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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED DECEMBER
29, 2002 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
----- ------
Indicate by check mark whether the registrant is an accelerated filer (as
defined In Rule 12b-2 of the Exchange Act).
YES X NO
----- ------
The number of shares outstanding of the Registrant's common stock, $.001 par
value, as of February 10, 2003 was 19,304,414 shares.
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BLACK BOX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
December 29, March 31,
2002 2002
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 13,447 $ 13,423
Accounts receivable, net of allowance for doubtful
accounts of $8,409 and $8,207, respectively 110,577 115,969
Inventories, net 44,991 46,081
Costs and estimated earnings in excess of billings
on uncompleted contracts 20,431 24,015
Other current assets 17,875 19,959
--------- ---------
Total current assets 207,321 219,447
Property, plant and equipment, net of accumulated depreciation
of $44,682 and $38,635, respectively 36,994 41,063
Intangibles, net of accumulated amortization of $48,936 and
$48,578, respectively 397,675 387,286
Other assets 3,113 2,991
--------- ---------
Total assets $ 645,103 $ 650,787
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt $ 1,761 $ 3,189
Accounts payable 31,122 34,279
Billings in excess of costs and estimated earnings
on uncompleted contracts 4,097 4,235
Other accrued expenses 32,625 31,125
Accrued income taxes 3,967 3,155
--------- ---------
Total current liabilities 73,572 75,983
Long-term debt 51,469 75,497
Other liabilities 7,365 9,209
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 22,571,914 and 22,351,049, respectively 23 22
Additional paid-in capital 294,357 287,714
Retained earnings 355,790 312,288
Treasury stock, at cost, 3,067,500 and 2,105,000, respectively (138,208) (100,355)
Accumulated other comprehensive income/(loss) 735 (9,571)
--------- ---------
Total stockholders' equity 512,697 490,098
--------- ---------
Total liabilities and stockholders' equity $ 645,103 $ 650,787
========= =========
See Notes to Consolidated Financial Statements
2
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
Three months ended Nine months ended
December 29, December 31, December 29, December 31,
2002 2001 2002 2001
-------- -------- -------- --------
Revenues $153,062 $179,241 $470,205 $583,429
Cost of sales 92,423 108,397 284,294 358,610
-------- -------- -------- --------
Gross profit 60,639 70,844 185,911 224,819
Selling, general and administrative
expenses 37,471 42,604 113,788 141,173
Intangibles amortization 96 82 305 107
-------- -------- -------- --------
Operating income 23,072 28,158 71,818 83,539
Interest expense, net 671 1,382 2,209 5,367
Other expense/(income), net 44 2 114 255
-------- -------- -------- --------
Income before income taxes 22,357 26,774 69,495 77,917
Provision for income taxes 7,580 9,905 25,018 28,823
-------- -------- -------- --------
Net income $ 14,777 $ 16,869 $ 44,477 $ 49,094
======== ======== ======== ========
Basic earnings per common share $ 0.75 $ 0.84 $ 2.23 $ 2.48
======== ======== ======== ========
Diluted earnings per common share $ 0.73 $ 0.81 $ 2.17 $ 2.36
======== ======== ======== ========
Weighted average common shares 19,596 20,007 19,937 19,816
======== ======== ======== ========
Weighted average common and
common equivalent shares 20,225 20,955 20,513 20,793
======== ======== ======== ========
See Notes to Consolidated Financial Statements
3
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(Dollars in thousands)
Accumulated
Common Stock Additional Other
-------------------------- Treasury Paid-in Retained Comprehensive
Shares Amount Stock Capital Earnings Income (Loss) Total
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 2001 21,406,367 $ 21 $ (100,355) $ 248,053 $ 250,246 $ (9,014) $ 388,951
Net income -- -- -- -- 62,042 -- 62,042
Issuance of common stock 654,562 1 -- 28,070 -- -- 28,071
Exercise of options 290,120 -- -- 8,954 -- -- 8,954
Tax benefit from exercised
options -- -- -- 2,637 -- -- 2,637
Change in comprehensive loss -- -- -- -- -- (557) (557)
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at March 31, 2002 22,351,049 22 (100,355) 287,714 312,288 (9,571) 490,098
Net income -- -- -- -- 44,477 -- 44,477
Dividend Declared (975) -- (975)
Purchase of treasury stock -- -- (37,853) -- -- -- (37,853)
Issuance of common stock 24,630 1 -- 1,001 -- -- 1,002
Exercise of options 196,235 -- -- 4,366 -- -- 4,366
Tax benefit from exercised
options -- -- -- 1,276 -- -- 1,276
Change in comprehensive
income -- -- -- -- -- 10,306 10,306
----------- ----------- ----------- ----------- ----------- ----------- -----------
Balance at December 29, 2002 22,571,914 $ 23 $ (138,208) $ 294,357 $ 355,790 $ 735 $ 512,697
=========== =========== =========== =========== =========== =========== ===========
See Notes to Consolidated Financial Statements
4
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
Nine months ended
December 29, December 31,
2002 2001
------------ ------------
Cash flows from operating activities:
Net income $ 44,477 $ 49,094
Adjustments to reconcile net income to cash provided
by operating activities:
Intangibles amortization 305 107
Depreciation 5,747 6,140
Changes in working capital items:
Accounts receivable, net 6,729 44,208
Inventories, net 1,232 3,514
Other current assets 6,090 (247)
Accounts payable and accrued liabilities (2,221) (52,479)
-------- --------
Cash provided by operating activities 62,359 50,337
-------- --------
Cash flows from investing activities:
Capital expenditures, net of disposals (706) (1,937)
Merger transactions, net of cash acquired and prior
merger-related payments (7,561) (18,910)
-------- --------
Cash used in investing activities (8,267) (20,847)
-------- --------
Cash flows from financing activities:
Revolving credit borrowings, net (25,567) (26,930)
Proceeds from exercise of options 4,366 7,498
Purchase of treasury stock (37,853) --
-------- --------
Cash used in financing activities (59,054) (19,432)
-------- --------
Foreign currency exchange impact on cash flow 4,986 (394)
-------- --------
Increase in cash and cash equivalents 24 9,664
Cash and cash equivalents at beginning of period 13,423 6,209
-------- --------
Cash and cash equivalents at end of period $ 13,447 $ 15,873
======== ========
Cash paid for interest $ 2,212 $ 5,295
Cash paid for income taxes $ 23,472 $ 35,726
See Notes to Consolidated Financial Statements
5
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 as filed with the SEC for the fiscal year ended
March 31, 2002. The consolidated Balance Sheet as of March 31, 2002 was derived
from the audited Balance Sheet included in the most recent Form 10-K.
