<PAGE> 1
Fiscal 2001 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, 2000
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 27, 2000 was 18,889,880 shares.
<PAGE> 2
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BLACK BOX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
<TABLE>
<CAPTION>
(Unaudited)
September 30, March 31,
ASSETS 2000 2000
------------ ------------
<S> <C> <C>
Current assets:
Cash and cash equivalents $ 9,027 $ 8,643
Accounts receivable, net of allowance for doubtful
accounts of $7,644 and $6,304, respectively 141,269 115,958
Inventories, net 48,071 44,582
Costs and estimated earnings in excess of billings
on uncompleted contracts 21,308 7,953
Other current assets 21,132 17,398
--------- ---------
Total current assets 240,807 194,534
Property, plant and equipment, net of accumulated depreciation
of $28,816 and $25,671, respectively 42,665 40,445
Intangibles, net of accumulated amortization of $41,405 and
$35,629, respectively 291,235 215,366
Other assets 3,995 1,944
--------- ---------
Total assets $ 578,702 $ 452,289
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt $ 863 $ 969
Accounts payable 53,650 38,374
Billings in excess of costs and estimated earnings
on uncompleted contracts 9,254 3,655
Other accrued expenses 31,932 27,087
Accrued income taxes 7,528 8,468
--------- ---------
Total current liabilities 103,227 78,553
Long-term debt 146,996 105,374
Other liabilities 10,554 10,035
Stockholders' equity:
Preferred stock authorized 5,000,000; par value $1.00;
none issued and outstanding
Common stock authorized 100,000,000; par value $.001;
issued 20,728,986 and 19,940,217, respectively 21 20
Additional paid-in capital 201,783 144,828
Retained earnings 216,366 186,056
Treasury stock, at cost, 1,950,000 and 1,500,000 shares,
respectively (92,432) (67,253)
Cumulative foreign currency translation adjustments (7,813) (5,324)
--------- ---------
Total stockholders' equity 317,925 258,327
--------- ---------
Total liabilities and stockholders' equity $ 578,702 $ 452,289
========= =========
</TABLE>
See Notes to Consolidated Financial Statements
2
<PAGE> 3
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Three month period ended Six month period ended
September 30, September 30,
2000 1999 2000 1999
--------- --------- --------- ---------
<S> <C> <C> <C> <C>
Revenues $ 207,900 $ 117,889 $ 376,936 $ 215,409
Cost of sales 123,681 66,775 222,257 118,876
--------- --------- --------- ---------
Gross profit 84,219 51,114 154,679 96,533
Selling, general and administrative expenses 51,346 30,065 93,784 56,558
Intangibles amortization 3,170 1,366 5,818 2,655
--------- --------- --------- ---------
Operating income 29,703 19,683 55,077 37,320
Interest expense, net 3,041 624 5,254 674
Other expense/(income), net 134 (77) 134 (77)
--------- --------- --------- ---------
Income before income taxes 26,528 19,136 49,689 36,723
Provision for income taxes 10,346 7,559 19,379 14,506
--------- --------- --------- ---------
Net income $ 16,182 $ 11,577 $ 30,310 $ 22,217
========= ========= ========= =========
Basic earnings per common share $ 0.86 $ 0.66 $ 1.62 $ 1.26
========= ========= ========= =========
Diluted earnings per common share $ 0.82 $ 0.62 $ 1.54 $ 1.18
========= ========= ========= =========
Weighted average common shares 18,785 17,657 18,704 17,688
========= ========= ========= =========
Weighted average common and
common equivalent shares 19,681 18,811 19,735 18,801
========= ========= ========= =========
</TABLE>
See Notes to Consolidated Financial Statements
3
<PAGE> 4
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Cumulative
Common Stock Additional Foreign
--------------------- Treasury Paid-in Retained Currency
Shares Amount Stock Capital Earnings Translation Total
---------- ------ -------- ---------- -------- ----------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at March 31, 1999 18,147,358 18 -- 59,272 137,204 (3,842) 192,652
Net income -- -- -- -- 48,852 -- 48,852
Purchase of treasury stock -- -- (67,253) -- -- -- (67,253)
Issuance of common stock 1,148,570 1 -- 64,676 -- -- 64,677
Exercise of options 644,289 1 -- 12,987 -- -- 12,988
