1
Fiscal 2000 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, 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 October 29, 1999 was 19,140,899 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 1999 1999
------------- -------------
Current assets:
Cash and cash equivalents $ 4,053 $ 5,946
Accounts receivable, net of allowance for doubtful
accounts of $4,556 and $4,023, respectively 77,913 62,841
Inventories, net 35,367 32,258
Other current assets 22,181 16,172
--------- ---------
Total current assets 139,514 117,217
Property, plant and equipment, net of accumulated depreciation
of $24,009 and $20,741, respectively 28,480 24,190
Intangibles, net of accumulated amortization of $31,874 and
$29,219, respectively 124,450 104,208
Other assets 1,156 660
--------- ---------
Total assets $ 293,600 $ 246,275
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt $ 1,884 $ 1,511
Accounts payable 20,570 18,210
Other accrued expenses 22,207 19,549
Accrued income taxes 8,866 4,685
--------- ---------
Total current liabilities 53,527 43,955
Long-term debt 48,940 204
Deferred taxes 9,295 9,051
Other liabilities 488 413
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 18,936,253 and 18,147,358, respectively 19 18
Additional paid-in capital 84,310 59,272
Retained earnings 159,421 137,204
Treasury stock, at cost, 1,335,000 shares (58,765) --
Cumulative foreign currency translation adjustments (3,635) (3,842)
--------- ---------
Total stockholders' equity 181,350 192,652
--------- ---------
Total liabilities and stockholders' equity $ 293,600 $ 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 Six month period ended
September 30, September 30,
1999 1998 1999 1998
------------- ------------- ----------- ------------
Revenues $ 117,889 $ 79,130 $ 215,409 $ 152,226
Cost of sales 66,606 40,534 118,659 77,445
--------- --------- --------- ---------
Gross profit 51,283 38,596 96,750 74,781
Selling, general and administrative expenses 30,065 23,044 56,558 44,490
Intangibles amortization 1,366 988 2,655 1,936
--------- --------- --------- ---------
Operating income 19,852 14,564 37,537 28,355
Interest expense, net 624 100 674 283
Other expense/(income), net 92 11 140 (66)
--------- --------- --------- ---------
Income before income taxes 19,136 14,453 36,723 28,138
Provision for income taxes 7,559 5,689 14,506 11,090
--------- --------- --------- ---------
Net income $ 11,577 $ 8,764 $ 22,217 $ 17,048
========= ========= ========= =========
Basic earnings per common share $ 0.66 $ 0.51 $ 1.26 $ 0.99
========= ========= ========= =========
Diluted earnings per common share $ 0.62 $ 0.49 $ 1.18 $ 0.95
========= ========= ========= =========
Weighted average common shares 17,657 17,244 17,688 17,241
========= ========= ========= =========
Weighted average common and
common equivalent shares 18,811 17,922 18,801 18,037
========= ========= ========= =========
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 -- -- -- -- 22,217 -- 22,217
Purchase of treasury stock -- -- (58,765) -- -- -- (58,765)
Issuance of common stock 344,530 -- -- 17,064 -- -- 17,064
Exercise of options 444,365 1 -- 5,183 -- -- 5,184
Tax benefit from exercised options -- -- -- 2,791 -- -- 2,791
Foreign currency translation
adjustment -- -- -- -- -- 207 207
---------- ---------- ---------- ---------- ---------- ---------- ----------
Balance at September 30, 1999 18,936,253 $ 19 $ (58,765) $ 84,310 $ 159,421 $ (3,635) $ 181,350
========== ========== ========== ========== ========== ========== ==========
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,
1999 1998
------------- -------------
Cash flows from operating activities:
Net income $ 22,217 $ 17,048
Adjustments to reconcile net income to cash provided
by operating activities:
Intangibles amortization 2,655 1,936
Depreciation 2,173 1,441
Other 11 (2)
Changes in working capital items:
Accounts receivable, net (8,999) 4,297
Inventories, net (1,982) (192)
Other current assets (4,679) (1,471)
Accounts payable and accrued liabilities 1,094 (6,044)
-------- --------
Cash provided by operating activities 12,490 17,013
-------- --------
Cash flows from investing activities:
Capital expenditures (4,735) (2,934)