NOTE 2: FISCAL YEARS AND BASIS OF PRESENTATION
The Company's fiscal year ends on March 31. Its fiscal quarters consist of 13
weeks and, beginning in Fiscal 2003, end on the Sunday nearest each calendar
quarter end. The actual ending date for the period presented as December 31,
2002 was December 29, 2002. The ending dates for all other periods are as
presented.
NOTE 3: INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The net inventory balances are as follows:
DECEMBER 31, MARCH 31,
2002 2002
===================================================================
Raw materials $ 2,025 $ 2,417
Work-in-process 1 5
Finished goods 46,792 47,017
Inventory reserve (3,827) (3,358)
-------------------------------------------------------------------
Inventory, net $44,991 $ 46,081
===================================================================
NOTE 4: FINANCIAL DERIVATIVES
The Company has entered and will continue in the future, on a selective basis,
to enter into forward exchange contracts to reduce the foreign currency exposure
related to certain intercompany transactions. On a monthly basis, the open
contracts are revalued to fair market value, and the resulting gains and losses
are recorded in accumulated other comprehensive income. These gains and losses
offset the revaluation of the related foreign currency denominated receivables,
which are also included in accumulated other comprehensive income.
6
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
At December 31, 2002, the open foreign exchange contracts were in Euro, Pound
sterling, Canadian dollars, Swiss francs, Japanese yen and Australian dollars.
These open contracts are valued at approximately $27,014 and will expire in one
to six months. The open contracts have an average contract rate of 1.01 Euro,
0.6474 Pound sterling, 1.5754 Canadian dollars, 1.494 Swiss francs, 121.35
Japanese yen and 1.83 Australian dollars, all per U.S. dollar.
NOTE 5: COMPREHENSIVE INCOME
Comprehensive income consisted of the following:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------------------------------
2002 2001 2002 2001
====================================================================================================================
Net income $14,777 $16,869 $44,477 $49,094
Other comprehensive income:
Foreign currency translation
adjustment 6,538 (1,125) 10,467 239
Unrealized gains (losses) on derivatives
designated and qualified as cash flow
hedges (312) (101) (161) (28)
- -------------------------------------------------------------------------------------------------------------------
Comprehensive income $21,003 $15,643 $54,783 $49,305
===================================================================================================================
The components of accumulated other comprehensive income/(loss) consisted of the
following:
DECEMBER 31, MARCH 31,
2002 2002
===================================================================================================================
Foreign currency translation adjustment $1,064 $(9,403)
Unrealized gains on derivatives designated and qualified as cash flow
hedges (329) (168)
- -------------------------------------------------------------------------------------------------------------------
Total accumulated other comprehensive income/(loss) $ 735 $(9,571)
===================================================================================================================
NOTE 6: EARNINGS PER SHARE
Basic earnings per common share were computed based on the weighted average
number of common shares issued and outstanding during the relevant periods.
Diluted earnings per common share were computed based on the weighted average
number of common shares issued and outstanding, plus the dilutive effect of
options (using the treasury stock method) and contingently issuable shares. The
following table details this calculation:
7
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
------------------------------------------------------
(Shares in thousands) 2002 2001 2002 2001
=====================================================================================================================
Net income for earnings per share computation $14,777 $16,869 $44,477 $49,094
Basic earnings per common share:
Weighted average common shares 19,596 20,007 19,816
19,937
Basic earnings per common share $ 0.75 $ 0.84 $ 2.23 $ 2.48
- ---------------------------------------------------------------------------------------------------------------------
Diluted earnings per common share:
Weighted average common shares 19,596 20,007 19,937 19,816
Shares issuable from assumed conversion of stock
options and contingently issuable shares from
acquisitions (net of tax savings) 629 948 576 977
----------------------------------------------------
Weighted average common and common equivalent shares
20,225 20,955 20,513 20,793
Diluted earnings per common share $ 0.73 $ 0.81 $ 2.17 $ 2.36
=====================================================================================================================
Excluded from the calculation above are 814,064 shares and 11,936 shares
issuable upon the exercise of outstanding stock options for the three months
ended December 31, 2002 and 2001, respectively and 1,452,134 shares and 11,936
shares for the nine months ended December 31, 2002 and 2001, respectively, as
the exercise price of such options was greater than the average market price for
those time periods.
NOTE 7: NEW ACCOUNTING STANDARDS
In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets." SFAS
No. 144 addresses financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of and supersedes
FASB Statement No. 121. This SFAS retains the fundamental provisions of SFAS No.
121 for recognition and measurement of the impairment of long-lived assets to be
held and used and measurement of long-lived assets to be disposed of by sale.
The provisions of this standard must be applied for fiscal years beginning after
December 15, 2001. The Company adopted SFAS No. 144 in the first quarter of
Fiscal 2003. Its adoption did not have a material effect on the Company's
financial statements or results of operations.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections," was issued. The
SFAS updates, clarifies and simplifies existing accounting pronouncements. While
the technical corrections to existing pronouncements are not substantive in
nature, in some instances, they may change accounting practice. The provisions
of this standard related to Statement No. 13 are effective for transactions
occurring after May 15, 2002. All other provisions of this standard must be
applied for years beginning after May 15, 2002. The application of SFAS No. 145
did not have a material effect on the Company's financial statements or results
of operations.
8
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity,"
under which a liability for an exit cost was recognized at the date of an
entity's commitment to an exit plan. SFAS No. 146 requires that a liability for
a cost associated with an exit or disposal activity be recognized at fair value
when the liability is incurred. The provisions of this standard are effective
for exit or disposal activities that are initiated after December 31, 2002. The
Company believes that the adoption of SFAS No. 146 will not have a material
impact on its financial statements or results of operations.
On December 31, 2002, the Financial Accounting Standards Board issued SFAS No.
148 "Accounting for Stock-Based Compensation - Transition and Disclosure." SFAS
No. 148 amends FASB Statement No. 123 "Accounting for Stock-Based Compensation,"
to provide alternative methods of transition to Statement No. 123's fair value
method of accounting for stock-based employee compensation. SFAS No. 148 also
amends the disclosure provisions of Statement 123 and APB Opinion No. 28
"Interim Financial Reporting," to require disclosure in the summary of
significant accounting policies of the effects of an entity's accounting policy
with respect to stock-based employee compensation on reported net income and
earnings per share in annual and interim financial statements. While the
statement does not amend Statement 123 to require companies to account for
employee stock options using the fair value method, the disclosure provisions of
SFAS No. 148 are applicable to all companies with stock-based employee
compensation, regardless of whether they account for that compensation using the
fair value method of Statement 123 or the intrinsic value method of Opinion 25.
