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Fiscal 2004 First Quarter
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED JUNE 29, 2003
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
incorporation or organization) Identification No.)
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 August 11, 2003 was 18,189,269 shares.
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BLACK BOX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share Amounts)
(UNAUDITED)
JUNE 29, MARCH 31,
2003 2003
--------- ---------
ASSETS
Current assets:
Cash and cash equivalents $ 9,227 $ 14,043
Accounts receivable, net of allowance for doubtful accounts of
$11,688 and $11,710, respectively 96,362 100,263
Inventories, net 40,436 40,047
Costs and estimated earnings in excess of billings on uncompleted contracts 14,520 18,261
Other current assets 15,053 16,052
--------- ---------
Total current assets 175,598 188,666
Property, plant and equipment, net 33,536 34,737
Intangibles, net 402,732 399,299
Other assets 3,705 4,027
--------- ---------
Total assets $ 615,571 $ 626,729
--------- ---------
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt $ 443 $ 926
Accounts payable 22,876 30,508
Billings in excess of costs and estimated earnings on uncompleted contracts 2,816 3,295
Other accrued expenses 26,623 32,547
Accrued income taxes 4,587 2,940
--------- ---------
Total current liabilities 57,345 70,216
Long-term debt 50,023 49,453
Other liabilities 12,419 12,638
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 22,602,534 and
22,594,034 shares, respectively 23 23
Additional paid-in capital 295,524 295,271
Retained earnings 369,629 359,037
Treasury stock, at cost, 4,212,500 and 3,822,500 shares, respectively (178,106) (163,547)
Accumulated other comprehensive income 8,714 3,638
--------- ---------
Total stockholders' equity 495,784 $ 494,422
--------- ---------
Total liabilities and stockholders' equity $ 615,571 $ 626,729
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(In Thousands, Except Per Share Amounts)
THREE MONTHS ENDED
-----------------------------
JUNE 29, 2003 JUNE 30, 2002
------------- -------------
Revenues $ 128,347 $ 154,412
Cost of sales 74,900 92,520
--------- ---------
Gross profit 53,447 61,892
Selling, general and administrative expenses 34,985 37,704
Intangibles amortization 89 101
--------- ---------
Operating income 18,373 24,087
Interest expense, net 420 772
Other (income)/expense, net (9) 37
--------- ---------
Income before income taxes 17,962 23,278
Provision for income taxes 6,466 8,613
--------- ---------
Net income $ 11,496 $ 14,665
========= =========
Basic earnings per common share $ 0.62 $ 0.72
Diluted earnings per common share $ 0.60 $ 0.70
--------- ---------
Weighted average common shares 18,617 20,266
Weighted average common and common equivalent shares 19,062 21,023
========= =========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
BLACK BOX CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share Amounts)
CUMULATIVE
PREFERRED STOCK COMMON STOCK ADDITIONAL OTHER
--------------- ------------------- TREASURY PAID-IN RETAINED COMPREHENSIVE
SHARES AMOUNT SHARES AMOUNT STOCK CAPITAL EARNINGS INCOME TOTAL
------ ------ ---------- ------ ---------- ---------- -------- ------------- --------
BALANCE AT MARCH 31, 2002 0 $ 0 22,351,049 $ 22 $(100,355) $287,714 $312,288 $(9,571) $490,098
Comprehensive income:
Net income 48,685 48,685
Foreign currency
translation adjustment 12,808 12,808
Unrealized gains on
derivatives designated
and qualified as cash
flow hedges 233 233
Reclassification of
unrealized losses on
expired derivatives 168 168
--------
Comprehensive income 61,894
Dividends declared (1,936) (1,936)
Purchase of treasury stock (63,192) (63,192)
Issuance of common stock 23,836 1 968 969
Exercise of options 219,149 4,767 4,767
Tax benefit from exercised
options 1,822 1,822
------ ------ ---------- ------ --------- -------- -------- ------- --------
BALANCE AT MARCH 31, 2003 0 $ 0 22,594,034 23 (163,547) 295,271 359,037 3,638 494,422
Comprehensive income:
Net income 11,496 11,496
Foreign currency
translation adjustment 4,476 4,476
Unrealized gains on
derivatives designated
and qualified as cash
flow hedges 833 833
Reclassification of
unrealized losses on
expired derivatives (233) (233)
--------
Comprehensive income 16,572
Dividends declared (904) (904)
Purchase of treasury stock (14,559) (14,559)
Exercise of options 8,500 203 203
Tax benefit from exercised
options 50 50
------ ------ ---------- ------ --------- -------- -------- ------- --------
BALANCE AT JUNE 29, 2003 0 $ 0 22,602,534 $ 23 $(178,106) $295,524 $369,629 $ 8,714 $495,784