Tax benefit from exercised options -- -- -- 7,893 -- -- 7,893
Foreign currency translation
adjustment -- -- -- -- -- (1,482) (1,482)
---------- ------ ------- --------- ------- ------ -------
Balance at March 31, 2000 19,940,217 20 (67,253) 144,828 186,056 (5,324) 258,327
Net income -- -- -- -- 30,310 -- 30,310
Purchase of treasury stock -- -- (25,179) -- -- -- (25,179)
Issuance of common stock 738,822 1 -- 55,564 -- -- 55,565
Exercise of options 49,947 -- -- 904 -- -- 904
Tax benefit from exercised options -- -- -- 487 -- -- 487
Foreign currency translation
adjustment -- -- -- -- -- (2,489) (2,489)
---------- ------ ------- --------- ------- ------ -------
Balance at September 30, 2000 20,728,986 21 (92,432) 201,783 216,366 (7,813) 317,925
========== ====== ======= ========= ======= ====== =======
</TABLE>
See Notes to Consolidated Financial Statements
4
<PAGE> 5
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
<TABLE>
<CAPTION>
Six month period ended
September 30,
2000 1999
--------- ---------
<S> <C> <C>
Cash flows from operating activities:
Net income $ 30,310 $ 22,217
Adjustments to reconcile net income to cash provided
by operating activities:
Intangibles amortization 5,818 2,655
Depreciation 3,775 2,173
Other -- 11
Changes in working capital items:
Accounts receivable, net (8,679) (8,999)
Inventories, net (1,716) (1,982)
Other current assets (8,564) (4,679)
Accounts payable and accrued liabilities 6,886 1,094
--------- ---------
Cash provided by operating activities 27,830 12,490
--------- ---------
Cash flows from investing activities:
Capital expenditures (net of dispositions of $1,400
and $0, respectively) (2,945) (4,735)
Mergers, net of cash acquired (38,180) (5,794)
--------- ---------
Cash (used) in investing activities (41,125) (10,529)
--------- ---------
Cash flows from financing activities:
Repayment of borrowings (93,550) (4,897)
Proceeds from borrowings 134,524 51,839
Proceeds from exercise of options 1,391 7,974
Purchase of Treasury Stock (25,179) (58,765)
--------- ---------
Cash provided by/(used in) financing activities 17,186 (3,849)
--------- ---------
Effect of foreign currency adjustments on cash (3,507) (5)
--------- ---------
Increase/(decrease) in cash and cash equivalents 384 (1,893)
Cash and cash equivalents at beginning of period 8,643 5,946
--------- ---------
Cash and cash equivalents at end of period $ 9,027 $ 4,053
========= =========
Interest paid $ 4,629 $ 667
--------- ---------
Income taxes paid $ 19,842 $ 6,296
--------- ---------
</TABLE>
See Notes to Consolidated Financial Statements
5
<PAGE> 6
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, 2000. 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,
2000 2000
---- ----
Raw materials $ 2,686 $ 2,485
Work-in-process 56 23
Finished goods 49,248 45,858
Inventory reserve (3,919) (3,784)
-------- --------
Inventory, net $ 48,071 $ 44,582
======== ========
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 fair market value, and the resulting gains and
losses are recorded in cost of sales. These gains and losses offset the
revaluation of the related foreign currency denominated receivables, which are
also included in cost of sales.
At September 30, 2000, the open foreign exchange contracts were in Yen,
Euro, Sterling pound, Canadian dollars, Swiss francs and Australian dollars.
These open contracts, valued at approximately $18,288, will expire over the next
six months, with the exception of the contract related to the Company's
acquisition of Data Specialties Europe Ltd., which expires on April 30, 2002.
The open contracts have contract rates of 102.73 to 103.93 Yen, 0.9023 to 0.9578
Euro, 1.5041 to 1.5318 Sterling pound, 1.4782 to 1.5028 Canadian dollar, 1.6110
to 1.6297 Swiss franc and 0.5875 to 0.5912 Australian dollar, all per U.S.
dollar. The effect of these contracts on net income for the three and six month
periods ended September 30, 2000 was approximately $1,200
6
<PAGE> 7
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
and $1,800, respectively, which is offset by the revaluation of the related
foreign currency denominated receivables.
