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Fiscal 2004 Second Quarter
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 28, 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 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, $0.001 par
value, as of November 5, 2003 was 17,951,365 shares.
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BLACK BOX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In Thousands, Except Share and Per Share Amounts)
(UNAUDITED)
SEPTEMBER 28, MARCH 31,
2003 2003
- -------------------------------------------------------------------------------------------------------------------
ASSETS
Current assets:
Cash and cash equivalents $ 8,422 $ 14,043
Accounts receivable, net of allowance for doubtful accounts of
$11,989 and $11,710, respectively 96,119 100,263
Inventories, net 40,910 40,047
Costs and estimated earnings in excess of billings on uncompleted contracts 14,804 18,261
Other current assets 15,823 16,052
- -------------------------------------------------------------------------------------------------------------------
Total current assets 176,078 188,666
Property, plant and equipment, net 31,563 34,737
Goodwill, net 373,983 369,790
Other intangibles, net 29,464 29,509
Other assets 3,098 4,027
- -------------------------------------------------------------------------------------------------------------------
Total assets $ 614,186 $ 626,729
===================================================================================================================
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt $ 604 $ 926
Accounts payable 28,947 30,508
Billings in excess of costs and estimated earnings on uncompleted contracts 2,849 3,295
Other accrued expenses 25,973 32,405
Accrued income taxes 2,651 2,940
- -------------------------------------------------------------------------------------------------------------------
Total current liabilities 61,024 70,074
Long-term debt 47,848 49,453
Other liabilities 11,176 12,780
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 22,707,304 and
22,594,034 shares, respectively 23 23
Additional paid-in capital 298,762 295,271
Retained earnings 380,760 359,037
Treasury stock, at cost, 4,632,817 and 3,822,500 shares, respectively (195,508) (163,547)
Accumulated other comprehensive income 10,101 3,638
- -------------------------------------------------------------------------------------------------------------------
Total stockholders' equity 494,138 494,422
- -------------------------------------------------------------------------------------------------------------------
Total liabilities and stockholders' equity $ 614,186 $ 626,729
===================================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
2
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In Thousands, Except Per Share Amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
-------------------------------- --------------------------------
SEPTEMBER 28, SEPTEMBER 29, SEPTEMBER 28, SEPTEMBER 29,
2003 2002 2003 2002
- -------------------------------------------------------------------------------------------------------------
Revenues $ 129,268 $ 162,731 $ 257,615 $ 317,143
Cost of sales 75,393 99,351 150,293 191,871
- -------------------------------------------------------------------------------------------------------------
Gross profit 53,875 63,380 107,322 125,272
Selling, general and
administrative expenses 34,536 38,613 69,521 76,317
Intangibles amortization 45 108 134 209
- -------------------------------------------------------------------------------------------------------------
Operating income 19,294 24,659 37,667 48,746
Interest expense, net 440 766 860 1,538
Other(income)/expense, net 25 33 16 70
- -------------------------------------------------------------------------------------------------------------
Income before income taxes 18,829 23,860 36,791 47,138
Provision for income taxes 6,778 8,825 13,244 17,438
- -------------------------------------------------------------------------------------------------------------
Net income $ 12,051 $ 15,035 $ 23,547 $ 29,700
=============================================================================================================
Basic earnings per common share $ 0.66 $ 0.75 $ 1.28 $ 1.48
Diluted earnings per common share $ 0.64 $ 0.74 $ 1.24 $ 1.44
- -------------------------------------------------------------------------------------------------------------
Weighted average common shares 18,208 19,982 18,412 20,118
Weighted average common and common
equivalent shares 18,803 20,418 18,931 20,663
- -------------------------------------------------------------------------------------------------------------
Dividend per share $ 0.05 -- $ 0.10 --
=============================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
3
BLACK BOX CORPORATION
CONSOLIDATED STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY
(In Thousands, Except Share Amounts)
ACCUMULATED
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 hedge 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 23,547 23,547
Foreign currency
translation adjustment 6,013 6,013
Unrealized gains on
derivatives designated
and qualified as cash
flow hedges 683 683
Reclassification of
unrealized gains on
expired derivatives (233) (233)
---------
Comprehensive income 30,010
Dividends declared (1,824) (1,824)
Purchase of treasury stock (31,961) (31,961)
Exercise of options 104,770 2,582 2,785
Tax benefit from exercised
options 656 706
- -----------------------------------------------------------------------------------------------------------------------------------
BALANCE AT SEPTEMBER 28, 2003
(unaudited) 0 $ 0 22,707,304 $ 23 $(195,508) $ 298,762 $380,760 $ 10,101 $494,138
===================================================================================================================================
SEE NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
4
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(In Thousands)
