<PAGE> 1
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 8-K
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
Date of Report (date of earliest event reported): APRIL 28, 1999
--------------
BLACK BOX CORPORATION
------------------------------------------------------
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS CHARTER)
DELAWARE 0-18706 95-3086563
-------- ------- ----------
(State or other (Commission (IRS Employer
jurisdiction File Identification
of incorporation) Number) Number)
1000 PARK DRIVE, LAWRENCE, PENNSYLVANIA 15055
--------------------------------------- -----
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES) (ZIP CODE)
Registrant's telephone number, including area code: 724-746-5500
------------
NOT APPLICABLE
-------------------------------------------------------------
(FORMER NAME OR FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE> 2
ITEM 5. OTHER INFORMATION.
During fiscal year 1999, the Company completed four business
combinations accounted for as poolings of interests: Associated Network
Solutions, Inc. ("ANSI"), American Telephone Wiring Company ("ATW"), CCI Direct
Connect, Inc. ("CCI"), and Midwest Communications Technologies, Inc. ("MCT").
The aggregated historical results of operations and financial position of ANSI,
ATW, CCI, and MCT (the "Acquired Companies") have met the materiality threshold
of the Company's consolidated financial statements during 1999 and all prior
period amounts have therefore been restated to reflect the results of operations
and financial position for each of the four business combinations.
Black Box expects in the near future to file a registration
statement on Form S-4 for shares that may be issued in connection with any
additional acquisitions that Black Box may make. The filing of the restated
financial statements is required as a technical matter prior to the filing of
that registration statement. This notice shall not be deemed to offer any such
securities for sale. Such offer may be made only by means of a prospectus that
will be included in the registration statement.
As a result, Black Box is now making available the
consolidated financial statements for Black Box Corporation and subsidiaries as
of March 31, 1998 and 1997 and for each of the three years in the period ended
March 31, 1998, restated to reflect the effects of these pooling transactions.
Incorporated herein by reference is Exhibit 99.1 to this Form 8-K.
When included in this Current Report on Form 8-K, the word
"expects" 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 Black Box'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 report. Black Box
expressly disclaims any obligation or undertaking to release publicly any
updates or any changes in its expectations with regard thereto or any change in
events, conditions, or circumstances on which any statement is based.
2
<PAGE> 3
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Not Applicable.
(b) Not Applicable.
(c) Exhibits.
99.11 Independent auditors report of Arthur Andersen LLP to
the Board of Directors and Stockholders of Black Box
Corporation dated April 28, 1999, and the
consolidated financial statements of Black Box
Corporation and subsidiaries as of March 31, 1998 and
1997 and for each of the three years in the period
ended March 31, 1998
99.2 Independent Auditors Report of Arthur Andersen LLP to
the Board of Directors and Stockholders of Black Box
Corporation dated April 28, 1999 and Schedule II
--Valuations and Qualifying Accounts
3
<PAGE> 4
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed by the undersigned
hereunto duly authorized.
BLACK BOX CORPORATION
(Registrant)
By: /s/ Anna M. Baird
------------------------------------
Name: Anna M. Baird
Title: Vice President, Chief Financial Officer
and Treasurer
Dated: April 28, 1999
4
<PAGE> 5
EXHIBIT INDEX
EXHIBIT NO.
99.1 Independent auditors report of Arthur
Andersen LLP to the Board of Directors and
Stockholders of Black Box Corporation
dated April 28, 1999, and the consolidated
financial statements of Black Box
Corporation and subsidiaries as of March
31, 1998 and 1997 and for each of the
three years in the period ended March 31,
1998
99.2 Independent Auditors Report of Arthur
Andersen LLP to the Board of Directors and
Stockholders of Black Box Corporation
dated April 28, 1999 and Schedule II
--Valuations and Qualifying Accounts
<PAGE> 1
Exhibit 99.1
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Black Box Corporation:
We have audited the accompanying consolidated balance sheets of Black Box
Corporation (a Delaware corporation and the "Company") and subsidiaries as of
March 31, 1998 and 1997, and the related consolidated statements of income,
changes in stockholders' equity and cash flows for each of the three years in
the period ended March 31, 1998. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Black Box
Corporation and subsidiaries as of March 31, 1998 and 1997, and the results of
their operations and their cash flows for each of the three years in the period
ended March 31, 1998, in conformity with generally accepted accounting
principles.