Mergers, net of $775 and $1,065 cash acquired, respectively (5,794) (24,637)
-------- --------
Cash (used) in investing activities (10,529) (27,571)
-------- --------
Cash flows from financing activities:
Repayment of borrowings (4,897) (16,239)
Proceeds from borrowings 51,839 18,011
Proceeds from exercise of options 7,974 240
Purchase of Treasury Stock (58,765) --
Dividends paid to former shareholders prior to mergers -- (672)
-------- --------
Cash (used in)/provided by financing activities (3,849) 1,340
-------- --------
Foreign currency translation adjustment (5) 1,496
-------- --------
(Decrease) in cash and cash equivalents (1,893) (7,722)
Cash and cash equivalents at beginning of period 5,946 11,166
-------- --------
Cash and cash equivalents at end of period $ 4,053 $ 3,444
======== ========
Interest paid $ 667 $ 752
-------- --------
Income taxes paid $ 6,296 $ 6,167
-------- --------
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:
September 30, March 31,
1999 1999
---- ----
Raw materials $ 2,815 $ 2,231
Work-in-process 42 31
Finished goods 35,975 33,552
Inventory reserve (3,465) (3,556)
-------- --------
Inventory, net $ 35,367 $ 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 September 30, 1999, the open foreign exchange contracts were in Yen,
Euro and Canadian dollars. These open contracts were valued at approximately
$3,602, with contract rates ranging from 108.38 to 113.97 Yen per U.S. dollar,
1.0711 to 1.0774 Euro per U.S. dollar and 1.4847 to 1.4848 Canadian dollar per
U.S. dollar, and will expire over the next two months. The effect of these
contracts on net income for the three and six month periods ended September 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 and six month
periods ended September 30, 1999 and three and six month periods ended September
30, 1998 were $12,736, $22,424, $10,778 and $18,544, 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. The following table details this
calculation:
Three month period ended Six month period ended
September 30, September 30,
1999 1998 1999 1998
---- ---- ---- ----
Net income for earnings per share
computation $ 11,577 $ 8,764 $ 22,217 $ 17,048
Basic earnings per common share:
Weighted average common shares 17,657 17,244 17,688 17,241
-------- -------- -------- --------
Basic earnings per common share $ 0.66 $ 0.51 $ 1.26 $ 0.99
======== ======== ======== ========
Diluted earnings per common share:
Weighted average common shares 17,657 17,244 17,688 17,241
Shares issuable from assumed conversion
of common stock equivalents 1,363 812 1,314 952
Shares buyable with tax savings from
compensation expense of exercised options (209) (134) (201) (156)
-------- -------- -------- --------
Weighted average common and common
equivalent shares 18,811 17,922 18,801 18,037
-------- -------- -------- --------
Diluted earnings per common share $ 0.62 $ 0.49 $ 1.18 $ 0.95
======== ======== ======== ========
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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,"
amended by SFAS No. 137, 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 of the Company. 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.
On May 17, 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 of the Company, 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.
On July 8, 1999 the Company effected a merger of American Cabling &
Equipment Services, Inc. ("American Cabling") into Atimco Network Services,
Inc., a wholly owned subsidiary of the Company. 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
Company's 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 Company's consolidated results of operations
or financial position.
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
On September 3, 1999 the Company effected a merger with Florida
Intranet Group, Inc. ("FIG"). Established in 1986 in Miami, Florida, FIG
provides technical design, installation and maintenance services for premise
cabling and related network products to customers in Southern Florida and
surrounding areas. The results of operations and financial position of FIG are
not material to the Company's consolidated results of operations or financial
position.