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 stockholders' 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, 2000 and the three and six month periods ended
September 30, 1999 were $14,489, $27,821, $12,736 and $22,424, 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:
<TABLE>
<CAPTION>
Three month period ended Six month period ended
September 30, September 30,
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Net income for earnings per share
Computation $16,182 $11,577 $30,310 $22,217
Basic earnings per common share:
Weighted average common shares 18,785 17,657 18,704 17,688
------- ------- ------- -------
Basic earnings per common share $ 0.86 $ 0.66 $ 1.62 $ 1.26
======= ======= ======= =======
Diluted earnings per common share:
Weighted average common shares 18,785 17,657 18,704 17,688
Shares issuable from assumed conversion
of common stock equivalents 896 1,154 1,031 1,113
------- ------- ------- -------
Weighted average common and common
equivalent shares 19,681 18,811 19,735 18,801
------- ------- ------- -------
Diluted earnings per common share $ 0.82 $ 0.62 $ 1.54 $ 1.18
======= ======= ======= =======
</TABLE>
7
<PAGE> 8
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 is currently evaluating the effects of SFAS No. 133 and does not expect
its adoption to have a material effect on the Company's financial statements or
results of operations. The Company will adopt the new standard in the first
quarter of Fiscal 2002.
In June 2000, the SEC staff issued SAB 101, which further establishes
accounting and reporting standards for revenue recognition. The Company is
currently evaluating the effects of SAB 101 and does not expect its adoption to
have a material effect on the Company's financial statements or results of
operations. The Company will adopt the new literature in the fourth quarter
of Fiscal 2001.
NOTE 7 - CHANGES IN BUSINESS
During the six months ended September 30, 2000, the Company
successfully completed fifteen business combinations which have been accounted
for using the purchase method of accounting: April 2000 - Cabling Concepts, Inc.
and Teldata Corporation; June 2000 - ST Communications & Cabling, Inc., GMCI
Netcomm, Inc., Allcom Electric, Inc., Vista Information Technologies, Inc. and
Schoeller Connectivity Gmbh; July 2000 - Ascor bvba, Carey Systems Company,
Datel Communications, Inc., Data Specialties Europe Ltd., and Midwest
Electronics and Communications, Inc.; August 2000 - Duracom, Inc. and Sterling
Technology Systems, Inc.; September 2000 - Da/Com Limited. In connection with
the above fifteen business combinations, the Company issued an aggregate of 729
thousand shares of its common stock in exchange for all of the outstanding
shares of the above fifteen companies. In addition, an aggregate of
approximately $39,900 in cash was used to acquire the above fifteen companies.
This includes $3,133 of cash currently being held in a collateral account for
the purchase of Data Specialties Europe Ltd. This amount is included in the
Company's other assets balance as of September 30, 2000, as it is considered
long-term restricted cash. In accordance with the acquisition agreement, the
Company will pay Data Specialties Europe Ltd. the total balance held in escrow
on April 30, 2003.
The aggregate purchase price of the above fifteen companies was
approximately $94,300 and resulted in goodwill after assumed liabilities of
approximately $81,500, which is being amortized over twenty-five years.
As of September 30, 2000, certain merger agreements provide for
contingent payments, depending on future performance, of up to $19,550, of which
$1,312 have been satisfied and paid. Upon meeting the future performance goals,
goodwill will be adjusted for the amount of the contingent payments.