/s/ ARTHUR ANDERSEN LLP
-----------------------------------
Arthur Andersen LLP
Pittsburgh, Pennsylvania
April 28, 1999
1
<PAGE> 2
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
--------------------
1996 1997 1998
---- ---- ----
<S> <C> <C> <C>
Revenues $206,222 $246,413 $299,276
Cost of sales 95,733 117,698 151,441
- ------------------------------------------------- ---------------- -------------- --------------
Gross profit 110,489 128,715 147,835
SG&A expense 68,454 78,624 88,137
Intangibles amortization 3,620 3,854 3,801
- ------------------------------------------------- ---------------- -------------- --------------
Operating income 38,415 46,237 55,897
Interest expense, net 5,763 3,654 2,636
Other expense (income), net (390) 164 (415)
- ------------------------------------------------- ---------------- -------------- --------------
Income from continuing operations
before income taxes 33,042 42,419 53,676
Provision for income taxes 14,345 17,627 21,272
- ------------------------------------------------- ---------------- -------------- --------------
Net income $18,697 $24,792 $32,404
- ------------------------------------------------- ---------------- -------------- --------------
Basic earnings per common share $1.13 $1.47 $1.89
Diluted earnings per common share $1.10 $1.40 $1.79
- ------------------------------------------------- ---------------- -------------- --------------
Weighted average common shares 16,603 16,883 17,168
Weighted average common and common
equivalent shares 17,052 17,760 18,084
- ------------------------------------------------- ---------------- -------------- --------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
<PAGE> 3
BLACK BOX CORPORATION
CONSOLIDATED BALANCE SHEETS
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
MARCH 31,
---------
1997 1998
---- ----
<S> <C> <C>
ASSETS
Current assets
Cash and cash equivalents 1,725 $11,166
Accounts receivable, net of allowance for doubtful
accounts of $2,499 and $2,655, respectively 45,894 50,419
Inventories, net 30,666 32,283
Prepaid catalog expenses 5,332 5,845
Other current assets 3,097 4,418
- ----------------------------------------------------------------------- ----------------- --------------
Total current assets 86,714 104,131
Property, plant and equipment 13,647 13,548
Intangibles, net 75,955 72,164
Other assets 510 440
- ----------------------------------------------------------------------- ----------------- --------------
Total assets $176,826 $190,283
- ----------------------------------------------------------------------- ----------------- --------------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities
Current debt $8,470 8,705
Accounts payable 20,930 15,815
Accrued compensation and benefits 5,928 6,214
Other accrued expenses 6,173 6,665
Accrued income taxes 5,849 3,387
- ----------------------------------------------------------------------- ----------------- --------------
Total current liabilities 47,350 40,786
Long-term debt 21,280 8,189
Other liabilities, primarily deferred taxes 12,237 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 16,986,593 and
17,233,021, respectively 17 17
Additional paid-in capital 30,010 34,117
Retaining earnings 68,551 101,533
Cumulative foreign currency translation (2,154) (3,619)
Dividend declared to former shareholders
prior to merger (465) (1,800)
- ----------------------------------------------------------------------- ----------------- --------------
Total stockholders' equity 95,959 130,248
- ----------------------------------------------------------------------- ----------------- --------------
Total liabilities and stockholders' equity $176,826 $190,283
- ----------------------------------------------------------------------- ----------------- --------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
<PAGE> 4
BLACK BOX CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(IN THOUSANDS, EXCEPT SHARE AMOUNTS)
<TABLE>
<CAPTION>
Common Stock Additional
--------------- Paid-in Retained Translation Dividend
Shares Amount Capital Earnings Adjustment Declared Total
- -------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT MARCH 31, 1995 16,529,468 $17 $23,281 $25,062 $(2) (131) $48,227
Net income 18,697 18,697
Exercise of options 240,697 2,057 2,057
Tax benefit from exercised options 678 678
Dividends declared to former
shareholders prior to merger (187) (187)
Foreign currency translation
Adjustment (986) (986)
- --------------------------------------- ------------- ---------- ------------ ----------- -------------- ------------- -------------
BALANCE AT MARCH 31, 1996 16,770,165 17 26,016 43,759 (988) (318) 68,486
Net income 24,792 24,792
Exercise of options 216,428 2,474 2,474
Tax benefit from exercised options 1,520 1,520
Dividends declared to former
shareholders prior to merger (147) (147)
Foreign currency translation
adjustment (1,166) (1,166)
- --------------------------------------- ------------- ---------- ------------ ----------- -------------- ------------- -------------
BALANCE AT MARCH 31, 1997 16,986,593 17 30,010 68,551 (2,154) (465) 95,959
Net income 32,404 32,404
Contribution from merger 261 578 839
Issuance of common stock 68,115
Exercise of options 178,313 2,038 2,038
Tax benefit from exercised options 1,808 1,808
Dividends declared to former
shareholders prior to merger (1,335) (1,335)
Foreign currency translation
adjustments (1,465) (1,465)
- --------------------------------------- ------------- ---------- ------------ ----------- -------------- ------------- -------------
BALANCE AT MARCH 31, 1998 17,233,021 $17 $34,117 $101,533 $(3,619) $(1,800) $130,248
- --------------------------------------- ------------- ---------- ------------ ----------- -------------- ------------- -------------
</TABLE>
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
<PAGE> 5
BLACK BOX CORPORATION
Consolidated Statements Of Cash Flows
(In thousands)
<TABLE>
<CAPTION>
Year Ended March 31,
--------------------------------------
1996 1997 1998
----------------------------------------------------------- ---------------- --------------- ----------------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $18,697 $24,792 $32,404
Adjustments to reconcile net income to cash
provided by operating activities
Depreciation and amortization 6,183 6,356 6,446
All other (109) 99 151
Changes in working capital items
Accounts receivable, net (5,629) (8,925) (4,023)
Inventories, net (1,581) (11,047) (1,576)
Other assets (1,768) (504) (1,772)
Accounts payable 4,032 7,332 (5,176)
Accrued compensation and benefits 1,062 1,233 286
Accrued expenses (775) 83 376
Accrued income taxes (1,072) 2,906 (1,722)
----------------------------------------------------------- ---------------- --------------- ----------------
Cash provided by operating activities 19,040 22,325 25,394
----------------------------------------------------------- ---------------- --------------- ----------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (2,720) (2,993) (2,495)
ATIMCO merger -- -- 160
Acquisition of joint venture -- (934) --