The Company continues to apply Opinion No 25 in accounting for stock-based
compensation. SFAS No. 148 amendments of the transition and annual disclosure
requirements of Statement 123 are effective for fiscal years ending after
December 15, 2002 and will be included in the Company's Form 10-K for Fiscal
2003.
NOTE 8 - CHANGES IN BUSINESS
During the nine months ended December 31, 2002, the Company successfully
completed two business combinations that have been accounted for using the
purchase method of accounting, June 2002 - Societe d'Installation de Reseaux
Informatiques et Electriques; and July 2002 - EDC Communications Limited and EDC
Communications (Ireland) Limited. The aggregate purchase price of these two
business combinations was $4,300 and resulted in goodwill of $3,157 and other
intangibles of approximately $348 in accordance with SFAS No. 141, "Business
Combinations," which the Company adopted during the third quarter of Fiscal
2002. The other intangibles balance consisted of non-compete agreements and
backlog. In addition, during the nine months ended December 31, 2002, the
Company paid approximately $4,000 for obligations related to mergers completed
in prior periods.
9
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
As of December 31, 2002, all non-compete agreements had an estimated gross value
of $1,861 and accumulated amortization of $235. As of December 31, 2002, the
backlog intangibles had a gross value of $281 and accumulated amortization of
$256. See Note 9, "Intangible Assets."
During Fiscal 2002, the Company successfully completed 18 business combinations
that have been accounted for using the purchase method of accounting: April 2001
- - Haddad Electronic Supply, Inc., FBS Communications, L.P. and Integrated
Cabling Systems, Inc.; May 2001 - Computer Cables and Accessories Ltd; June 2001
- - Vivid Communications, Inc. and DESIGNet, Inc; July 2001 - J.C. Informatica
Integral S.A. de C.V., Consultoria en Redes S.A. de C.V. and SIC Comunicaciones
S.A. de C.V. (together "Grupo Gresco"); August 2001 - LJL Telephone and
Communication, Inc., AB Lofamatic and Optech Fibres Ltd.; December 2001 - GCS
Network Services Ltd. and Di.el. Distribuzioni Elettroniche S.r.l.; October 2001
- - Lanetwork Sales Ltd; January 2002 - Trend Communications, TW Netzwerkservice
GmbH, TeleFuture Communications Ltd., and Netzwerke Kabelsystem GmbH; and March
2002 - TeleAce Communication PTE Ltd. In connection with the above 18 business
combinations, the Company issued an aggregate of 510,000 shares of its common
stock and used approximately $21,000 in cash to acquire all of the outstanding
shares of the above 18 companies.
The aggregate purchase price of the above 18 companies including deal costs was
approximately $50,500 and resulted in goodwill of $43,900 and other intangibles
of approximately $1,800 in accordance with SFAS No. 141, "Business
Combinations," which the Company adopted during the third quarter of Fiscal
2002. The other intangibles balance consisted of non-compete agreements and
backlog. As of March 31, 2002, the non-compete agreements had an estimated gross
value of $1,900 and accumulated amortization of $92. As of March 31, 2002, the
backlog intangibles had a gross value of $203 and accumulated amortization of
$78.
As of December 31, 2002, certain merger agreements provide for contingent
payments of up to $5,192. Upon meeting future operating performance goals,
goodwill will be adjusted for the amount of the contingent payments.
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:
10
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
- --------------------------------------------------------------------------------------------------------------------
2002 2001 2002 2001
====================================================================================================================
Revenues: As reported $153,062 $179,241 $470,205 $583,429
Mergers-pre BBC -- 5,777 1,721 28,161
---------------- -------------- -------------- ---------------
Pro forma $153,062 $185,018 $471,926 $611,590
- ----------------------------- ------------------------ ---------------- -------------- -------------- ---------------
Net income: As reported $ 14,777 $ 16,869 $ 44,477 $ 49,094
% of revenues 9.7% 9.4% 9.5% 8.4%
Mergers-pre BBC -- 775 178 3,410
% of revenues -- 13.4% 10.3% 12.1%
--------------------------------------------------------------
Pro forma $ 14,777 $ 17,644 $ 44,655 $ 52,504
% of revenues 9.7% 9.5% 9.5% 8.6%
- ---------------------------------------------------------------------------------------------------------------------
Diluted earnings per share: As reported $ 0.73 $ 0.81 $ 2.17 $ 2.36
Pro forma $ 0.73 $ 0.84 $ 2.18 $ 2.53
=====================================================================================================================
NOTE 9: INTANGIBLE ASSETS
On April 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," under which goodwill and other intangible assets with
indefinite lives are not amortized. Such intangibles were evaluated for
impairment as of April 1, 2001 by comparing the fair value of each reporting
unit to its carrying value, and no impairment existed. In addition, during the
third quarter of Fiscal 2002 and Fiscal 2003, the Company evaluated its
intangible assets for impairment and none existed. During the third quarter of
each future fiscal year, the Company will evaluate the intangible assets for
impairment with any resulting impairment reflected as an operating expense. The
Company's only intangibles as identified in SFAS No. 141 other than goodwill,
are its trademarks, non-compete agreements and acquired backlog.
As of December 31, 2002, the Company's trademarks had a gross carrying amount of
$35,992 and accumulated amortization of $8,253 and the Company believes this
intangible has an indefinite life.
The Company had the following other intangibles as of December 31, 2002:
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
======================================================================================
Non-Compete Agreements $1,861 $235
Acquired Backlog 281 256
--------------------------------------------------------------------------------------
Total $2,142 $491
======================================================================================
The non-compete agreements and acquired backlog are amortized over their
estimated useful lives of 10 years and 1 year, respectively. Amortization
expense for the non-compete agreements and acquired backlog intangibles during
the three and nine months ended December 31, 2002
11
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
was $96 and $305, respectively. The estimated amortization expense for each of
the five fiscal years subsequent to March 31, 2002 for the non-compete
agreements and acquired backlog intangibles is as follows: remainder of
2003-$70; 2004-$200; 2005-$186; 2006-$186; and 2007-$186.
The changes in the carrying amount of goodwill, net of amortization, by
reporting segment for the nine months ended December 31, 2002, are as follows:
PHONE ON-SITE TOTAL
=================================================================================================================
Balance as of March 31, 2002 $60,540 $297,090 $357,630
Goodwill related to acquisitions, earnout
payments and other during period 1,115 9,540 10,655
- -----------------------------------------------------------------------------------------------------------------
Balance as of December 31, 2002 $61,655 $306,630 $368,285
=================================================================================================================
NOTE 10: TREASURY STOCK
The Company previously announced its intention to repurchase up to 2,500,000
shares of its Common Stock from April 1, 1999 through March 31, 2002. As of
March 31, 2002, the Company had repurchased 2,105,000 shares at prevailing
market prices for an aggregate purchase price of $100,355. In May 2002, the
Company's Board of Directors authorized the repurchase of an additional
1,000,000 shares. During the first nine months of Fiscal 2003, the Company
repurchased 962,500 shares for an aggregate purchase price of $37,853. Funding
for these repurchases came from existing cash flow and borrowings under existing
credit facilities.
