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1998 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, 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 January 30, 1998 was 16,765,110 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 1997 1997
---------- ----------
Current assets:
Cash and cash equivalents $ 1,251 $ 1,353
Accounts receivable, net of allowance for doubtful
accounts of $2,666 and $2,499, respectively 42,688 43,900
Inventories, net 36,644 30,435
Other current assets 10,535 8,227
--------- ---------
Total current assets 91,118 83,915
Property, plant and equipment, net of accumulated depreciation
of $13,655 and $11,772, respectively 12,980 12,923
Intangibles, net of accumulated amortization of $24,009 and
$21,165, respectively 73,111 75,955
Other assets 478 486
========= =========
Total assets $ 177,687 $ 173,279
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt $ 9,301 $ 8,128
Accounts payable 17,544 19,924
Accrued expenses 8,967 11,815
Accrued income taxes 4,362 5,816
--------- ---------
Total current liabilities 40,174 45,683
Long-term debt 8,051 21,175
Other liabilities, primarily deferred taxes 11,787 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 16,689,471 and 16,518,682, respectively 17 17
Additional paid-in capital 31,792 29,897
Retained earnings 88,419 66,504
Cumulative foreign currency translation adjustments (2,553) (2,154)
--------- ---------
Total stockholders' equity 117,675 94,264
--------- ---------
Total liabilities and stockholders' equity $ 177,687 $ 173,279
========= =========
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,
1997 1996 1997 1996
------- ------- -------- --------
Revenues $68,184 $58,589 $201,313 $169,289
Cost of sales 33,443 27,453 98,663 78,580
------- ------- -------- --------
Gross profit 34,741 31,136 102,650 90,709
Selling, general and
administrative expenses 20,564 18,736 60,893 54,817
Intangibles amortization 945 963 2,851 2,889
------- ------- -------- --------
Operating income 13,232 11,437 38,906 33,003
Interest expense, net 593 839 2,140 3,005
Other income/expenses, net (184) 63 (350) 119
------- ------- -------- --------
Income before income taxes 12,823 10,535 37,116 29,879
Provision for income taxes 5,082 4,425 15,201 12,739
------- ------- -------- --------
Net income $ 7,741 $ 6,110 $ 21,915 $ 17,140
======= ======= ======== ========
Basic earnings per common share $ 0.46 $ 0.37 $ 1.31 $ 1.05
======= ======= ======== ========
Diluted earnings per common share $ 0.44 $ 0.35 $ 1.24 $ 0.99
======= ======= ======== ========
Weighted average common shares 16,676 16,454 16,610 16,385
======= ======= ======== ========
Weighted average common and
common equivalent shares 17,762 17,691 17,652 17,237
======= ======= ======== ========
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, 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 nine month
period ended December 31, 1997 - - - 21,915 - 21,915
Exercise of options 170,789 - 1,232 - - 1,232
Tax benefit from exercised options - - 663 - - 663
Foreign currency translation -
adjustments - - - - (399) (399)
---------- ------ ---------- -------- ----------- ---------
Balance at December 31, 1997 16,689,471 $ 17 $ 31,792 $ 88,419 $ (2,553) $ 117,675
========== ====== ========== ======== =========== =========
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,
1997 1996
-------- --------
Cash flows from operating activities:
Net income $ 21,915 $ 17,140
Adjustments to reconcile net income to cash provided
by operating activities:
Intangibles amortization 2,844 2,835
Depreciation 1,896 1,712
Other 4 (77)
Changes in working capital items:
Account receivable, net 1,212 (1,475)
Inventories, net (6,233) (6,320)
Other current assets (2,280) (972)
Accounts payable (2,380) 343
Accrued expenses (4,673) 297
-------- --------
Cash provided by operating activities 12,305 13,483
-------- --------
Cash flows from investing activities:
Capital expenditures (1,953) (1,713)
Dividend from joint ventures - 64
-------- --------
Cash used in investing activities (1,953) (1,649)
-------- --------
Cash flows from financing activities:
Repayment of borrowings (85,520) (55,725)
Proceeds from borrowings 73,569 39,673
Proceeds from exercise of options 1,895 3,418
-------- --------
Cash used in financing activities (10,056) (12,634)
-------- --------
Foreign currency translation adjustment (398) 443
-------- --------
Decrease in cash and cash equivalents (102) (357)
Cash and cash equivalents at beginning of period 1,353 1,924