----------------------------------------------------------- ---------------- --------------- ----------------
Cash used in investing activities (2,720) (3,927) (2,335)
----------------------------------------------------------- ---------------- --------------- ----------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayment of borrowings (51,405) (68,410) (94,196)
Proceeds from borrowings 33,663 48,384 81,340
Proceeds from the exercise of options 2,057 2,474 2,038
Dividends paid to former shareholders
prior to merger (187) (147) (1,335)
----------------------------------------------------------- ---------------- --------------- ----------------
Cash used in financing activities (15,872) (17,699) (12,153)
----------------------------------------------------------- ---------------- --------------- ----------------
Foreign currency exchange impact on cash (955) (1,244) (1,465)
----------------------------------------------------------- ---------------- --------------- ----------------
(Decrease) increase in cash and cash equivalents (507) (545) 9,441
Cash and cash equivalents at beginning of year 2,777 2,270 1,725
----------------------------------------------------------- ---------------- --------------- ----------------
Cash and cash equivalents at end of year $2,270 $1,725 $11,166
----------------------------------------------------------- ---------------- --------------- ----------------
Interest paid $6,470 $3,671 $2,758
----------------------------------------------------------- ---------------- --------------- ----------------
Income taxes paid $14,495 $13,315 $16,181
----------------------------------------------------------- ---------------- --------------- ----------------
</TABLE>
See Notes To Consolidated Financial Statements
5
<PAGE> 6
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Amounts In Thousands, Except Per Share Amounts)
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
NATURE OF OPERATIONS: Black Box Corporation is a leading worldwide direct
marketer and technical service provider of computer communications and
networking equipment and services to businesses of all sizes, operating in 77
countries throughout the world.
FISCAL YEARS AND INTERIM PERIODS: Prior to the fiscal year ended March 31, 1998,
the Company followed a 52 or 53 week fiscal year that ended on the Sunday
nearest March 31. Each fiscal quarter consisted of 13 weeks, and the last
quarter was adjusted for those years having 53 weeks. For fiscal years ended
March 31, 1998 and after, the Company changed the fiscal year end to March 31.
The first three quarters consisted of 13 weeks, and the fourth quarter was
adjusted to end on March 31. The ending dates for the years ended March 31,
1998, 1997 and 1996 were actually March 31, 1998, March 30, 1997 and March 31,
1996, respectively. For simplicity, March 31 is used for all year end
references.
PRINCIPLES OF CONSOLIDATION: The accompanying consolidated financial statements
include the accounts of Black Box Corporation and its wholly-owned and
majority-owned subsidiaries. All intercompany accounts and transactions have
been eliminated in consolidation.
CASH EQUIVALENTS: The Company considers all highly liquid investments purchased
with a maturity of three months or less to be cash equivalents. The carrying
amount approximates fair value because of the short maturity of those
instruments.
INVENTORIES: Inventories are stated at the lower of cost (first-in, first-out
method) or market. The net inventory balances at March 31 are as follows:
<TABLE>
<CAPTION>
------------------------------------------------ ------------ -------------
1997 1998
------------------------------------------------ ------------ -------------
<S> <C> <C>
Raw materials $ 2,152 $ 1,654
Work-in-process 28 41
Finished goods 30,096 33,442
Inventory reserve (1,610) (2,854)
------------------------------------------------ ------------ -------------
Inventory, net $ 30,666 $ 32,283
------------------------------------------------ ------------ -------------
</TABLE>
PROPERTY, PLANT AND EQUIPMENT: Property, plant and equipment are stated at cost.
Depreciation is computed using the straight-line method based on the estimated
useful lives of the assets. The useful life for buildings and improvements is 30
years and for machinery and equipment is three to seven years. Maintenance and
minor repair costs are charged to expense as incurred. Major replacements or
betterment's are capitalized. When items are sold, retired or otherwise disposed
of, the cost and related accumulated depreciation are removed from the accounts
and, if applicable, a gain or loss is recorded. Property, plant and equipment
balances, net of accumulated depreciation, at March 31 are as follows:
6
<PAGE> 7
<TABLE>
<CAPTION>
1997 1998
- ----------------------------------------------------------------------------------------
<S> <C> <C>
Land $ 1,962 $ 1,962
Building and improvements 9,829 10,143
Machinery and equipment 14,083 16,250
- ----------------------------------------------------------------------------------------
25,874 28,355
Accumulated depreciation (12,227) (14,807)
- ----------------------------------------------------------------------------------------
Property, plant and equipment, net $ 13,647 $ 13,548
- ----------------------------------------------------------------------------------------
</TABLE>
INTANGIBLES: Intangibles include the reorganization value in excess of amounts
allocable to identifiable assets (the portion of the reorganization value which
could not be attributed to specific, tangible or identifiable intangible
assets), goodwill (the excess of the purchase cost over the fair value of the
assets acquired) and tradename and trademarks. These intangibles are amortized
over 20, 30 to 40, and 40 years, respectively. The intangible assets and
Associated Accumulated Amortization at March 31 Are As Follows:
<TABLE>
<CAPTION>
1997 1998
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Reorganization value in excess of amounts
allocable to identifiable assets, less
accumulated amortization of $16,096 and
$18,880, respectively $40,978 $38,194
- ------------------------------------------------------------------------------------------
Goodwill, less accumulated amortization
of $422 and $527, respectively 3,682 3,577
- ------------------------------------------------------------------------------------------
Tradename and trademarks, less
accumulated amortization of $4,647
and $5,549, respectively 31,295 30,393
- ------------------------------------------------------------------------------------------
Intangibles, net $75,955 $72,164
==========================================================================================
</TABLE>
The Company evaluates the recoverability of intangible assets, including
goodwill, at each balance sheet date based on forecasted future operations,
undiscounted cash flows and other significant criteria. Based upon the available
data, management believes that the carrying amount of these intangible assets
will be realized over their respective remaining amortization periods.
