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2000 First Quarter
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 30, 1999
COMMISSION FILE NO. 0-18706
BLACK BOX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3086563
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1000 Park Drive
Lawrence, Pennsylvania 15055
(Address of principal executive offices)
724-746-5500
Registrant's telephone number, including area code
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES X NO
----- -----
The number of shares outstanding of the Registrant's common stock, $.001 par
value, as of July 30, 1999 was 18,684,315 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)
June 30, March 31,
1999 1999
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 4,844 $ 5,946
Accounts receivable, net of allowance for doubtful
accounts of $3,899 and $4,023, respectively 60,052 62,841
Inventories, net 35,310 32,258
Other current assets 19,643 16,172
--------- ---------
Total current assets 119,849 117,217
Property, plant and equipment, net of accumulated depreciation
of $21,893 and $20,741 respectively 26,472 24,190
Intangibles, net of accumulated amortization of $30,508 and
$29,219, respectively 105,879 104,208
Other assets 1,083 660
--------- ---------
Total assets $ 253,283 $ 246,275
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt $ 1,869 $ 1,511
Accounts payable 20,053 18,210
Other accrued expenses 14,184 19,549
Accrued income taxes 7,077 4,685
--------- ---------
Total current liabilities 43,183 43,955
Long-term debt 32,890 204
Deferred taxes 8,984 9,051
Other liabilities 445 413
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
18,511,725 and 18,147,358, respectively 19 18
Additional paid-in capital 66,693 59,272
Retained earnings 147,844 137,204
Treasury Stock, at cost, 1,000,000 shares (41,981) --
Cumulative foreign currency translation adjustments (4,794) (3,842)
--------- ---------
Total stockholders' equity 167,781 192,652
--------- ---------
Total liabilities and stockholders' equity $ 253,283 $ 246,275
========= =========
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
June 30,
1999 1998
-------- --------
Revenues $ 97,520 $ 73,096
Cost of sales 52,053 36,911
-------- --------
Gross profit 45,467 36,185
Selling, general and administrative expenses 26,493 21,446
Intangibles amortization 1,289 948
-------- --------
Operating income 17,685 13,791
Interest expense, net 50 183
Other expenses/(income), net 48 (77)
-------- --------
Income before income taxes 17,587 13,685
Provision for income taxes 6,947 5,401
-------- --------
Net income $ 10,640 $ 8,284
======== ========
Basic earnings per common share $ 0.60 $ 0.48
======== ========
Diluted earnings per common share $ 0.57 $ 0.46
======== ========
Weighted average common shares 17,767 17,237
======== ========
Weighted average common and
common equivalent shares 18,818 18,151
======== ========
See Notes to Consolidated Financial Statements
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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(Dollars in thousands)
Cumulative
Common Stock Additional Foreign
-------------------- Treasury Paid-in Retained Currency
Shares Amount Stock Capital Earnings Translation Total
---------- --------- --------- ---------- ---------- ----------- ----------
Balance at March 31, 1998 17,233,021 $ 17 -- $ 34,117 $ 99,733 $ (3,619) $ 130,248
Net income -- -- -- -- 38,145 -- 38,145
Issuance of common stock 567,592 1 -- 18,317 -- -- 18,318
Exercise of options 346,745 -- -- 3,732 -- -- 3,732
Tax benefit from exercised options -- -- -- 3,106 -- -- 3,106
Foreign currency translation
adjustment -- -- -- -- -- (223) (223)
Dividends declared to former
shareholders prior to mergers -- -- -- -- (674) -- (674)
---------- --------- --------- ---------- ---------- ---------- ----------
Balance at March 31, 1999 18,147,358 18 0 59,272 137,204 (3,842) 192,652
Net income -- -- -- -- 10,640 -- 10,640
Issuance of treasury stock -- -- (41,981) -- -- -- (41,981)
Issuance of common stock 73,622 1 -- 3,083 -- -- 3,084
Exercise of options 290,745 -- -- 2,820 -- -- 2,820
Tax benefit from exercised options -- -- -- 1,518 -- -- 1,518
Foreign currency translation
adjustment -- -- -- -- -- (952) (952)
---------- --------- --------- ---------- ---------- ---------- ----------
Balance at June 30, 1999 18,511,725 $ 19 $ (41,981) $ 66,693 $ 147,844 $ (4,794) $ 167,781
========== ========= ========= ========== ========== ========== ==========
See Notes to Consolidated Financial Statements
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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
Three month period ended
June 30,
1999 1998
-------- --------
Cash flows from operating activities:
Net income $ 10,640 $ 8,284
