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1999 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, 1998
COMMISSION FILE NO. 0-18706
BLACK BOX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3086563
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1000 Park Drive
Lawrence, Pennsylvania 15055
(Address of principal executive offices)
724-746-5500
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
--- ---
The number of shares outstanding of the Registrant's common stock, $.001 par
value, as of January 29, 1999 was 17,670,992 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) Restated *
December 31, March 31,
ASSETS 1998 1998
----------- ---------
Current assets:
Cash and cash equivalents $ 2,366 $ 11,227
Accounts receivable, net of allowance for doubtful
accounts of $3,620 and $2,656, respectively 50,800 50,606
Inventories, net 36,277 32,456
Other current assets 10,432 10,306
--------- ---------
Total current assets 99,875 104,595
Property, plant and equipment, net of accumulated depreciation
of $17,781 and $15,152, respectively 19,703 13,742
Intangibles, net of accumulated amortization of $28,047 and
$24,956, respectively 91,248 72,164
Other assets 624 440
========= =========
Total assets $ 211,450 $ 190,941
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt $ 1,856 $ 8,769
Accounts payable 12,471 15,866
Other accrued expenses 15,786 12,920
Accrued income taxes 4,824 3,460
--------- ---------
Total current liabilities 34,937 41,015
Long-term debt 6,307 8,189
Other liabilities, primarily deferred taxes 8,201 11,060
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 17,619,873 and 17,275,461, respectively 18 17
Additional paid-in capital 37,802 34,118
Retained earnings 128,299 101,643
Cumulative foreign currency translation adjustments (1,959) (3,619)
Dividend declared to former shareholders prior to mergers (2,155) (1,482)
--------- ---------
Total stockholders' equity 162,005 130,677
--------- ---------
Total liabilities and stockholders' equity $ 211,450 $ 190,941
========= =========
* Restated to include the current year acquisitions accounted for as
poolings of interests.
See Notes to Consolidated Financial Statements
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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
Three month period ended Nine month period ended
December 31, December 31,
(Restated) * (Restated) *
1998 1997 1998 1997
--------- --------- --------- --------
Revenues $ 85,262 $ 74,643 $ 238,784 $ 219,381
Cost of sales 43,044 37,472 121,374 110,266
--------- --------- --------- ---------
Gross profit 42,218 37,171 117,410 109,115
Selling, general and
administrative expenses 24,792 22,443 69,622 65,602
Intangibles amortization 1,155 943 3,091 2,849
--------- --------- --------- ---------
Operating income 16,271 13,785 44,697 40,664
Interest expense, net 235 756 521 2,524
Other (income)/expenses, net 92 (185) 26 (350)
--------- --------- --------- ---------
Income before income taxes 15,944 13,214 44,150 38,490
Provision for income taxes 6,369 5,114 17,494 15,263
--------- --------- --------- ---------
Net income $ 9,575 $ 8,100 $ 26,656 $ 23,227
========= ========= ========= =========
Basic earnings per common share $ 0.55 $ 0.47 $ 1.54 $ 1.35
========= ========= ========= =========
Diluted earnings per common share $ 0.53 $ 0.45 $ 1.47 $ 1.28
========= ========= ========= =========
Weighted average common shares 17,359 17,255 17,309 17,188
========= ========= ========= =========
Weighted average common and
common equivalent shares 18,232 18,182 18,149 18,091
========= ========= ========= =========
* Restated to include the current year acquisitions accounted for as
poolings of interests.