8
<PAGE> 9
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
The Company has consolidated the results of operations for each of the
acquired companies as of the respective merger date. The following table reports
pro forma information as if the acquired entities had been purchased at the
beginning of the stated periods:
<TABLE>
<CAPTION>
Three month period Six month period
ended September 30, ended September 30,
---------------- ----------------- ---------------- -----------------
2000 1999 2000 1999
(unaudited) (unaudited) (unaudited) (unaudited)
---------------------------- ----------------- ---------------- ----------------- ---------------- -----------------
<S> <C> <C> <C> <C> <C>
Revenue As reported $207,900 $117,889 $376,936 $215,409
Pro forma 210,309 204,197 402,833 385,592
---------------------------- ----------------- ---------------- ----------------- ---------------- -----------------
Net income As reported $ 16,182 $ 11,577 $ 30,310 $ 22,217
Pro forma 16,230 15,322 31,818 29,595
---------------------------- ----------------- ---------------- ----------------- ---------------- -----------------
Earnings per share As reported $ 0.82 $ 0.62 $ 1.54 $ 1.18
Pro forma $ 0.82 $ 0.75 $ 1.59 $ 1.44
---------------------------- ----------------- ---------------- ----------------- ---------------- -----------------
</TABLE>
NOTE 8 - TREASURY STOCK
On March 31, 1999, the Company announced its intention to repurchase up
to one million shares of its Common Stock. As of June 1999, the Company had
repurchased all one 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 thousand shares of its Common Stock. As of
November 1999, the Company had repurchased all 500 thousand shares under this
plan at prevailing market prices for an aggregate purchase price of $25,272. On
July 13, 2000, the Company announced its intention to repurchase an additional
500 thousand shares of its Common Stock. As of September 2000, the Company had
repurchased 450 thousand shares under this plan at prevailing market prices for
an aggregate purchase price of $25,179. On July 21, 2000, the Company announced
its intention to repurchase an additional 500 thousand shares of its Common
Stock. As of September 2000, none of the shares under this plan have been
repurchased. Funding for these stock repurchases came from existing cash flow
and borrowings under credit facilities maintained with Mellon Bank, N.A.
NOTE 9 - INDEBTEDNESS
On April 4, 2000, the Company simultaneously entered into a $120,000
Revolving Credit Agreement ("Long Term Revolver") and a $60,000 Short Term
Credit Agreement ("Short Term Revolver") (together the "Syndicated Debt") with
Mellon Bank, N.A. and a group of lenders. The terms of the Syndicated Debt are
substantially similar to the terms of the previous Mellon Facility. The Long
Term Revolver is scheduled to expire on April 4, 2003 and the Short Term
Revolver is scheduled to expire on April 4, 2001. Upon its expiration, the
Company has the option to convert the Short Term Revolver into a two-year note
with substantially similar terms. The interest on the borrowings is variable
based on the Company's option of selecting the banks
9
<PAGE> 10
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
prime rate plus an applicable margin as defined in the agreement or the
Euro-dollar rate plus an applicable margin as defined in the agreement.
The Company's total debt at September 30, 2000 was comprised of
$110,700 under the Mellon Long Term Revolver, $33,000 under the Mellon Short
Term Revolver, and $4,159 of various other loans. The weighted average interest
rate on all indebtedness of the Company as of September 30, 2000 was
approximately 7.7% compared to 6.1% as of September 30, 1999.
NOTE 10 - SEGMENT REPORTING
The Company manages the business primarily on a product and service
line basis. Its reportable segments are comprised of On-Site Services and Phone
Services. The Other operating segment includes expenses related primarily to
tradename and trademark protection and costs directly related to its mergers and
acquisitions program. 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. Revenues and the related profits on intercompany
transactions are reported by the segment providing the third-party revenues.
Intersegment sales are not reviewed by management and are not presented below.
Certain costs incurred in Phone Services are directly related to the Company's
business development through mergers and acquisitions and therefore are
reclassified to the Other operating segment in the information presented below.
Interest income, interest expense and expenditures for segment assets are not
presented to or reviewed by management, and therefore are not presented in the
information below.