SIX MONTHS ENDED
-----------------------------------------------
SEPTEMBER 28, 2003 SEPTEMBER 29, 2002
- -------------------------------------------------------------------------------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 23,547 $ 29,700
Adjustments to reconcile net income to cash
provided by operating activities:
Intangibles amortization 134 209
Depreciation 3,218 3,910
Net gain from sale of property (301) --
Changes in working capital items:
Accounts receivable, net 5,903 11,271
Inventories, net (356) (3,817)
Other current assets 6,436 (2,441)
Accounts payable and accrued liabilities (7,878) (4,261)
- ----------------------------------------------------------------------------------------------------
Cash provided by operating activities 30,703 42,205
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES
Capital expenditures (894) (1,254)
Capital asset disposals 1,695 574
Merger transactions, net of cash acquired and
prior merger-related payments (1,018) (7,289)
- ----------------------------------------------------------------------------------------------------
Cash used in investing activities (217) (7,969)
- ----------------------------------------------------------------------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES
Repayments of borrowings (52,488) (49,132)
Proceeds from borrowings 50,500 33,150
Proceeds from the exercise of options 2,785 2,127
Payment of dividends (1,824) --
Purchase of treasury stock (36,680) (20,715)
- ----------------------------------------------------------------------------------------------------
Cash used in financing activities (37,707) (34,570)
- ----------------------------------------------------------------------------------------------------
Foreign currency exchange impact on cash 1,600 (431)
- ----------------------------------------------------------------------------------------------------
Decrease in cash and cash equivalents (5,621) (765)
Cash and cash equivalents at beginning of year 14,043 13,423
- ----------------------------------------------------------------------------------------------------
Cash and cash equivalents at end of period $ 8,422 $ 12,658
====================================================================================================
SUPPLEMENTAL CASH FLOW:
Cash paid for interest $ 839 $ 1,589
Cash paid for income taxes 14,785 16,126
====================================================================================================
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"). Black Box Corporation (the
"Company") believes that these financial statements reflect all adjustments of a
normal, recurring nature necessary for a fair presentation of the results for
the interim periods presented. Interim periods are not necessarily indicative of
the results of operations for a full year. As such, these unaudited financial
statements should be read in conjunction with the audited 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 periods presented as September 30,
2003 and 2002 was September 28, 2003 and September 29, 2002, respectively. 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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------------- --------------------
2003 2002 2003 2002
- ---------------------------------------------------------------------------------------------------------
Net income As reported $ 12,051 $ 15,035 $ 23,547 $ 29,700
Stock-based employee
compensation under fair-value
based method for all awards,
net of related tax effects
2,354 2,031 5,381 4,313
--------------------------------------------
Pro forma $ 9,697 $ 13,004 $ 18,166 $ 25,387
- ---------------------------------------------------------------------------------------------------------
Basic earnings per share As reported $ 0.66 $ 0.75 $ 1.28 $ 1.48
Pro forma $ 0.53 $ 0.65 $ 0.99 $ 1.26
- ---------------------------------------------------------------------------------------------------------
Diluted earnings per share As reported $ 0.64 $ 0.74 $ 1.24 $ 1.44
Pro forma $ 0.52 $ 0.64 $ 0.96 $ 1.23
=========================================================================================================
The incremental fair value of each option granted is estimated on the date of
grant using the Black-Scholes option pricing model with the following
weighted-average assumptions:
SEPTEMBER 30,
----------------
2003 2002
- --------------------------------------------------------
Expected life (in years) 4.7 4.3
Risk free interest rate 3.9% 4.9%
Expected volatility rate 53% 52%
Dividend yield 0% --
========================================================
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:
SEPTEMBER 30, 2003 MARCH 31, 2003
- -----------------------------------------------------------------------------------
Raw materials $ 1,795 $ 1,909
Work-in-process 19 3
Finished goods 43,525 42,116
- --------------------------------------------------------------------------------
Subtotal 45,339 44,028
Excess and obsolete inventory reserves (4,429) (3,981)
- --------------------------------------------------------------------------------
Inventory, net $ 40,910 $ 40,047
================================================================================
7
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
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 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 September 30, 2003, the open foreign exchange contracts were in Euro, Pound
sterling, Canadian dollars, Swiss francs, Japanese yen, Swedish krona and
Australian dollars. The total open contracts, with a notional amount of
approximately $13,427, have a fair value of $13,728 and will expire within six
months. The open contracts have contract rates of 0.8705 to 0.9023 Euro, 0.6138
to 0.634 Pound sterling, 1.3558 to 1.4121 Canadian dollars, 1.3237 to 1.3488
Swiss francs, 111.99 to 118.36 Japanese yen, 8.0248 to 8.4025 Swedish krona and
1.4736 to 1.5571 Australian dollars, all per U.S. dollar.