-------- --------
Cash and cash equivalents at end of period $ 1,251 $ 1,567
======== ========
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 ("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 December 31, 1997, March 31, 1997 and December 31, 1996 were actually
December 28, 1997, March 30, 1997 and December 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:
December 31, March 31,
1997 1997
-------------- ---------
Raw materials $ 2,322 $ 2,152
Work-in-process 70 28
Finished goods 36,146 29,865
Inventory reserve (1,894) (1,610)
-------------- ---------
Inventory, net $ 36,644 $ 30,435
============== =========
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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 December 31, 1997, the open foreign exchange contracts were
exclusively in Yen. These open contracts were valued at approximately $2.3
million, with contract rates ranging from 112.29 to 113.44 Yen per U.S. dollar,
and will expire over the next three months. The effect of these contracts on net
income for the three and nine month periods ended December 31, 1997 was not
material.
NOTE 5 - ADOPTION OF NEW ACCOUNTING STANDARDS
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 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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NOTE 6 - 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 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 using the treasury stock method.
THREE MONTH PERIOD NINE MONTH PERIOD
ENDED DECEMBER 31, ENDED DECEMBER 31,
1997 1996 1997 1996
------ ------ ------- -------
Net income for earnings per
share computation $7,741 $6,110 $21,915 $17,140
====== ====== ======= =======
Basic earnings per common share:
Weighted average common
shares 16,676 16,454 16,610 16,385
====== ====== ====== ======
Basic earnings per common
share $0.46 $0.37 $1.31 $1.05
===== ===== ===== =====
Diluted earnings per common share:
Weighted average common
shares 16,676 16,454 16,610 16,385
Shares issuable from
assumed conversion of
common stock equivalents 1,086 1,237 1,042 852
----- ----- ----- ---
Weighted average common
and common equivalent
shares 17,762 17,691 17,652 17,237
====== ====== ====== ======
Diluted earnings per common
share $0.44 $0.35 $1.24 $0.99
===== ===== ===== =====
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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 NINE MONTH PERIOD
ENDED DECEMBER 31, ENDED DECEMBER 31,
1997 1996 1997 1996
---------- ---------- ---------- ----------
Revenues $68,184 $58,589 $201,313 $169,289
========== ========== ========== ==========
Revenues:
U.S./Canada 49.9% 51.2% 52.1% 53.7%
International 50.1 48.8 47.9 46.3
---------- ---------- ---------- ----------
Total 100.0 100.0 100.0 100.0
Cost of sales 49.0 46.9 49.0 46.4
---------- ---------- ---------- ----------
Gross profit 51.0 53.1 51.0 53.6
Selling, general and
administrative expenses 30.2 31.9 30.3 32.4
---------- ---------- ---------- ----------
Operating income
before amortization 20.8 21.2 20.7 21.2
Intangibles amortization 1.4 1.7 1.4 1.7
---------- ---------- ---------- ----------
Operating income 19.4% 19.5% 19.3% 19.5%
========== ========== ========== ==========
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Revenues for the three and nine month periods ended December 31, 1997
increased 16.4% and 18.9%, respectively, over the comparable periods for the
prior year, reflecting strong growth worldwide. For the three months ended
December 31, 1997 ("Third Quarter 1998"), U.S./Canada revenues increased 13.5%
over the three months ended December 31, 1996 ("Third Quarter 1997"). For the
nine months ended December 31, 1997, U.S./Canada revenues increased 15.4% 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 product 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 Third Quarter 1998
increased 19.4% over Third Quarter 1997, and for the nine months ended December
31, 1997 increased 22.9% 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 nine month periods ended December 31,
1997 would have increased 28.2% and 31.0%, 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 $967, or 15%, in Third Quarter 1998 and increased $4,201, or
23%, year-to-date; United Kingdom increased $1,465, or 28%, in Third Quarter
1998 and increased $4,614, or 32%, year-to-date; France increased $504, or 10%,
in Third Quarter 1998 and remained flat year-to-date; and Brazil increased $958,
or 41%, in Third Quarter 1998 and increased $3,849, or 66%, year-to-date.