INCOME TAXES: Deferred income taxes are recognized for all temporary differences
between the tax and financial bases of the Company's assets and liabilities,
using the enacted tax laws and statutory tax rates applicable to the periods in
which the differences are expected to affect taxable income.
FOREIGN CURRENCY TRANSLATION: The financial statements of the Company's foreign
subsidiaries, except for the subsidiaries located in Brazil and Mexico, are
recorded in the local currency which is the functional currency. Accordingly,
assets and liabilities of these subsidiaries are translated using prevailing
exchange rates at the appropriate balance sheet date and revenues and expenses
are translated using an average monthly exchange rate. Translation adjustments
resulting from this process are recorded as a separate component of
"Stockholders' Equity" and will be included in income upon sale or liquidation
of the foreign investment. Gains and losses from transactions denominated in a
currency other than the functional currency are included in net earnings. For
the subsidiaries located in Brazil and Mexico, the U.S. dollar is the functional
currency,
7
<PAGE> 8
hence a combination of current and historical rates is used in translating
assets and liabilities and the related exchange adjustments are included in net
earnings.
RISK MANAGEMENT AND FINANCIAL DERIVATIVES: 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 all subsidiaries except Brazil and Mexico are
denominated in the subsidiaries local currency. Intercompany sales to the
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 is 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 these intercompany transactions. These contracts have a term of 12
months or less and are with a major commercial bank. Accordingly, the Company
expects the counterparty to the contracts to meet its obligations. 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 March 31, 1998, the Company did not have any open forward exchange contracts.
During Fiscal 1998, the net impact from revaluing forward contracts was not
material.
The Company does not hold or issue any other financial derivative instruments
nor does it engage in speculative trading of financial derivatives.
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.
USE OF ESTIMATES: The preparation of financial statements in accordance with
generally accepted accounting standards requires management to make estimates
and assumptions. These estimates and assumptions affect the amounts reported in
the accompanying financial statements. Actual results could differ from those
amounts.
NOTE 2: CHANGES IN BUSINESS
ACQUISITIONS AND NEW SUBSIDIARIES: In January 1998, the Company acquired through
merger 100% of ATIMCO, a privately-held company that provides network design and
installation services, premise cabling and related products. The acquisition was
accounted for as a pooling of interests. The Company issued 68,115 shares of
common stock in the transaction, which was accounted for by a pooling of
interests. ATIMCO's revenues in Fiscal 1998 were $3,200. ATIMCO's results of
operations are not considered material to the Company, and, as such, prior
periods have not been restated.
8
<PAGE> 9
In March 1997, the Company purchased the remaining 50 percent of its joint
venture operation in Australia, Black Box Catalog Australia Pty. Ltd. ("Black
Box Australia"). The purchase price was $1,100 of which the majority, $766, was
allocated to goodwill. The Company has consolidated the results of operations
for Black Box Australia as of the beginning of Fiscal 1997. The operations and
financial position of Black Box Australia 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.
In May 1995, the Company established a new wholly-owned subsidiary in Mexico
City, Mexico, Black Box de Mexico, S.A. de C.V. ("Black Box Mexico").
In December 1994, the Company established a new majority-owned subsidiary in Sao
Paulo, Brazil, Black Box do Brazil Industria e Comercia Ltda. ("Black Box
Brazil"). The ownership agreement provides the Company with the option beginning
in October 1997 and ending in September 1999 to purchase the minority
shareholders' shares based on a defined price calculation. If the Company does
not exercise its option prior to September 1999, the Company is required to
purchase the minority shareholders' shares in October 1999 based on a defined
price calculation. The minority shareholders are restricted from competing with
Black Box Brazil for a period of two years after having any affiliation with
Black Box Brazil. One of the minority shareholders is Michael E. Barker, a
member of the Board of Directors of the Company. In November 1997, the Company
exercised its option to repurchase the minority interest under the agreement.
Mr. Barker has objected to the valuation of his interest and the matter is
currently in arbitration.
DISCONTINUED OPERATIONS AND DISPOSALS: On June 3, 1994, the Company distributed
all of the outstanding shares of MICOM Communications Corp. ("MICOM") common
stock to all holders of the Company's outstanding common stock who held shares
on May 20, 1994, the record date of distribution.