NOTE 6: COMPREHENSIVE INCOME
Comprehensive income consisted of the following:
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------
Net income $ 12,051 $ 15,035 $ 23,547 $ 29,700
Other comprehensive income:
Foreign currency translation adjustment 1,304 153 6,013 3,929
Unrealized gains on derivatives
designated and qualified as cash
flow hedges, net of
reclassification of unrealized
losses on expired derivatives 83 351 450 151
- ----------------------------------------------------------------------------------------------------
Comprehensive income $ 13,438 $ 15,539 $ 30,010 $ 33,780
====================================================================================================
The components of accumulated other comprehensive income consisted of the
following:
SEPTEMBER 30, 2003 MARCH 31, 2003
- --------------------------------------------------------------------------------------------------------
Foreign currency translation adjustment $ 9,318 $ 3,405
Unrealized gains on derivatives designated and qualified as
cash flow hedges 683 233
- -----------------------------------------------------------------------------------------------------
Total accumulated other comprehensive income $ 10,101 $ 3,638
=====================================================================================================
8
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
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:
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ---------------------
(Shares in thousands) 2003 2002 2003 2002
- ----------------------------------------------------------------------------------------------------
Net income for earnings per share
computation $ 12,051 $ 15,035 $ 23,547 $ 29,700
Basic earnings per common share:
Weighted average common shares 18,208 19,982 18,412 20,118
Basic earnings per common share $ 0.66 $ 0.75 $ 1.28 $ 1.48
- ----------------------------------------------------------------------------------------------------
Diluted earnings per common share:
Weighted average common shares 18,208 19,982 18,412 20,118
Shares issuable from assumed conversion of
stock options and contingently issuable
shares from acquisitions (net of tax
savings) 595 436 519 545
-------------------------------------------------
Weighted average common and common
equivalent shares 18,803 20,418 18,931 20,663
Diluted earnings per common share $ 0.64 $ 0.74 $ 1.24 $ 1.44
====================================================================================================
The Company also has 937,669 shares and 2,243,000 shares issuable upon the
exercise of outstanding stock options for the three months ended September 30,
2003 and 2002, respectively, and 2,401,343 shares and 1,423,000 shares for the
six months ended September 30, 2003 and 2002, respectively. The exercise price
of such options was greater than the average market price for those time periods
and as such do not impact the share count.
NOTE 8: NEW ACCOUNTING STANDARDS
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 consolidated financial statements or
results of operations.
9
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
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 certain instances, all provisions of this
Statement should be applied prospectively. The application of SFAS No. 149 did
not have a material effect on the Company's consolidated 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
December 15, 2003. The adoption of SFAS No. 150 is not expected to have a
material effect on the Company's consolidated financial statements or results of
operations.
NOTE 9: CHANGES IN BUSINESS
During the six months ended September 30, 2003, the Company paid approximately
$425 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 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."
As of September 30, 2003, certain merger agreements provide for contingent
payments of up to $2,891. 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
10
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
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 September 30, 2003, the Company's trademarks had a net carrying amount of
$27,739. The Company believes this intangible has an indefinite life.
The Company had the following other intangibles as of September 30, 2003:
GROSS CARRYING AMOUNT ACCUMULATED AMORTIZATION
- ---------------------------------------------------------------------------------------------
Non-Compete Agreements $ 2,136 $ 411
Acquired Backlog 318 318
- ---------------------------------------------------------------------------------------------
Total $ 2,454 $ 729
=============================================================================================
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 six months ended September 30, 2003 was $45 and $134,
respectively.
The estimated amortization expense for each of the five fiscal years subsequent
to September 30, 2003 for the non-compete agreements and acquired backlog
intangibles is as follows: remainder of fiscal 2004 - $94; fiscal 2005 - $186;
fiscal 2006 - $186; fiscal 2007 - $186; and fiscal 2008 - $186.
The changes in the carrying amount of goodwill, net of amortization, by
reporting segment for the six months ended September 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 355 -- 70 425
Currency translation 654 3,093 21 3,768
- -------------------------------------------- -----------------------------------------------
Balance as of September 30, 2003 $ 310,223 $ 62,066 $ 1,694 $ 373,983
============================================================================================
11
]
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
The changes in total intangible assets, net of accumulated amortization, from
March 31, 2003 to September 30, 2003 are as follows:
NON-
COMPETES AND
TRADEMARKS BACKLOG GOODWILL TOTAL
- -------------------------------------------------------------------------------------------------------------
Balance as of March 31, 2003 $ 27,739 $ 1,770 $ 369,790 $ 399,299
Change in net intangible assets during the
period related to:
Amortization expense -- (45) -- (45)
Actual earnout payments -- -- 425 425
Currency translation -- -- 3,768 3,765
- -------------------------------------------------------------------------------------------------------------
Balance as of September 30, 2003 $ 27,739 $ 1,725 $ 373,983 $ 403,447
=============================================================================================================
NOTE 11: TREASURY STOCK
The Company previously announced intentions to repurchase up to 5.5 million
shares of its Common Stock from April 1, 1999 through September 30, 2003. During
the second quarter of Fiscal 2004, the Company repurchased approximately 0.4
million shares for an aggregate purchase price of $17,402 and for the first six
months of Fiscal 2004, repurchases totaled 0.8 million shares for $31,961. Since
inception of the repurchase program in April 1999 through September 2003, the
Company has repurchased in aggregate approximately 4.3 million shares for
approximately $196,000. Funding for the stock repurchases came from existing
cash flow and cash on hand. During the first half of the fiscal year, the
Company used $4,719 of cash on hand for stock repurchases.
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:
SEPTEMBER 30, 2003 MARCH 31, 2003
- ------------------------------------------------------------------------------
Revolving credit agreement $ 47,700 $ 49,100
Other debt 752 1,279
- ----------------------------------------------------------------------------
Total debt 48,452 50,379
Less: current portion (604) (926)
- ----------------------------------------------------------------------------
Long-term debt $ 47,848 $ 49,453
============================================================================
12
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
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 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
Syndicated Debt 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
September 30, 2003 was approximately 1.85%.