NOTE 11: INDEBTEDNESS
Long-term debt is as follows:
DECEMBER 31, MARCH 31,
2002 2002
===================================================================================
Revolving credit agreement $ 51,000 $ 75,000
Other debt 2,230 3,686
-----------------------------------------------------------------------------------
Total debt 53,230 78,686
Less: current portion (1,761) (3,189)
-----------------------------------------------------------------------------------
Long-term debt $ 51,469 $ 75,497
===================================================================================
On April 4, 2000, Black Box Corporation of PA, a domestic subsidiary of the
Company, 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 Long Term Revolver was scheduled to expire on April 4, 2003 and the Short
Term Revolver was scheduled to expire on April 4, 2002. In April 2002, the Long
Term Revolver was extended to April 4, 2005 and the Short Term Revolver was
extended to April 2, 2003. 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.
12
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
The weighted average interest rate on all indebtedness of the Company as of
December 31, 2002 was approximately 2.17%.
NOTE 12: RESTRUCTURING
In the fourth quarter of Fiscal 2002, the Company recorded a restructuring
charge of approximately $3,500 primarily related to adjusting staffing levels in
its European and Latin American operations and facility closures in the U.S.
Also at March 31, 2002, the Company had an accrual of $584 related to continuing
costs of a previously closed facility recognized at the time of one of its
acquisitions. The components of the restructuring accrual at December 31, 2002
are as follows:
ACCRUED CASH ACCRUED
MARCH 31, 2002 EXPENDITURES DECEMBER 31, 2002
============================================================================================
Employee Severance $1,443 $1,357 $ 86
Facility Closures 1,439 541 898
--------------------------------------------------------------------------------------------
Total $2,882 $1,898 $984
============================================================================================
NOTE 13: SEGMENT REPORTING
The Company manages the business primarily on a product and service line basis.
Its two primary reportable segments are comprised of On-Site Services and Phone
Services. The "Other" information presented herein includes expenses directly
related to the Company's on-going mergers and acquisitions program. The Company
reports its two segments separately because of differences in the ways the
product and service lines are 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
Operating Income." A segment's worldwide operating income is its operating
income before amortization. For intercompany transactions, the segment providing
the third-party billing reports the revenues and the related profits.
Intersegment sales, segment interest income or expense and expenditures for
segment assets are not presented to or reviewed by management, and therefore are
not presented below.
13
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
Summary information by reportable segment is as follows:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------------------------------------------
ON-SITE SERVICES 2002 2001 2002 2001
=====================================================================================================================
Revenues $ 90,165 $105,057 $279,430 $343,382
Worldwide operating income (before amortization) 10,838 14,239 34,444 43,772
Depreciation 965 976 3,035 2,998
Amortization 96 82 305 107
Segment assets 577,229 511,118 577,229 511,118
=====================================================================================================================
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------------------------------------------
PHONE SERVICES 2002 2001 2002 2001
=====================================================================================================================
Revenues $ 62,897 $ 74,184 $190,775 $240,047
Worldwide operating income (before amortization) 12,671 14,411 38,714 46,467
Depreciation 931 1,115 2,887 3,317
Amortization 2 -- -- --
Segment assets 504,568 502,329 504,568 502,329
=====================================================================================================================
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------------------------------------------
OTHER 2002 2001 2002 2001
=====================================================================================================================
Revenues $ -- $ -- $ -- $ --
Worldwide operating income (before amortization) (341) (410) (1,035) (1,566)
Depreciation (59) (61) (175) (175)
Amortization -- -- -- --
Segment assets 29,179 28,790 29,179 28,790
=====================================================================================================================
14
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
The following reconciles certain reportable segment data and the corresponding
consolidated amounts:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
-------------------------------------------------------------
REVENUE 2002 2001 2002 2001
==================================================================================================================
Total revenues for phone and on-site segments $153,062 $179,241 $470,205 $583,429
Other revenues -- -- -- --
- ------------------------------------------------------------------------------------------------------------------
Total consolidated revenues $153,062 $179,241 $470,205 $583,429
==================================================================================================================
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
WORLDWIDE OPERATING ---------------------------------------------------------------
INCOME/OPERATING INCOME 2002 2001 2002 2001
=====================================================================================================================
Total worldwide operating income (before
amortization) for phone and on-site segments $23,509 $28,650 $73,158 $85,212
Other worldwide operating income (before
amortization) (341) (410) (1,035) (1,566)
- --------------------------------------------------------------------------------------------------------------------
Total consolidated worldwide operating income
(before amortization) 23,168 28,240 72,123 83,646
Amortization expense 96 82 305 107
- --------------------------------------------------------------------------------------------------------------------
Total operating income (after amortization) $23,072 $28,158 $71,818 $83,539
====================================================================================================================
On-Site Services worldwide operating income for the nine months ended December
31, 2001 was reduced by a special operating expense of approximately $5,000
related primarily to the reserve of two receivables from on-site customers who
filed for bankruptcy protection in that quarter.
DECEMBER 31, MARCH 31,
ASSETS 2002 2002
==============================================================================================
Total assets for phone and on-site segments $1,081,797 $1,016,073
Other assets 29,179 28,874
Corporate eliminations (465,873) (394,160)
----------------------------------------------------------------------------------------------
Total consolidated assets $ 645,103 $ 650,787
==============================================================================================
15
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
Management is also presented with and reviews information about its geographic
areas. The following geographical information is presented:
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------------------------------------------------
REVENUES 2002 2001 2002 2001
==================================================================================================================
North America $102,017 $124,372 $323,488 $424,026
Europe 41,457 40,887 115,847 117,696
Pacific Rim 6,325 8,572 19,572 25,732
Latin America 3,263 5,410 11,298 15,975
- ------------------------------------------------------------------------------------------------------------------
Total revenues $153,062 $179,241 $470,205 $583,429
==================================================================================================================
DECEMBER 31, MARCH 31,
ASSETS 2002 2002
=================================================================================================
North America $ 503,561 $ 513,008
Europe 119,423 111,584
Pacific Rim 10,584 11,653
Latin America 11,535 14,542
-------------------------------------------------------------------------------------------------
Total consolidated assets $ 645,103 $ 650,787
=================================================================================================
16
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)
GENERAL:
The table below should be read in conjunction with the following discussion.
