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Fiscal 2003 Second Quarter
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
FOR THE QUARTERLY PERIOD ENDED SEPTEMBER 30,
2002 COMMISSION FILE NO. 0-18706
BLACK BOX CORPORATION
(Exact name of registrant as specified in its charter)
Delaware 95-3086563
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
1000 Park Drive
Lawrence, Pennsylvania 15055
(Address of principal executive offices)
724-746-5500
(Registrant's telephone number, including area code)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
The number of shares outstanding of the Registrant's common stock, $.001 par
value, as of November 13, 2002 was 19,435,391 shares.
PART I FINANCIAL INFORMATION
ITEM 1 - FINANCIAL STATEMENTS
BLACK BOX CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share amounts)
(Unaudited)
September 30, March 31,
ASSETS 2002 2002
- ------ ---- ----
Current assets:
Cash and cash equivalents $ 12,658 $ 13,423
Accounts receivable, net of allowance for doubtful
accounts of $8,125 and $8,207, respectively 109,689 115,969
Inventories, net 43,459 46,081
Costs and estimated earnings in excess of billings
on uncompleted contracts 28,634 24,015
Other current assets 19,828 19,959
--------- ---------
Total current assets 214,268 219,447
Property, plant and equipment, net of accumulated depreciation
of $42,957 and $38,635, respectively 38,775 41,063
Intangibles, net of accumulated amortization of $48,797 and
$48,578, respectively 392,795 387,286
Other assets 3,682 2,991
--------- ---------
Total assets $ 649,520 $ 650,787
========= =========
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Current debt $ 646 $ 3,189
Accounts payable 35,197 34,279
Billings in excess of costs and estimated earnings
on uncompleted contracts 2,980 4,235
Other accrued expenses 29,636 31,125
Accrued income taxes 4,256 3,155
--------- ---------
Total current liabilities 72,715 75,983
Long-term debt 62,402 75,497
Other liabilities 7,474 9,209
Stockholders' equity:
Preferred stock authorized 5,000,000; par value $1.00;
none issued and outstanding
Common stock authorized 100,000,000; par value $.001;
issued 22,458,664 and 22,351,049, respectively 22 22
Additional paid-in capital 291,480 287,714
Retained earnings 341,988 312,288
Treasury stock, at cost, 2,667,500 and 2,105,000, respectively (121,070) (100,355)
Accumulated other comprehensive income/(loss) (5,491) (9,571)
--------- ---------
Total stockholders' equity 506,929 490,098
--------- ---------
Total liabilities and stockholders' equity $ 649,520 $ 650,787
========= =========
See Notes to Consolidated Financial Statements
2
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(UNAUDITED)
(In thousands, except per share amounts)
Three months ended Six months ended
September 30, September 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues $162,731 $197,072 $317,143 $404,188
Cost of sales 99,351 122,041 191,871 250,213
-------- -------- -------- --------
Gross profit 63,380 75,031 125,272 153,975
Selling, general and administrative
expenses 38,613 45,915 76,317 98,569
Intangibles amortization 108 25 209 25
-------- -------- -------- --------
Operating income 24,659 29,091 48,746 55,381
Interest expense, net 766 1,876 1,538 3,985
Other expense/(income), net 33 5 70 253
-------- -------- -------- --------
Income before income taxes 23,860 27,210 47,138 51,143
Provision for income taxes 8,825 10,068 17,438 18,918
-------- -------- -------- --------
Net income $ 15,035 $ 17,142 $ 29,700 $ 32,225
======== ======== ======== ========
Basic earnings per common share $ 0.75 $ 0.86 $ 1.48 $ 1.64
======== ======== ======== ========
Diluted earnings per common share $ 0.74 $ 0.83 $ 1.44 $ 1.56
======== ======== ======== ========
Weighted average common shares 19,982 19,843 20,118 19,697
======== ======== ======== ========
Weighted average common and
common equivalent shares 20,418 20,762 20,663 20,693
======== ======== ======== ========
See Notes to Consolidated Financial Statements
3
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES
IN STOCKHOLDERS' EQUITY
(UNAUDITED)
(Dollars in thousands)
Accumulated
Additional Other
Common Stock Treasury Paid-in Retained Comprehensive
Shares Amount Stock Capital Earnings Income (Loss) Total
------ ------ ----- ------- -------- ------------- -----
Balance at March 31, 2001 21,406,367 $ 21 ($100,355) $248,053 $250,246 ($9,014) $ 388,951
Net income -- -- -- -- 62,042 -- 62,042
Issuance of common stock 654,562 1 -- 28,070 -- -- 28,071
Exercise of options 290,120 -- -- 8,954 -- -- 8,954
Tax benefit from exercised options -- -- -- 2,637 -- -- 2,637
Change in comprehensive income (loss) -- -- -- -- -- (557) (557)
---------- ------- --------- -------- -------- ------- ---------
Balance at March 31, 2002 22,351,049 22 (100,355) 287,714 312,288 (9,571) 490,098
Net income -- -- -- -- 29,700 -- 29,700
Purchase of treasury stock -- -- (20,715) -- -- -- (20,715)
Issuance of common stock 24,630 -- -- 1,001 -- -- 1,001
Exercise of options 82,985 -- -- 2,127 -- -- 2,115
Tax benefit from exercised options -- -- -- 638 -- -- 650
Change in comprehensive income (loss) -- -- -- -- -- 4,080 4,080
---------- ------- --------- -------- -------- ------- ---------
Balance at September 30, 2002 22,458,664 $ 22 ($121,070) $291,480 $341,988 ($5,491) $ 506,929
========== ======= ========= ======== ======== ======= =========
See Notes to Consolidated Financial Statements
4
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(Dollars in thousands)
Six months ended
September 30,
2002 2001
-------- --------
Cash flows from operating activities:
Net income $ 29,700 $ 32,225
Adjustments to reconcile net income to cash provided
by operating activities:
Intangibles amortization 209 25
Depreciation 3,910 4,110
Changes in working capital items:
Accounts receivable, net 7,617 20,011
Inventories, net 2,764 2,297
Other current assets (5,938) (2,989)
Accounts payable and accrued liabilities (426) (31,290)
-------- --------
Cash provided by operating activities 37,836 24,389
-------- --------
Cash flows from investing activities:
Capital expenditures, net of disposals (680) (1,908)
Merger transactions, net of cash acquired and prior