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 and real estate
consolidations. Of this charge, $5,034 related to severance for 245 total team
members ($4,299 related to severance for 130 team members in Europe; $581
related to severance for 94 team members in North America; $154 related to
severance for 21 individuals in Latin America) and $1,502 related to real estate
consolidations.
In the fourth quarter of Fiscal 2002, the Company recorded a restructuring
charge of approximately $3,500 primarily related to adjusting staffing levels
and real estate consolidations. Of this charge, $2,168 related to severance for
105 total team members ($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
real estate consolidations. The components of the restructuring accrual at
September 30, 2003 are as follows:
ACCRUED CASH ACCRUED
MARCH 31, 2003 EXPENDITURES OTHER SEPTEMBER 30, 2003
- ----------------------------------------------------------------------------------------------------------
Team Member Severance $ 4,375 $ 3,894 $ -- $ 481
Facility Closures 1,806 706 453 647
- -----------------------------------------------------------------------------------------------------
Total $ 6,181 $ 4,600 $ 453 $ 1,128
=====================================================================================================
The Company anticipates the majority of the restructuring accrual will be paid
by the end of Fiscal 2004.
13
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
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 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 of the Company's
annual report on Form 10-K for the fiscal year ended March 31, 2003. 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 SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ------------------------
NORTH AMERICA 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------
Revenues $ 88,473 $ 114,670 $ 174,890 $ 222,639
Operating income 11,806 17,154 23,695 33,239
Depreciation 1,055 1,372 2,234 2,748
Amortization 11 40 23 81
Segment assets 574,406 605,979 574,406 605,979
================================================================================================
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ------------------------
EUROPE 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------
Revenues $ 32,037 $ 38,372 $ 65,635 $ 74,390
Operating income 5,351 5,444 9,953 11,081
Depreciation 385 456 803 891
Amortization 27 61 102 116
Segment assets 121,281 119,307 121,281 119,307
================================================================================================
14
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
---------------------- ------------------------
ALL OTHER 2003 2002 2003 2002
- ------------------------------------------------------------------------------------------------
Revenues $ 8,758 $ 9,689 $ 17,090 $ 20,114
Operating income 2,137 2,061 4,019 4,426
Depreciation 103 140 181 271
Amortization 7 7 9 12
Segment assets 16,646 18,472 16,646 18,472
================================================================================================
The following reconciles certain segment assets to total consolidated assets:
ASSETS SEPTEMBER 30, 2003 MARCH 31, 2003
- ------------------------------------------------------------------------------------
Assets for North America, Europe and
All Other segments $ 712,333 $ 727,349
Corporate eliminations (98,148) (100,620)
- ----------------------------------------------------------------------------------
Total consolidated assets $ 614,186 $ 626,729
==================================================================================
Management is also presented with and reviews revenues by service type. The
following information is presented:
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
--------------------- ----------------------
REVENUES 2003 2002 2003 2002
- --------------------------------------------------------------------------------------------
Hotline Services $ 58,994 $ 64,324 $ 114,970 $ 127,878
Structured Cabling Services 52,543 76,690 107,143 149,824
Telephony Services 17,731 21,717 35,502 39,441
- --------------------------------------------------------------------------------------------
Total revenues $ 129,268 $162,731 $ 257,615 $ 317,143
============================================================================================
NOTE 15: COMMITMENTS AND CONTINGENCIES
As previously disclosed in the Company's annual report on Form 10-K for the
fiscal year ended March 31, 2003, two arbitration awards against the Company for
$1.5 million and $1.3 million were being appealed. The Company has received
adverse decisions on these appeals and has taken further appeals. Based on the
facts currently available to the Company, management believes all such matters
are adequately provided for, covered by insurance, without merit, not probable
that an unfavorable outcome will result, or of such amounts which upon
resolution will not have a material adverse effect on the consolidated financial
position, results of operations or cash flow of the Company.
15
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
As previously disclosed in the Company's annual report on Form 10-K for the
fiscal year ended March 31, 2003, the Company has been named as a defendant in
two substantially similar complaints alleging violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated
thereunder. These actions were consolidated in a lawsuit in the United States
District Court for the Western District of Pennsylvania in a case captioned In
Re Black Box Corporation Securities Litigation (Civil Action No. 03-CV-412). On
October 3, 2003, the plaintiffs in this action filed a Consolidated Class Action
Complaint in this matter. The Company believes that the claims are without merit
and intends to defend itself vigorously.
As previously disclosed on Form 8-K filed on October 28, 2003, the Company
received a formal order of investigation issued by the SEC in connection with an
inquiry pursuant to which the Staff of the SEC has requested additional
information from the Company and several of its officers, directors and team
members. The Company is responding to the SEC subpoenas and intends to cooperate
fully with the inquiry. Prior to this formal inquiry, the Company voluntarily
furnished information to the SEC. The Company believes that this inquiry
resulted from its March 11, 2003 press release concerning its anticipated fourth
quarter 2003 results and trading in Black Box securities occurring prior
thereto.