====== ====== ========== ====== ========= ======== ======== ======= ========
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In Thousands)
THREE MONTHS ENDED
------------------------------
JUNE 29, 2003 JUNE 30, 2002
------------- -------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 11,496 $ 14,665
Adjustments to reconcile net income to cash provided by
operating activities:
Intangibles amortization 89 101
Depreciation 1,675 1,942
Changes in working capital items:
Accounts receivable, net 3,901 5,720
Inventories, net (389) 188
Other current assets 4,780 (1,136)
Accounts payable and accrued liabilities (7,366) (2,066)
-------- --------
Cash provided by operating activities 14,186 19,414
-------- --------
CASH FLOWS FROM INVESTING ACTIVITIES
Disposals/(capital expenditures), net 25 (273)
Merger transactions, net of cash acquired and prior
merger-related payments (784) (2,749)
-------- --------
Cash used in investing activities (759) (3,022)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of borrowings (91,763) (46,943)
Proceeds from borrowings 91,850 31,750
Proceeds from the exercise of options 203 1,436
Payment of dividends (904) --
Purchase of treasury stock (19,278) (3,694)
-------- --------
Cash used in financing activities (19,892) (17,451)
-------- --------
Foreign currency exchange impact on cash 1,649 3,076
-------- --------
(Decrease)/increase in cash and cash equivalents (4,816) 2,017
Cash and cash equivalents at beginning of year 14,043 13,423
-------- --------
Cash and cash equivalents at end of period $ 9,227 $ 15,440
======== ========
SUPPLEMENTAL CASH FLOW:
Cash paid for interest $ 362 $ 796
Cash paid for income taxes 5,083 6,044
======== ========
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 consolidated 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, 2003. The consolidated Balance Sheet as of March 31,
2003 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 June 30, 2003
was June 29, 2003. The ending dates for all other periods are as presented.
NOTE 3: STOCK-BASED COMPENSATION
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 No.
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.
Had the Company elected to recognize compensation cost based on the fair value
basis under SFAS No. 123, the Company's net income and earnings per share would
have been reduced to the pro forma amounts as follows:
6
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
THREE MONTHS ENDED JUNE 30,
-----------------------------
2003 2002
--------- ---------
Net income As reported $ 11,496 $ 14,665
--------- ---------
Stock-based employee compensation under
fair-value based method for all awards, net of
related tax effects (3,027) (2,283)
Pro forma 8,469 12,382
--------- ---------
Basic earnings per share As reported $ 0.62 $ 0.72
Pro forma 0.45 0.61
--------- ---------
Diluted earnings per share As reported $ 0.60 $ 0.70
Pro forma 0.44 0.59
========= =========
The Company's last reported sale price of its Common Stock as quoted on Nasdaq
National Market on June 30, 2003 and 2002 was $37.36 and $40.73, respectively.
The incremental fair value of each option grant is estimated on the date of
grant using the Black-Scholes options pricing model with the following
assumptions:
JUNE 30,
-------------------
2003 2002
---- ----
Expected life (in years) 5.2 4.4
Risk free interest rate 2.8% 4.0%
Volatility 49% 48%
Dividend yield 0.7% --
NOTE 4: INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The net inventory balances are as follows:
JUNE 30, 2003 MARCH 31, 2003
------------- --------------
Raw materials $ 1,891 $ 1,909
Work-in-process 9 3
Finished goods 42,540 42,116
-------- --------
Subtotal 44,440 44,028
Excess and obsolete inventory reserves (4,004) (3,981)
-------- --------
Inventory, net $ 40,436 $ 40,047
======== ========
NOTE 5: 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
7
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
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 and
payables, which are also included in accumulated other comprehensive income.
At June 30, 2003, the open foreign exchange contracts were in Euro, Pound
sterling, Canadian dollars, Swiss francs, Japanese yen and Australian dollars.
The total open contracts, valued at approximately $9,267, have a fair value of
$9,337 and will expire within nine months. The open contracts have contract
rates of 1.0632 to 1.1459 Euro, 0.6049 to 0.6559 Pound sterling, 1.3558 to
1.4905 Canadian dollars, 1.2861 to 1.3889 Swiss francs, 116.50 to 118.80
Japanese yen and 1.5122 to 1.6966 Australian dollars, all per U.S. dollar.