10
<PAGE> 11
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
Summary information by reportable segment is as follows:
<TABLE>
<CAPTION>
Three month period ended Six month period ended
September 30, September 30,
--------------------------------------------------------------------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
On-Site Services
Revenues $ 111,122 $ 29,906 $ 191,163 $ 47,708
Worldwide EBITA 14,863 3,938 25,437 6,144
Phone Services
Revenues $ 96,778 $ 87,983 $ 185,773 $ 167,701
Worldwide EBITA 18,622 17,676 36,782 35,007
Other
Revenues $ -- $ -- $ -- $ --
Worldwide EBITA (612) (565) (1,324) (1,176)
--------------------------------------------------------------------------------------------------
</TABLE>
The following is a reconciliation between the reportable segment data and the
corresponding consolidated amount for EBITA:
EBITA
<TABLE>
<CAPTION>
Three month period ended Six month period ended
September 30, September 30,
---------------------------------------------------------------------------------------------------
2000 1999 2000 1999
---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Total Worldwide EBITA for
reportable segments $ 33,485 $ 21,614 $ 62,219 $ 41,151
Other EBITA (612) (565) (1,324) (1,176)
Total Consolidated EBITA $ 32,873 $ 21,049 $ 60,895 $ 39,975
---------------------------------------------------------------------------------------------------
</TABLE>
11
<PAGE> 12
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
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------------
September 30, March 31,
2000 2000
-----------------------------------------------------------------------------------------
<S> <C> <C>
On-Site Services $ 345,630 $ 221,377
Phone Services 501,496 312,496
--------- ---------
Total assets for reportable segments 847,126 533,873
Other assets 533,272 340,532
Corporate eliminations (801,696) (422,116)
--------- ---------
Total consolidated assets $ 578,702 $ 452,289
-----------------------------------------------------------------------------------------
</TABLE>
Information about geographic areas is as follows:
REVENUES
<TABLE>
<CAPTION>
Three month period ended Six month period ended
September 30, September 30,
--------------------------------------------------------------------------------------------------------------
2000 1999 2000 1999
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
North America $157,464 $ 77,898 $280,950 $139,965
Europe 32,364 24,103 62,843 46,714
Pacific Rim 12,657 10,936 22,806 19,864
Latin America 5,415 4,952 10,337 8,866
-------- -------- -------- --------
Total revenues $207,900 $117,889 $376,936 $215,409
--------------------------------------------------------------------------------------------------------------
</TABLE>
ASSETS
<TABLE>
<CAPTION>
-----------------------------------------------------------------------------------
September 30, March 31,
2000 2000
-----------------------------------------------------------------------------------
<S> <C> <C>
North America $473,669 $364,303
Europe 75,762 60,311
Pacific Rim 16,813 16,200
Latin America 12,458 11,475
-------- --------
Total consolidated assets $578,702 $452,289
-----------------------------------------------------------------------------------
</TABLE>
NOTE 11 - SUBSEQUENT EVENTS
In October 2000, the Company effected a merger with Clear
Communications, Inc. ("Clear Communications"). Established in 1989 in Seattle,
Washington, privately held Clear Communications provides technical design,
installation and maintenance services for telecommunication, premise cabling and
related products to customers primarily in the greater
12
<PAGE> 13
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
Seattle area. The results of operations and financial position of Clear
Communications are not material to the Company's consolidated results of
operations or financial position.
In October 2000, the Company effected a merger with Person-to-Person
Communications, Inc. ("Person-to-Person"). Established in 1986 in Alexandria,
Virginia, privately held Person-to-Person provides technical design,
installation and maintenance services for telecommunication, premise cabling and
related products to customers primarily in the Mid-Atlantic region. The results
of operations and financial position of Person-to-Person are not material to the
Company's consolidated results of operations or financial position.
In October 2000, the Company effected a merger with Smiles
Communication Systems, Inc. ("Smiles Communication"). Established in 1986 in
Johnson City, Tennessee, privately held Smiles Communication provides technical
design, installation and maintenance services for telecommunication, premise
cabling and related products to customers primarily in the southeast United
States. The results of operations and financial position of Smiles Communication
are not material to the Company's consolidated results of operations or
financial position.
13
<PAGE> 14
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).
<TABLE>
<CAPTION>
Three month period ended Six month period ended
September 30, September 30,
-------------------------------------------------------------
2000 1999 2000 1999
---- ---- ---- ----
<S> <C> <C> <C> <C>
Revenues $ 207,900 $117,889 $376,936 $215,409
========== ======== ======== ========
Revenues:
On-Site Support
North America 50.9% 25.1% 48.5% 21.9%
International 2.5 0.3 2.2 0.2
----- ----- ----- -----
Total On-Site Support 53.4 25.4 50.7 22.1
----- ----- ----- -----
Phone Support:
North America 24.8 41.0 26.0 43.1
International 21.8 33.6 23.3 34.8
----- ----- ----- -----
Total Phone Support 46.6 74.6 49.3 77.9
----- ----- ----- -----
Total Revenues 100.0% 100.0% 100.0% 100.0%
</TABLE>
Revenues for the three and six month periods ended September 30, 2000
were $207,900 and $376,936, respectively, an increase of $90,011, or 76%, and
$161,527, or 75%, respectively, over the same period in the prior year. Revenues
from on-site services for the three months ended September 30, 2000 (Second
Quarter 2001) were $111,122, an increase of $81,216, or 272%, over revenues for
14
<PAGE> 15
the three months ended September 30, 1999 (Second Quarter 2000). For the six
months ended September 30, 2000, revenues from on-site services were $191,163,
an increase of $143,454, or 301%, over revenues for the six months ended
September 30, 1999. On-site services revenue growth for the quarter and
year-to-date was primarily due to the Company's continued geographic expansion
of its technical services capabilities through merger as well as strong demand
for on-site services from existing on-site customers.