16
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 SEPTEMBER 30, SIX MONTHS ENDED SEPTEMBER 30,
------------------------------------------------- ----------------------------------------------
2003 2002 2003 2002
(2Q04) (2Q03) (2Q04YTD) (2Q03YTD)
- ----------------------------------------------------------------------------------------------------------------------------------
% of % of % of % of
total total total total
revenues revenues revenues revenues
-------- -------- -------- --------
BY GEOGRAPHY
Revenues:
North America $ 88,473 68% $ 114,670 70% $ 174,890 68% $ 222,639 70%
Europe 32,037 25% 38,372 24% 65,635 25% 74,390 24%
All Other 8,758 7% 9,689 6% 17,090 7% 20,114 6%
------------------------------------------------------------------------------------------------
Total $ 129,268 100% $ 162,731 100% $ 257,615 100% $ 317,143 100%
------------------------------------------------------------------------------------------------
Operating Income:
North America $ 11,806 $ 17,154 $ 23,695 $ 33,239
% of North America 13.3% 15.0% 13.5% 14.9%
revenues
Europe $ 5,351 $ 5,444 $ 9,953 11,081
% of Europe revenues 16.7% 14.2% 15.2% 14.9%
All Other $ 2,137 $ 2,061 $ 4,019 4,426
% of All Other revenues 24.4% 21.3% 23.5% 22.0%
------------------------------------------------------------------------------------------------
Total $ 19,294 $ 24,659 $ 37,667 $ 48,746
% of Total revenues 14.9% 15.2% 14.6% 15.4%
================================================================================================================================
17
THREE MONTHS ENDED SEPTEMBER 30, SIX MONTHS ENDED SEPTEMBER 30,
------------------------------------------------- ----------------------------------------------
2003 2002 2003 2002
(2Q04) (2Q03) (2Q04YTD) (2Q03YTD)
- ----------------------------------------------------------------------------------------------------------------------------------
% of % of % of % of
total total total total
revenues revenues revenues revenues
-------- -------- -------- --------
BY SERVICE TYPE
Revenues:
Hotline Services $ 58,994 46% $ 64,324 40% $ 114,970 45% $ 127,878 41%
Structured Cabling
Services 52,543 40% 76,690 47% 107,143 41% 148,824 47%
Telephony Services 17,731 14% 21,717 13% 35,502 14% 39,441 12%
------------------------------------------------------------------------------------------------
Total $ 129,268 100% $ 162,731 100% $ 257,615 100% $ 317,143 100%
------------------------------------------------------------------------------------------------
Gross Profit:
Hotline Services $ 30,862 $ 32,936 $ 59,971 $ 64,598
% of Hotline Services
revenues 52.3% 51.2% 52.2% 50.5%
Structured Cabling
Services $ 17,003 $ 24,135 $ 35,137 $ 48,678
% of Structured Cabling
Services revenues 32.4% 31.5% 32.8% 32.5%
Telephony Services $ 6,010 $ 6,309 $ 12,214 $ 11,996
% of Telephony Services
revenues 33.9% 29.1% 34.4% 30.4%
------------------------------------------------------------------------------------------------
Total $ 53,875 $ 63,380 $ 107,322 $ 125,272
% of Total revenues 41.7% 38.9% 41.7% 39.5%
================================================================================================================================
I. SECOND QUARTER FISCAL 2004 (2Q04) COMPARED TO SECOND QUARTER FISCAL 2003
(2Q03):
TOTAL REVENUES
Total revenues for 2Q04 were $129,268, a decrease of 21% compared to 2Q03 total
revenues of $162,731. If exchange rates had remained constant from the second
quarter last year, 2Q04 total revenues would have been lower by $3,303, or 2%.
REVENUES BY GEOGRAPHY
NORTH AMERICA REVENUES
Revenues in North America were $88,473 for 2Q04, a decrease of 23% compared to
$114,620 for 2Q03. The North America revenue decline was generally due to weak
general economic conditions that affected client demand.
18
EUROPE REVENUES
Revenues in Europe were $32,037 for 2Q04, a decrease of 17% compared to $38,372
for 2Q03. The Europe revenue decline was due to weak general economic conditions
that affected client demand, offset in part 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 2Q03, Europe revenues would have
decreased by 24%.
ALL OTHER REVENUES
Revenues for All Other were $8,758 for 2Q04, a decrease of 10% compared to
$9,689 for 2Q03. 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 2Q03, All Other revenues would
have decreased 13%.
REVENUES BY SERVICE TYPE
HOTLINE SERVICES
Revenues from hotline services for 2Q04 were $58,994, a decrease of 8% compared
to $64,324 for 2Q03. 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 $52,543 for 2Q04, a decrease of
31% compared to $76,690 for 2Q03. 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 $17,731 for 2Q04, a decrease of 18%
compared to $21,717 for 2Q03. The Company believes the overall decline in
telephony services revenue was driven by weak general economic conditions.
GROSS PROFIT
Gross profit dollars for 2Q04 decreased to $53,875 from $63,380 for 2Q03. The
decrease in gross profit dollars over prior year was due to the decline in
revenues. Gross profit as a percent of revenues for 2Q04 increased to 41.7% of
revenues from 38.9% of revenues for 2Q03. The increase in gross profit
percentage was due primarily to cost reduction efforts.