THREE MONTHS ENDED NINE MONTHS ENDED
DECEMBER 31, DECEMBER 31,
----------------------------------------------------------------------
2002 2001 2002 2001
(3Q03) (3Q02) (3Q03YTD) (3Q02YTD)
=============================================================================================================
Total Revenues $153,062 $179,241 $470,205 $583,429
- -------------------------------------------------------------------------------------------------------------
Percentage of Total:
On-Site Services
North America 46% 50% 47% 52%
International 13 9 12 7
----------------------------------------------------------------------
Subtotal On-Site 59 59 59 59
----------------------------------------------------------------------
Phone Services
North America 20 19 21 21
International 21 22 20 20
----------------------------------------------------------------------
Subtotal Phone 41 41 41 41
----------------------------------------------------------------------
Total 100% 100% 100% 100%
=============================================================================================================
THIRD QUARTER FISCAL 2003 (3Q03) COMPARED TO THIRD QUARTER FISCAL 2002
(3Q02):
TOTAL REVENUES
Total revenues for 3Q03 were $153,062, a decrease of 15% compared to 3Q02
total revenues of $179,241. If exchange rates had remained constant from the
third quarter last year, 3Q03 total revenues would have been $4,068 less.
ON-SITE SERVICES REVENUES
Revenues from on-site services were $90,165 for 3Q03 compared to $105,057
for 3Q02. Included in 3Q03 is approximately $2,722 of revenues from mergers
completed after 3Q02. Overall, the on-site services revenue decline was due
to weak general economic conditions that affected customer demand offset in
part by the impact of the Company's geographic expansion by merger of its
on-site technical services capabilities that occurred after 3Q02.
North America on-site services revenues were $71,008 for 3Q03 compared to
$89,365 for 3Q02. The decrease in North America on-site services revenues
was due to the economic conditions described above.
17
International on-site services revenues increased 22% to $19,157 for 3Q03
from $15,692 for 3Q02. The growth of International on-site services revenues
was driven by the Company's continued geographic expansion of its technical
services capabilities and deeper penetration in existing markets that
occurred after 3Q02.
PHONE SERVICES REVENUES
Revenues from the Company's phone services business for 3Q03 were $62,897
compared to $74,184 for 3Q02. Phone services revenues from North America
decreased to $31,009 for 3Q03 from $35,007 for 3Q02 while International
phone services revenues decreased to $31,888 for 3Q03 from $39,177 for 3Q02.
The decline in North America and International phone services revenues was
driven by a general economic downturn.
REVENUES BY GEOGRAPHY
Reported revenue dollar and percentage changes over prior year's third
quarter by geographic region were as follows: North America revenues
decreased $22,355, or 18%, to $102,017; Europe revenues increased $570, or
1%, to $41,457; Pacific Rim revenues decreased $2,247, or 26%, to $6,325;
and Latin American revenues decreased $2,147, or 40%, to $3,263. If the
exchange rate relative to the U.S. dollar had remained unchanged from 3Q02,
the European, Pacific Rim and Latin America revenues would have decreased
8%, 28% and 39%, respectively.
GROSS PROFIT
Gross profit for 3Q03 decreased to $60,639, or 39.6% of revenues, from
$70,844, or 39.5% of revenues for 3Q02. The decrease in gross profit dollars
over prior year was due to the decline in revenues.
SG&A EXPENSES
Selling, general and administrative ("SG&A") expenses for 3Q03 were $37,471,
or 24.5% of revenues, a decrease of $5,133 over SG&A expenses of $42,604, or
23.8% of revenues for 3Q02. The dollar decrease from 3Q02 to 3Q03 related to
the Company's cost reduction efforts worldwide.
OPERATING TO NET INCOME
Operating income before intangibles amortization for 3Q03 was $23,168, or
15.1% of revenues, compared to $28,240, or 15.8% of revenues in 3Q02.
The decrease in operating income before intangibles amortization percentage
was due primarily to the increase in SG&A as a percentage of revenues.
Intangibles amortization for 3Q03 was $96 compared to 3Q02 of $82.
Operating income (after intangibles amortization) for 3Q03 was $23,072, or
15.1% of revenues, compared to $28,158, or 15.7% of revenues in 3Q02.
18
Net interest expense for 3Q03 decreased to $671 from $1,382 for 3Q02 due to
debt reduction of $49,597 from 3Q02 to 3Q03 and reduction in the interest
rate during this period.
The tax provision for 3Q03 was $7,580, an effective tax rate of 33.9%,
compared to 3Q02 of $9,905, an effective tax rate of 37.0%. The tax rate for
3Q03 was lower than the currently projected annual effective tax rate of
36.0% as the Company made the adjustment during the quarter from the
previously expected rate of 37.0%. The Company reduced its annual effective
tax rate to 36.0% as a result of reduced state income taxes. The annual
effective tax rates were higher than the U.S. statutory rate of 35.0%
primarily due to state income taxes, offset by foreign income tax credits.
Net income for 3Q03 was $14,777, or 9.7% of revenues, compared to $16,869,
or 9.4% of revenues for 3Q02. The increase in net income as a percentage of
revenues was due primarily to the Company's lower effective tax rate.
FIRST NINE MONTHS FISCAL 2003 (3Q03YTD) COMPARED TO FIRST NINE MONTHS FISCAL
2002 (3Q02YTD):
TOTAL REVENUES
Total revenues for 3Q03YTD were $470,205, a decrease of 19% compared to
3Q02YTD total revenues of $583,429. If exchange rates had remained constant
from the same periods last year, 3Q03YTD total revenues would have been
$9,229 less.
ON-SITE SERVICES REVENUES
Revenues from on-site services were $279,430 for 3Q03YTD compared to
$343,382 for 3Q02YTD. Included in 3Q03YTD is approximately $7,725 of
revenues from mergers completed after 3Q02. Overall, the on-site services
revenue decline was due to weak general economic conditions that affected
customer demand offset in part by the impact of the Company's geographic
expansion by merger of its on-site technical services capabilities that
occurred after 3Q02.
North America on-site services revenues were $224,877 for 3Q03YTD compared
to $301,972 for 3Q02YTD. The decrease in North America on-site services
revenues was due to the economic conditions described above.
International on-site services revenues increased 32% to $54,553 for 3Q03YTD
from $41,410 for 3Q02YTD. The growth of International on-site services
revenues was driven by the Company's geographic expansion of its technical
services capabilities and deeper penetration in existing markets that
occurred after 3Q02.