merger-related payments (7,289) (16,453)
-------- --------
Cash (used in) investing activities (7,969) (18,361)
-------- --------
Cash flows from financing activities:
Revolving credit borrowings, net (15,749) (2,190)
Proceeds from exercise of options 2,127 3,436
Purchase of treasury stock (20,715) --
-------- --------
Cash (used in)/provided by financing activities (34,337) 1,246
-------- --------
Foreign currency exchange impact on cash flow 3,705 696
-------- --------
Increase/(decrease) in cash and cash equivalents (765) 7,970
Cash and cash equivalents at beginning of period 13,423 6,209
-------- --------
Cash and cash equivalents at end of period $ 12,658 $ 14,179
======== ========
Cash paid for interest $ 1,589 $ 3,769
Cash paid for income taxes $ 16,126 $ 25,919
See Notes to Consolidated Financial Statements
5
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
NOTE 1: BASIS OF PRESENTATION
The Financial Statements presented herein and these notes are unaudited. Certain
information and footnote disclosures normally included in the financial
statements prepared in accordance with generally accepted accounting principles
have been condensed or omitted pursuant to the rules and regulations of the
Securities and Exchange Commission ("SEC"). Although Black Box Corporation (the
"Company") believes that all adjustments necessary for a fair presentation have
been made, interim periods are not necessarily indicative of the results of
operations for a full year. As such, these financial statements should be read
in conjunction with the financial statements and notes thereto included in the
Company's most recent Form 10-K as filed with the SEC for the fiscal year ended
March 31, 2002. The consolidated Balance Sheet as of March 31, 2002 was derived
from the audited Balance Sheet included in the most recent Form 10-K.
NOTE 2: FISCAL YEARS AND BASIS OF PRESENTATION
The Company's fiscal year ends on March 31. Its fiscal quarters consist of 13
weeks and end on the Sunday nearest each calendar quarter end. The actual ending
date for the period presented as September 30, 2002 was September 29, 2002. The
ending dates for all other periods are as presented.
NOTE 3: INVENTORIES
Inventories are stated at the lower of cost (first-in, first-out method) or
market. The net inventory balances are as follows:
SEPTEMBER 30, MARCH 31,
2002 2001
---- ----
Raw materials $ 2,072 $ 2,417
Work-in-process 2 5
Finished goods 45,111 47,017
Inventory reserve (3,726) (3,358)
-------- --------
Inventory, net $ 43,459 $ 46,081
======== ========
NOTE 4: FINANCIAL DERIVATIVES
The Company has entered and will continue in the future, on a selective basis,
to enter into forward exchange contracts to reduce the foreign currency exposure
related to certain intercompany transactions. On a monthly basis, the open
contracts are revalued to fair market value, and the resulting gains and losses
are recorded in accumulated other comprehensive income. These gains and losses
offset the revaluation of the related foreign currency denominated receivables,
which are also included in accumulated other comprehensive income.
6
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
At September 30, 2002, the open foreign exchange contracts were in Euro,
Canadian dollars, Swiss francs, Japanese yen, and Australian dollars. These open
contracts, which equal approximately $7,166 at the contract rates, have a fair
value of $7,116 and will expire in two to six months. The open contracts have
contract rates of 1.027 Euro, 1.5819 Canadian dollars, 1.49 Swiss francs, 116.59
to 127.73 Japanese yen and 1.79 Australian dollars, all per U.S. dollar.
NOTE 5: COMPREHENSIVE INCOME
Comprehensive income consisted of the following:
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Net income $15,035 $17,142 $29,700 $32,225
Other comprehensive income:
Foreign currency translation
adjustment 153 2,074 3,929 1,364
Unrealized gains on derivatives designated
and qualified as cash flow hedges 351 20 151 73
------- ------- ------- -------
Comprehensive income $15,539 $19,236 $33,780 $33,662
======= ======= ======= =======
The components of accumulated other comprehensive income/(loss) consisted of the
following:
SEPTEMBER 30, MARCH 31,
2002 2002
---- ----
Foreign currency translation adjustment $(5,474) $(9,403)
Unrealized gains on derivatives designated and qualified as cash flow
hedges (17) (168)
------- -------
Total accumulated other comprehensive income/(loss) $(5,491) $(9,571)
======= =======
NOTE 6: EARNINGS PER SHARE
Basic earnings per common share were computed based on the weighted average
number of common shares issued and outstanding during the relevant periods.
Diluted earnings per common share were computed under the treasury stock method
based on the weighted average number of common shares issued and outstanding.
The following table details this calculation:
7
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
-------------------- --------------------
(Shares in thousands) 2002 2001 2002 2001
------- ------- ------- -------
Net income for earnings per share computation $15,035 $17,142 $29,700 $32,225
Basic earnings per common share:
Weighted average common shares 19,982 19,843 20,119 19,697
Basic earnings per common share $ 0.75 $ 0.86 $ 1.48 $ 1.64
------- ------- ------- -------
Diluted earnings per common share:
Weighted average common shares 19,982 19,843 20,119 19,697
Shares issuable from assumed conversion of stock
options and contingently issuable shares from
acquisitions (net of tax savings) 436 919 544 996
Weighted average common and common equivalent shares
20,418 20,762 20,663 20,693
Diluted earnings per common share $ 0.74 $ 0.83 $ 1.44 $ 1.56
======= ======= ======= =======
Excluded from the calculation above are 2,243 thousand shares and 12 thousand
shares issuable upon the exercise of outstanding stock options for the three
months ended September 30, 2002 and 2001, respectively and 1,423 thousand shares
and 12 thousand shares for the six months ended September 30, 2002 and 2001,
respectively, as the exercise price of such options was greater than the average
market price for those time periods.