See Notes to Consolidated Financial Statements
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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(Dollars in thousands)
Additional
Common Stock Paid-in Retained Translation
-------------------
Shares Amount Capital Earnings Adjustment Dividend Total
---------- ------ ---------- --------- ---------- --------- ----------
Balance at March 31, 1997* 17,029,033 $ 17 $ 30,012 $ 68,577 $ (2,154) $ (147) $ 96,305
Net income for the year
ended March 31, 1998 -- -- -- 32,486 -- -- 32,486
Contribution from merger -- -- 260 580 -- -- 840
Issuance of common stock 68,115 -- -- -- -- -- --
Exercise of options 178,313 -- 2,038 -- -- -- 2,038
Tax benefit from exercised options -- -- 1,808 -- -- -- 1,808
Foreign currency translation
adjustments -- -- -- -- (1,465) -- (1,465)
Dividend declared to former
shareholders prior to merger -- -- -- -- -- (1,335) (1,335)
---------- ----- ---------- ---------- ---------- ---------- ----------
Balance at March 31, 1998 17,275,461 17 34,118 101,643 (3,619) (1,482) 130,677
Net income for the nine month
period ended December 31, 1998 -- -- -- 26,656 -- -- 26,656
Exercise of options 344,412 1 2,395 -- -- -- 2,396
Tax benefit from exercised options -- -- 1,289 -- -- -- 1,289
Foreign currency translation
adjustments -- -- -- -- 1,660 -- 1,660
Dividend declared to former
shareholders prior to merger -- -- -- -- -- (673) (673)
---------- ----- ---------- ---------- ---------- ---------- ----------
Balance at December 31, 1998 17,619,873 18 37,802 128,299 (1,959) (2,155) 162,005
========== ===== ========== ========== ========== ========== ==========
* Restated to include the current year acquisitions accounted for as
poolings of interests.
See Notes to Consolidated Financial Statements
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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
Nine month period ended
December 31,
1998 1997 *
-------- --------
Cash flows from operating activities:
Net income $ 26,656 $ 23,227
Adjustments to reconcile net income to cash provided
by operating activities:
Intangibles amortization 3,091 2,849
Depreciation 2,333 1,896
Other 122 (56)
Changes in working capital items:
Account receivable, net 4,660 (278)
Inventories, net (1,997) (6,393)
Other current assets 98 (2,315)
Accounts payable and accrued liabilities (8,172) (6,005)
-------- --------
Cash provided by operating activities 26,791 12,925
-------- --------
Cash flows from investing activities:
Cash acquired from mergers -- 160
Capital expenditures (6,892) (1,896)
Acquisitions, net of $1,065 cash acquired (24,637) --
-------- --------
Cash (used) in investing activities (31,529) (1,736)
-------- --------
Cash flows from financing activities:
Repayment of borrowings (8,795) (11,791)
Proceeds from exercise of options 3,685 2,092
Dividends paid to former shareholders prior to mergers (673) (1,014)
-------- --------
Cash (used) in financing activities (5,783) (10,713)
-------- --------
Foreign currency translation adjustment 1,660 (398)
-------- --------
(Decrease)/increase in cash and cash equivalents (8,861) 78
Cash and cash equivalents at beginning of period 11,227 1,731
-------- --------
Cash and cash equivalents at end of period $ 2,366 $ 1,809
======== ========
* Restated to include the current year acquisitions accounted for as
poolings of interests.
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, 1998.
NOTE 2 - FISCAL YEARS AND INTERIM PERIODS
Prior to March 31, 1998, the Company followed a 52 or 53 week fiscal
calendar which divided the year into 13 week fiscal quarters and adjusted the
fourth quarter for those years with 53 weeks. Beginning with the fourth quarter
of fiscal 1998, the fiscal quarter ending dates were changed to the calendar
quarter ending dates. As a result, the ending dates for the periods ended
December 31, 1998, March 31, 1998 and December 31, 1997 were actually December
31, 1998, March 31, 1998, and December 28, 1997, respectively. For simplicity,
the calendar period end is used for all period end references.
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,
1998 1998
---- ----
Raw materials $ 1,976 $ 1,654
Work-in-process 54 41
Finished goods 37,057 33,627
Inventory reserve (2,810) (2,866)
------- -------
Inventory, net $36,277 $32,456
======= =======
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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, 1998, the open foreign exchange contracts were exclusively
in Yen. These open contracts were valued at approximately $994, with contract
rates ranging from 115.45 to 116.01 Yen per U.S. dollar, and will expire over
the next two months. The effect of these contracts on net income for the three
and nine month periods ended December 31, 1998 was not material.