Gross profit dollars for hotline services for 2Q04 was $30,862, or 52.3% of
revenues, compared to $32,936, or 51.2% of revenues for 2Q03. Gross profit
dollars for structured cabling services for 2Q04 was $17,003, or 32.4% of
revenues, compared to $24,135, or 31.5% of revenues for 2Q03. Gross profit
dollars for telephony services for 2Q04 was $6,010, or 33.9% of revenues,
compared to $6,309, or 29.1% of revenues for 2Q03.
19
SG&A EXPENSES
Selling, general and administrative ("SG&A") expenses for 2Q04 were $34,536 a
decrease of $4,077 over SG&A expenses of $38,613 for 2Q03. The dollar decrease
from 2Q04 to 2Q03 related to the Company's cost reduction efforts worldwide.
SG&A expenses as a percent of revenues for 2Q04 increased to 26.7% of revenues
from 23.7% of revenues for 2Q03. The percentage increase relates to funding of
strategic growth initiatives. Included in SG&A is a pre-tax gain of $531 from
sale of property, offset in part by the disposal of $230 in leasehold
improvements related to another property.
INTANGIBLES AMORTIZATION
Intangibles amortization for 2Q04 was $45 compared to 2Q03 of $108.
OPERATING INCOME
Operating income for 2Q04 was $19,294, or 14.9% of revenues, compared to $24,659
or 15.2% of revenues in 2Q03.
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 as
described above.
NET INTEREST EXPENSE
Net interest expense for 2Q04 decreased to $440 from $766 for 2Q03 due to
reductions in the outstanding debt from $63,048 at the end of 2Q03 to $48,452 at
the end of 3Q04 and the interest rate reduction of approximately 0.75% during
the period from 2Q03 to 2Q04.
PROVISION FOR INCOME TAXES
The tax provision for 2Q04 was $6,778, an effective tax rate of 36.0%, compared
to 2Q03 of $8,825, 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 2Q04 was $12,051, or 9.3% of revenues, compared to $15,035, or
9.2% of revenues for 2Q03.
20
II. FIRST HALF FISCAL 2004 (2Q04YTD) COMPARED TO FIRST HALF FISCAL 2003
(2Q03YTD):
TOTAL REVENUES
Total revenues for 2Q04YTD were $257,615, a decrease of 19% compared to 2Q03YTD
total revenues of $317,143. If exchange rates had remained constant from the
same periods last year, 2Q04YTD total revenues would have been lower by $9,189,
or 22%.
REVENUES BY GEOGRAPHY
NORTH AMERICA REVENUES
Revenues in North America were $174,890 for 2Q04YTD, a decrease of 21% compared
to $222,639 for 2Q03YTD. The North America revenue decline was generally due to
weak general economic conditions that affected client demand.
EUROPE REVENUES
Revenues in Europe were $65,635 for 2Q04YTD, a decrease of 12% compared to
$74,390 for 2Q03YTD. The Europe revenue decline was due to weak general economic
conditions that affected client demand, offset in part 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 the same periods last year, Europe
revenues would have decreased by 28%.
ALL OTHER REVENUES
Revenues for All Other were $17,090 for 2Q04YTD, a decrease of 15% compared to
$20,114 for 2Q03YTD. 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 the same periods last
year, All Other revenues would have decreased 19%.
REVENUES BY SERVICE TYPE
HOTLINE SERVICES
Revenues from hotline services for 2Q04YTD were $114,970, a decrease of 10%
compared to $127,878 for 2Q03YTD. 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 $107,143 for 2Q04YTD, a decrease
of 28% compared to $148,824 for 2Q03YTD. 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 $35,502 for 2Q04YTD, a decrease of 10%
compared to $39,441 for 2Q03YTD. The Company believes the overall decline in
telephony services revenue was driven by weak general economic conditions.
21
GROSS PROFIT
Gross profit dollars for 2Q04YTD decreased to $107,322 from $125,272 for
2Q03YTD. The decrease in gross profit dollars over prior year was due to the
decline in revenues. Gross profit as a percent of revenues for 2Q04YTD increased
to 41.7% of revenues from 39.5% or revenues for 2Q03YTD. The increase in gross
profit percentage was due primarily to cost reduction efforts.
Gross profit dollars for hotline services for 2Q04YTD was $59,971, or 52.2% of
revenues, compared to $64,598, or 50.5% of revenues for 2Q03YTD. Gross profit
dollars for structured cabling services for 2Q04YTD was $35,137, or 32.8% of
revenues, compared to $48,678, or 32.5% of revenues for 2Q03YTD. Gross profit
dollars for telephony services for 2Q04YTD was $12,214, or 34.4% of revenues,
compared to $11,996, or 30.4% or revenues.
SG&A EXPENSES
Selling, general and administrative ("SG&A") expenses for 2Q04YTD were $69,521 a
decrease of $6,796 over SG&A expenses of $76,317 for 2Q03YTD. The dollar
decrease from 2Q04YTD to 2Q03YTD related to the Company's cost reduction efforts
worldwide. SG&A expenses as a percent of revenues for 2Q04YTD were 27.0% of
revenues compared to 24.1% of revenues for 2Q03YTD. The percentage increase
relates to funding of strategic growth initiatives.
INTANGIBLES AMORTIZATION
Intangibles amortization for 2Q04YTD was $134 compared to 2Q03YTD of $209.