Adjustments to reconcile net income to cash provided
by operating activities:
Intangibles amortization 1,289 945
Depreciation 1,013 679
Other 32 4
Changes in working capital items:
Account receivable, net 3,254 5,712
Inventories, net (2,922) (525)
Other current assets (3,495) 2,139
Accounts payable and accrued liabilities (2,510) (8,427)
-------- --------
Cash provided by operating activities 7,301 8,811
-------- --------
Cash flows from investing activities:
Capital expenditures (2,600) (881)
Mergers, net of $104 cash acquired 45 --
Purchase of Treasury Stock (41,981) --
-------- --------
Cash (used) in investing activities (44,536) (881)
-------- --------
Cash flows from financing activities:
Repayment of borrowings (685) (8,101)
Proceeds from borrowings 33,729 884
Proceeds from exercise of options 4,338 80
Dividends paid to former shareholders prior to mergers -- (506)
-------- --------
Cash provided by/(used in) financing activities 37,382 (7,643)
-------- --------
Foreign currency translation adjustment (1,249) (517)
-------- --------
(Decrease) in cash and cash equivalents (1,102) (230)
Cash and cash equivalents at beginning of period 5,946 11,166
-------- --------
Cash and cash equivalents at end of period $ 4,844 $ 10,936
======== ========
Interest paid $ 180 $ 752
Income taxes paid $ 1,872 $ 282
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 Black Box
Corporation ( the "Company") believes that all adjustments necessary for a fair
presentation have been made, interim periods are not necessarily indicative of
the results of operations for a full year. As such, these financial statements
should be read in conjunction with the financial statements and notes thereto
included in the Company's most recent Form 10-K which was filed with the SEC for
the fiscal year ended March 31, 1999. Certain prior year amounts have been
reclassified to conform to the current year financial statement presentation.
NOTE 2 - INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out
method) or market. The net inventory balances are as follows:
June 30, March 31,
1999 1999
-------- ---------
Raw materials $ 2,818 $ 2,231
Work-in-process 35 31
Finished goods 35,025 33,552
Inventory reserve (2,568) (3,556)
-------- --------
Inventory, net $ 35,310 $ 32,258
======== ========
NOTE 3 - FINANCIAL DERIVATIVES
The Company has entered and will continue in the future, on a selective
basis, to enter into forward exchange contracts to reduce the foreign currency
exposure related to certain intercompany transactions. On a monthly basis, the
open contracts are revalued to 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 June 30, 1999, the open foreign exchange contracts were exclusively
in Yen. These open contracts were valued at approximately $2,188, with contract
rates ranging from 123.16 to 123.64 Yen per U.S. dollar, and will expire over
the next two months. The effect of these contracts on net income for the three
month period ended June 30, 1999 was not material.
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
NOTE 4 - 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 month periods
ended June 30, 1999 and 1998 were $9,688 and $7,767, respectively.
NOTE 5 - EARNINGS PER SHARE
Basic earnings per common share were computed based on the weighted
average number of common shares issued and outstanding during the relevant
periods. Diluted earnings per common share were computed under the treasury
stock method based on the weighted average number of common shares issued and
outstanding, plus additional shares assumed to be outstanding to reflect the
dilutive effect of common stock equivalents, 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:
Three month period
Ended June 30,
1999 1998
-------- --------
Net income for earnings per share computation $ 10,640 $ 8,284
Basic earnings per common share:
Weighted average common shares 17,767 17,237
-------- --------
Basic earnings per common share $ 0.60 $ 0.48
======== ========
Diluted earnings per common share:
Weighted average common shares 17,767 17,237
Shares issuable from assumed conversion
of common stock equivalents 1,258 1,090
Shares buyable with tax savings from
compensation expense of exercised options (207) (176)
-------- --------
Weighted average common and common
equivalent shares 18,818 18,151
-------- --------
Diluted earnings per common share $ 0.57 $ 0.46
======== ========
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
NOTE 6 - ADOPTION OF NEW ACCOUNTING STANDARDS
In June 1998, the Financial Accounting Standards Board ("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. The Company expects to
adopt the new statement in the first quarter of Fiscal 2002. The effect of this
statement on the Company's financial statements has not been determined.