NOTE 5 - COMPREHENSIVE INCOME
In the first quarter of Fiscal 1999, the Company adopted Statement of
Financial Accounting Standards ("SFAS") No. 130 "Reporting Comprehensive
Income," which established standards for reporting and displaying comprehensive
income and its components in financial statements. Comprehensive income is
defined as net income and all nonowner changes in shareholders' equity.
Accumulated other comprehensive income consists entirely of foreign currency
translation adjustments. Total comprehensive income for the three and nine month
periods ended December 31, 1998 and three and nine month periods ended December
31, 1997 were $9,739, $28,316, $8,181 and $22,829, respectively.
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 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, less the number of shares assumed to be repurchased
with the tax savings resulting from compensation expense of exercisable options.
The following table details this calculation:
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Three month period ended Nine month period ended
December 31, December 31,
1998 1997 1998 1997
---- ---- ---- ----
Net income for earnings per share
computation $ 9,575 $ 8,100 $ 26,656 $ 23,227
Basic earnings per common share:
Weighted average common shares 17,359 17,255 17,309 17,188
------ ------ ------ ------
Basic earnings per common share $ 0.55 $ 0.47 $ 1.54 $ 1.35
======== ======== ======== ========
Diluted earnings per common share:
Weighted average common shares 17,359 17,255 17,309 17,188
Shares issuable from assumed conversion
of common stock equivalents 1,039 1,066 981 1,042
Shares buyable with tax savings from
compensation expense of exercised options (166) (139) (141) (139)
Weighted average common and common
equivalent shares 18,232 18,182 18,149 18,091
------ ------ ------ ------
Diluted earnings per common share $ 0.53 $ 0.45 $ 1.47 $ 1.28
======== ======== ======== ========
NOTE 7 - ADOPTION OF NEW ACCOUNTING STANDARDS
In June 1997, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 131, "Disclosures about Segments of an Enterprise and Related Information,"
which establishes standards for the way that public business enterprises report
financial and descriptive information about their reportable operating segments.
As required by SFAS No. 131, the Company will adopt the new statement in the
fiscal year ended March 31, 1999 and apply it to interim financial statements in
subsequent fiscal years. The Company is currently determining their reportable
operating segments under this statement.
In June 1998, the FASB issued SFAS No. 133, "Accounting for Derivative
Instruments and Hedging Activities," which establishes accounting and reporting
standards for derivative instruments and requires that an entity recognize all
derivatives as either assets or liabilities and measure those instruments at
fair value. As required by SFAS No. 133, the Company expects to adopt the new
statement in the first quarter of Fiscal 2001. The effect of this statement on
the Company's financial statements has not been determined.
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NOTE 8 - CHANGES IN BUSINESS
In December 1998, the Company merged Advanced Communications, Corporation
("ACC") into a wholly-owned subsidiary. ACC is a privately-held company based in
Columbia, South Carolina that provides on-site services for premise cabling and
related products to customers throughout South Carolina. This business
combination has been accounted for as a pooling of interests. All financial
statement periods presented have been restated to reflect the results of
operations and financial position of ACC. (See Note 9 - Prior Period
Restatement)
In September 1998, the Company acquired 100% of the parent corporation of
Wakefield Electronics Group, Inc., doing business as South Hills Datacomm (South
Hills). South Hills is a direct marketer of computer communications and
networking products with subsidiary operations in the United States, Puerto Rico
and Chile. The purchase price was $25.3 and resulted in goodwill of
approximately $23, which will be amortized over thirty years. The Company has
consolidated the results of operations for South Hills as of the acquisition
date. The operations and financial position of South Hills are not material to
either the consolidated financial position or results of operations of the
Company and therefore, no pro forma information has been provided.