On September 29, 1999 the Company effected a merger with Business
Communication Concepts, Inc. ("BusCom"). BusCom, based in Sterling, Virginia,
provides technical design, installation and maintenance services for premise
cabling and related products to customers in the Dulles Corridor - which
includes the District of Columbia metropolitan area, northern Virginia and
central Maryland. The results of operations and financial position of BusCom are
not material to the Company's consolidated results of operations or financial
position.
On September 30, 1999, the Company acquired 50% of the shares of
Comunicaciones SA Spain ("Black Box Spain") bringing its ownership in Black Box
Spain to 100%. Black Box Spain was established in 1989 in Madrid, Spain as a
joint venture between the Company and Payma Comunicaciones SA Spain. The results
of operations and financial position of Black Box Spain are not material to the
Company's consolidated results of operations or financial position.
The Company issued an aggregate of 353,236 shares of its common stock
in exchange for all of the outstanding shares of Con-Optic, C-Tel, American
Cabling, Comm Line, FIG, BusCom, and Black Box Spain. In addition, an aggregate
of $6,286 in cash was used. The aggregate purchase price was $24,078 and
resulted in goodwill after assumed liabilities of approximately $22,932, 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. On July 15, 1999, the Company announced its intention
to repurchase an additional 500,000 shares of its Common Stock. As of September
30, 1999, the Company had repurchased 335,000 shares under this plan at
prevailing market rates for an aggregate purchase price of $16,784. Funding for
these stock repurchases came from existing cash flow and borrowings under credit
facilities maintained with Mellon Bank, N.A.
The following represents the Company's results for the three and six
month periods ended September 30, 1999 and September 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
September 30, 1999 September 30, 1998
- -----------------------------------------------------------------------------------------------
Reported Pro Forma Reported Pro Forma
- -----------------------------------------------------------------------------------------------
Net income $11,577 $11,577 $ 8,764 $ 8,764
Basic earnings per
common share 0.66 0.66 0.51 0.55
Diluted earnings per
common share $ 0.62 $ 0.62 $ 0.49 $ 0.53
Weighted average common
shares 17,657 17,418 17,244 15,909
Weighted average common
and common equivalent
shares 18,811 18,572 17,922 16,587
- ----------------------------------------------------------------------------------------------
Six months ended Six months ended
September 30, 1999 September 30, 1998
- -----------------------------------------------------------------------------------------------
Reported Pro Forma Reported Pro Forma
- -----------------------------------------------------------------------------------------------
Net income $22,217 $22,217 $17,048 $17,048
Basic earnings per
common share 1.26 1.29 0.99 1.07
Diluted earnings per
common share $ 1.18 $ 1.22 0.95 $ 1.02
Weighted average common
shares 17,688 17,157 17,241 15,906
Weighted average common
and common equivalent
shares 18,801 18,270 18,037 16,702
- ----------------------------------------------------------------------------------------------
NOTE 9 - DEBT
The Mellon Credit Facility, dated as of February 12, 1999, provides
a revolving line of credit up to $49,000 and expires September 30, 2002.
On August 27, 1999, the Company signed an agreement providing an additional
$30 million revolving credit facility with Mellon Bank, N.A. (the "New Mellon
Facility"). The New Mellon Facility will expire on August 25, 2000. Upon its
expiration, the Company has the option to convert the New Mellon Facility into a
three-year note with substantially similar terms. The interest on the borrowings
is variable, as defined in the agreements.
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BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per-share amounts)
The Company's total debt at September 30, 1999 was comprised of $46,500
under the Mellon Credit Facility, dated as of February 12, 1999, $1,100 under
the New Mellon Facility, and $3,224 of various other loans. The weighted average
interest rate on all indebtedness of the Company as of September 30, 1999 was
approximately 6.1% compared to 6.7% as of September 30, 1998.
NOTE 10 - SEGMENT REPORTING
Since the 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 Support and 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. Consistent with SFAS No. 131, "Disclosures
about Segments of an Enterprise and Related Information," the Company
aggregates similar operating segments into reportable segments.