NOTE 7 - CHANGES IN BUSINESS
In April 1999, the Company merged Con-Optic, Inc. ("Con-Optic") into
Key-Four, Inc. ("Key-Four"), a wholly owned subsidiary. Based in Atlanta,
Georgia, privately held Con-Optic provides services similar to Key-Four,
including technical design, installation and maintenance services for premise
cabling and related products to customers throughout Georgia. The results of
operations and financial position of Con-Optic are not material to the Company's
consolidated results of operations or financial position.
During May 1999, the Company effected a merger with C-Tel Corporation
("C-Tel"). Established in 1987 in Columbus, Ohio, privately held C-Tel provides
technical design, installation and maintenance services for premise cabling and
related products to customers primarily in Ohio. C-Tel was subsequently merged
into Midwest Communications Technologies, Inc. ("MCT"), a wholly owned
subsidiary, providing similar services. The results of operations and financial
position of C-Tel are not material to the Company's consolidated results of
operations or financial position.
The Company issued an aggregate of 82,328 shares of its common stock in
exchange for all of the outstanding shares of Con-Optic and C-Tel. The aggregate
purchase price for Con-Optic and C-Tel was $3,142 and resulted in goodwill after
assumed liabilities of approximately $2,914, which will be amortized over twenty
five years.
NOTE 8 - TREASURY STOCK
On March 31, 1999, the Company announced its intention to repurchase up
to 1 million shares of its Common Stock. As of June 1999, the Company had
repurchased all 1 million shares at prevailing market prices for an aggregate
purchase price of $41,981. Funding for these stock repurchases came from
existing cash flow and borrowings under the Mellon Credit Facility.
The following represents the Company's results for the three months
ended June 30, 1999 and June 30, 1998 on a pro forma basis as if the stock
repurchase had occurred as of the beginning of each period:
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
Three months ended Three months ended
June 30, 1999 June 30, 1998
Reported Pro Forma Reported Pro Forma
- --------------------------------------------------------------------------------
Net Income $10,640 $10,640 $ 8,284 $ 8,284
Basic earnings per
common share 0.60 0.61 0.48 0.51
Diluted earnings per
common share 0.57 0.58 0.46 0.48
Weighted average common
shares 17,767 17,310 17,237 16,237
Weighted average common
and common equivalent
shares 18,818 18,361 18,151 17,151
- --------------------------------------------------------------------------------
NOTE 9 - SEGMENT REPORTING
Since the last annual report for the fiscal year ended March 31, 1999,
the Company has changed its basis of segmentation from a geographic basis to a
product and service line basis. The Company now manages the business primarily
on a product and service line basis. Its reportable segments are comprised of
On-site services, North America phone support and International phone support.
The Other operating segment includes corporate expenses. Corporate expenses
include costs related to tradename and trademark protection and various
administrative items. The Company reports its segments separately because of
differences in the ways the product and service lines are managed and operated.
The Company evaluates the performance of each segment based on
"Worldwide EBITA." A segment's Worldwide EBITA is its earnings before interest,
taxes and amortization with all profit on intercompany sales allocated to the
segment providing the third-party revenues. Intersegment sales are not reviewed
by management and are not included in the total revenues reported below. Certain
costs included in the North America phone support segment are incurred for the
benefit of other segments but are not allocated for internal management
reporting and are, therefore, not allocated herein. These unallocated costs
include certain order fulfillment, shipping and various overhead items. Segment
interest income, interest expense and expenditures for segment assets are not
presented to or reviewed by management, and are, therefore, not presented.