NOTE 7: NEW ACCOUNTING STANDARDS
In August 2001, the Financial Accounting Standards Board ("FASB") issued SFAS
No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets". SFAS
No. 144 addresses financial accounting and reporting for the impairment of
long-lived assets and for long-lived assets to be disposed of and supersedes
FASB Statement No. 121. This statement retains the fundamental provisions of
SFAS No. 121 for recognition and measurement of the impairment of long-lived
assets to be held and used and measurement of long-lived assets to be disposed
of by sale. The provisions of this standard must be applied for fiscal years
beginning after December 15, 2001. The Company adopted SFAS No. 144 in the first
quarter of Fiscal 2003. Its adoption did not have a material effect on the
Company's financial statements or results of operations.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and 64,
Amendment of FASB Statement No. 13, and Technical Corrections", was issued. The
Statement updates, clarifies and simplifies existing accounting pronouncements.
While the technical corrections to existing pronouncements are not substantive
in nature, in some instances, they may change accounting practice. The
provisions of this standard related to SFAS No. 13 are effective for
transactions occurring after May 15, 2002. All other provisions of this standard
must be applied for financial statements issued on or after May 15, 2002. The
application of SFAS No. 145 did not have a material effect on the Company's
financial statements or results of operations.
8
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
In June 2002, the Financial Accounting Standards Board issued SFAS No. 146,
"Accounting for Costs Associated with Exit or Disposal Activities." SFAS No. 146
nullifies Emerging Issues Task Force Issue No. 94-3, "Liability Recognition for
Certain Employee Termination Benefits and Other Costs to Exit an Activity,"
under which a liability for an exit cost was recognized at the date of an
entity's commitment to an exit plan. SFAS No. 146 requires that a liability for
a cost associated with an exit or disposal activity be recognized at fair value
when the liability is incurred. The provisions of this statement are effective
for exit or disposal activities that are initiated after December 31, 2002.
NOTE 8 - CHANGES IN BUSINESS
During the six months ended September 30, 2002, the Company successfully
completed two business combinations that have been accounted for using the
purchase method of accounting, June 2002 - Societe d'Installation de Reseaux
Informatiques et Electriques; and July 2002 - EDC Communications Limited and EDC
Communications (Ireland) Limited. The aggregate purchase price of these two
business combinations was $4,300 and resulted in goodwill of $3,157 and other
intangibles of approximately $348 in accordance with SFAS No. 141, "Business
Combinations," which the Company adopted during the second quarter of Fiscal
2002. The other intangibles balance consisted of non-compete agreements and
backlog. In addition, during the six months ended September 30, 2002, the
Company paid approximately $4,000 for obligations related to mergers completed
in prior periods.
As of September 30, 2002, all non-compete agreements had an estimated gross
value of $1,861 and accumulated amortization of $184. As of September 30, 2002,
the backlog intangibles had a gross value of $281 and accumulated amortization
of $208. See Note 8, "Intangible Assets".
During Fiscal 2002, the Company successfully completed 18 business combinations
that have been accounted for using the purchase method of accounting: April 2001
- - Haddad Electronic Supply, Inc., FBS Communications, L.P. and Integrated
Cabling Systems, Inc.; May 2001 - Computer Cables and Accessories Ltd; June 2001
- - Vivid Communications, Inc. and DESIGNet, Inc; July 2001 - J.C. Informatica
Integral S.A. de C.V., Consultoria en Redes S.A. de C.V. and SIC Comunicaciones
S.A. de C.V. (together "Grupo Gresco"); August 2001 - LJL Telephone and
Communication, Inc., AB Lofamatic and Optech Fibres Ltd.; September 2001 - GCS
Network Services Ltd. and Di.el. Distribuzioni Elettroniche S.r.l.; October 2001
- - Lanetwork Sales Ltd; January 2002 - Trend Communications, TW Netzwerkservice
GmbH, TeleFuture Communications Ltd., and Netzwerke Kabelsystem GmbH; and March
2002 - TeleAce Communication PTE Ltd. In connection with the above 18 business
combinations, the Company issued an aggregate of 510 thousand shares of its
common stock and used approximately $21,000 in cash to acquire all of the
outstanding shares of the above 18 companies.
9
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
The aggregate purchase price of the above 18 companies including deal costs was
approximately $50,500 and resulted in goodwill of $43,900 and other intangibles
of approximately $1,800 in accordance with SFAS No. 141, "Business
Combinations," which the Company adopted during the second quarter of Fiscal
2002. The other intangibles balance consisted of non-compete agreements and
backlog. As of March 31, 2002, the non-compete agreements had an estimated gross
value of $1,900 and accumulated amortization of $92. As of March 31, 2002, the
backlog intangibles had a gross value of $203 and accumulated amortization of
$78.
As of September 30, 2002, certain merger agreements provide for contingent
payments of up to $7,762. Upon meeting future operating performance goals,
goodwill will be adjusted for the amount of the contingent payments.