Reported revenues from the Company's phone services business for Second
Quarter 2001 were $96,778, an increase of $8,795, or 10%, over revenues for
Second Quarter 2000. For the six months ended September 30, 2000, revenues from
the phone support business were $185,773, an increase of $18,073, or 11%, over
revenues for the six months ended September 30, 1999. If exchange rates had
remained constant from the corresponding periods in the prior year, phone
services revenues for the three and six month periods ended September 30, 2000
would have increased 13% and 14%, respectively. Phone services revenue growth
was driven primarily by strong sales in Europe and Japan. Phone services
revenues from North America for Second Quarter 2001 were $51,587, an increase of
$3,267, or 7%, over revenues for Second Quarter 2000. For the six months ended
September 30, 2000, phone services revenues from North America were $97,958, an
increase of $5,139, or 6%, over revenues for the six months ended September 30,
1999. North American phone services revenue growth was driven by strong demand
for infrastructure products and switch products, including ServSwitch(TM), from
customers of all sizes. International phone services revenues for Second Quarter
2001 were $45,191, an increase of $5,528, or 14%, over revenues for Second
Quarter 2000. For the six months ended September 30, 2000, International phone
services revenues were $87,815, an increase of $12,934, or 17%, over revenues
for the six months ended September 30, 1999. International phone services
revenue growth for the Second Quarter 2001 and the six months ended September
30, 2000 was driven by increased demand in nearly all product lines, especially
infrastructure products, switches, and LAN products. If exchange rates had
remained constant from the corresponding periods in the prior year,
International phone services revenues for the three and six month periods ended
September 30, 2000 would have increased 21% and 24%, respectively.
Reported revenue dollar and percentage changes by geographic region
were as follows: Europe revenues increased $8,269, or 34%, in Second Quarter
2001, and $16,136, or 35%, year-to-date; Pacific Rim revenue increased $1,721,
or 16%, in Second Quarter 2001, and $2,942, or 15%, year-to-date; and Latin
American revenue increased $463, or 9%, in Second Quarter 2001, and $1,471, or
17%, year-to-date. If the exchange rate relative to the U.S. dollar had remained
unchanged from the corresponding periods in the prior year, Europe revenues
would have increased 50% in Second Quarter 2001, and 48% year-to-date; Pacific
Rim revenues would have increased 13% in Second Quarter 2001, and 10%
year-to-date; and Latin America revenues would have increased 10% in Second
Quarter 2001, and 18% year-to-date.
Gross profit in Second Quarter 2001 increased to $84,219, or 40.5% of
revenues, from $51,114, or 43.4% of revenues, in Second Quarter 2000. Gross
profit for the six month period ended September 30, 2000 increased to $154,679,
or 41.0% of revenues, from $96,533, or 44.8% of revenues over the same period in
the prior year. The decline in gross profit margin was due primarily to the
increase in percentage of revenues from the Company's on-site services which
provides lower gross margins. Excluding the impact of revaluing the intercompany
receivables, the gross profit margin was
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41.3% for Second Quarter 2001 compared to 43.2% for Second Quarter 2000 and
41.5% for the six months ended September 30, 2000 compared to 44.8% for the six
months ended September 30, 1999.
Selling, general and administrative ("SG&A") expenses in Second Quarter
2001 were $51,346, or 24.7% of revenues, an increase of $21,281 over SG&A
expenses of $30,065, or 25.5% of revenues, in Second Quarter 2000. SG&A expenses
for the six month period ended September 30, 2000 were $93,784, or 24.9% of
revenues, an increase of $37,226 over SG&A expenses of $56,558, or 26.3% of
revenues over the same period in the prior year. SG&A expense as a percentage of
revenues decreased from last year primarily due to the increase in percentage of
revenue from the Company's on-site services which incurs lower operating
expenses relative to revenues. The dollar increase over the prior year related
primarily to additional marketing and personnel costs worldwide and additional
costs from newly-merged operations which are included in Second Quarter 2001 but
not in Second Quarter 2000.
