1,879) (1,610)
-------- --------
Inventory, net $ 36,273 $ 30,435
======== ========
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
NOTE 4 - 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 September 30, 1997, the open foreign exchange contracts were
exclusively in Yen. These open contracts were valued at approximately $4.6
million, with contract rates ranging from 112.29 to 114.75 Yen per U.S. dollar,
and will expire over the next six months. The effect of these contracts on net
income for the three and six month periods ended September 30, 1997 was not
material.
NOTE 5 - ADOPTION OF NEW ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
per Share", which establishes new standards for computing and presenting
earnings per share ("EPS"). As required by the SFAS, the Company will adopt the
new standard in the quarter ended December 31, 1997, and restate all prior
periods. The Company has reviewed SFAS No. 128 and determined that had the SFAS
been adopted during Fiscal 1998, basic and diluted EPS would have been $0.45
and $0.42, respectively, for the Second Quarter 1998, and $0.85 and $0.81,
respectively, for the six month period ended September 30, 1997.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components in financial statements. As required by the SFAS, the
Company expects to adopt the new standard in the first quarter of Fiscal 1999.
The Company has reviewed SFAS No. 130 and determined that the only component of
comprehensive income which applies to the Company will be foreign currency
translation adjustments currently recorded directly to Stockholder's Equity in
accordance with SFAS No. 52.
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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 SIX MONTH PERIOD ENDED
SEPTEMBER 30, SEPTEMBER 30,
-----------------------------------------------------------
1997 1996 1997 1996
--------- --------- ---------- ----------
Revenues $ 68,931 $ 56,912 $ 133,129 $ 110,700
========= ========= ========== ==========
Revenues:
U.S./Canada 52.2% 55.1% 53.2% 55.0%
International 47.8 44.9 46.8 45.0
--------- --------- ---------- ----------
Total 100.0 100.0 100.0 100.0
Cost of sales 49.4 46.2 49.0 46.2
--------- --------- ---------- ----------
Gross profit 50.6 53.8 51.0 53.8
Selling, general and
administrative expenses 30.2 32.4 30.3 32.6
--------- --------- ---------- ----------
Operating income
before amortization 20.5 21.3 20.7 21.2
Intangibles amortization 1.4 1.7 1.4 1.7
--------- --------- ---------- ----------
Operating income 19.1% 19.6% 19.3% 19.5%
========= ========= ========== ==========
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Revenues for the three and six month periods ended September 30, 1997
increased 21.1% and 20.3%, respectively, over the comparable periods for the
prior year reflecting strong growth worldwide. For the three months ended
September 30, 1997 ("Second Quarter 1998") ,U.S./Canada revenues increased
14.7% over the three months ended September 30, 1996 ("Second Quarter 1997").
For the six months ended September 30, 1997, U.S./Canada revenues increased
16.4% over the same period in the prior year. U.S./Canada revenue growth for
the quarter was primarily driven by the continued success of new products sales
while year-to-date revenue growth was driven by both the success of new product
sales and an increase in the number of medium and large orders.
Reported revenues from International operations for Second Quarter
1998 increased 28.9% over Second Quarter 1997, and for the six months ended
September 30, 1997 increased 25.0% over the same periods in the prior year. If
exchange rates had remained constant from the corresponding periods in the
prior year, International revenues for the three and six month periods ended
September 30, 1997 would have increased 38.1% and 32.6%, 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 increased $2,139 or 37% in Second Quarter 1998 and increased $3,234 or
28% year-to-date; United Kingdom increased $1,761 or 37% in Second Quarter 1998
and increased $3,149 or 35% year-to-date; France increased $48 or 1% in Second
Quarter 1998 and decreased $501 or 6% year-to-date; and Brazil increased $1,640
or 86% in Second Quarter 1998 and increased $2,891 or 83% year-to-date.
Operating revenues in France for the six months ended September 30, 1997
increased 9% over the same period in the prior year, but were down 6% in U.S.
dollars due to a stronger U.S. dollar during the first six months of Fiscal
1998. Excluding Japan, United Kingdom, France and Brazil, the remaining
International business units grew $1,813 or 20.8% in Second Quarter 1998 and
increased $3,673 or 21.8% year-to-date. The growth in International revenue for
both the quarter end and year-to-date was due to an increase in the number of
orders as well as the success of new product sales.
Gross profit margin for the three and six month periods ended
September 30, 1997 was 50.6% and 51.0%, respectively, compared to 53.8% for
both of the same periods last year. The decrease in gross profit margin is due
to the combined effects of an increase in medium and large orders, which
receive larger discounts and hence carry slightly lower profit margins than
small orders, and the impact of branded products sales, introduced in the last
quarter of Fiscal 1997.
Selling, general and administrative ("SG & A") expense as a percentage
of revenues for the three and six month periods ended September 30, 1997 was
30.2% and 30.3%, respectively, compared to 32.4% and 32.6% for the same periods
last
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year. SG & A expense decreased as a percentage of revenues as the Company was
able to leverage its existing support structure. The dollar increases from the
same periods in the prior year of $2,323 and $4,248 for the three and six
months ended September 30, 1997 relate to additional marketing and personnel
costs primarily at the International locations.
Operating income before amortization for the three and six month
periods ended September 30, 1997 increased $1,993 and $4,088, respectively,
over the same periods last year. Intangibles amortization for the three and six
month periods ended September 30, 1997 was consistent with the prior year,
decreasing as a percentage of revenues.
Net interest expense for the three and six month periods ended
September 30, 1997 decreased from the same periods last year, $301 and $619,
respectively, due to lower average borrowings and lower average interest rates.