NOTE 6: COMPREHENSIVE INCOME
Comprehensive income consisted of the following:
THREE MONTHS ENDED JUNE 30,
--------------------------------
2003 2002
-------- --------
Net income $ 11,496 $ 14,665
Other comprehensive income:
Foreign currency translation adjustment 4,476 3,776
Unrealized gains/(losses) on derivatives designated and
qualified as cash flow hedges 833 (368)
Reclassification of unrealized losses on expired derivatives
(233) 168
-------- --------
Comprehensive income $ 16,572 $ 18,241
======== ========
The components of accumulated other comprehensive income consisted of the
following:
JUNE 30, 2003 MARCH 31, 2003
------------- --------------
Foreign currency translation adjustment $7,881 $3,405
Unrealized gains on derivatives designated and qualified as
cash flow hedges 833 233
------ ------
Total accumulated other comprehensive income $8,714 $3,638
====== ======
NOTE 7: 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:
8
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
THREE MONTHS ENDED JUNE 30,
------------------------------
(Shares in thousands) 2003 2002
- --------------------- ------- -------
Net income for earnings per share computation $11,496 $14,665
Basic earnings per common share:
Weighted average common shares 18,617 20,266
Basic earnings per common share $ 0.62 $ 0.72
------- -------
Diluted earnings per common share:
Weighted average common shares 18,617 20,266
Shares issuable from assumed conversion of stock options and
contingently issuable shares from acquisitions (net of tax savings) 445 757
Weighted average common and common equivalent shares 19,062 21,023
Diluted earnings per common share $ 0.60 $ 0.70
======= =======
Excluded from the calculation above are 2,496,000 shares and 181,000 shares
issuable upon the exercise of outstanding stock options for the three months
ended June 30, 2003 and 2002, respectively, as the exercise price of such
options was greater than the average market price for those time periods.
NOTE 8: 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 SFAS 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 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 SFAS are effective for
exit or disposal activities that are initiated after December 31, 2002. During
the fourth quarter of Fiscal 2003, the Company recorded a restructuring charge
of $6,536 in accordance with the provisions of SFAS No. 146.
In November 2002, the FASB issued Financial Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 clarifies the
requirements of SFAS No. 5, "Accounting for
9
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
Contingencies," relating to a guarantor's accounting for, and disclosure of, the
issuance of certain types of guarantees. FIN 45 requires that upon issuance of a
guarantee, the guarantor must recognize a liability for the fair value of the
obligation it assumes under that guarantee. FIN 45 also requires enhanced
disclosures in the Company's interim and annual filings. The provisions of FIN
45 are effective for financial statements issued or modified after December 31,
2002. The disclosure requirements were effective for financial statements of
both interim and fiscal years after December 15, 2002. The adoption of FIN 45
did not have a material impact on the Company's financial statements or results
of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). A variable interest entity ("VIE") is
one where the contractual or ownership interests in an entity change with
changes in the entity's net asset value. This interpretation requires the
consolidation of a VIE by the primary beneficiary, and also requires disclosure
about VIEs where an enterprise has a significant variable interest but is not
the primary beneficiary. The Company does not believe that this statement will
have a material impact on the Company's financial statements or results of
operations.
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003,
except in certain instances, and for hedging relationships designated after June
30, 2003. In addition, except in those certain instances, all provisions of this
Statement should be applied prospectively. The application of SFAS No. 149 is
not expected to have a material effect on the Company's financial statements or
results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." The provisions
of SFAS No. 150 require issuers to classify as liabilities, or assets in some
circumstances, certain classes of freestanding financial instruments that embody
obligations for the issuer. The provisions of SFAS No. 150 are effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
shall be effective at the beginning of the first interim period beginning after
June 15, 2003. The adoption of SFAS No. 150 is not expected to have a material
effect on the Company's financial statements or results of operations.
NOTE 9: CHANGES IN BUSINESS
During the three months ended June 30, 2003, the Company paid approximately $170
for obligations related to mergers completed in prior periods.
During Fiscal 2003, the Company successfully completed three business
combinations that have been accounted for using the purchase method of
accounting, June 2002 - Societe d'Installation
10
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
de Reseaux Informatiques et Electriques; July 2002 - EDC Communications Limited
and EDC Communications (Ireland) Limited; and January 2003 - Rowe Structured
Cabling Ltd. The aggregate purchase price of these three business combinations
was approximately $4,600 and resulted in goodwill of $3,317 and other
intangibles of $348 in accordance with SFAS No. 141, "Business Combinations,"
which the Company adopted during the third quarter of Fiscal 2002.
As of June 30, 2003, certain merger agreements provide for contingent payments
of up to $2,921. Upon meeting future operating performance goals, goodwill will
be adjusted for the amount of the contingent payments.
NOTE 10: 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 conducted its annual
impairment analysis and no impairment 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. During the
fourth quarter of Fiscal 2003, the Company changed its reportable segments and
in accordance with SFAS No. 142, evaluated its intangibles for impairment and
none existed.
As of June 30, 2003, 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 June 30, 2003:
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
-------------- ------------
Non-Compete Agreements $2,117 $ 344
Acquired Backlog 314 314
------ ------
Total $2,431 $ 658
====== ======
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 months ended June 30, 2003 was $89.
The estimated amortization expense for each of the five fiscal years subsequent
to June 30, 2003 for the non-compete agreements and acquired backlog intangibles
is as follows: remainder of 2004-$139; 2005-$186; 2006-$186; 2007-$186; and
2008-$186.