The Company has consolidated the results of operations for each of the acquired
companies as of the respective merger date. The following table reports pro
forma information as if the acquired entities had been purchased at the
beginning of the stated periods:
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2002 2001 2002 2001
---- ---- ---- ----
Revenues: As reported $ 162,731 $197,072 $317,143 $404,188
Mergers-pre BBC 64 8,500 1,721 22,384
--------- -------- -------- --------
Pro forma $ 162,795 $205,572 $318,864 $426,572
========= ======== ======== ========
Net income: As reported $ 15,035 $ 17,142 $ 29,700 $ 32,225
% of revenues 9.2% 8.7% 9.4% 8.0%
Mergers-pre BBC (1) 1,037 176 2,637
% of revenues -- 12.2% 10.2% 11.8%
--------- -------- -------- --------
Pro forma $ 15,034 $ 18,179 $ 29,876 $ 34,862
% of revenues 9.2% 8.8% 9.4% 8.2%
========= ======== ======== ========
Diluted earnings per share: As reported $ 0.74 $ 0.83 $ 1.44 $ 1.56
Pro forma 0.74 0.88 1.45 1.68
========= ======== ======== ========
NOTE 9: INTANGIBLE ASSETS
On April 1, 2001, the Company adopted SFAS No. 142, "Goodwill and Other
Intangible Assets," under which goodwill and other intangible assets with
indefinite lives are not amortized. Such intangibles were evaluated for
impairment as of April 1, 2001 by comparing the fair value of each reporting
unit to its carrying value, and no impairment existed. In addition, during the
third quarter of Fiscal 2002, the Company evaluated its intangible assets for
impairment and none existed. During the third quarter of each future fiscal
year, the Company will evaluate the intangible assets for impairment with any
resulting impairment reflected as an operating expense. The Company's only
intangibles as identified in SFAS No. 141 other than goodwill, are its
trademarks, non-compete agreements and acquired backlog.
10
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
As of September 30, 2002, the Company's trademarks had a gross carrying amount
of $35,992 and accumulated amortization of $8,253 and the Company believes this
intangible has an indefinite life.
The Company had the following other intangibles as of September 30, 2002:
GROSS CARRYING ACCUMULATED
AMOUNT AMORTIZATION
------ ------------
Non-Compete Agreements $1,861 $184
Acquired Backlog 281 208
------ ----
Total $2,142 $392
====== ====
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, 2002 was $108 and $209,
respectively. The estimated amortization expense for each of the five fiscal
years subsequent to March 31, 2002 for the non-compete agreements and acquired
backlog intangibles is as follows: remainder of 2003-$156; 2004-$186; 2005-$186;
2006-$186; and 2007-$186.
The changes in the carrying amount of goodwill, net of amortization, by
reporting segment for the three months ended June 30, 2002 and September 30,
2002, are as follows:
PHONE ON-SITE TOTAL
----- ------- -----
Balance as of March 31, 2002 $60,540 $297,090 $357,630
------- -------- --------
Goodwill related to acquisitions and earnout
payments during period 191 5,485 5,676
------- -------- --------
Balance as of September 30, 2002 $60,731 $302,575 $363,306
======= ======== ========
NOTE 10: TREASURY STOCK
The Company previously announced its intention to repurchase up to 2.5 million
shares of its Common Stock from April 1, 1999 through March 31, 2002. As of
March 31, 2002, the Company had repurchased 2.1 million shares at prevailing
market prices for an aggregate purchase price of $100,355. In May 2002, the
Company's Board of Directors authorized the repurchase of an additional one
million shares. During the six months of Fiscal 2003, the Company repurchased
562.5 thousand shares for an aggregate purchase price of $20,715. Funding for
these repurchases came from existing cash flow and borrowings under existing
credit facilities.
11
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
NOTE 11: INDEBTEDNESS
Long-term debt is as follows:
SEPTEMBER 30, MARCH 31,
2002 2001
---- ----
Revolving credit agreement $ 62,000 $ 75,000
Other debt 1,048 3,686
-------- --------
Total debt 63,048 78,686
Less: current portion (646) (3,189)
-------- --------
Long-term debt $ 62,402 $ 75,497
======== ========
On April 4, 2000, Black Box Corporation of PA, a domestic subsidiary of the
Company, entered into a $120,000 Revolving Credit Agreement ("Long Term
Revolver") and a $60,000 Short Term Credit Agreement ("Short Term Revolver")
(together the "Syndicated Debt") with Mellon Bank, N.A. and a group of lenders.
The Long Term Revolver was scheduled to expire on April 4, 2003 and the Short
Term Revolver was scheduled to expire on April 4, 2002. In April 2002, the Long
Term Revolver was extended to April 4, 2005 and the Short Term Revolver was
extended to April 2, 2003. The interest on the borrowings is variable based on
the Company's option of selecting the banks prime rate plus an applicable margin
as defined in the agreement or the Euro-dollar rate plus an applicable margin as
defined in the agreement.
The weighted average interest rate on all indebtedness of the Company as of
September 30, 2002 was approximately 2.61%.
NOTE 12: RESTRUCTURING
In the fourth quarter of Fiscal 2002, the Company recorded a restructuring
charge of approximately $3,500 primarily related to adjusting staffing levels in
its European and Latin American Operations and facility closures in the U.S.
Also at March 31, 2002, the Company had an accrual of $584 related to continuing
costs of a previously closed facility done at the time of one of its
acquisitions. The components of the restructuring accrual at September 30, 2002
are as follows:
ACCRUED CASH ACCRUED
MARCH 31, 2002 EXPENDITURES SEPTEMBER 30, 2002
-------------- ------------ ------------------
Employee Severance $1,443 $ 872 $ 571
Facility Closures 1,439 398 1,041
------ ------ ------
Total $2,882 $1,270 $1,612
====== ====== ======
12
BLACK BOX CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
(Dollars in thousands, except per share amounts)
NOTE 13: SEGMENT REPORTING
The Company manages the business primarily on a product and service line basis.
Its two primary reportable segments are comprised of On-Site Services and Phone
Services. The "Other" information presented herein includes expenses directly
related to the Company's on-going mergers and acquisitions program. The Company
reports its two segments separately because of differences in the ways the
product and service lines are operated. Consistent with SFAS No. 131,
"Disclosures about Segments of an Enterprise and Related Information," the
Company aggregates similar operating segments into reportable segments.
The Company evaluates the performance of each segment based on "Worldwide
Operating Income." A segment's worldwide operating income is its operating
income before amortization. For intercompany transactions, the segment providing
the third-party billing reports the revenues and the related profits.
Intersegment sales, segment interest income or expense and expenditures for
segment assets are not presented to or reviewed by management, and therefore are
not presented below.