The estimated annual effective income tax rate for Fiscal 1998 is
41.5%, 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.
LIQUIDITY AND CAPITAL RESOURCES
In Second Quarter 1998, the Company paid down $4,847 of borrowings
through cash flows from operations. This paydown offset the increase in
borrowings of $2,224 in First Quarter 1998, and enabled the Company to reduce
debt by $2,623 as of the end of the first six months of Fiscal 1998. Borrowings
increased in First Quarter 1998 to increase inventory levels to stock new
products, support overall business growth, and strengthen order fulfillment
rates. As of September 30, 1997, the Company had cash and cash equivalents of
$1,245, working capital of $50,525, and long-term debt of $17,359.
The Company's total debt at September 30, 1997 of $26,680 was
comprised of $9,300 under the Mellon Credit Agreement, dated as of May 6, 1994,
among the Company and Mellon Bank, as amended (the "Mellon Credit Agreement"),
$16,000 aggregate principal amount of 8.81% Senior Notes, and $1,380 of various
other loans. The weighted average interest rate on all indebtedness of the
Company as of September 30, 1997 was approximately 8.2% compared to 8.3% as of
September 30, 1996. In addition, at September 30, 1997 the Company had $30,340
of additional funds available under the Mellon Credit Agreement.
The Company has entered and will continue in the future, on a
selective basis, to enter into forward exchange contracts to reduce foreign
currency exposure related to certain intercompany inventory transactions. On a
monthly basis, the open contracts are revalued to the current exchange rates
and the resulting gains
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and losses are recorded in other income. These gains and losses offset the
revaluation of the related foreign currency denominated receivables.
At September 30, 1997, the open foreign exchange contracts were
exclusively in Yen. These open contracts were valued at approximately $4.6
million, with contract rates ranging from 112.29 to 114.75 Yen per U.S. dollar,
and will expire over the next six months. The effect of these contracts on net
income for the three and six month periods ended September 30, 1997 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.
ACCOUNTING STANDARDS
In February 1997, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standards ("SFAS") No. 128 "Earnings
per Share", which establishes new standards for computing and presenting
earnings per share ("EPS"). As required by the SFAS, the Company will adopt the
new standard in the quarter ended December 31, 1997, and restate all prior
periods. The Company has reviewed SFAS No. 128 and determined that had the SFAS
been adopted during Fiscal 1998, basic and diluted EPS would have been $0.45
and $0.42, respectively, for the Second Quarter 1998, and $0.85 and $0.81,
respectively for the six month period ended September 30, 1997.
In June 1997, the FASB issued SFAS No. 130 "Reporting Comprehensive
Income", which establishes standards for reporting and display of comprehensive
income and its components in financial statements. As required by the SFAS, the
Company expects to adopt the new standard in the first quarter of Fiscal 1999.
The Company has reviewed SFAS No. 130 and determined that the only component of
comprehensive income which applies to the Company will be foreign currency
translation adjustments currently recorded directly to Stockholder's Equity in
accordance with SFAS No. 52.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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PART II OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 11, 1997, the Company held its annual meeting of
stockholders. The four matters voted upon at the annual meeting were: (i) the
election of directors; (ii) the amendment to the 1992 Stock Option Plan ("the
Plan") to increase the number of shares authorized under the Plan; (iii) the
amendment to the Second Restated Certificate of Incorporation to increase the
number of shares of Common Stock authorized under the Plan; and (iv) the
ratification of the appointment of Arthur Andersen LLP as independent public
accountants for the fiscal year ending March 31, 1998.
Each of the Company's nominees for director was re-elected at the
annual meeting by the following vote:
SHARES SHARES SHARES BROKER
VOTED FOR WITHHELD ABSTAINING NON-VOTES
--------- -------- ---------- ---------
William F. Andrews 13,778,607 321,093 0 0
Michael E. Barker 13,778,437 321,263 0 0
Jeffery M. Boetticher 13,778,637 321,063 0 0
William R. Newlin 13,778,637 321,063 0 0
William Norred 13,778,637 321,063 0 0
Brian D. Young 13,778,637 321,063 0 0
Fred C. Young 13,778,637 321,063 0 0
The amendment to the 1992 Stock Option Plan to increase the number of
shares authorized under the plan was approved by the following vote:
SHARES SHARES VOTED SHARES BROKER
VOTED FOR AGAINST ABSTAINING NON-VOTES
--------- ------- ---------- ---------
12,564,911 1,509,838 24,951 0
The amendment to the Second Restated Certificate of Incorporation to
increase the number of shares of Common Stock authorized under the Plan was
approved by the following vote:
SHARES SHARES VOTED SHARES BROKER
VOTED FOR AGAINST ABSTAINING NON-VOTES
--------- ------- ---------- ---------
13,687,792 375,490 7,199 29,219
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The appointment of Arthur Andersen LLP as independent public
accountants for the fiscal year ending March 31, 1998 was approved by the
following vote:
SHARES SHARES VOTED SHARES BROKER
VOTED FOR AGAINST ABSTAINING NON-VOTES
--------- ------- ---------- ---------
14,089,279 2,900 7,521 0
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3.1 Second Restated Certificate of Incorporation, as
amended on August 13, 1997
10.1 1992 Stock Option Plan, as amended on August 13, 1997
27.1 Financial Data Schedules
(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
and Chief Financial Officer
November 10, 1997
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EXHIBIT INDEX
Exhibit
- -------
No.
- ---
3.1 Second Restated Certificate of Incorporation, as amended on August 13,
1997
10.1 1992 Stock Option Plan, as amended on August 13, 1997
27.1 Financial Data Schedules