11
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
The changes in the carrying amount of goodwill, net of amortization, by
reporting segment for the three months ended June 30, 2003, are as follows:
NORTH AMERICA EUROPE ALL OTHER TOTAL
------------- -------- --------- --------
Balance as of March 31, 2003 $309,214 $ 58,973 $ 1,603 $369,790
Goodwill during the period related to:
Actual earnout payments 100 -- 70 170
Currency translation/other 647 2,613 -- 3,260
-------- -------- -------- --------
Balance as of June 30, 2003 $309,961 $ 61,586 $ 1,673 $373,220
======== ======== ======== ========
NOTE 11: TREASURY STOCK
The Company previously announced intentions to repurchase up to 4.5 million
shares of its Common Stock from April 1, 1999 through March 31, 2003. Since
inception of the repurchase program in April 1999, the Company has repurchased
in aggregate approximately 3.8 million shares for approximately $164,000 through
March 31, 2003. Funding for the stock repurchases came from existing cash flow
and borrowings under credit facilities. In May 2003, the Company's Board of
Directors once again approved an increase of 1 million shares under the common
share repurchase program. During the first quarter of Fiscal 2004, the Company
repurchased approximately 0.4 million shares for an aggregate purchase price of
$14,600. In addition, the Company used approximately $5,000 of cash on hand to
satisfy a treasury stock obligation recorded in the fourth quarter of Fiscal
2003. Additional repurchases of stock may occur from time to time depending upon
factors such as the Company's cash flows and general market conditions. While
the Company expects to continue to repurchase shares for the foreseeable future,
there can be no assurance as to the timing or amount of such repurchases.
NOTE 12: INDEBTEDNESS
Long-term debt is as follows:
JUNE 30, 2003 MARCH 31, 2003
------------- --------------
Revolving credit agreement $ 49,750 $ 49,100
Other debt 696 1,279
-------- --------
Total debt 50,446 50,379
Less: current portion (443) (926)
-------- --------
Long-term debt $ 50,023 $ 49,453
======== ========
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
12
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
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 when it expired On April 4, 2003, the
Company entered into an agreement whereby Citizens Bank of Pennsylvania became
successor agent to Mellon Bank, N.A. Mellon Bank continues to be a Participant
in the credit agreement.
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 weighted average interest rate on all indebtedness of the Company as of June
30, 2003 was approximately 2.2%.
NOTE 13: RESTRUCTURING
In the fourth quarter of Fiscal 2003, the Company recorded a restructuring
charge of $6,536 primarily related to adjusting staffing levels in its European
operations and real estate consolidations. Of this charge, $5,034 related to
severance for 245 total team members with $4,299 related to severance for 130
individuals in Europe, $581 related to severance for 94 individuals in North
America, $154 related to severance for 21 individuals in Latin America, and
$1,502 related to lease costs and other charges to consolidate offices.
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. Of
this charge $2,168 related to severance for 105 total team members with $1,830
related to severance for 60 team members in Europe, $230 related to severance
for 19 team members in Latin America, $108 related to severance for 26 team
members in North America, and $1,332 related to lease costs and other costs to
consolidate two U.S. offices. The components of the restructuring accrual at
June 30, 2003 are as follows:
ACCRUED CASH ACCRUED
MARCH 31, 2003 EXPENDITURES JUNE 30, 2003
-------------- ------------ -------------
Employee Severance $ 4,375 $ 2,950 $ 1,425
Facility Closures 1,806 331 1,475
-------- ------- -------
Total $ 6,181 $ 3,281 $ 2,900
======== ======= =======
The Company anticipates the majority of the restructuring accrual will be paid
by the end of Fiscal 2004.
NOTE 14: SEGMENT REPORTING
As required by SFAS No. 131, "Disclosures about Segments of an Enterprise and
Related Information," the Company reports the results of operating segments.
During the fourth quarter
13
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
of Fiscal 2003, the Company changed its primary segments to be on a geographical
basis as this is now the way it manages the business to be more responsive to
the organization's operating structure. The primary reportable segments are
comprised of North America, Europe and All Other. Consistent with SFAS No. 131,
the Company aggregates similar operating segments into reportable segments.
The accounting policies of the various segments are the same as those described
in "Summary of Significant Accounting Principles" in Note 1. The Company
evaluates the performance of each segment based on operating income. Inter-
segment sales and segment interest income or expense and expenditures for
segment assets are not presented to or reviewed by management, and therefore are
not presented below.