NOTE 9 - PRIOR PERIOD RESTATEMENT
During fiscal year 1999, the Company successfully completed five business
combinations accounted for as poolings of interests: Associated Network
Solutions, Inc. ("ANSI"), American Telephone Wiring Company ("ATW"), CCI Direct
Connect, Inc. ("CCI"), Midwest Communications Technologies, Inc. ("MCT"), and
ACC. The aggregated historical results of operations and financial position of
ANSI, ATW, CCI, MCT and ACC (the "Acquired Companies") have met the materiality
threshold of the Company's consolidated financial statements during Third
Quarter 1999 and all prior period amounts have therefore been restated to
reflect the results of operations and financial position for each of the five
business combinations.
The Company issued an aggregate of 510,351 shares of its common stock in
exchange for all of the outstanding shares of the Acquired Companies. The
following table reports aggregated revenue and aggregated net income of the
Acquired Companies for the periods preceding the acquisition dates:
*Nine month period ended
December 31,
------------------------
1998 1997
----- ----
Revenue 8,265 15,695
Net income 418 944
*1998 data includes only activity for each of the Acquired Companies from April
1, 1998 to its respective acquisition date. 1997 data includes nine full months
of activity.
NOTE 10 - SUBSEQUENT EVENT
Subsequent to December 31, 1998, the Company merged Key-Four, Inc., a
privately-held company based in Atlanta, Georgia ("Key-Four"), into a
wholly-owned subsidiary. Key-Four provides technical design, installation and
maintenance services for structured premise cabling and telephone systems. This
acquisition was accounted for using the purchase method of accounting, and the
Company will consolidate the results of operations and financial position as of
the acquisition date, January 15, 1999.
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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,
-----------------------------------------------------
1998 1997 1998 1997
---- ---- ---- ----
Revenues $ 85,262 $ 74,643 $ 238,784 $ 219,381
========= ========= ========== ==========
Revenues:
North America 52.8 % 54.2 % 56.8 % 56.0 %
International 47.2 45.8 43.2 44.0
--------- --------- ---------- ----------
Total 100.0 100.0 100.0 100.0
Cost of sales 50.5 50.2 50.8 50.3
--------- --------- ---------- ----------
Gross profit 49.5 49.8 49.2 49.7
Selling, general and
administrative expenses 29.0 30.0 29.2 29.9
--------- --------- ---------- ----------
Operating income
before amortization 20.5 19.8 20.0 19.8
Intangibles amortization 1.4 1.3 1.3 1.3
========= ========= ========== ==========
Operating income 19.1 % 18.5 % 18.7 % 18.5 %
========= ========= ========== ==========
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Revenues for the three and nine month periods ended December 31, 1998 were
$85,262 and $238,784, respectively, an increase of $10,619, or 14.2%, and
$19,403, or 8.8%, respectively, over the same period in the prior year. Revenues
from North America for Third Quarter 1999 were $45,034, an increase of $4,551,
or 11.2%, over revenues for Third Quarter 1998 of $40,483. For the nine months
ended December 31, 1998, North American revenues were $135,577, an increase of
$12,648, or 10.3%, over the revenues for the nine months ended December 31, 1997
of $122,929. North American revenue growth for the quarter and year-to-date was
primarily driven by continued strong customer demand for new products including
on-site technical services, the acquisition of South Hills Datacomm and
continued strength in customer demand for cables, switches, modems, and LAN
products.