Summary information by reportable segment is as follows:
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
ON-SITE SERVICES 2002 2001 2002 2001
- ---------------- ---- ---- ---- ----
Revenues $ 98,407 $117,274 $189,265 $238,325
Worldwide operating income 11,658 14,618 23,606 29,533
Depreciation 1,037 2,070 1,048 2,022
Amortization 25 209 25 108
Segment assets 567,179 512,764 567,179 512,764
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
PHONE SERVICES 2002 2001 2002 2001
- -------------- ---- ---- ---- ----
Revenues $ 64,324 $ 79,798 $127,878 $165,863
Worldwide operating income 13,445 15,030 26,043 32,621
Depreciation 979 1,112 1,956 2,202
Amortization -- -- -- --
Segment assets 494,300 520,727 494,300 520,727
13
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,
------------- -------------
OTHER 2002 2001 2002 2001
- ----- ---- ---- ---- ----
Revenues $ -- $ -- $ -- $ --
Worldwide operating income (336) (532) (694) (1,156)
Depreciation (59) (57) (116) (114)
Amortization -- -- -- --
Segment assets 29,036 28,744 29,036 28,744
The following reconciles certain reportable segment data and the corresponding
consolidated amounts:
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
REVENUE 2002 2001 2002 2001
- ------- ---- ---- ---- ----
Total revenues for phone and on-site segments $162,731 $197,072 $317,443 $ 404,188
Other revenues -- -- -- --
-------- -------- -------- ---------
Total consolidated revenues $162,731 $197,072 $317,443 $ 404,188
======== ======== ======== =========
THREE MONTHS ENDED SIX MONTHS ENDED
WORLDWIDE OPERATING SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
INCOME/OPERATING INCOME 2002 2001 2002 2001
- ----------------------- ---- ---- ---- ----
Total worldwide operating income for phone and
on-site segments $ 25,103 $ 29,648 $ 49,649 $ 56,562
Other worldwide operating income (336) (532) (694) (1,156)
-------- -------- -------- --------
Total consolidated worldwide operating income
24,767 29,116 48,955 55,406
Amortization expense 108 25 209 25
-------- -------- -------- --------
Total operating income $ 24,659 $ 29,091 $ 48,746 $ 55,381
======== ======== ======== ========
On-Site Services worldwide operating income for the six months ended September
30, 2001 was reduced by a special operating expense of approximately $5,000
related primarily to the reserve of two receivables from on-site customers who
filed for bankruptcy protection in that quarter.
14
SEPTEMBER 30, MARCH 31,
------------- ---------
ASSETS 2002 2002
- ------ ---- ----
Total assets for phone and on-site segments $ 1,016,479 $ 1,016,073
Other assets 29,036 28,874
Corporate eliminations (395,995) (394,160)
----------- -----------
Total consolidated assets $ 649,520 $ 650,787
=========== ===========
Management is also presented with and reviews information about its geographic
areas. The following geographical information is presented:
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
REVENUES 2002 2001 2002 2001
- -------- ---- ---- ---- ----
North America $114,188 $145,534 $221,471 $299,654
Europe 38,373 37,739 74,390 76,809
Pacific Rim 6,744 8,459 13,247 17,160
Latin America 3,427 5,340 8,035 10,565
-------- -------- -------- --------
Total revenues $162,731 $197,072 $317,143 $404,188
======== ======== ======== ========
SEPTEMBER 30, MARCH 31,
ASSETS 2002 2002
- ------ ---- ----
North America $514,269 $513,008
Europe 111,477 111,584
Pacific Rim 10,583 11,653
Latin America 13,191 14,542
-------- --------
Total consolidated assets $649,520 $650,787
======== ========
15
ITEM 2 -- MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (DOLLARS IN THOUSANDS)
GENERAL:
The table below should be read in conjunction with the following discussion.
THREE MONTHS ENDED SIX MONTHS ENDED
SEPTEMBER 30, SEPTEMBER 30,
------------- -------------
2002 2001 2002 2001
(2Q03) (2Q02) (2Q03YTD) (2Q02YTD)
------ ------ --------- ---------
Total Revenues $162,731 $197,072 $317,143 $404,188
-------- -------- -------- --------
Percentage of Total:
On-Site Services
North America 49% 52% 49% 53%
International 11 8 11 6
-------- -------- -------- --------
Subtotal On-Site 60 60 60 59
-------- -------- -------- --------
Phone Services
North America 21 21 21 22
International 19 19 19 19
-------- -------- -------- --------
Subtotal Phone 40 40 40 41
-------- -------- -------- --------
Total 100% 100% 100% 100%
======== ======== ======== ========
SECOND QUARTER FISCAL 2003 (2Q03) COMPARED TO SECOND QUARTER FISCAL 2002
(2Q02):
TOTAL REVENUES
Total revenues for 2Q03 were $162,731, a decrease of 17% compared to 2Q02
total revenues of $197,072. If exchange rates had remained constant from
the second quarter last year, 2Q03 total revenues would have been $3,647
less.
ON-SITE SERVICES REVENUES
Revenues from on-site services were $98,407 for 2Q03 compared to $117,274
for 2Q02. Included in 2Q03 is approximately $3,936 of revenues from
mergers completed after 2Q02. Overall, the on-site services revenue
decline was due to weak general economic conditions that affected customer
demand offset in part by the Company's continued geographic expansion by
merger of its on-site technical services capabilities.
North America on-site services revenues were $79,987 for 2Q03 compared to
$103,318 for 2Q02. The decrease in North America on-site services revenues
was due to the economic conditions described above.
16
International on-site services revenues increased 32% to $18,420 for 2Q03
from $13,956 for 2Q02. The growth of International on-site services
revenues was driven by the Company's continued geographic expansion of its
technical services capabilities and deeper penetration in existing
markets.
PHONE SERVICES REVENUES
Revenues from the Company's phone services business for 2Q03 were $64,324
compared to $79,798 for 2Q02. Phone services revenues from North America
decreased to $34,201 for 2Q03 from $42,216 for 2Q02 while International
phone services revenues decreased to $30,123 for 2Q03 from $37,582 for
2Q02. The decline in North America and International phone services
revenues was driven by the general economic downturn.