Summary information by reportable segment is as follows:
THREE MONTHS ENDED JUNE 30,
---------------------------
NORTH AMERICA 2003 2002
- ------------- -------- --------
Revenues $ 86,417 $107,969
Operating income 11,889 16,085
Depreciation 1,376 1,179
Amortization 12 41
Segment assets 576,098 606,424
======== ========
THREE MONTHS ENDED JUNE 30,
---------------------------
EUROPE 2003 2002
- ------ -------- --------
Revenues $ 33,598 $ 36,018
Operating income 4,602 5,633
Depreciation 418 435
Amortization 75 59
Segment assets 122,206 123,466
======== ========
THREE MONTHS ENDED JUNE 30,
---------------------------
ALL OTHER 2003 2002
- --------- --------- -------
Revenues $ 8,332 $10,425
Operating income 1,882 2,369
Depreciation 78 131
Amortization 2 1
Segment assets 15,851 18,947
======= =======
14
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
The following reconciles certain segment assets to total consolidated assets:
ASSETS JUNE 30, 2003 MARCH 31, 2003
- ------ ------------- --------------
Assets for North America, Europe and All Other segments $ 714,155 $ 727,349
Corporate eliminations (98,584) (100,620)
------- --------
Total consolidated assets $ 615,571 $ 626,729
========= =========
Management is also presented with and reviews revenues by service type. The
following information is presented:
THREE MONTHS ENDED JUNE 30,
-----------------------------
REVENUES 2003 2002
- -------- ---------- -----------
Hotline Services $ 55,976 $ 63,554
Structured Cabling Services 54,600 73,134
Telephony Services 17,771 17,724
-------- --------
Total revenues $128,347 $154,412
======== ========
15
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
The Company manages its business based on geographic segments: North America,
Europe and All Other. In addition, certain revenue and gross profit information
by service type is also provided herein for purposes of further analysis.
Dollars in Thousands
The tables below should be read in conjunction with the following discussion.
THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------
2003 (1Q04) 2002 (1Q03)
------------------------- -------------------------
% of total % of total
revenues revenues
---------- ----------
BY GEOGRAPHY
Revenues:
North America $ 86,417 67% $107,969 70%
Europe 33,598 26 36,018 23
All Other 8,332 7 10,425 7
-------- -------- -------- --------
Total $128,347 100% $154,412 100%
-------- -------- -------- --------
Operating Income:
North America $ 11,889 $ 16,085
% of North America revenues 13.8% 14.9%
Europe 4,602 5,633
% of Europe revenues 13.7% 15.6%
All Other 1,882 2,369
% of All Other revenues 22.6% 22.7%
-------- --------
Total $ 18,373 $ 24,087
% of Total revenues 14.3% 15.6%
======== ========
16
THREE MONTHS ENDED JUNE 30,
----------------------------------------------------------
2003 (1Q04) 2002 (1Q03)
------------------------- ------------------------
% of total % of total
revenues revenues
---------- ----------
BY SERVICE TYPE
Revenues:
Hotline Services $ 55,976 44% $ 63,554 41%
Structured Cabling Services 54,600 43 73,134 48
Telephony Services 17,771 13 17,724 11
-------- -------- -------- --------
Total $128,347 100% $154,412 100%
-------- -------- -------- --------
Gross Profit:
Hotline Services $ 29,109 $ 31,662
% of Hotline Services revenues 52.0% 49.8%
Structured Cabling Services 18,134 24,543
% of Structured Cabling Services revenues 33.2% 33.6%
Telephony Services 6,204 5,687
% of Telephony Services revenues 34.9% 32.1%
-------- --------
Total $ 53,447 $ 61,892
% of Total revenues 41.6% 40.1%
======== ========
I. FIRST QUARTER FISCAL 2004 (1Q04) COMPARED TO FIRST QUARTER FISCAL 2003
(1Q03):
TOTAL REVENUES
Total revenues for 1Q04 were $128,347, a decrease of 17% compared to 1Q03 total
revenues of $154,412. If exchange rates had remained constant from the first
quarter last year, 1Q04 total revenues would have been lower by $5,887, or 4%.
REVENUES BY GEOGRAPHY
NORTH AMERICA REVENUES
Revenues in North America were $86,417 for 1Q04, a decrease of 20% compared to
$107,969 for 1Q03. The North America revenue decline was generally due to weak
general economic conditions that affected client demand.
EUROPE REVENUES
Revenues in Europe were $33,598 for 1Q04, a decrease of 7% compared to $36,018
for 1Q03. The Europe revenue decline was due to weak general economic conditions
that affected client demand, offset in part by the positive impact of the
Company's geographic expansion by merger of its technical services capabilities
that occurred during Fiscal 2003 and the positive impact of the exchange rate
relative to the U.S. dollar. If the exchange rate relative to the U.S. dollar
had remained unchanged from 1Q03, Europe revenues would have decreased by 22%.