PHONE SERVICES REVENUES
Revenues from the Company's phone services business for 3Q03YTD were
$190,775 compared to $240,047 for 3Q02YTD. Phone services revenues from
North America decreased to $98,611 for 3Q03YTD from $122,054 for 3Q02YTD
while International phone services revenues decreased to $92,164 for 3Q03YTD
from $117,993 for 3Q02YTD. The
19
decline in North America and International phone services revenues was
driven by the general economic downturn.
REVENUES BY GEOGRAPHY
Reported revenue dollar and percentage changes over prior year's first nine
months by geographic region were as follows: North America revenues
decreased $100,538, or 24%, to $323,488; Europe revenues decreased $1,849,
or 2%, to $115,847; Pacific Rim revenues decreased $6,160, or 24%, to
$19,572; and Latin American revenues decreased $4,677, or 29%, to $11,298.
If the exchange rate relative to the U.S. dollar had remained unchanged from
prior year, the European, Pacific Rim and Latin America revenues would have
decreased 9%, 25% and 29%, respectively.
GROSS PROFIT
Gross profit for 3Q03YTD decreased to $185,911, or 39.5% of revenues, from
$224,819, or 38.5% of revenues for 3Q02YTD. The decrease in gross profit
dollars over prior year was due primarily to the decline in revenues while
the increase in gross profit percentage was due primarily to cost reduction
efforts in the Company's phone services business.
SG&A EXPENSES
Selling, general and administrative ("SG&A") expenses for 3Q03YTD were
$113,788, or 24.2% of revenues, a decrease of $27,385 over SG&A expenses of
$141,173, or 24.2% of revenues for 3Q02YTD. Included in prior year's first
nine months was a special expense of $5,027 primarily attributable to the
Company reserving for two accounts receivable from customers who filed for
Chapter 11 bankruptcy protection during 1Q02. The remaining dollar decrease
from 3Q02YTD to 3Q03YTD related to the Company's cost reduction efforts
worldwide.
OPERATING TO NET INCOME
Operating income before intangibles amortization for 3Q03YTD was $72,123, or
15.3% of revenues, compared to $83,646, or 14.3% of revenues in 3Q02YTD.
If the Company had not incurred the special expense described above,
operating income before intangibles amortization for 3Q02YTD would have been
$88,673, or 15.2% of revenues.
Intangibles amortization for 3Q03YTD was $305 compared to 3Q02YTD of $107.
Operating income (after intangibles amortization) for 3Q03YTD was $71,818,
or 15.3% of revenues, compared to $83,539, or 14.3% of revenues in 3Q02YTD.
Net interest expense for 3Q03YTD decreased to $2,209 from $5,367 for 3Q02YTD
due to debt reduction of $49,597 from 3Q02 to 3Q03 and reduction in the
interest rate during this period.
The tax provision for 3Q03YTD was $25,018, an effective tax rate of 36.0%,
compared to 3Q02YTD of $28,823, an effective tax rate of 37.0%. The Company
reduced its annual effective tax rate to 36.0% as a result of reduced state
income taxes. The annual
20
effective tax rates were higher than the U.S. statutory rate of 35.0%
primarily due to state income taxes, offset by foreign income tax credits.
Net income for 3Q03YTD was $44,477, or 9.5% of revenues, compared to
$49,094, or 8.4% of revenues for 3Q02YTD. Excluding the special charge
described above in SG&A expenses, net income for 3Q02YTD would have been
$52,261, or 9.0% of revenues. The increase in net income as a percentage of
revenue was primarily due to the Company's cost reduction efforts.
LIQUIDITY AND CAPITAL RESOURCES:
Cash flow from operating activities (defined by generally accepted
accounting principles as net income plus non-cash charges of depreciation
and amortization, less changes in working capital) for 3Q03 and 3Q02 was
$24,523 and $25,948, respectively. Reflected as a source of cash flow from
operating activities in 3Q03 are decreases in unbilled accounts and other
current assets offset in part by increases in accounts receivables and
inventories and decreases in accounts payable and accrued liabilities. In
3Q02, decreases in accounts receivables, inventories and other current
assets were a source of cash flow from operating activities, while decreases
in accounts payable and other liabilities were a use of cash flow.
During 3Q03, free cash flow (defined as cash flow from operating activities
less capital expenditures and foreign currency translation adjustments, plus
proceeds from stock option exercises) was $28,017 compared to $28,891 for
3Q02. The Company's 3Q03 free cash flow was used to repurchase approximately
$17,000 of Company stock, reduce debt by approximately $10,000 and increase
cash on hand by approximately $1,000.
Also during 3Q03, the Company's Board of Directors declared a quarterly cash
dividend of $0.05 per share on all outstanding shares of Black Box's common
stock, payable on January 15, 2003 to stockholders of record at the close of
business on December 31, 2002. Accordingly, the Company recorded a liability
of $975 in 3Q03.
Cash flow from operating activities for 3Q03YTD and 3Q02YTD was $62,359 and
$50,337, respectively. Reflected as a source of cash flow from operating
activities during 3Q03YTD are decreases in accounts receivable, unbilled
accounts, inventories and other current assets, offset in part by decreases
in accounts payable and accrued liabilities, all generally related to the
decline in revenues. For 3Q02YTD, decreases in accounts receivables and
inventories were a source of cash flow from operating activities, while
decreases in other current assets and various liabilities were a use of cash
flow.
For 3Q03YTD, free cash flow as defined above was $71,005 compared to $55,504
for 3Q02YTD. The Company's 3Q03YTD free cash flow was used to repurchase
approximately $38,000 of Company stock, reduce debt by approximately $26,000
and pay merger obligations of approximately $7,000.
As of the end of 3Q03, the Company had cash and cash equivalents of $13,447,
working capital of $133,749 and long-term debt of $51,469.
21
On April 4, 2000, Black Box Corporation of PA, a domestic subsidiary of the
Company, 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 Long Term Revolver was scheduled to expire on April 4, 2003 and
the Short Term Revolver was scheduled to expire on April 3, 2002. In April
2002, the Long Term Revolver was extended until April 4, 2005 and the Short
Term Revolver was extended until April 2, 2003.
The Company's total debt at the end of 3Q03 of $53,230 was comprised of
$51,000 under the Long Term Revolver and $2,230 of various other loans. The
weighted average interest rate on all indebtedness of the Company for 3Q03
and 3Q02 was approximately 2.43% and 3.71%, respectively. The weighted
average interest rate on all indebtedness of the Company as the end of 3Q03
was 2.17%. In addition, at the end of 3Q03, the Company had $3,565 of
letters of credit outstanding and $125,435 available under the Syndicated
Debt.