Note 3: Indebtedness
Long-term debt at March 31 is as follows:
<TABLE>
<CAPTION>
1997 1998
- -------------------------------------------------------
<S> <C> <C>
Revolving credit $ 5,100 $ --
Notes 24,000 16,000
Other debt 650 894
- -------------------------------------------------------
29,750 16,894
Less current portion (8,470) (8,705)
- -------------------------------------------------------
Long-term debt $21,280 $ 8,189
=======================================================
</TABLE>
In May 1994, Black Box Corporation of Pennsylvania, a domestic operating
subsidiary of the Company entered into a Revolving Credit Agreement with Mellon
Bank, N.A. ("Mellon") for the purpose of refinancing the then existing revolving
credit agreement and to provide additional working capital. On April 1, 1996,
this agreement was amended to extend the term and modify the interest rate
options. The current agreement, as amended, provides for a maximum borrowing of
$40,000 through March 31, 1999. Interest on borrowings is variable based on the
Company's option of selecting the bank's prime rate (8-1/2 percent at
9
<PAGE> 10
March 31, 1998), the Euro-dollar rate plus an applicable margin, as defined in
the agreement or Mellon's Automated Borrowing Services ("ABS") rate plus an
applicable margin, as defined in the agreement. The applicable margin added to
the Euro-dollar rate and Mellon's ABS rate is adjusted each quarter based on the
cash flow ratio, as defined in the agreement and can vary from 2 percent to 3/4
percent (3/4 percent at March 31, 1998). The agreement requires the Company to
pay an annual commitment fee of 3/8 percent on the daily unborrowed portion of
the total commitment. The agreement is unsecured; however, all borrowings are
guaranteed by the Company, as parent. The agreement contains restrictive
covenants which relate to levels of dividend payments and capital expenditures
and various financial ratios. The Company is in compliance with these covenants.
In May 1994, the domestic subsidiary of the Company entered into a $40,000, five
year Senior Note Agreement with certain financial institution parties for the
purpose of refinancing a portion of the existing notes outstanding. The Senior
Notes are payable in five equal installments of $8,000 per year starting in May
1995 and ending in May 1999. Interest on the notes is fixed at 8.81 percent and
prepayments are permitted subject to the payment of a yield-maintenance amount,
as defined in the agreement. The agreement is unsecured; however, all borrowings
are guaranteed by the Company, as parent. The agreement contains restrictive
covenants which relate to levels of dividend payments and capital expenditures
and various financial ratios. The Company is in compliance with these covenants.
Other debt is composed of various bank, industrial revenue and third party loans
secured by specific pieces of equipment and real property. Interest on these
loans are fixed and range from 3 to 5 percent. The due dates occur at various
times through May 2000.
At March 31, 1998, the Company had $990 of letters of credit outstanding.
The aggregated amount of the minimum principal payments for each of the five
fiscal years subsequent to March 31, 1998 for all long-term indebtedness is as
follows: 1999-$8,705; 2000-$8,186; 2001-$3; 2002-$0; 2003-$0.
The fair value of the Company's debt at March 31, 1998 approximates the carrying
value. The fair value is based on management's estimate of current rates
available to the Company for similar debt with the same remaining maturity.
NOTE 4: INCOME TAXES
The domestic and foreign components of pretax income from continuing operations
for the years ended March 31 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
- ---------------------------------------------------------
<S> <C> <C> <C>
Domestic $25,060 $31,334 $40,280
Foreign 7,982 11,085 13,396
- ---------------------------------------------------------
Consolidated $33,042 $42,419 $53,676
=========================================================
</TABLE>
The provision for income tax charged to continuing operations for the years
ended March 31 consists of the following:
10
<PAGE> 11
<TABLE>
<CAPTION>
1996 1997 1998
- ---------------------------------------------------------------------------
<S> <C> <C> <C>
Current: Federal $ 6,692 $ 9,507 $ 9,706
State 1,025 1,158 856
Foreign 4,713 7,078 7,612
- ---------------------------------------------------------------------------
Total current 12,430 17,743 18,174
- ---------------------------------------------------------------------------
Deferred 1,915 (116) 3,098
- ---------------------------------------------------------------------------
Provision for income taxes $ 14,345 $ 17,627 $ 21,272
===========================================================================
</TABLE>
Reconciliations between income taxes from continuing operations computed using
the federal statutory income tax rate and the Company's effective tax rate for
the years ended March 31 are as follows:
<TABLE>
<CAPTION>
1996 1997 1998
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal statutory tax rate 35.0% 35.0% 35.0%
Foreign taxes, net of foreign tax credits 5.9 0.6 2.8
Amortization of intangibles 2.9 2.3 1.9
State income taxes, net of federal benefit 2.3 2.0 1.6
Other, net (2.7) 1.7 (1.7)
- --------------------------------------------------------------------------------------
Effective tax rate 43.4% 41.6% 39.6%
======================================================================================
</TABLE>
The components of deferred tax (liabilities) assets included in "Other
Liabilities" at March 31 are as follows:
<TABLE>
<CAPTION>
1997 1998
--------- ---------
<S> <C> <C>
Tradename and trademarks $ (10,941) $ (10,627)
State taxes (3,450) (1,283)
Unremitted earnings of Japanese subsidiary (2,917) (3,551)
Basis of fixed assets (916) (961)
Other (3,425) (4,790)
----------------------------------------------------------------- ---------------- ----------
Gross deferred tax liabilities (21,649) (21,212)
Net operating losses and foreign tax credit carryforwards
6,821 7,430
Other 2,996 3,014
----------------------------------------------------------------- ---------------- ----------
Gross deferred tax assets 9,817 10,444
----------------------------------------------------------------- ---------------- ----------
Net deferred tax liabilities $ (11,832) $ (10,768)
----------------------------------------------------------------- ---------------- ----------
</TABLE>
At March 31, 1998, the Company had $45,090 of net operating loss carryforwards
and $39,993 of alternative minimum tax loss carryforwards. As a result of the
Company's reorganization in 1992 and concurrent ownership change, Section 382 of
the Internal Revenue Code limits the amount of net operating losses available to
the Company to approximately $600 per year. The carryforwards expire in the
fiscal years 2004 through 2007; however, due to the limitation stated above, the
Company expects to utilize only the unrestricted portion of the operating loss
carryforwards, prior to expiration.