REVENUES BY GEOGRAPHY
Reported revenue dollar and percentage changes over prior year's second
quarter by geographic region were as follows: North America revenues
decreased $31,346, or 22%, to $114,188; Europe revenues increased $633, or
2%, to $38,372; Pacific Rim revenues decreased $1,715, or 20%, to $6,503;
and Latin American revenues decreased $1,913, or 36%, to $3,427. If the
exchange rate relative to the U.S. dollar had remained unchanged from
2Q02, the European, Pacific Rim and Latin America revenues would have
decreased 8%, 22% and 35%, respectively.
GROSS PROFIT
Gross profit for 2Q03 decreased to $63,380, or 38.9% of revenues, from
$75,031, or 38.1% of revenues for 2Q02. The decrease in gross profit
dollars over prior year was due primarily to the decline in revenues while
the increase in gross profit percentage was due primarily to cost
reduction efforts in the Company's phone services business.
SG&A EXPENSES
Selling, general and administrative ("SG&A") expenses for 2Q03 were
$38,613, or 23.7% of revenues, a decrease of $7,302 over SG&A expenses of
$45,915, or 23.3% of revenues for 2Q02. The dollar decrease from
2Q02 to 2Q03 related to the Company's cost reduction efforts worldwide.
OPERATING TO NET INCOME
Operating income before intangibles amortization for 2Q03 was $24,767, or
15.2% of revenues, compared to $29,116, or 14.8% of revenues in 2Q02.
The increase in operating income percentage was due primarily to the gross
profit improvement in phone services mentioned above.
Intangibles amortization for 2Q03 was $108 compared to 2Q02 of $25.
Net interest expense for 2Q03 decreased to $766 from $1,876 for 2Q02 due
to reductions in both interest rates and the outstanding debt.
17
The tax provision for 2Q03 was $8,825, an effective tax rate of 37.0%,
compared to 2Q02 of $10,068, an effective tax rate of 37.0%. The annual
effective tax rates were higher than the U.S. statutory rate of 35.0%
primarily due to state income taxes, offset by foreign income tax credits.
Net income for 2Q03 was $15,035, or 9.2% of revenues, compared to $17,142,
or 8.7% of revenues for 2Q02. The increase in net income as a percentage
of revenue was primarily due to the Company's cost reduction efforts.
FIRST HALF FISCAL 2003 (2Q03YTD) COMPARED TO FIRST HALF FISCAL 2002
(2Q02YTD):
TOTAL REVENUES
Total revenues for 2Q03YTD were $317,143, a decrease of 22% compared to
2Q02YTD total revenues of $404,188. If exchange rates had remained
constant from the same periods last year, 2Q03 total revenues would have
been $5,161 less.
ON-SITE SERVICES REVENUES
Revenues from on-site services were $189,265 for 2Q03YTD compared to
$238,325 for 2Q02YTD. Included in 2Q03YTD is approximately $6,775 of
revenues from mergers completed after 2Q02. Overall, the on-site services
revenue decline was due to weak general economic conditions that affected
customer demand offset in part by the Company's continued geographic
expansion by merger of its on-site technical services capabilities.
North America on-site services revenues were $153,869 for 2Q03YTD compared
to $212,607 for 2Q02YTD. The decrease in North America on-site services
revenues was due to the economic conditions described above.
International on-site services revenues increased 38% to $35,396 for
2Q03YTD from $25,718 for 2Q02YTD. The growth of International on-site
services revenues was driven by the Company's continued geographic
expansion of its technical services capabilities and deeper penetration in
existing markets.
PHONE SERVICES REVENUES
Revenues from the Company's phone services business for 2Q03YTD were
$127,878 compared to $165,863 for 2Q02YTD. Phone services revenues from
North America decreased to $67,602 for 2Q03YTD from $87,047 for 2Q02YTD
while International phone services revenues decreased to $60,276 for
2Q03YTD from $78,816 for 2Q02YTD. The decline in North America and
International phone services revenues was driven by the general economic
downturn.
18
REVENUES BY GEOGRAPHY
Reported revenue dollar and percentage changes over prior year's first
half by geographic region were as follows: North America revenues
decreased $78,183, or 26%, to $221,471; Europe revenues decreased $2,419,
or 3%, to $74,390; Pacific Rim revenues decreased $3,913, or 23%, to
$13,247; and Latin American revenues decreased $2,530, or 24%, to $8,035.
If the exchange rate relative to the U.S. dollar had remained unchanged
from prior year, the European, Pacific Rim and Latin America revenues
would have decreased 10%, 24% and 23%, respectively.
GROSS PROFIT
Gross profit for 2Q03YTD decreased to $125,272, or 39.5% of revenues, from
$153,975, or 38.1% of revenues for 2Q02YTD. The decrease in gross profit
dollars over prior year was due primarily to the decline in revenues while
the increase in gross profit percentage was due primarily to cost
reduction efforts in the Company's phone services business.
SG&A EXPENSES
Selling, general and administrative ("SG&A") expenses for 2Q03YTD were
$76,317, or 24.1% of revenues, a decrease of $22,252 over SG&A expenses of
$98,569, or 24.4% of revenues for 2Q02YTD. Included in prior year's first
half was a special expense of $5,027 primarily attributable to the Company
reserving for two accounts receivable from customers who filed for Chapter
11 bankruptcy protection during 1Q02. The remaining dollar decrease from
2Q02YTD to 2Q03YTD related to the Company's cost reduction efforts
worldwide.
OPERATING TO NET INCOME
Operating income before intangibles amortization for 2Q03YTD was $48,955,
or 15.4% of revenues, compared to $55,406, or 13.7% of revenues in
2Q02YTD.
If the Company had not incurred the special expense described above,
operating income for 2Q02YTD would have been $60,433, or 15.0% of
revenues. The increase in operating income percentage was due primarily to
the gross profit improvement in phone services mentioned above.
Intangibles amortization for 2Q03YTD was $209 compared to 2Q02YTD of $25.