Operating income before amortization in Second Quarter 2001 was
$32,873, or 15.8% of revenues, compared to $21,049, or 17.9% of revenues, in
Second Quarter 2000. Operating income before amortization for the six month
period ended September 30, 2000 was $60,895, or 16.2% of revenues, compared to
$39,975, or 18.6% of revenues over the same period in the prior year. The
decline in margin was due primarily to the increase in percentage of revenues
from the Company's on-site services which operate at slightly lower margins.
Intangible amortization for the three and six month periods ended September 30,
2000 was $3,170, an increase of $1,804, or 132%, and $5,818, an increase of
$3,163, or 119%, respectively. The increase in amortization is due to additional
goodwill related to the Company's continued expansion of its technical services
by merger.
Net interest expense for the three and six month periods ended
September 30, 2000 was $3,041 and $5,254, respectively, an increase from the
same periods last year of $2,417 and $4,580, respectively, due to an increase in
borrowings for the repurchase of the Company's Common Stock and several mergers
which were completed with cash.
The tax provision in Second Quarter 2001 was $10,346, or an effective
tax rate of 39.0%, which is comparable to $7,559, or an effective tax rate of
39.5%, in Second Quarter 2000. The tax provision for the six month period ended
September 30, 2000 was $19,379, or an effective tax rate of 39%, which is
comparable to $14,506, or an effective tax rate of 39.5%, for the six month
period ended September 30, 1999.
Net income for Second Quarter 2001 was $16,182 compared to $11,577 in
Second Quarter 2000, an increase of 40%. Net income for the six month period
ended September 30, 2000 was $30,310 compared to $22,217 for the six month
period ended September 30, 1999, an increase of 36%. This growth was primarily
due to strong revenue growth and the successful expansion of the Company's
on-site services by merger.
LIQUIDITY AND CAPITAL RESOURCES
The Company's net proceeds from borrowings increased by $18,197 and
$41,516 for the three and six month periods ended September 30, 2000,
respectively, as a result of borrowings used to finance the repurchase of its
Common Stock and to continue expansion of its on-site services by
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<PAGE> 17
merger. As of September 30, 2000, the Company had cash and cash equivalents of
$9,027, working capital of $137,580, and total debt of $147,859.
On April 4, 2000, Black Box PA simultaneously entered into a $120,000
Revolving Credit Agreement ("Long Term Revolver") and a $60,000 Short Term
Credit Agreement ("Short Term Revolver") (together the "Syndicated Debt") with
Mellon Bank, N.A. and a group of lenders. The terms of the Syndicated Debt are
substantially similar to the terms of the previous Mellon Facility. The Long
Term Revolver is scheduled to expire on April 4, 2003 and the Short Term
Revolver is scheduled to expire on April 4, 2001. Upon its expiration, the
Company has the option to convert the Short Term Revolver into a two-year note
with substantially similar terms. The interest on the borrowings is variable
based on the Company's option of selecting the banks prime rate plus an
applicable margin as defined in the agreement or the Euro-dollar rate plus an
applicable margin as defined in the agreement.
The Company's total debt at September 30, 2000 was comprised of
$110,700 under the Mellon Long Term Revolver, $33,000 under the Mellon Short
Term Revolver, and $4,159 of various other loans. The weighted average interest
rate on all indebtedness of the Company as of September 30, 2000 was
approximately 7.7% compared to 6.1% as of September 30, 1999. In addition, at
September 30, 2000, the Company had $996 of letters of credit outstanding and
$35,304 of additional funds available under the Syndicated Debt.