17
ALL OTHER REVENUES
Revenues for All Other were $8,332 for 1Q04, a decrease of 20% compared to
$10,425 for 1Q03. The revenue decline in these regions was due to weak general
economic conditions that affected client demand, offset by the positive impact
of the exchange rate relative to the U.S. dollar. If the exchange rate relative
to the U.S. dollar had remained unchanged from 1Q03, All Other revenues would
have decreased 24%.
REVENUES BY SERVICE TYPE
HOTLINE SERVICES
Revenues from hotline services for 1Q04 were $55,976, a decrease of 12% compared
to $63,554 for 1Q03. The Company believes the overall decline in hotline
services revenues was driven by weak general economic conditions.
STRUCTURED CABLING SERVICES
Revenues from structured cabling services were $54,600 for 1Q04, a decrease of
25% compared to $73,134 for 1Q03. The Company believes the overall decline in
structured cabling services revenue was driven by weak general economic
conditions.
TELEPHONY SERVICES
Revenues from telephony services were $17,771 for 1Q04, comparable to $17,727
for 1Q03. The Company was able to maintain the telephony services revenue
despite weak general economic conditions.
GROSS PROFIT
Gross profit for 1Q04 decreased to $53,447, or 41.6% of revenues, from $61,892,
or 40.1% of revenues for 1Q03. The decrease in gross profit dollars over prior
year was due to the decline in revenues while the increase in gross profit
percentage was due primarily to cost reduction efforts in the Company's hotline
services business.
Gross profit for 1Q04 for hotline services, structured cabling services and
telephony services were $29,109, or 52.0% of revenues, $18,134, or 33.2% of
revenues, and $6,204, or 34.9% of revenues, respectively. This compares to gross
profit for 1Q03 for hotline services, structured cabling services and telephony
services of $31,662, or 49.8% of revenues, $24,543, or 33.6% of revenues, and
$5,687, or 32.1% of revenues, respectively.
SG&A EXPENSES
Selling, general and administrative ("SG&A") expenses for 1Q04 were $34,985, or
27.3% of revenues, a decrease of $2,719 over SG&A expenses of $37,704, or 24.4%
of revenues for 1Q03. The dollar decrease from 1Q04 to 1Q03 related to the
Company's cost reduction efforts worldwide. The percentage increase relates to
funding of strategic growth initiatives.
INTANGIBLES AMORTIZATION
Intangibles amortization for 1Q04 was $89 compared to 1Q03 of $101.
18
OPERATING INCOME
Operating income for 1Q04 was $18,373, or 14.3% of revenues, compared to $24,087
or 15.6% of revenues in 1Q03.
The decrease in operating income dollars is primarily due to the decrease in
revenues while the decline in the operating income as a percentage of revenues
was due primarily to the additional SG&A expenses as a percentage of revenues.
NET INTEREST EXPENSE
Net interest expense for 1Q04 decreased to $420 from $772 for 1Q03 due to
reduction in the interest rate during the period from1Q03 to 1Q04.
PROVISION FOR INCOME TAXES
The tax provision for 1Q04 was $6,466, an effective tax rate of 36.0%, compared
to 1Q03 of $8,613, an effective tax rate of 37.0%. The Company reduced its
annual effective tax rate to 36.0% during the third quarter of Fiscal 2003 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
Net income for 1Q04 was $14,496, or 9.0% of revenues, compared to $14,665, or
9.5% of revenues for 1Q03.
II. LIQUIDITY AND CAPITAL RESOURCES:
Cash Provided by Operating Activities for 1Q04 and 1Q03 was $14,143 and $19,414,
respectively. Reflected as a source of cash flow from operating activities in
1Q04 are decreases in accounts receivables and unbilled accounts and other
current assets offset in part by decreases in accounts payable and accrued
liabilities. In 1Q03, 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.
In addition to Cash Provided by Operating Activities of approximately $14,000 in
1Q04, the Company had additional cash flow of approximately $2,000. This $2,000
was generated from $203 of stock option exercises and $1,649 of foreign currency
exchange impact on cash. The Company's 1Q04 cash flow was used for repurchases
of Company stock of approximately $14,000, dividends payments of approximately
$1,000 and merger activity of approximately $1,000. In addition, the Company
used approximately $5,000 of cash on hand for additional stock repurchases
during the quarter.
During the third quarter of Fiscal 2003, the Company's Board of Directors
declared its first quarterly cash dividend of $0.05 per share on all outstanding
shares of Black Box's common
19
stock, totaling $975, which was paid on January 15, 2003 to stockholders of
record at the close of business on December 31, 2002.
During the fourth quarter of Fiscal 2003, 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, totaling $961, which was paid on April 15, 2003 to
stockholders of record at the close of business on March 31, 2003.
In May 2003, the Directors once again declared a quarterly dividend of $0.05 per
share on all outstanding shares, totaling $904 which was paid on July 15, 2003
to stockholders of record at the close of business on June 30, 2003.
As of the end of 1Q04, the Company had cash and cash equivalents of $9,227,
working capital of $118,253 and long-term debt of $50,023.