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 Phone Support segment are incurred for the benefit of the
On-Site Support segment 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 Six month period
ended September 30, ended September 30,
- ------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
On-Site Support
Revenues $ 29,906 $ 5,680 $ 47,708 $ 10,892
Worldwide EBITA 3,936 668 6,142 1,172
Phone Support
Revenues $ 87,983 $73,450 $167,701 $141,334
Worldwide EBITA 17,263 14,907 34,067 29,153
Other
Revenues $0 $0 $0 $0
Worldwide EBITA 19 (23) (17) (34)
- ------------------------------------------------------------------------------------------------------------
The following is a reconciliation between the reportable segment data and the
corresponding consolidated amount for EBITA:
EBITA
Three month period Six month period
ended September 30, ended September 30,
- ------------------------------------------------------------------------------------------------------------
1999 1998 1999 1998
- ------------------------------------------------------------------------------------------------------------
Total Worldwide EBITA for reportable
segments $21,199 $15,575 $40,209 $30,325
Other EBITA 19 (23) (17) (34)
Total consolidated EBITA 21,218 15,552 40,192 30,291
- ------------------------------------------------------------------------------------------------------------
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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
- --------------------------------------------------------------------------------------
September 30, March 31,
Reportable Segments 1999 1999
- --------------------------------------------------------------------------------------
On-Site Support $ 77,085 $ 37,626
Phone Support 276,851 256,826
-------------------- ---------------
Total assets for reportable segments 353,936 294,452
Other assets 239,886 207,878
Corporate eliminations (300,222) (256,055)
-------------------- ---------------
Total consolidated assets $ 293,600 $ 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.
Information about geographic areas is as follows:
REVENUES
- --------
Three month period Six month period
ended September 30, ended September 30,
- -----------------------------------------------------------------------------
1999 1998 1999 1998
- -----------------------------------------------------------------------------
North America $ 77,898 $46,422 $139,965 $ 89,236
International 39,991 32,708 75,444 62,990
-------- ------- -------- --------
Total Revenues $117,889 $79,130 $215,409 $152,226
- -----------------------------------------------------------------------------
ASSETS
- --------------------------------------------------------------------------------------
September 30, March 31,
1999 1999
- --------------------------------------------------------------------------------------
North America $228,457 $184,420
International 65,143 61,855
-------- --------
Total consolidated assets $293,600 $246,275
- --------------------------------------------------------------------------------------
NOTE 11 - SUBSEQUENT EVENTS
On October 22, 1999, the Company effected a merger with Koncepts
Communications, Inc. ("Koncepts"). Established in 1982 in Westbury, New York,
Koncepts provides technical design, installation and maintenance services for
premise cabling and related products to customers in the New York, New Jersey
and Connecticut "tri-state" area. The results of operations and financial
position of Koncepts are not material to the Company's consolidated results of
operations or financial position.
On October 27, 1999, the Company effected a merger with Communication
Contractors, Inc. ("CC Inc."). CC Inc., based in Chicago, Illinois, provides
technical design, installation and maintenance services for premise cabling and
related products to customers throughout the greater Chicago region. The results
of operations and financial position of Com Con are not material to the
Company's consolidated results of operations or financial position.
As of November 11, 1999, the Company had repurchased 470,000 shares
under the July 15, 1999 repurchase plan. The shares were purchased at prevailing
market rates for an aggregate purchase price of $23,669. The funding for these
stock repurchases came from existing cash flow and borrowings under the Mellon
Bank, N.A. credit facilities.