In general, except for certain earnings in Japan, it is management's intention
to reinvest undistributed earnings of foreign subsidiaries, which aggregate
approximately $13,000 based on exchange rates at March 31, 1998.
11
<PAGE> 12
However, from time to time, the foreign subsidiaries declare dividends to the
U.S. parent, at which time the appropriate amount of tax is determined. Also,
additional taxes could be necessary if foreign earnings were lent to the parent
or if the Company should sell its stock in the subsidiaries. It is not
practicable to estimate the amount of additional tax that might be payable on
undistributed foreign earnings.
Three companies that were acquired in Fiscal 1999 and whose results are
reflected in this report under pooling of interests accounting were Subchapter S
Corporations. As such, the earnings of the three companies were not subject to
US Corporation Income Taxes. Pro forma tax information is not presented because
it is not material.
Note 5: Commitments and Contingencies
The Company leases certain equipment under noncancelable operating lease
agreements, which contain provisions for certain rental adjustments as well as
renewal options. Rent expense under these operating leases for the years ended
March 31, 1998, 1997 and 1996 was $916, $913, and $972, respectively. At March
31, 1998, the minimum lease commitments for the next five years are as follows:
1999-$919; 2000-$759; 2001-$22; 2002-$11; 2003-$0.
The Company is involved in, or has pending, various legal proceedings, claims,
suits and complaints arising out of the normal course of business. Based on the
facts currently available to the Company, management believes all such matters
are adequately provided for, covered by insurance, are without merit, or are of
such amounts which upon resolution will not have a material adverse effect on
the consolidated financial position or the results of operations of the Company.
Note 6: Related Party Transactions
For a portion of Fiscal 1996, the Company had a services agreement with Odyssey
Investors, Inc. ("Odyssey Investors"), a related party to the Company's former
majority stockholder, which provided for an annual service fee. One-half of this
service fee was paid to Odyssey Investors and one-half to Michael E. Barker, a
member of the Board of Directors of the Company. For the year ended March 31,
1996, the Company expensed $113 under the agreement. In addition, Odyssey
Investors was entitled to reimbursement of certain expenses incurred on behalf
of the Company. For the year ended March 31, 1996, the Company paid, in the
normal course of business, fees and expenses of $152. This agreement expired on
December 22, 1995. No fees or expenses were paid to these parties in Fiscal 1997
and 1998. See Note 2 for other related party information.
Note 7: Incentive Compensation Plans
PERFORMANCE BONUS: The Company has a variable compensation plan covering
substantially all employees. This plan provides for the payment of a bonus based
on certain annual performance targets. All payments are subject to approval by
the Board of Directors upon the completion of the annual audit. In addition, the
Company had an incentive compensation plan which covered certain key employees.
Amounts paid under this plan were based on the attainment of certain operating
targets over a three year period ending March 31, 1998. The amounts expensed
under the variable and incentive compensation plans for the years ended March
31, 1996, 1997 and 1998 were $2,134, $2,954, and $2,084, respectively.
PROFIT SHARING AND SAVINGS PLAN: The Company has a Profit Sharing and Savings
Plan ("Plan") which qualifies as a deferred salary arrangement under Section
401(k) of the Internal Revenue Code covering only U.S. employees. Under the
Plan, participants are permitted to make contributions of up to 12 percent of
their compensation, as defined. The Company matches 25 percent of the
participant's contributions and increases
12
<PAGE> 13
its matching contribution percentage if the Company achieves specific revenue
and profit targets established at the beginning of each fiscal year. The total
Company contribution for the years ended March 31, 1996, 1997 and 1998 was $437,
$505, and $523, respectively.
STOCK OPTION PLANS: The Company has two stock option plans, the 1992 Stock
Option Plan, as amended (the "Employee Plan"), and the 1992 Directors Stock
Option Plan, as amended (the "Directors Plan"). The Employee Plan authorizes the
issuance of options and stock appreciation rights ("SARs") up to 3,200 shares of
Common Stock. Options are issued by the Board of Directors or Board Committee to
key employees of the Company and generally become exercisable in equal amounts
over a three year period. A portion of these options are held by MICOM employees
as the options were granted prior to the spin-off of MICOM. Option prices are
equal to the fair market value of the stock on the date of the grant and have
been adjusted to reflect the effect of the MICOM distribution on June 3, 1994.
No SARs have been issued.