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
Summary information by reportable segment is as follows:
Three month period
ended June 30,
- --------------------------------------------------------------
1999 1998
- --------------------------------------------------------------
ON-SITE SERVICES
- ----------------
Revenues $17,802 $ 5,212
Worldwide EBITA 2,206 504
NORTH AMERICA PHONE SUPPORT
- ---------------------------
Revenues $44,501 $37,602
Worldwide EBITA 7,430 8,128
INTERNATIONAL PHONE SUPPORT
- ---------------------------
Revenues $35,217 $30,282
Worldwide EBITA 9,374 6,118
OTHER
- -----
Revenues $ 0 $ 0
Worldwide EBITA (36) (11)
- --------------------------------------------------------------
The following is a reconciliation between the reportable segment data and the
corresponding consolidated amount for EBITA:
EBITA
- -----
Three month period
ended June 30,
- ------------------------------------------------------------------------------------
1999 1998
- ------------------------------------------------------------------------------------
Total Worldwide EBITA for reportable segments $ 19,010 $ 14,750
Other EBITA (36) (11)
Total consolidated EBITA 18,974 14,739
- ------------------------------------------------------------------------------------
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
The following is summary information of assets by reportable segment and a
reconciliation to the consolidated assets:
ASSETS
- ------
- ------------------------------------------------------------------------------------
June 30, March 31,
Reportable Segments 1999 1999
- ------------------------------------------------------------------------------------
On-site services $ 43,998 $ 37,626
North America phone support 203,834 194,971
International phone support 58,392 61,855
--------- ---------
Total assets for reportable segments 306,224 294,452
Other assets 215,190 207,878
Corporate eliminations (268,131) (256,055)
--------- ---------
Total consolidated assets 253,283 246,275
- ------------------------------------------------------------------------------------
Due to the change in the composition of the reportable segments, prior period
amounts have been restated and will be shown in future periods on a comparable
basis.
NOTE 10 - SUBSEQUENT EVENT
On July 8, 1999 the Company effected a merger with American Cabling &
Equipment Services, Inc. ("American Cabling") into Atimco Network Services,
Inc., a wholly owned subsidiary. Established in 1988 in Pittsburgh,
Pennsylvania, privately held American Cabling provides technical design,
installation and maintenance services for premise cabling and related products
to customers in Western Pennsylvania and surrounding areas. The results of
operations and financial position of American Cabling are not material to the
consolidated results of operations or financial position.
On July 30, 1999 the Company effected a merger with Comm Line, Inc.
("Comm Line"). Comm Line, based in Cincinnati, Ohio, provides technical design,
installation and maintenance services for premise cabling and related products
to customers primarily in Cincinnati, Columbus and Dayton, Ohio; Indianapolis,
Indiana and Austin, Texas. The results of operations and financial position of
Comm Line are not material to the consolidated results of operations or
financial position.
On July 15, 1999, the Company announced its intention to repurchase an
additional 500,000 shares of its Common Stock. As of August 11, 1999, the
Company had repurchased 91,500 shares under this plan at prevailing market rates
for an aggregate purchase price of $4,424. Funding for these stock repurchases
came from existing cash flow and borrowings under the Mellon Credit Facility.
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
In August 1999, the Company agreed in principal to terms on an
additional $30 million revolving credit facility with Mellon Bank (the "New
Mellon Facility"). The New Mellon Facility will provide additional liquidity for
future stock repurchases and operations, the terms of the New Mellon Facility
are substantially similar to the existing Mellon Credit Facility. The New Mellon
Facility, however, will expire 364 days after it becomes effective. Upon its
expiration, the Company will have the option to convert the facility into a
three year term note with substantially similar terms.