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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,
-----------------------------------------------------------------
1999 1998 1999 1998
---- ---- ---- ----
Revenues $117,889 $79,130 $215,409 $152,226
======== ======= ======== ========
Revenues:
On-Site Support 25.4% 7.2% 22.1% 7.2%
Phone Support:
North America 41.0 51.5 43.1 51.4
International 33.6 41.3 34.8 41.4
---- ---- ---- ----
Total Phone Support 74.6 92.8 77.9 92.8
---- ---- ---- ----
Total Revenues 100.0 100.0 100.0 100.0
Cost of sales 56.5 51.2 55.1 50.9
---- ---- ---- ----
Gross profit 43.5 48.8 44.9 49.1
Selling, general and
administrative expenses 25.5 29.2 26.3 29.2
---- ---- ---- ----
Operating income before
amortization 18.0 19.6 18.6 19.9
Intangibles amortization 1.2 1.2 1.2 1.3
---- ---- ---- ----
Operating income 16.8% 18.4% 17.4% 18.6%
==== ==== ==== ====
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Revenues for the three and six month periods ended September 30, 1999
were $117,889 and $215,409, respectively, an increase of $38,759, or 49.0%,
and $63,183, or 41.5%, respectively, over the same period in the prior year.
Revenues from on-site support for the three months ended September 30, 1999
(Second Quarter 2000) were $29,906, an increase of $24,226, or 426.5%, over
revenues for the three months ended September 30, 1998 (Second Quarter 1999).
For the six months ended September 30, 1999, revenues from on-site support were
$47,708, an increase of $36,816, or 338.0%, over revenues for the six months
ended September 30, 1998. On-site support revenue growth for the quarter and
year-to-date was primarily due to the Company's continued expansion by merger of
its on-site support capabilities as well as strong demand for on-site services
from customers of existing on-site service providers.
Revenues from the Company's phone support business for Second Quarter
2000 were $87,983, an increase of $14,533, or 19.8%, over revenues for Second
Quarter 1999. For the six months ended September 30, 1999, revenues from the
phone support business were $167,701, an increase of $26,367, or 18.7%, over
revenues for the six months ended September 30, 1998. Overall, phone support
revenue growth was driven by strong sales in all geographic regions. Phone
support revenues from North America for Second Quarter 2000 were $48,312, an
increase of $7,570, or 18.6%, over revenues for Second Quarter 1999. For the six
months ended September 30, 1999, phone support revenues from North America were
$92,813, an increase of $14,469, or 18.5%, over revenues for the six months
ended September 30, 1998. The growth of the North America phone support is
driven primarily by continued strong demand for cables and connectors,
ServSwitch, racks and cabinets and LAN products from customers of all sizes.
International phone support revenues for Second Quarter 2000 were $39,671, an
increase of $6,963, or 21.3%, over revenues for the same period in the prior
year. For the six months ended September 30, 1999, International phone support
revenues were $74,888, an increase of $11,898, or 18.9%, over revenues for the
six months ended September 30, 1998. International phone support revenue growth
for the quarter and six-month period was driven by strong customer demand for
cables and connectors, ServSwitch, other switches and modems. If exchange rates
had remained constant from the corresponding periods in the prior year,
International phone support revenues for the three and six month periods ended
September 30, 1999 would have increased 19.7% and 17.7%, 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 revenues were $8,587, up $2,346, or 37.6%, in Second Quarter 2000 and were
$15,299, up $3,471, or 29.3%, year-to-date; United Kingdom revenues were $8,609,
up $999, or 13.1%, in Second Quarter 2000 and were $16,532, up $2,035, or 14.0%,
year-to-date; and France revenues were $5,237, up $438, or 9.1%, in Second
Quarter 2000 and were $10,268, up $637, or 6.6%, year-to-date. Excluding Japan,
United Kingdom and France, the remaining international business grew $3,180, or
22.6%, in Second Quarter 2000 and increased $5,755, or 21.3%, year-to-date.
Japan revenues increased, in part, due to the strengthening of the Japanese Yen
compared to the U.S. Dollar. If exchange rates had remained constant from the
corresponding periods in the prior year, Japan revenues would have increased
12.1%, for the three months ended September 30, 1999 and increased 9.5%, for the
six months ended September 30, 1999; United Kingdom revenues would have
increased 17.0%, for the three months ended September 30, 1999 and increased
17.7%, for the six months ended September 30, 1999; and France revenues would
have increased 16.3%, for the three months ended September 30, 1999 and
increased 11.9% for the six months ended September 30, 1999.