The Directors Plan authorizes the issuance of options and SARs up to 75 shares
of Common Stock. Options are issued by the Board of Directors or Board Committee
and become exercisable in equal amounts over a three year period. Option prices
are equal to the fair market value of the stock on the date of the grant and
have been adjusted to reflect the effect of the MICOM distribution on June 3,
1994. No SARs have been issued. The following is a summary of the Company's
stock option plans for years ended March 31:
<TABLE>
<CAPTION>
1996 1997 1998
---- ---- ----
WEIGHTED WEIGHTED WEIGHTED
AVERAGE AVERAGE AVERAGE
EXERCISE EXERCISE EXERCISE
SHARES PRICE SHARES PRICE SHARES PRICE
------ ----- ------ ----- ------ -----
<S> <C> <C> <C> <C> <C> <C>
Outstanding, beginning
of the year 1,305 $ 9.34 1,754 $ 11.96 1,750 $ 14.11
Granted 807 15.29 400 23.38 1,047 28.73
Exercised (239) 8.42 (214) 11.47 (178) 11.43
Forfeited (119) 12.96 (190) 16.70 (96) 19.43
--------- ------- ------- ------- ------- ------- -------
Outstanding, end of
the year 1,754 $ 11.96 1,750 $ 14.11 2,523 $ 20.17
Exercisable, end of year 511 $ 9.04 822 $ 10.54 1,119 $ 12.32
Weighted average fair
value of options granted
during the year
$ 7.77 $ 11.89 $ 14.92
======= ======= =======
</TABLE>
13
<PAGE> 14
The following table summarizes information about the stock options outstanding
at March 31, 1998:
<TABLE>
<CAPTION>
OPTIONS OUTSTANDING OPTIONS EXERCISABLE
---------------------------- ------------------------------
WEIGHTED
AVERAGE WEIGHTED WEIGHTED
RANGE OF REMAINING AVERAGE AVERAGE
EXERCISE NUMBER CONTRACTUAL EXERCISE NUMBER EXERCISE
PRICES OUTSTANDING LIFE PRICE EXERCISABLE PRICE
- ------------------------ ------------------- -------------- ------------- --------------- -------------
<S> <C> <C> <C> <C> <C>
$7.77 73 4.7 years $ 7.77 73 $ 7.77
$8.92 - $9.35 90 5.5 years 9.35 90 9.35
$9.78 - $13.06 555 6.3 years 10.07 555 10.07
$13.65 - $15.75 482 7.2 years 15.03 314 15.01
$20.50 - $24.75 474 8.6 years 22.80 87 23.85
$30.25 - $35.19 849 9.7 years 30.43 -- --
- ------------------------ ------------------- -------------- ------------- --------------- -------------
$7.77 - $35.19 2,523 8.0 years $20.17 1,119 $ 12.32
- ------------------------ ------------------- -------------- ------------- --------------- -------------
</TABLE>
The Company continues to apply APB Opinion No. 25 in accounting for stock-based
compensation. To-date, all stock options have been issued at market value;
accordingly, no compensation cost has been recognized. Had the Company elected
to recognize compensation cost based on the fair value basis under SFAS No. 123,
the Company's net income and earnings per share would have been reduced to the
pro forma amounts for the years ended March 31:
<TABLE>
<CAPTION>
1997 1998
- ------------------------------------------------------------------------
<S> <C> <C> <C>
Net income As reported $24,792 $32,404
Pro forma 23,521 30,059
Earnings per share As reported $ 1.40 $ 1.79
Pro forma 1.32 1.66
- ------------------------------------------------------------------------
</TABLE>
The fair value of each option grant is estimated on the date of grant using the
Black-Scholes options pricing model with the following assumptions for the years
ending March 31:
<TABLE>
<CAPTION>
- ----------------------------------------------------------
1997 1998
- ----------------------------------------------------------
<S> <C> <C>
Expected life (in years) 7.0 7.3
Risk free interest rate 6.6% 5.7%
Volatility 35% 50%
Dividend yield -- --
=========================================================
</TABLE>
NOTE 8: 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:
14
<PAGE> 15
<TABLE>
<CAPTION>
YEAR ENDED MARCH 31,
---------------------------------------------
1996 1997 1998
---------------------------------------------
<S> <C> <C> <C>
Net income for earnings per share computation $ 18,697 $ 24,792 $ 32,404
Basic earnings per common share:
Weighted average common shares 16,603 16,883 17,168
Basic earnings per common share $ 1.13 $ 1.47 $ 1.89
--------------------------------------------------------- -------------- -------------- ---------------
Diluted earnings per common share:
Weighted average common shares $ 16,603 16,883 17,168
Shares issuable from assumed conversion of
Common stock equivalents 556 998 1,049
Shares buyable with tax savings from
Compensation expense of exercised options (107) (121) (133)
--------------------------------------------------------- -------------- -------------- ---------------
Weighted average common and common
Equivalent shares 17,052 17,760 18,084
Diluted earnings per common share $ 1.10 $ 1.40 $ 1.79
=================================== ======== ======== ========
</TABLE>
NOTE 9: SEGMENT INFORMATION
The Company operates in one industry segment as a direct marketer and technical
service provider of computer communications and networking equipment and
services to businesses of all sizes. Geographic segment information for the
years ended March 31 is as follows:
<TABLE>
<CAPTION>
CORPORATE AND
UNITED INTERCOMPANY
STATES EUROPE OTHER ELIMINATIONS CONSOLIDATED
---------------------------- --------------- ---------------- ------------------- ------------------- -------------------
<S> <C> <C> <C> <C> <C>
1996
Revenues $154,433 $48,761 $28,495 $(25,467) $206,222
Operating income (1) 32,312 5,174 2,715 (1,786) 38,415
Identifiable assets 131,935 30,132 16,257 (19,574) 158,750
---------------------------- --------------- ---------------- ------------------- ------------------- -------------------
1997
Revenue $178,597 $58,488 $46,685 $(37,357) $246,413
Operating income (1) 36,420 5,781 6,358 (2,322) 46,237
Identifiable assets 155,011 28,146 25,164 (31,495) 176,826
---------------------------- --------------- ---------------- ------------------- ------------------- -------------------
1998
Revenues $217,495 $69,576 $59,307 $(47,102) $299,276
Operating income (1) 43,873 6,153 7,564 (1,693) 55,897
Identifiable assets 170,077 33,089 26,114 (38,997) 190,283
---------------------------- --------------- ---------------- ------------------- ------------------- -------------------
</TABLE>
(1) The amount presented represents local operating income which differs from
the internal measurement used by the Company. Internally, intercompany
profits generated in the US are allocated back to the location which
records the third-party sale.