Revenues from International operations for Third Quarter 1999 were $40,228,
an increase of $6,068, or 17.8%, over revenues for Third Quarter 1998 of
$34,160. For the nine months ended December 31, 1998, revenues from
International operations were $103,207, an increase of $6,755, or 7.0%, over the
revenues for the nine months ended December 31, 1997 of $96,452. 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,
1998, would have increased 15.0% and 8.4%, 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 decreased $488, or 6.4%, in Third Quarter 1999 and decreased $3,331, or
14.9%, year-to-date; United Kingdom increased $1,786, or 26.9%, in Third Quarter
1999 and increased $4,026, or 21.3%, year-to-date; France increased $916, or
17.1%, in Third Quarter 1999 and increased $2,111, or 15.3%, year-to-date; and
Brazil decreased $1,435, or 43.5%, in Third Quarter 1999 and decreased $3,641,
or 37.6%, year-to-date. Excluding Japan, United Kingdom, France and Brazil, the
remaining International business unit grew $5,289, or 47.2%, in Third Quarter
1999 and increased $7,598, or 23.9%, year-to-date. Revenue declines in Japan
were a result of the current unfavorable economic conditions in the region. The
relative strength of the Yen to the dollar favorably impacted Third Quarter 1999
revenues but has had an unfavorable impact on revenues for the fiscal 1999
year-to-date. If the Yen to dollar exchange rate had remained constant from the
corresponding periods in the prior year, Japan revenues would have declined by
$799, or 10.5%, for the three months ended December 31, 1998 and $1,859, or
8.3%, for the nine months ended December 31, 1998. Brazil revenues have declined
for both the three and nine months ended December 31, 1998 consistent with
management's plan to reorganize the Brazilian operation to improve its
profitability. International revenue growth outside of Japan and Brazil was
primarily driven by strong customer demand in the cables, switches and LAN
product lines for both the three and nine months ended December 31, 1998.
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Gross profit in Third Quarter 1999 increased to $42,218, or 49.5%, of
revenues, from $37,171, or 49.8%, of revenues, in Third Quarter 1998. Gross
profit for the nine month period ended December 31, 1998 increased to $117,410,
or 49.2%, of revenues, from $109,115, or 49.7%, of revenues over the same period
in the prior year. Declines in North American margins are driven primarily by a
fluctuation in product and customer mix as well as the slightly lower margins
from the technical service acquisitions.
Selling, general and administrative ("SG & A") expenses in Third Quarter
1999 were $24,792, or 29.0% of revenues, an increase of $2,349 over SG&A
expenses of $22,443, or 30.0% of revenues, in Third Quarter 1998. SG&A expenses
for the nine month period ended December 31, 1998 were $69,622, or 29.2% of
revenues, an increase of $4,020 over SG&A expenses of $65,602, or 29.9% of
revenues over the same period in the prior year. SG&A 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 $2,349 and
$4,020 for the three and nine months ended December 31, 1998 relate primarily to
SG&A costs of acquired companies and personnel costs incurred to support the
Company's continued growth.
Operating income before amortization in Third Quarter 1999 was $17,426, or
20.5% of revenues, compared to $14,728, or 19.8% of revenues, in Third Quarter
1998. Operating income before amortization for the nine month period ended
December 31, 1998 was $47,788, or 20.0% of revenues, compared to $43,513, or
19.8% of revenues over the same period in the prior year. Intangible
amortization for the three and nine month periods ended December 31, 1998 were
$1,155, an increase of $212, or 22.5%, and $3,091, an increase of $242, or 8.5%,
respectively, over the same period in the prior year. The increase in
intangibles amortization is driven by goodwill additions from recent
acquisitions.
Net interest expense for the three and nine month periods ended December
31, 1998 was $235 and $521 respectively, a decrease from the same periods last
year of $521 and $2,003, respectively, due to lower average borrowings.
The estimated annual effective income tax rate of 39.6% for Fiscal 1999 is
higher than the U.S. statutory rate of 35.0% primarily due to foreign subsidiary
income tax rates higher than the U.S. statutory rate, state income taxes and the
unfavorable impact of non-deductible intangibles amortization.
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LIQUIDITY AND CAPITAL RESOURCES
In Third Quarter 1999, the Company's net borrowings decreased by $10.6 as a
result of repayments. Net borrowing decreased by $8.8 for the nine months ended
December 31, 1998 due to repayment of $16.0 and debt incurred of $7.2 primarily
to finance acquisitions. As of December 31, 1998, the Company had cash and cash
equivalents of $2,366, working capital of $64,938, and total debt of $8,163.