Interest on the Syndicated Debt is variable based on the Company's option of
selecting the bank's Euro-dollar rate plus an applicable margin or the prime
rate plus an applicable margin. The majority of the Company's borrowings are
under the Euro-rate option. The applicable margin is adjusted each quarter
based on the consolidated leverage ratio as defined in the agreement. The
applicable margin varies from 0.75% to 1.75% (0.75% at the end of 3Q03) on
the Euro-dollar rate option and from zero to 0.75% (zero at the end of 3Q03)
on the prime rate option. The Syndicated Debt provides for the payment of
quarterly commitment fees on unborrowed funds, also based on the
consolidated leverage ratio. The commitment fee percentage ranges from 0.20%
to 0.375% (0.20% for the Short Term Revolver and 0.25% for the Long Term
Revolver at the end of 3Q03). The Syndicated Debt is unsecured; however, the
Company, as the ultimate parent, guarantees all borrowings and the debt
contains various restrictive covenants.
The net cash impact of merger transactions and prior merger-related payments
during 3Q03YTD was $272 while capital expenditures, net of disposals, were
$26. Capital expenditures, net of disposals, for all of Fiscal 2003 are
projected to be approximately $2,000 and will be focused primarily on
information systems and facility improvements.
The Company previously announced its intention to repurchase up to 2,500,000
shares of its Common Stock from April 1, 1999 through March 31, 2002. As of
March 31, 2002, the Company had repurchased 2,105,000 shares at prevailing
market prices for an aggregate purchase price of $100,355. In May 2002, the
Company's Board of Directors approved the repurchase of an additional
1,000,000 shares of its Common Stock. During the first nine months of Fiscal
2003, the Company repurchased 962,500 shares for an aggregate purchase price
of $37,853. Funding for these repurchases came from existing cash flow and
borrowings under credit facilities.
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,
Denmark, Mexico, Norway and Sweden 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 accumulated other
comprehensive income.
22
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 accumulated other comprehensive
income. These gains and losses offset the revaluation of the related foreign
currency denominated receivables, which are also included in accumulated
other comprehensive income. At the end of 3Q03, the open foreign exchange
contracts related to intercompany transactions were in Euro, Pound sterling,
Canadian dollars, Swiss francs, Japanese yen and Australian dollars. These
open contracts are valued at approximately $27,014 and will expire in one to
six months. The open contracts have an average contract rate of 1.01 Euro,
0.6474 Pound sterling, 1.5754 Canadian dollars, 1.494 Swiss francs, 121.35
Japanese yen and 1.83 Australian dollars, all per U.S. dollar.
The Company believes that its cash flow from operations and its existing
credit facilities will be sufficient to satisfy its liquidity needs for the
foreseeable future.
INTANGIBLE ASSETS:
In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets,"
adopted by the Company on April 1, 2001, the Company evaluates its
intangible assets for impairment during the third quarter of each fiscal
year, with any resulting impairment reflected as an operating expense. Its
intangible assets were initially evaluated for impairment as of April 1,
2001 and then again during the third quarters of Fiscal 2002 and Fiscal 2003
by comparing the fair value of each reporting unit to its carrying value,
and no impairment existed.
CRITICAL ACCOUNTING POLICIES:
In preparing the Company's financial statements in conformity with
accounting principles generally accepted in the United States, judgments and
estimates are made about the amounts reflected in the financial statements.
As part of the financial reporting process, the Company's management
collaborates to determine the necessary information on which to base
judgments and develop estimates used to prepare the financial statements.
Historical experience and available information is used to make these
judgments and estimates. However, different amounts could be reported using
different assumptions and in light of different facts and circumstances.
Therefore, actual amounts could differ from the estimates reflected in the
financial statements.
In addition to the significant accounting policies described in Note 1 of
Form 10-K, the Company believes that the following discussion addresses its
critical accounting policies.
REVENUE RECOGNITION
The Company recognizes revenues for phone services operations when title
transfers at the time of shipment and the price for the product has been
determined.
For its on-site services, the Company recognizes revenues on short-term
projects (generally projects with a duration of less than one month) as the
projects are completed and invoiced to
23
the client. Revenues from long-term projects (projects with a duration of
greater than one month, generally two to four months) are recognized
according to the percentage of completion method. Under the percentage of
completion method, income is recognized based on a ratio of estimated costs
incurred to total estimated contract costs. Losses, if any, on such
contracts are provided in full when they become known. Billing in excess of
costs and estimated earnings on uncompleted contracts are classified as
current liabilities and any costs and estimated earnings in excess of
billings are classified as current assets.
ACCOUNTING FOR JUDGMENT AND ESTIMATES
The Company establishes reserves when it is probable that a liability or
loss has been incurred and the amount can be reasonably estimated. Reserves
by their nature relate to uncertainties that require exercise of judgment
both in accessing whether or not a liability or loss has been incurred and
estimating any amount of potential loss. The most important areas of
judgment and estimates affecting the Company's financial statements include
accounts receivable collectibility, inventory valuation, pending litigation
and the realization of deferred tax assets.
LONG-LIVED ASSETS
The Company evaluates the recoverability of property, plant and equipment
and intangible assets other than goodwill whenever events or changes in
circumstances indicate the carrying amount of any such assets may not be
fully recoverable. Changes in circumstances include technological advances,
changes in the Company's business model, capital strategy, economic
conditions or operating performance. The Company's evaluation is based upon,
among other things, assumptions about the estimated future undiscounted cash
flows these assets are expected to generate. When the sum of the
undiscounted cash flows is less than the carrying value, the Company would
recognize an impairment loss. The Company continually applies its best
judgment when performing these evaluations to determine the timing of the
testing, the undiscounted cash flows used to assess recoverability and the
fair value of the asset.
The Company evaluates the recoverability of the goodwill attributable to
each of its reporting units as required under SFAS No. 142, "Goodwill and
Other Intangible Assets," by comparing the fair value of each reporting unit
with its carrying value. The Company continually applies its best judgment
when performing these evaluations to determine the financial projections
used to assess the fair value of each reporting unit.
RESTRUCTURING
The Company accrues the cost of restructuring activities in accordance with
the appropriate accounting guidance depending upon the facts and
circumstances surrounding the situation. The Company exercises its judgment
in estimating the total costs of each of these activities. As these
activities are implemented, the actual costs may differ from the estimated
costs due to changes in the facts and circumstances that were not foreseen
at the time of the initial cost accrual.