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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 June 30,
1999 1998
---- ----
Revenues $ 97,520 $ 73,096
========= =========
Revenues:
On-Site Support 18.3% 7.1%
Phone Support:
North America 45.6 51.5
International 36.1 41.4
----- ----
Total Phone Support 81.7 92.9
----- ----
Total Revenues 100.0 100.0
Cost of sales 53.4 50.5
----- ----
Gross profit 46.6 49.5
Selling, general and
administrative expenses 27.2 29.3
----- ----
Operating income
before amortization 19.4 20.2
Intangibles amortization 1.3 1.3
----- ----
Operating income 18.1% 18.9%
===== ====
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Revenues for the three months ended June 30, 1999 (First Quarter 2000)
were $97,520, an increase of $24,424, or 33.4%, over the same period in the
prior year (First Quarter 1999). Revenues from on-site technical services for
First Quarter 2000 were $17,802, an increase of $12,590, or 241.6%, over
revenues for First Quarter 1999. On-site technical services revenue growth for
the quarter was primarily due to the Company's continued expansion of its
on-site technical service providers.
Revenues from the Company's phone support business were $79,718, an
increase of $11,834, or 17.4%, over revenues for the First Quarter 1999. Phone
support revenue growth was driven by strong sales worldwide. Phone support
revenues from North America for First Quarter 2000 were $44,501, an increase of
$6,899, or 18.3%, over revenues for First Quarter 1999. The growth of the North
America phone support is driven primarily by continued strong customer demand
for cables and connectors, ServSwitch, racks and cabinets and LAN products.
International phone support revenues for First Quarter 2000 were $35,217, an
increase of $4,935, or 16.3%, over revenues for the same period in the prior
year. International phone support revenue growth for the quarter was driven by
strong customer demand for cables and connectors, ServSwitch and modems. If
exchange rates had remained constant from the corresponding period in the prior
year, International phone support revenues for the three months ended June 30,
1999 would have increased 15.6%.
Reported revenue dollar and percentage growth of the Company's largest
subsidiaries over the comparable period in the prior year were as follows: Japan
revenues were $6,712, up $1,125, or 20.1%; United Kingdom revenues were $7,923,
up $1,043, or 15.2%; and France revenues were $5,031, up $199, or 4.1%.
Excluding Japan, United Kingdom and France, the remaining international business
grew $2,568, or 19.8%, from First Quarter 1999. Japan revenues increased, in
part, due to the strengthening of the Japanese Yen compared to the U.S. Dollar.
If exchange rates were constant from the First Quarter 1999, Japan revenues
would have increased by 6.6%, United Kingdom revenues would have increased 18.5%
and France revenues would have increased by 7.6%.
Gross profit in First Quarter 2000 increased to $45,467, or 46.6% of
revenues, from $36,185, or 49.5% of revenues, in First Quarter 1999. The slight
decline in gross profit margin was due primarily to the impact of the strong
revenue growth of the Company's on-site technical services product line which
provides slightly lower gross margins. The revaluation of foreign denominated
intercompany receivables had little impact on gross profit margin. Excluding the
impact of revaluing the intercompany receivables, the gross profit margin was
46.9% for First Quarter 2000 compared to 49.7% for First Quarter 1999.
Selling, general and administrative ("SG&A") expenses in First Quarter
2000 were $26,493, or 27.2% of revenues, an increase of $5,047 over SG&A
expenses of $21,446, or 29.3% of revenues, in First Quarter 1999. SG&A expense
as a percentage of revenues decreased from last year as the Company was able to
leverage its existing cost structure and because of the revenue growth of the
Company's on-site technical services product line which provides slightly less
operating expense relative to revenues. The dollar increase over the prior
period related primarily to additional marketing and personnel costs worldwide
and additional costs related to the addition of the Company's on-site technical
services product line.
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Operating income before amortization in First Quarter 2000 was $18,974,
or 19.4% of revenues, compared to $14,739, or 20.2% of revenues, in First
Quarter 1999. Intangibles amortization for First Quarter 2000 was $1,289,
compared to $948 for the First Quarter 1999. The increase in amortization is
due to additional goodwill related to the Company's continued expansion of its
on-site technical service providers.
Net interest expense in First Quarter 2000 declined to $50 from $183 in
First Quarter 1999 as a result of lower average borrowings.
The tax provision in First Quarter 2000 was $6,947, or an effective tax
rate of 39.5%, which is comparable to $5,401, or an effective tax rate of 39.5%,
in First Quarter 1999.