The Company's total debt at December 31, 1998 was comprised of $6,200 under
the Mellon Credit Agreement, dated as of May 6, 1994, between the Company and
Mellon Bank, as amended (the "Mellon Credit Agreement"), and $1,963 of various
other loans. The weighted average interest rate on all indebtedness of the
Company as of December 31, 1998 was approximately 6.0% compared to 8.4% as of
December 31, 1997. In addition, at December 31, 1998, the Company had $1,037 of
letters of credit outstanding and $32,763 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 and losses are recorded in other income. These gains and losses
offset the revaluation of the related foreign currency denominated receivables.
At December 31, 1998, the open foreign exchange contracts were exclusively
in Yen. These open contracts were valued at approximately $994, with contract
rates ranging from 115.45 to 116.01 Yen to U.S. dollars, and will expire over
the next two months. The effect of these contracts on net income for the three
and nine month periods ended December 31, 1998 was not material.
The Company believes that its cash flow from operations and existing credit
facilities will be sufficient to satisfy its liquidity needs for the foreseeable
future.
YEAR 2000
The Company has conducted a review of its information technology systems
and non-information technology systems to evaluate the potential impact and
disruption to its business arising from the year 2000. Those systems which were
determined to not be year 2000 compliant have been corrected or are currently in
the process of being modified. The Company's mainframe Distribution Control
System, which processes customer orders, controls inventory, and updates
accounts receivable, became compliant in early 1998. The hardware supporting
this application is year 2000 compliant and the system software will be year
2000 compliant in May 1999 as part of regular maintenance upgrades. The Company
is
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in the process of upgrading the functionality of the hardware and system
software that supports both the financial general ledger and the manufacturing
control system. This upgrade will also result in a year 2000 compliant system
and is expected to be completed by March 1999. The application software for the
financial general ledger and the manufacturing system have been assessed and are
expected to be compliant by March 1999. The Company has determined that a
minimal amount of updates and replacements are also required for the hardware
and software on the workstations and servers and should be completed by
September 1999. The Company is in the process of evaluating its subsidiaries to
determine their state of readiness for the year 2000 and does not anticipate any
major issues. Total costs for modifications/upgrades to the information
technology systems is estimated at $400 of which about $300 was incurred during
the fiscal year ended March 31, 1998. All costs directly related to the year
2000 are being expensed as incurred.
The Company has surveyed significant vendors in order to evaluate the risks
of year 2000 threats related to their interaction with the Company's systems and
the supply of products. About 90% of the responses have been received and
evaluated with no major complications or disruptions anticipated. The Company is
currently evaluating the year 2000 readiness of its significant service
providers and does not anticipate any related problems. The Company has the
ability to communicate to customers information about year 2000 compliancy for
all products. Other significant non-information technology systems have been
evaluated and the estimated cost for replacement is not material.
The Company has fully tested its mainframe Distribution Control System and
does not expect any processing failures as a result of the year 2000. However,
in the event of a year 2000 failure of this system, the Company has a
contingency plan to fulfill customer orders using a manual process.
CONVERSION TO THE EURO CURRENCY
On January 1, 1999, certain members of the European Union established fixed
conversion rates between their existing currencies and the European Union's
common currency, the Euro. The Company conducts business in member countries.
The transition period for the introduction of the Euro will be between January
1, 1999 and June 30, 2002. The Company is assessing the issues involved with the
introduction of the Euro, and it does not expect Euro conversion to have a
material impact on its operations or financial results.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
21.0 Subsidiaries of the Company
27.1 Financial Data Schedule - December 31, 1998
27.2 Financial Data Schedule - September 30, 1998
27.3 Financial Data Schedule - June 30, 1998
27.4 Financial Data Schedule - March 31, 1998
27.5 Financial Data Schedule - December 31, 1997
27.6 Financial Data Schedule - September 30, 1997
27.7 Financial Data Schedule - June 30, 1997
27.8 Financial Data Schedule - March 31, 1997
(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
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Anna M. Baird, Vice President,
Chief Financial Officer,
Treasurer, and Principal
Accounting Officer
February 12, 1999
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