Net interest expense for 2Q03YTD decreased to $1,538 from $3,985 for
2Q02YTD due to reductions in both interest rates and the outstanding debt.
The tax provision for 2Q03YTD was $17,438, an effective tax rate of 37.0%,
compared to 2Q02YTD of $18,918, an effective tax rate of 37.0%. The annual
effective tax rates were higher than the U.S. statutory rate of 35.0%
primarily due to state income taxes, offset by foreign income tax credits.
Net income for 2Q03YTD was $29,700, or 9.4% of revenues, compared to
$32,225, or 8.0% of revenues for 2Q02YTD. Excluding the special charge
described above in SG&A expenses,
19
net income for 2Q02YTD would have been $35,392, or 8.8% of revenues. The
increase in net income as a percentage of revenue was primarily due to the
Company's cost reduction efforts.
LIQUIDITY AND CAPITAL RESOURCES:
During 2Q03, free cash flow (cash flow from operating activities less
capital expenditures and foreign currency translation adjustments, plus
proceeds from stock option exercises) was $19,334 compared to $18,531 for
2Q02. Cash flow from operating activities for 2Q03 and 2Q02 was $17,870
and $17,639, respectively. Reflected as a source of cash flow from
operating activities in 2Q03 are decreases in accounts receivable and
inventories plus increases in accounts payable and accrued liabilities,
offset in part by decreases in other current assets, all generally related
to the decline in revenues. In 2Q02, decreases in accounts receivables,
inventories and other current assets were a source of cash flow from
operating activities, while decreases in various liabilities were a use of
cash flow.
For 2Q03YTD, free cash flow was $42,988 compared to $26,613 for 2Q02YTD.
Cash flow from operating activities for 2Q03YTD and 2Q02YTD was $37,198
and $24,389, respectively. Reflected as a source of cash flow from
operating activities during 2Q03YTD are decreases in accounts receivable
and inventories, offset in part by decreases in other current assets and
accounts payable and accrued liabilities, all generally related to the
decline in revenues. For 2Q02YTD, decreases in accounts receivables,
inventories and other current assets were a source of cash flow from
operating activities, while decreases in various liabilities were a use of
cash flow.
During 2Q03, the Company's debt decreased by only $445 from 1Q03 as second
quarter free cash flow was primarily used for repurchases of the Company's
stock. For the six months, debt decreased by $15,638 from March 31, 2002.
As of the end of 2Q03, the Company had cash and cash equivalents of
$12,658, working capital of $141,553 and long-term debt of $62,402.
On April 4, 2000, Black Box Corporation of PA, a domestic subsidiary of
the Company, entered into a $120,000 Revolving Credit Agreement ("Long
Term Revolver") and a $60,000 Short Term Credit Agreement ("Short Term
Revolver") (together the "Syndicated Debt") with Mellon Bank, N.A. and a
group of lenders. The Long Term Revolver was scheduled to expire on April
4, 2003 and the Short Term Revolver was scheduled to expire on April 3,
2002. In April 2002, the Long Term Revolver was extended until April 4,
2005 and the Short Term Revolver was extended until April 2, 2003.
The Company's total debt at the end of 2Q03 of $63,048 was comprised of
$62,000 under the Long Term Revolver and $1,048 of various other loans.
The weighted average interest rate on all indebtedness of the Company for
2Q03 and 2Q02 was approximately 2.67% and 4.90%, respectively. The
weighted average interest rate on all indebtedness of the Company as the
end of 2Q03 was 2.61%. In addition, at the end of 2Q03, the Company had
$928 of letters of credit outstanding and $117,072 available under the
Syndicated Debt.
Interest on the Syndicated Debt is variable based on the Company's option
of selecting the bank's Euro-dollar rate plus an applicable margin or the
prime rate plus an applicable margin. The majority of the Company's
borrowings are under the Euro-rate option. The applicable
20
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 2Q03) on the Euro-dollar rate option and from
zero to 0.75% (zero at the end of 2Q03) on the prime rate option. The
Syndicated Debt provides for the payment of quarterly commitment fees on
unborrowed funds, also based on the consolidated leverage ratio. The
commitment fee percentage ranges from 0.20% to 0.375% (0.20% for the Short
Term Revolver and 0.25% for the Long Term Revolver at the end of 2Q03).
The Syndicated Debt is unsecured; however, the Company, as the ultimate
parent, guarantees all borrowings and the debt contains various
restrictive covenants.
The net cash impact of merger transactions and prior merger-related
payments during 2Q03YTD was $7,289 while capital expenditures, net of
disposals, were $680. Capital expenditures for Fiscal 2003 are projected
to be approximately $5,000 and will be focused primarily on information
systems and facility improvements.
The Company previously announced its intention to repurchase up to 2.5
million shares of its Common Stock from April 1, 1999 through March 31,
2002. As of March 31, 2002, the Company had repurchased 2.1 million shares
at prevailing market prices for an aggregate purchase price of $100,355.
In May 2002, the Company's Board of Directors approved the repurchase of
an additional 1 million shares of its Common Stock. During 1Q03 and 2Q03,
the Company repurchased 89.3 thousand and 473.2 thousand shares,
respectively, for an aggregate purchase price of $20,715. Funding for
these repurchases came from existing cash flow and borrowings under credit
facilities.
The Company has operations, customers and suppliers worldwide, thereby
exposing the Company's financial results to foreign currency fluctuations.
In an effort to reduce this risk, the Company generally sells and
purchases inventory based on prices denominated in U.S. dollars.
Intercompany sales to subsidiaries are generally denominated in the
subsidiaries' local currency, although intercompany sales to the Company's
subsidiaries in Brazil, Chile, Denmark, Mexico, Norway and Sweden are
denominated in U.S. dollars. The gains and losses resulting from the
revaluation of the intercompany balances denominated in foreign currencies
are recorded to accumulated other comprehensive income.