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Gross profit in Second Quarter 2000 increased to $51,283, or 43.5% of
revenues, from $38,596, or 48.8% of revenues, in Second Quarter 1999. Gross
profit for the six month period ended September 30, 1999 increased to $96,750,
or 44.9% of revenues, from $74,781, or 49.1%, of revenues over the same period
in the prior year. The decline in gross profit margin for the quarter and the
six months ended September 30, 1999 was due primarily to the impact of the
strong revenue growth of the Company's on-site support 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 43.2% for Second Quarter 2000 compared to 48.8% for Second Quarter
1999 and 44.8% for the six months ended September 30, 1999 compared to 49.2% for
the six months ended September 30, 1998.
Selling, general and administrative ("SG&A") expenses in Second Quarter
2000 were $30,065, or 25.5% of revenues, an increase of $7,021 over SG&A
expenses of $23,044, or 29.2% of revenues, in Second Quarter 1999. SG&A expenses
for the six month period ended September 30, 1999 were $56,558, or 26.3% of
revenues, an increase of $12,068 over SG&A expenses of $44,490, or 29.2% of
revenues over the same period in the prior year. 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 support product line which provides slightly less operating expense
relative to revenues. The dollar increases from the same periods in the
prior year related primarily to additional marketing and personnel costs
worldwide and additional costs related to the addition of the Company's on-site
support product line.
Operating income before amortization in Second Quarter 2000 was
$21,218, or 18.0% of revenues, compared to $15,552, or 19.6% of revenues, in
Second Quarter 1999. Operating income before amortization for the six month
period ended September 30, 1999 was $40,192, or 18.6% of revenues, compared to
$30,291, or 19.9% of revenues over the same period in the prior year. Intangible
amortization for the three and six month periods ended September 30, 1999 were
$1,366, an increase of $378, or 38.3%, and $2,655, an increase of $719, or
37.1%, respectively. The increase in amortization is due to additional goodwill
related to the Company's continued expansion by merger of its on-site support
providers.
Net interest expense for the three and six month periods ended
September 30, 1999 was $624 and $674 respectively, an increase from the same
periods last year of $524 and $391, respectively, due to an increase in
borrowings for the repurchase of treasury stock.
The tax provision in Second Quarter 2000 was $7,559, or an effective
tax rate of 39.5%, which is comparable to $5,689, or an effective tax rate of
39.4%, in Second Quarter 1999. The tax provision for the six month period ended
September 30, 1999 was $14,506, or an effective tax rate of 39.5%, which is
comparable to $11,090, or an effective tax rate of 39.4% for the six month
period ended September 30, 1998.
Net income for Second Quarter 2000 was $11,577 compared to $8,764 in
Second Quarter 1999, an increase of 32.1%. Net income for the six month period
ended September 30, 1999 was $22,217 compared to $17,048 for the six month
period ended September 30, 1998, an increase of 30.3%. 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
support offering.
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LIQUIDITY AND CAPITAL RESOURCES
In Second Quarter 2000, the Company's net proceeds from borrowings
increased by $13,898 and by $46,942 for the three and six month periods ended
September 30, 1999, respectively, as a result of borrowings used to finance the
repurchase of its Common Stock. As of September 30, 1999, the Company had cash
and cash equivalents of $4,053, working capital of $85,987, and total debt of
$50,824.
On August 27, 1999, the Company signed an agreement providing an
additional $30 million revolving credit facility with Mellon Bank, N.A. (the
"New Mellon Facility"). The New Mellon Facility provides additional liquidity
for future stock repurchases and operations. The terms of the New Mellon
Facility are substantially similar to the existing Mellon Credit Facility except
that the New Mellon Facility will expire on August 25, 2000. Upon its
expiration, the Company has the option to convert the facility into a three-year
term note with substantially similar terms.