24
NEW ACCOUNTING PRONOUNCEMENTS:
In August 2001, the Financial Accounting Standards Board ("FASB") issued
SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived
Assets." SFAS No. 144 addresses financial accounting and reporting for the
impairment of long-lived assets and for long-lived assets to be disposed of
and supersedes FASB Statement No. 121. This SFAS retains the fundamental
provisions of SFAS No. 121 for recognition and measurement of the impairment
of long-lived assets to be held and used and measurement of long-lived
assets to be disposed of by sale. The provisions of this standard must be
applied for fiscal years beginning after December 15, 2001. The Company
adopted SFAS No. 144 in the first quarter of Fiscal 2003. Its adoption did
not have a material effect on the Company's financial statements or results
of operations.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections," was
issued. The SFAS updates, clarifies and simplifies existing accounting
pronouncements. While the technical corrections to existing pronouncements
are not substantive in nature, in some instances, they may change accounting
practice. The provisions of this standard related to SFAS No. 13 are
effective for transactions occurring after May 15, 2002. All other
provisions of this standard must be applied for years beginning after May
15, 2002. The application of SFAS No. 145 did not have a material effect on
the Company's financials statements or results of operations.
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." SFAS No.
146 nullifies Emerging Issues Task Force Issue No. 94-3, "Liability
Recognition for Certain Employee Termination Benefits and Other Costs to
Exit an Activity," under which a liability for an exit cost was recognized
at the date of an entity's commitment to an exit plan. SFAS No. 146 requires
that a liability for a cost associated with an exit or disposal activity be
recognized at fair value when the liability is incurred. The provisions of
this standard are effective for exit or disposal activities that are
initiated after December 31, 2002. The Company believes that the adoption of
SFAS No. 146 will not have a material impact on its financial statements or
results of operations.
On December 31, 2002, the Financial Accounting Standards Board issued SFAS
No. 148 "Accounting for Stock-Based Compensation - Transition and
Disclosure." SFAS No. 148 amends FASB Statement No. 123 "Accounting for
Stock-Based Compensation," to provide alternative methods of transition to
Statement No. 123's fair value method of accounting for stock-based employee
compensation. SFAS No. 148 also amends the disclosure provisions of
Statement 123 and APB Opinion No. 28 "Interim Financial Reporting," to
require disclosure in the summary of significant accounting policies of the
effects of an entity's accounting policy with respect to stock-based
employee compensation on reported net income and earnings per share in
annual and interim financial statements. While the statement does not amend
Statement 123 to require companies to account for employee stock options
using the fair value method, the disclosure provisions of SFAS No. 148 are
applicable to all companies with stock-based employee compensation,
regardless of whether they account for that compensation using the fair
value method of Statement 123 or the intrinsic value method of Opinion 25.
The Company continues to apply Opinion No 25 in accounting for stock-based
compensation. SFAS No. 148 amendments of the transition and annual
disclosure
25
requirements of Statement 123 are effective for fiscal years ending after
December 15, 2002 and will be included in the Company's Form 10-K for Fiscal
2003.
INFLATION:
The overall effects of inflation on the Company have been nominal. Although
long-term inflation rates are difficult to predict, the Company continues to
strive to minimize the effect of inflation through improved productivity and
cost reduction programs as well as price adjustments within the constraints
of market competition.
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, the ability of the Company to identify,
acquire and operate additional on-site technical service companies, 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.
26
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 will enter into forward exchange contracts on a selective basis. At
December 31, 2002, the Company had open contracts, which equal approximately
$27,014 at the contract rates, with a fair value of approximately $27,980.
In the ordinary course of business, the Company is also exposed to risks that
interest rate increases may adversely affect funding costs associated with the
$51,000 of variable rate debt. For the three-month periods ended December 31,
2002 and 2001, an instantaneous 100 basis point increase in the interest rate
would reduce the Company's expected net income in the subsequent three months by
$85 and $257, respectively, assuming the Company employed no intervention
strategies.
ITEM 4 - CONTROLS AND PROCEDURES
Based on their evaluation, as of a date within 90 days of the filing date of
this Form 10-Q, our Chief Executive Officer and Chief Financial Officer have
concluded that our disclosure controls and procedures (as defined in Rule
13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as amended)
are effective. There have been no significant changes in internal controls or in
other factors that could significantly affect these controls subsequent to the
date of their evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
27
PART II OTHER INFORMATION
ITEM 5 - OTHER INFORMATION
In November 2002, the Audit Committee of the Board of Directors reviewed the
proposed services of the Company's independent accountants, Ernst & Young, LLP.
The Committee pre-approved payment of up to $125,000 for assistance with tax
compliance and up to $100,000 for other non-audit services such as tax planning
initiatives and other projects when identified.
28
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8
(a) Exhibits
21.1 Subsidiaries of the Company
99.1 Certification of the Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
(b) Reports on Form 8-K
Current report on Form 8-K for the event dated December 13, 2002
covering Item 5 thereof disclosing and filing the Company's press
release related to organizational changes.
29
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLACK BOX CORPORATION
By: /s/ Michael McAndrew
----------------------------------
February 12, 2003 Michael McAndrew
Chief Financial Officer, Treasurer
and Principal Accounting Officer
30
CERTIFICATIONS
I, Fred C. Young, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Black Box
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: February 12, 2003
/s/ Fred C. Young
- -------------------------------------------------
Fred C. Young
Chief Executive Officer
31
I, Michael McAndrew, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Black Box
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect to
the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented in
this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
we have:
a) designed such disclosure controls and procedures to ensure
that material information relating to the registrant,
including its consolidated subsidiaries, is made known to us
by others within those entities, particularly during the
period in which this quarterly report is being prepared;
b) evaluated the effectiveness of the registrant's disclosure
controls and procedures as of a date within 90 days prior to
the filing date of this quarterly report (the "Evaluation
Date"); and
c) presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based
on our evaluation as of the Evaluation Date;
5. The registrant's other certifying officer and I have disclosed, based
on our most recent evaluation, to the registrant's auditors and the
audit committee of registrant's board of directors (or persons
performing the equivalent function):
a) all significant deficiencies in the design or operation of
internal controls which could adversely affect the
registrant's ability to record, process, summarize and report
financial data and have identified for the registrant's
auditors any material weaknesses in internal controls; and
b) any fraud, whether or not material, that involves management
or other employees who have a significant role in the
registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in this
quarterly report whether or not there were significant changes in
internal controls or in other factors that could significantly affect
internal controls subsequent to the date of our most recent evaluation,
including any corrective actions with regard to significant
deficiencies and material weaknesses.
Date: February 12, 2003
/s/ Michael McAndrew
Michael McAndrew
Chief Financial Officer
32
EXHIBIT INDEX
Exhibit
No.
-------
21.1 Subsidiaries of the Company
99.1 Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
33