15
<PAGE> 16
NOTE 10: QUARTERLY DATA (UNAUDITED)
<TABLE>
<CAPTION>
FIRST SECOND THIRD FOURTH
QUARTER QUARTER QUARTER QUARTER YEAR
---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
FISCAL 1997
Revenues $57,352 $ 60,476 $ 62,153 $ 66,432 $246,413
Gross profit 30,245 31,862 32,403 34,205 128,715
Net income 5,329 5,949 6,234 7,280 24,792
Basic earnings per
common share 0.32 0.35 0.37 0.43 1.47
Diluted earnings per
common share 0.31 0.34 0.35 0.41 (1) 1.40
----------------------------------------------------------------------------------------------------------------
FISCAL 1998
Revenues $69,269 $74,596 $ 74,206 $ 81,205 $299,276
Gross Profit 34,820 36,834 37,026 39,155 147,835
Net income 7,193 7,951 8,107 9,153 32,404
Basic earnings per
common share 0.42 0.46 0.47 0.53 1.89
Diluted earnings per
common share 0.40 0.44 0.45 0.51 (1) 1.79
----------------------------------------------------------------------------------------------------------------
</TABLE>
(1) Earnings per share for the year is less than the sum of the quarterly
earnings per share due to the change in shares each quarter.
NOTE 11: SUBSEQUENT EVENT (UNAUDITED)
During fiscal year 1999, the Company completed four business
combinations accounted for as poolings of interests: Associated Network
Solutions, Inc. ("ANSI"), American Telephone Wiring Company ("ATW"), CCI Direct
Connect, Inc. ("CCI"), and Midwest Communications Technologies, Inc. ("MCT").
The aggregated historical results of operations and financial position of ANSI,
ATW, CCI, and MCT (the "Acquired Companies") have met the materiality threshold
of the Company's consolidated financial statements during 1999 and all prior
period amounts have therefore been restated to reflect the results of operations
and financial position for each of the four business combinations.
The Company issued an aggregate of 468 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:
1996 1997 1998
---- ---- ----
Revenue $12,795 $14,255 $19,455
Net income 419 497 1,489
Three of the four Acquired Companies were Subchapter S Corporations. As such,
the earnings of these three companies were not subject to US Corporation income
taxes. Pro Forma tax information is not presented because it is not material.
16
<PAGE> 1
Exhibit 99.2
ARTHUR ANDERSEN LLP
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To the Board of Directors and Stockholders of
Black Box Corporation:
We have audited, in accordance with generally accepted auditing standards, the
consolidated financial statements of Black Box Corporation and Subsidiaries
included in this Form 10-K, and have issued our report thereon dated April 28,
1999. Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in the accompanying
index is presented for purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audits of
the basic financial statements and, in our opinion, fairly states in all
material respects the financial data required to be set forth therein in
relation to the basic financial statements taken as a whole.
/s/ ARTHUR ANDERSEN LLP
-----------------------
Arthur Andersen LLP
Pittsburgh, Pennsylvania
April 28, 1999
<PAGE> 2
SCHEDULE II
BLACK BOX CORPORATION
VALUATIONS AND QUALIFYING ACCOUNTS
(Dollars In Thousands)
<TABLE>
<CAPTION>
BALANCE AT ADDITIONS
BEGINNING CHARGED TO REDUCTIONS BALANCE AT
OF COSTS AND FROM END OF
DESCRIPTION PERIOD EXPENSES RESERVES PERIOD
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
YEAR ENDED MARCH 31, 1996
Inventory reserves $1,273 $1,047 $ 672 $1,648
Allowance for unrealizable
Accounts/sales returns $2,059 $1,163 $ 815 $2,407
YEAR ENDED MARCH 31, 1997
Inventory reserves $1,648 $1,398 $1,436 $1,610
Allowance for unrealizable
Accounts/sales returns $2,407 $ 664 $ 572 $2,499
YEAR ENDED MARCH 31, 1998
Inventory reserves $1,610 $3,653 $2,409 $2,854
Allowance for unrealizable
Accounts/sales returns $2,499 $1,333 $1,177 $2,655
</TABLE>