Net income for First Quarter 2000 was $10,640 compared to $8,284 in
First Quarter 1999, an increase of 28.4%. This growth was primarily due to
strong revenue growth, the Company's ability to leverage its existing cost
structure and the successful expansion by merger of the Company's on-site
technical support offering.
LIQUIDITY AND CAPITAL RESOURCES
In the First Quarter 2000, the Company's net proceeds from borrowings
increased by $33,044 as a result of borrowings used to finance the repurchase of
its Common Stock. As of June 30, 1999, the Company had cash and cash equivalents
of $4,844, working capital of $76,666, and total debt of $34,759.
The Company's total debt at June 30, 1999 was comprised of $31,900
under the Mellon Credit Facility, dated as of February 12, 1999, between the
Company and Mellon Bank, N.A., and $2,859 of various other loans. The weighted
average interest rate on all indebtedness of the Company as of June 30, 1999 was
approximately 5.9% compared to 7.9% as of June 30, 1998. In addition, at June
30, 1999, the Company had $949 of letters of credit outstanding and $16,151 of
additional funds available under the Mellon Credit Facility.
On March 31, 1999, the Company announced its intention to repurchase up
to 1 million shares of its Common Stock. As of June 1999, the Company had
repurchased all 1 million shares in the open market at a total cost of $41,981.
Funding for these stock repurchases came from existing cash flow and borrowings
under the Mellon Credit Facility. On July 15, 1999, the Company announced its
intention to repurchase an additional 500,000 shares of its Common Stock. As of
August 11, 1999, the Company had repurchased 91,500 shares under this plan at
prevailing market rates for an aggregate purchase price of $4,424. Funding for
these stock repurchases came from existing cash flow and borrowings under the
Mellon Credit Facility.
In August 1999, the Company agreed in principal to terms on an
additional $30 million revolving credit facility with Mellon Bank (the "New
Mellon Facility"). The New Mellon Facility will provide additional liquidity for
future stock repurchases and operations, the terms of the New Mellon Facility
are substantially similar to the existing Mellon Credit Facility. The New Mellon
Facility, however, will expire 364 days after it becomes effective. Upon its
expiration, the Company will have the option to convert the facility into a
three year term note with substantially similar terms.
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The Company has operations, customers and suppliers worldwide, thereby
exposing the Company's financial results to foreign currency fluctuations. In an
effort to reduce this risk, the Company generally sells and purchases inventory
based on prices denominated in U.S. dollars. Intercompany sales to subsidiaries
are generally denominated in the subsidiaries' local currency, although
intercompany sales to the Company's subsidiaries in Brazil and Mexico are
denominated in U.S. dollars. The gains and losses resulting from the revaluation
of the intercompany balances denominated in foreign currencies are recorded to
gross profit to the extent the intercompany transaction resulted from an
intercompany sale of inventory.
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 discussed
above. At June 30,1999, the open foreign exchange contracts were exclusively in
Yen. These open contracts were valued at approximately $2,188, with contract
rates ranging from 123.16 to 123.64 Yen to U.S. dollars, and the last contract
will expire in August 1999. The effect of these contracts on net income for the
three month period ended June 30, 1999 was not material.
The Company believes that its cash flow from operations and existing
and pending 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 that
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 became year 2000
compliant in July 1999 as part of regular maintenance upgrades. The Company
completed 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 resulted in a year 2000 compliant system in March
1999. The application software for the financial general ledger and the
manufacturing system has been assessed and became compliant in 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 November 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 was estimated at
$400 all of which has been incurred. All costs that directly related to the year
2000 have been expensed as incurred.
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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 compliance
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
The Company is exposed to market risks in the ordinary course of
business that include foreign currency exchange rates. In an effort to mitigate
the risk, the Company, on a selective basis, will enter into forward exchange
contracts. At June 30, 1999, the Company had open contracts valued at
approximately $2,188 and with a fair value of approximately $2,227.
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule - June 30, 1999
(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,
Chief Financial Officer, Treasurer,
and Principal Accounting Officer
August 13, 1999
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