The Company's total debt at September 30, 1999 was comprised of $46,500
under the Mellon Credit Facility, dated as of February 12, 1999, between the
Company and Mellon Bank, N.A., $1,100 under the New Mellon Facility, and $3,224
of various other loans. The weighted average interest rate on all indebtedness
of the Company as of September 30, 1999 was approximately 6.1% compared to 6.7%
as of September 30, 1998. In addition, at September 30, 1999, the Company had
$986 of letters of credit outstanding and $30,414 of additional funds available
under the Mellon Credit Facility and the New Mellon 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.
On July 15, 1999, the Company announced its intention to repurchase an
additional 500,000 shares of its Common Stock. As of September 30, 1999, the
Company had repurchased 335,000 shares under this plan at prevailing market
rates for an aggregate purchase price of $16,784. Funding for these stock
repurchases came from existing cash flow and borrowings under the Mellon Credit
Facility and New Mellon Facility.
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 September 30, 1999, the open foreign exchange contracts were in Yen,
Euro and Canadian Dollars. These open contracts were
17
18
valued at approximately $3,602, with contract rates ranging from 108.38 to
113.97 Yen per U.S. dollar, 1.0711 to 1.0774 Euro to U.S. dollar and 1.4847 to
1.4848 Canadian dollar per U.S. dollar, and the last contract will expire in
November 1999. The effect of these contracts on net income for the three-and
six-month periods ended September 30, 1999 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 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 had determined that a minimal amount of updates and replacements were
required for the hardware and software on the workstations and servers and this
has been completed. The Company has evaluated 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 an estimated $400, all of which has been incurred. All costs that
directly related to the year 2000 have been 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 and no major complications or disruptions are
anticipated. The Company is currently evaluating the year 2000 readiness of its
significant service providers and currently 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.
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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 $3,602 and with a fair value of approximately $3,680.
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PART II OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 10, 1999, 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 to
increase the number of shares authorized; (iii) the amendment to the 1992
Director Stock Option Plan to increase the number of shares authorized; and (iv)
the ratification of the appointment of Arthur Andersen LLP as independent public
accountants for the fiscal year ending March 31, 2000.
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 15,169,316 359,541 0 0
Thomas G. Greig 15,169,396 359,461 0 0
William R. Newlin 15,169,396 359,461 0 0
Brian D. Young 15,169,396 359,461 0 0
Fred C. Young 15,169,396 359,461 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
--------- ------- ---------- ---------
8,873,577 6,629,849 25,431 0
The amendment to the 1992 Director Stock Option Plan to increase the
number of shares authorized was approved by the following vote:
SHARES SHARES VOTED SHARES BROKER
VOTED FOR AGAINST ABSTAINING NON-VOTES
--------- ------- ---------- ---------
14,198,587 1,276,155 54,115 0
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The appointment of Arthur Andersen LLP as independent public
accountants for the fiscal year ending March 31, 2000 was approved by the
following vote:
SHARES SHARES VOTED SHARES BROKER
VOTED FOR AGAINST ABSTAINING NON-VOTES
--------- ------- ---------- ---------
15,495,299 15,176 18,382 0
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
10.1 1992 Stock Option Plan, as amended
10.2 1992 Director Stock Option Plan, as amended
10.3 Credit Agreement, dated as of August 25, 1999, among
Black Box Corporation of Pennsylvania, Black Box
Corporation and Mellon Bank, N.A.
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule - September 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
November 15, 1999
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EXHIBIT INDEX
Exhibit
No.
- -------
10.1 1992 Stock Option Plan, as amended
10.2 1992 Director Stock Option Plan, as amended
10.3 Credit Agreement, dated as of August 25, 1999, among Black Box
Corporation of Pennsylvania, Black Box Corporation and Mellon Bank, N.A.
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule - September 30, 1999