OPERATING INCOME
Operating income for 2Q04YTD was $37,667, or 14.6% of revenues, compared to
$48,747 or 15.4% of revenues in 2Q03YTD.
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 as
described above.
NET INTEREST EXPENSE
Net interest expense for 2Q04YTD decreased to $860 from $1,538 for 2Q03YTD due
to reductions in the outstanding debt from $63,048 at the end of 2Q03 to $48,452
at the end of 2Q04 and the interest rate reduction of approximately 0.75% during
the period from 2Q03YTD to 2Q04YTD.
PROVISION FOR INCOME TAXES
The tax provision for 2Q04YTD was $13,244, an effective tax rate of 36.0%,
compared to 2Q03YTD of $17,438, 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.
22
NET INCOME
Net income for 2Q04YTD was $23,547, or 9.1% of revenues, compared to $29,700, or
9.4% of revenues for 2Q03YTD.
III. LIQUIDITY AND CAPITAL RESOURCES:
Cash Provided by Operating Activities for 2Q04YTD and 2Q03YTD was $30,703 and
$42,205, respectively. Reflected as a source of cash from operating activities
in 2Q04YTD are decreases in accounts receivables and unbilled accounts and other
current assets offset in part by an increase in inventories and a decrease in
accounts payable and accrued liabilities. In 2Q03YTD, decreases in accounts
receivables were a source of cash flow from operating activities, while an
increase in inventories and decreases in other current assets, accounts payable
and accrued liabilities were a use of cash flow.
In addition to Cash Provided by Operating Activities of $30,703 in 2Q04YTD, the
Company had additional cash flow of $5,186. This was generated from $2,785 of
stock option exercises, $1,600 of foreign currency exchange impact on cash, and
$801 from disposals of capital assets. The Company's 2Q04YTD cash flow was used
for repurchases of Company stock of $31,059, debt reduction of $1,988, dividend
payments of $1,824 and merger activity of $1,018.
In addition, the Company used $5,621 of cash on hand for additional stock
repurchases during the first half of the fiscal year.
Beginning in the third quarter of Fiscal 2003 and in all subsequent quarters,
the Company's Board of Directors has declared quarterly cash dividends of $0.05
per share on all outstanding shares of Black Box's common stock.
The dividend declared in 2Q04 totaled $920 and was paid on October 15, 2003 to
stockholders of record at the close of business on September 30, 2003.
As of the end of 2Q04, the Company had cash and cash equivalents of $8,422,
working capital of $115,054 and long-term debt of $47,848.
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 2Q04 of $48,452 was comprised of $47,700
under the Long Term Revolver and $752 of various other third party, non-employee
loans. The weighted average interest rate on all indebtedness of the Company at
the end of 2Q04 and 2Q03 was approximately 1.85% and 2.61%, respectively. In
addition, at the end of 2Q04, the Company had $4,846 of letters of credit
outstanding and $67,454 available under the Long Term Revolver.
23
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 2Q04) on the Euro-dollar
rate option and from zero to 0.75% (zero at the end of 2Q04) 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
2Q04). 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 2Q04YTD was $1,018. During 2Q04YTD, capital expenditures were $894, while
capital disposals were $1,695. Capital expenditures for Fiscal 2004 are
projected to be $3,000 to $4,000 and will be spent primarily on information
systems, general equipment and facility improvements.
The Company previously announced intentions to repurchase up to 5.5 million
shares of its Common Stock from April 1, 1999 through September 30, 2003. During
2Q04, the Company repurchased approximately 0.4 million shares for an aggregate
purchase price of $17,402 and for 2Q04YTD, repurchases totaled 0.8 million
shares for $31,961. Since inception of the repurchase program in April 1999
through 2Q04, the Company has repurchased in aggregate approximately 4.3 million
shares for approximately $196,000. Funding for the stock repurchases came from
existing cash flow. 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 September 30,
2003, the open foreign exchange contracts were in Euro, Pound sterling, Canadian
dollars, Swiss francs, Japanese yen, Swedish krona and Australian dollars. The
total open contracts, with a notional amount of approximately $13,427, have a
fair value of $13,728 and
24
will expire within six months. The open contracts have contract rates of 0.8705
to 0.9023 Euro, 0.6138 to 0.634 Pound sterling, 1.3558 to 1.4121 Canadian
dollars, 1.3237 to 1.3488 Swiss francs, 111.99 to 118.36 Japanese yen, 8.0248 to
8.4025 Swedish krona and 1.4736 to 1.5571 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.
IV. 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.
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 two subsequent quarters.
V. NEW ACCOUNTING PRONOUNCEMENTS:
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 consolidated 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 certain instances, all provisions of this
Statement should be applied prospectively. The application of SFAS No. 149 did
not have a material effect on the Company's consolidated financial statements or
results of operations.
25
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
December 15, 2003. The adoption of SFAS No. 150 is not expected to have a
material effect on the Company's consolidated financial statements or results of
operations.
VI. 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.
VII. 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.
Investors should also be aware that the Company does not provide forecasts
regarding its future financial results. In addition, while the Company does,
from time to time, communicate with securities analysts and stockholders, it is
against the Company's practice to disclose to them any material non-public
information or other confidential commercial information. Accordingly,
stockholders should not assume that the Company agrees with any statement or
report issued by any analyst irrespective of the content of the statement or
report. Furthermore, the Company has a practice against issuing or confirming
financial forecasts or projections issued by others. Thus, to the extent that
reports issued by securities analysts contain any projections, forecasts or
opinions, such reports are not the responsibility of the Company.