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 when it expired.
The Company's total debt at the end of 1Q04 of $50,466 was comprised of $49,750
under the Long Term Revolver and $716 of various other third party, non-employee
loans. The weighted average interest rate on all indebtedness of the Company at
the end of 1Q04 and 1Q03 was approximately 2.2% and 2.8%, respectively. In
addition, at the end of 1Q04, the Company had $4,989 of letters of credit
outstanding and $65,261 available under the Long Term Revolver.
Interest on the Long Term Revolver 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 1Q04) on the Euro-dollar
rate option and from zero to 0.75% (zero at the end of 1Q04) on the prime rate
option. The Long Term Revolver provides for the payment of quarterly commitment
fees on unborrowed funds, also based on the consolidated leverage ratio. The
commitment fee percentage ranges from 0.25% to 0.375% (0.25% at the end of
1Q04). The Long Term Revolver 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 1Q04 was $784 while capital disposals, net of expenditures, were $25.
Capital expenditures for Fiscal 2004 are projected to be $3,000 to $4,000 and
will be spent primarily on information systems and facility improvements.
The Company previously announced intentions to repurchase up to 4.5 million
shares of its Common Stock from April 1, 1999 through March 31, 2003. Since
inception of the repurchase
20
program in April 1999, the Company has repurchased in aggregate approximately
3.8 million shares for approximately $164,000 through March 31, 2003. Funding
for the stock repurchases came from existing cash flow and borrowings under
credit facilities. In May 2003, the Company's Board of Directors once again
approved an increase of 1 million shares under the common share repurchase
program. During the 1Q04, the Company repurchased approximately 0.4 million
shares for an aggregate purchase price of $14,600. Additional repurchases of
stock may occur from time to time depending upon factors such as the Company's
cash flows and general market conditions. While the Company expects to continue
to repurchase shares for the foreseeable future, there can be no assurance as to
the timing or amount of such repurchases.
The Company has operations, clients 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 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
and payables, which are also included in accumulated other comprehensive income
in stockholders' equity on the Consolidated Balance Sheet. At the end of 1Q04,
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, valued at approximately $9,267, have a
fair value of $9,337 and will expire within nine months. The open contracts have
contract rates of 1.0632 to 1.1459 Euro, 0.6049 to 0.6559 Pound sterling, 1.3558
to 1.4905 Canadian dollars, 1.2861 to 1.3889 Swiss francs, 116.50 to 118.80
Japanese yen and 1.5122 to 1.6966 Australian dollars, all per U.S. dollar.
The Company believes that its cash provided by operating activities will be
sufficient to satisfy its liquidity needs for the foreseeable future.
III. CRITICAL ACCOUNTING POLICIES:
INTRODUCTION
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.
21
The Company's critical accounting policies are described in the Form 10-K for
the year ended March 31, 2003. There have been no significant changes to these
policies during the quarter ended June 29, 2003.
IV. 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 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 SFAS are effective for
exit or disposal activities that are initiated after December 31, 2002. During
the fourth quarter of Fiscal 2003, the Company recorded a restructuring charge
of $6,536 in accordance with the provisions of SFAS No. 146.
In November 2002, the FASB issued Financial Interpretation ("FIN") No. 45,
"Guarantor's Accounting and Disclosure Requirements for Guarantees, Including
Indirect Guarantees of Indebtedness of Others." FIN 45 clarifies the
requirements of SFAS No. 5, "Accounting for Contingencies," relating to a
guarantor's accounting for, and disclosure of, the issuance of certain types of
guarantees. FIN 45 requires that upon issuance of a guarantee, the guarantor
must recognize a liability for the fair value of the obligation it assumes under
that guarantee. FIN 45 also requires enhanced disclosures in the Company's
interim and annual filings. The provisions of FIN 45 are effective for financial
statements issued or modified after December 31, 2002. The disclosure
requirements were effective for financial statements of both interim and fiscal
years after December 15, 2002. The adoption of FIN 45 did not have a material
impact on the Company's financial statements or results of operations.
In January 2003, the FASB issued Interpretation No. 46, "Consolidation of
Variable Interest Entities" ("FIN 46"). A variable interest entity ("VIE") is
one where the contractual or ownership interests in an entity change with
changes in the entity's net asset value. This interpretation requires the
consolidation of a VIE by the primary beneficiary, and also requires disclosure
about VIEs where an enterprise has a significant variable interest but is not
the primary beneficiary. The Company does not believe that this statement will
have a material impact on the Company's financial statements or results of
operations.