Year-to-date reported revenues in France were flat compared to the same period
in the prior year due to a stronger U.S. dollar during the first nine months of
Fiscal 1998. Operating revenues in France for this period increased 15% over the
prior year. Excluding Japan, United Kingdom, France and Brazil, the remaining
International business units grew $1,660, or 17.4%, in Third Quarter 1998 and
increased $5,333, or 20.2%, year-to-date. The growth in International revenue
for both the quarter 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 both the three and nine month periods ended
December 31, 1997 was 51.0%, compared to 53.1% and 53.6%, respectively, for 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 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 nine month periods ended December 31, 1997 was
30.2% and 30.3%, compared to 31.9% and 32.4%, respectively, for the same periods
last year. SG & A expense decreased as a percentage of revenues from last year
as the Company was able to leverage its existing support structure. The dollar
increases
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from the same periods in the prior year of $1,828 and $6,076 for the three and
nine months ended December 31, 1997 relate to additional marketing and personnel
costs primarily at the International locations.
Operating income before amortization for the three and nine month
periods ended December 31, 1997 increased $1,777 and $5,865, respectively, over
the same periods last year. Intangibles amortization for the three and nine
month periods ended December 31, 1997 was comparable to the prior year,
decreasing as a percentage of revenues.
Net interest expense for the three and nine month periods ended
December 31, 1997 decreased $246 and $865, respectively, from the same periods
last year due to lower average borrowings.
The estimated annual effective income tax rate for Fiscal 1998 is
41.0%, 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 Third Quarter 1998, the Company paid down $9,328 of borrowings
through cash flows from operations, and reduced debt by $11,951 as of the end of
the first nine months of Fiscal 1998. As of December 31, 1997, the Company had
cash and cash equivalents of $1,251, working capital of $50,944 and long-term
debt of $8,051.
The Company's total debt at December 31, 1997 of $17,352 was comprised
of $16,000 aggregate principal amount of 8.81% Senior Notes, and $1,352 of
various other loans. The weighted average interest rate on all indebtedness of
the Company as of December 31, 1997 was approximately 8.4% compared to 8.3% as
of December 31, 1996. In addition, at December 31, 1997 the Company had $1,015
of letters of credit outstanding and $38,985 of funds available under the Mellon
Credit Agreement, dated as of May 6, 1994, among the Company and Mellon Bank, as
amended.
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 and losses are recorded in other income. These gains and
losses offset the revaluation of the related foreign currency denominated
receivables.
At December 31, 1997, the open foreign exchange contracts were
exclusively in Yen. These open contracts were valued at approximately $2.3
million, with contract rates ranging from 112.29 to 113.44 Yen per U.S. dollar,
and will expire over the next three months. The effect of these contracts on net
income for the three and nine month periods ended December 31, 1997 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.
ACCOUNTING STANDARDS
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 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 3. QUANTITATIVE AND QUALITATIVE DISCLOSURE ABOUT MARKET RISK
Not applicable.
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ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) EXHIBITS.
27.1 Financial Data Schedule
(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
February 5, 1998
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EXHIBIT INDEX
EXHIBIT NO.
- -----------
27.1 Financial Data Schedule
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