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
September 30, 2003, the Company had open contracts, which equal approximately
$13,427 at the contract rates, with a fair value of approximately $13,728.
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
variable rate debt. For the three-month periods ended September 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 $76
and $99, respectively, assuming the Company employed no intervention strategies.
ITEM 4 - CONTROLS AND PROCEDURES
An evaluation was performed as of September 28, 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 1934, 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 absolute
assurance that any design will succeed in achieving its stated goals under all
potential future conditions, regardless of how remote. However, the controls
have been designed to provide reasonable assurance of achieving the controls'
stated goals. There have been no changes in our internal control over financial
reporting during the last fiscal quarter that have materially affected or are
reasonably likely to materially affect our internal control over financial
reporting or in other factors that could significantly affect internal controls
subsequent to their evaluation.
27
PART II OTHER INFORMATION
ITEM 1 - LEGAL PROCEEDINGS
As previously disclosed in the Company's annual report on Form 10-K for the
fiscal year ended March 31, 2003, two arbitration awards against the Company for
$1.5 million and $1.3 million were being appealed. The Company has received
adverse decisions on these appeals and has taken further appeals. Based on the
facts currently available to the Company, management believes all such matters
are adequately provided for, covered by insurance, without merit, not probable
that an unfavorable outcome will result, or of such amounts which upon
resolution will not have a material adverse effect on the consolidated financial
position, results of operations or cash flow of the Company.
As previously disclosed in the Company's annual report on Form 10-K for the
fiscal year ended March 31, 2003, the Company has been named as a defendant in
two substantially similar complaints alleging violations of Sections 10(b) and
20(a) of the Securities Exchange Act of 1934, and Rule 10b-5 promulgated
thereunder. These actions were consolidated in a lawsuit in the United States
District Court for the Western District of Pennsylvania in a case captioned In
Re Black Box Corporation Securities Litigation (Civil Action No. 03-CV-412). On
October 3, 2003, the plaintiffs in this action filed a Consolidated Class Action
Complaint in this matter. The Company believes that the claims are without merit
and intends to defend itself vigorously.
As previously disclosed on Form 8-K filed on October 28, 2003, the Company
received a formal order of investigation issued by the SEC in connection with an
inquiry pursuant to which the Staff of the SEC has requested additional
information from the Company and several of its officers, directors and team
members. The Company is responding to the SEC subpoenas and intends to cooperate
fully with the inquiry. Prior to this formal inquiry, the Company voluntarily
furnished information to the SEC. The Company believes that this inquiry
resulted from its March 11, 2003 press release concerning its anticipated fourth
quarter 2003 results and trading in Black Box securities occurring prior
thereto.
28
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 12, 2003, the Company's stockholders voted on the following four
matters at the Company's annual meeting of the stockholders: (i) the election of
directors; (ii) the amendment to the 1992 Stock Option Plan to increase the
number of shares authorized; (iii) the amendment to the 1992 Director Stock
Option Plan to increase the number of shares authorized; and (iv) the
ratification of the appointment of Ernst & Young LLP as independent public
accountants for the fiscal year ending March 31, 2004.
Each of the Company's nominees for director was re-elected at the annual meeting
by the following vote:
Shares Shares Shares Broker
Voted For Withheld Abstaining Non-Votes
--------- -------- ---------- ---------
William F. Andrews 16,181,905 734,672 0 0
Thomas W. Golonski 16,454,062 462,515 0 0
Thomas G. Greig 16,020,799 895,778 0 0
William R. Newlin 13,100,831 3,815,746 0 0
Brian D. Young 15,926,511 990,066 0 0
Fred C. Young 16,387,628 528,949 0 0
The amendment to the 1992 Stock Option Plan to increase the number of shares
authorized under the plan was approved by the following vote:
Shares Shares Voted Shares Broker
Voted For Against Abstaining Non-Votes
- --------- ------- ---------- ---------
13,344,869 3,507,542 64,162 4
The amendment to the 1992 Director Stock Option Plan to increase the number of
shares authorized:
Shares Shares Voted Shares Broker
Voted For Against Abstaining Non-Votes
- --------- ------------ ---------- ---------
13,354,541 3,539,219 22,814 3
The appointment of Ernst & Young LLP as independent public accountants for the
fiscal year ending March 31, 2004 was approved by the following vote:
Shares Shares Voted Shares Broker
Voted For Against Abstaining Non-Votes
- --------- ------------ ---------- ---------
16,710,816 187,896 17,865 0
29
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
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 furnished during the quarter ended September
28, 2003
Current report on Form 8-K for the event dated July 22, 2003
covering Item 5 thereof disclosing and filing the Company's press
release related to first quarter fiscal 2004 results.
30
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
BLACK BOX CORPORATION
November 11, 2003 By: /s/ Michael McAndrew
-----------------------------------
Michael McAndrew
Chief Financial Officer, Treasurer
and Principal Accounting Officer
31
EXHIBIT INDEX
Exhibit
No.
- -------
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
32