On March 31, 1999, the Company announced its intention to repurchase up
to one million shares of its Common Stock. As of September 1999, the Company had
repurchased all one 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 thousand shares of its Common Stock. As of
November 1999, the Company had repurchased all 500 thousand shares under this
plan at prevailing market rates for an aggregate purchase price of $25,272. On
July 13, 2000, the Company announced its intention to repurchase an additional
500 thousand shares of its Common Stock. As of September 2000, the Company had
repurchased 450 thousand shares under this plan at prevailing market prices for
an aggregate purchase price of $25,179. On July 21, 2000, the Company announced
its intention to repurchase an additional 500 thousand shares of its Common
Stock. As of September 2000, none of the shares under this plan have been
repurchased. Funding for these stock repurchases came from existing cash flow
and borrowings under credit facilities maintained with Mellon Bank, N.A.
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, Chile 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 fair market value, and the resulting gains and
losses are recorded in cost of sales. These gains and losses offset the
revaluation of
17
<PAGE> 18
the related foreign currency denominated receivables, which are also included in
cost of sales. At September 30, 2000, the open foreign exchange contracts were
in Yen, Euro, Sterling pound, Canadian dollars, Swiss francs and Australian
dollars. These open contracts, valued at approximately $18,288, will expire over
the next six months, with the exception of the contract related to the Company's
acquisition of Data Specialties Europe Ltd., which expires on April 30, 2002.
The open contracts have contract rates of 102.73 to 103.93 Yen, 0.9023 to 0.9578
Euro, 1.5041 to 1.5318 Sterling pound, 1.4782 to 1.5028 Canadian dollar, 1.6110
to 1.6297 Swiss franc and 0.5875 to 0.5912 Australian dollar, all per U.S.
dollar. The effect of these contracts on net income for the three and six month
periods ended September 30, 2000 was approximately $1,200 and $1,800,
respectively, which is offset by the revaluation of the related foreign currency
denominated receivables.
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.
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.
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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 September 30, 2000, the Company had open contracts valued at
approximately $18,288 with a fair value of approximately $17,351.
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PART II OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 8, 2000, the Company held its annual meeting of
stockholders. The five matters voted upon at the annual meeting were: (i) the
election of directors; (ii) the amendment to the Second Restated Certificate
of Incorporation to increase the number of authorized shares of Common Stock;
(iii) the amendment to the 1992 Stock Option Plan to increase the number of
shares authorized; (iv) the amendment to the 1992 Stock Option Plan to allow
participation by key hourly employees; and (v) the ratification of the
appointment of Arthur Andersen LLP as independent public accountants for the
fiscal year ending March 31, 2001.
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 16,551,380 362,295 0 0
Thomas G. Greig 16,550,926 362,749 0 0
William R. Newlin 16,320,968 592,707 0 0
Brian D. Young 16,323,052 590,623 0 0
Fred C. Young 16,499,365 414,310 0 0
The amendment to the Second Restated Certificate of Incorporation to
increase the number of authorized shares of Common Stock was approved by the
following vote:
SHARES SHARES VOTED SHARES BROKER
VOTED FOR AGAINST ABSTAINING NON-VOTES
--------- ------------ ---------- ---------
11,637,305 5,212,629 63,741 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
--------- ------------ ---------- ---------
9,488,099 7,357,650 67,926 0
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The amendment to the 1992 Stock Option Plan to allow participation by
key hourly employees was approved by the following vote:
SHARES SHARES VOTED SHARES BROKER
VOTED FOR AGAINST ABSTAINING NON-VOTES
---------- ------------ ---------- ---------
12,745,423 4,101,822 66,430 0
The appointment of Arthur Andersen LLP as independent public
accountants for the fiscal year ending March 31, 2001 was approved by the
following vote:
SHARES SHARES VOTED SHARES BROKER
VOTED FOR AGAINST ABSTAINING NON-VOTES
---------- ------------ ---------- ---------
16,889,681 6,305 17,689 0
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ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits.
3(i) Second Restated Certificate of Incorporation
of the Company, as amended
10.1 1992 Stock Option Plan, as amended
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule - September 30, 2000
(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
November 14, 2000 By: /s/ Anna M. Baird
---------------------
Anna M. Baird, Vice President,
Chief Financial Officer, Treasurer,
and Principal Accounting Officer
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EXHIBIT INDEX
Exhibit
No.
-------
3(i) Second Restated Certificate of Incorporation
of the Company, as amended
10.1 1992 Stock Option Plan, as amended
21.1 Subsidiaries of the Company
27.1 Financial Data Schedule - September 30, 2000