22
In April 2003, the FASB issued SFAS No. 149, "Amendment of Statement 133 on
Derivative Instruments and Hedging Activities." SFAS No. 149 amends and
clarifies financial accounting and reporting for derivative instruments,
including certain derivative instruments embedded in other contracts
(collectively referred to as derivatives) and for hedging activities under SFAS
No. 133, "Accounting for Derivative Instruments and Hedging Activities." SFAS
No. 149 is effective for contracts entered into or modified after June 30, 2003,
except in certain instances, and for hedging relationships designated after June
30, 2003. In addition, except in those certain instances, all provisions of this
Statement should be applied prospectively. The application of SFAS No. 149 is
not expected to have a material effect on the Company's financial statements or
results of operations.
In May 2003, the FASB issued SFAS No. 150, "Accounting for Certain Financial
Instruments with Characteristics of Both Liabilities and Equity." The provisions
of SFAS No. 150 require issuers to classify as liabilities, or assets in some
circumstances, certain classes of freestanding financial instruments that embody
obligations for the issuer. The provisions of SFAS No. 150 are effective for
financial instruments entered into or modified after May 31, 2003, and otherwise
shall be effective at the beginning of the first interim period beginning after
June 15, 2003. The adoption of SFAS No. 150 is not expected to have a material
effect on the Company's financial statements or results of operations.
V. 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.
VI. 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 and other risk factors are discussed in greater detail in the
Company's most recent Annual Report on Form 10-K on file with the Securities and
Exchange Commission. 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.
23
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 June
30, 2003, the Company had open contracts, which equal approximately $9,267 at
the contract rates, with a fair value of approximately $9,337.
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
$50,000 of variable rate debt. For the three-month periods ended June 30, 2003
and 2002, an instantaneous 100 basis point increase in the interest rate would
reduce the Company's expected net income in the subsequent three months by $81
and $79, respectively, assuming the Company employed no intervention strategies.
ITEM 4 - CONTROLS AND PROCEDURES
An evaluation was performed as of June 29, 2003, under the supervision and with
the participation of Company management, including the Chief Executive Officer
("CEO") and Chief Financial Officer ("CFO"), of the effectiveness of the design
and operation of our disclosure controls and procedures (as defined in Rule
13a-15(e) under the Securities Exchange Act of 1943, as amended (the "Act").
Based on that evaluation, management, including the CEO and CFO, concluded that
our disclosure controls and procedures were effective to ensure that information
required to be disclosed in reports that we file or submit under the Act is
recorded, processed, summarized and reported in accordance with the rules and
forms of the Securities and Exchange Commission. It should be noted that the
design of any system of controls is based in part upon certain assumptions about
the likelihood of future events, and there can be no assurance that any design
will succeed in achieving its stated goals under all potential future
conditions, regardless of how remote. There have been no significant changes in
our internal controls or in other factors that could significantly affect
internal controls subsequent to their evaluation.
24
PART II OTHER INFORMATION
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
3(ii) Restated By-laws, as amended
10.7 Third Amendment to Credit Agreements, dated June 20, 2003,
among Black Box Corporation of Pennsylvania, Black Box
Corporation, the Guarantors, the Lenders and Citizens Bank of
Pennsylvania
10.8 Fourth Amendment to Credit Agreements, dated June 20, 2003,
among Black Box Corporation of Pennsylvania, Black Box
Corporation, the Guarantors, the Lenders and Citizens Bank of
Pennsylvania
21.1 Subsidiaries of the Company
31.1 Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities and Exchange Act of 1934, as
amended, and Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities and Exchange Act of 1934, as
amended, and Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer and Chief
Financial Officer pursuant to Rule 13a-14(b) of the Securities
and Exchange Act of 1934, as amended, and 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 May 7, 2003 covering
Item 5 thereof disclosing and filing the Company's press release
related to fourth quarter and total year fiscal 2003 results.
25
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
----------------------------------
August 12, 2003 Michael McAndrew
Chief Financial Officer, Treasurer
and Principal Accounting Officer
26
EXHIBIT INDEX
Exhibit
No.
3(ii) Restated By-laws, as amended
10.7 Third Amendment to Credit Agreements, dated June 20, 2003,
among Black Box Corporation of Pennsylvania, Black Box
Corporation, the Guarantors, the Lenders and Citizens Bank of
Pennsylvania
10.8 Fourth Amendment to Credit Agreements, dated June 20, 2003,
among Black Box Corporation of Pennsylvania, Black Box
Corporation, the Guarantors, the Lenders and Citizens Bank of
Pennsylvania
21.1 Subsidiaries of the Company
31.1 Certification of the Chief Executive Officer pursuant to Rule
13a-14(a) of the Securities and Exchange Act of 1934, as
amended, and Section 302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of the Chief Financial Officer pursuant to Rule
13a-14(a) of the Securities and Exchange Act of 1934, as
amended, and Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of the Chief Executive Officer and Chief
Financial Officer pursuant to Rule 13a-14(b) of the Securities
and Exchange Act of 1934, as amended, and 18 U.S.C. Section
1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002
27