The Company has entered and will continue in the future, on a selective
basis, to enter into forward exchange contracts to reduce the foreign
currency exposure related to certain intercompany transactions. On a
monthly basis, the open contracts are revalued to fair market value, and
the resulting gains and losses are recorded in accumulated other
comprehensive income. These gains and losses offset the revaluation of the
related foreign currency denominated receivables, which are also included
in accumulated other comprehensive income. At the end of 2Q03, the open
foreign exchange contracts related to intercompany transactions were in
Euro, Canadian dollars, Swiss francs, Japanese yen and Australian dollars.
These open contracts are valued at approximately $7,166 and will expire in
two to six months. The open contracts have contract rates of 1.027 Euro,
1.5819 Canadian dollars, 1.49 Swiss francs, 121.12 Japanese yen and 1.79
Australian dollars, all per U.S. dollar.
The Company believes that its cash flow from operations and its existing
credit facilities will be sufficient to satisfy its liquidity needs for
the foreseeable future.
INTANGIBLE ASSETS:
21
In accordance with SFAS No. 142, "Goodwill and Other Intangible Assets,"
adopted by the Company on April 1, 2001, the Company evaluates its
intangible assets for impairment during the third quarter of each fiscal
year, with any resulting impairment reflected as an operating expense.
Accordingly, the Company will conduct such evaluation during its third
quarter Fiscal 2003. Its intangible assets were initially evaluated for
impairment as of April 1, 2001 and then again as of September 30, 2001 by
comparing the fair value of each reporting unit to its carrying value, and
no impairment existed. During the third quarter of each future fiscal
year, the Company will evaluate the intangible assets for impairment
CRITICAL ACCOUNTING POLICIES:
In preparing the Company's financial statements in conformity with
accounting principles generally accepted in the United States, judgments
and estimates are made about the amounts reflected in the financial
statements. As part of the financial reporting process, the Company's
management collaborates to determine the necessary information on which to
base judgments and develop estimates used to prepare the financial
statements. Historical experience and available information is used to
make these judgments and estimates. However, different amounts could be
reported using different assumptions and in light of different facts and
circumstances. Therefore, actual amounts could differ from the estimates
reflected in the financial statements.
In addition to the significant accounting policies described in Note 1 of
the Consolidated Financial Statements, the Company believes that the
following discussion addresses its critical accounting policies.
REVENUE RECOGNITION
The Company recognizes revenue for phone services operations when title
transfers at the time of shipment and the price for the product has been
determined.
For its on-site services, the Company recognizes revenues on short-term
projects (generally projects with a duration of less than one month) as
the projects are completed and invoiced to the client. Revenues from
long-term projects are recognized according to the percentage of
completion method. Under the percentage of completion method, income is
recognized based on a ratio of estimated costs incurred to total estimated
contract costs. Losses, if any, on such contracts are provided in full
when they become known. Billing in excess of costs and estimated earnings
on uncompleted contracts are classified as current liabilities and any
costs and estimated earnings in excess of billings are classified as
current assets.
ACCOUNTING FOR JUDGMENT AND ESTIMATES
The Company establishes reserves when it is probable that a liability or
loss has been incurred and the amount can be reasonably estimated.
Reserves by their nature relate to uncertainties that require exercise of
judgment both in accessing whether or not a liability or loss has been
incurred and estimating any amount of potential loss. The most important
areas of judgment and estimates affecting the Company's financial
statements include accounts receivable
22
collectibility, inventory valuation, pending litigation and the
realization of deferred tax assets.
LONG-LIVED ASSETS
The Company evaluates the recoverability of property, plant and equipment
and intangible assets other than goodwill whenever events or changes in
circumstances indicate the carrying amount of any such assets may not be
fully recoverable. Changes in circumstances include technological
advances, changes in the Company's business model, capital strategy,
economic conditions or operating performance. The Company's evaluation is
based upon, among other things, assumptions about the estimated future
undiscounted cash flows these assets are expected to generate. When the
sum of the undiscounted cash flows is less than the carrying value, the
Company would recognize an impairment loss. The Company continually
applies its best judgment when performing these evaluations to determine
the timing of the testing, the undiscounted cash flows used to assess
recoverability and the fair value of the asset.
The Company evaluates the recoverability of the goodwill attributable to
each of its reporting units as required under SFAS No. 142, "Goodwill and
Other Intangible Assets," by comparing the fair value of each reporting
unit with its carrying value. The Company continually applies its best
judgment when performing these evaluations to determine the financial
projections used to assess the fair value of each reporting unit.
RESTRUCTURING
The Company accrues the cost of restructuring activities in accordance
with the appropriate accounting guidance depending upon the facts and
circumstances surrounding the situation. The Company exercises its
judgment in estimating the total costs of each of these activities. As
these activities are implemented, the actual costs may differ from the
estimated costs due to changes in the facts and circumstances that were
not foreseen at the time of the initial cost accrual.
CONVERSION TO THE EURO CURRENCY:
On January 1, 1999, certain members of the European Union established
fixed conversion rates between their existing currencies and the European
Union's common currency, the Euro. The Company conducts business in member
countries. The transition period for the introduction of the Euro was
between January 1, 1999 and June 30, 2002. The Company has converted to
the Euro, as required, and believes the conversion did not materially
impact its operations or financial results.
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 statement retains the
23
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 the new standard in the first quarter of Fiscal
2003. Its adoption did not have a material effect on the Company's
financial statements or results of operations.
In April 2002, SFAS No. 145, "Rescission of FASB Statements No. 4, 44, and
64, Amendment of FASB Statement No. 13, and Technical Corrections", was
issued. The Statement updates, clarifies and simplifies existing
accounting pronouncements. While the technical corrections to existing
pronouncements are not substantive in nature, in some instances, they may
change accounting practice. The provisions of this standard related to
SFAS No. 13 are effective for transactions occurring after May 15, 2002.
All other provisions of this standard must be applied for financial
statements issued on or after May 15, 2002, with early application
encouraged. The application of SFAS No. 145 did not have a material effect
on the Company's financials statements or results of operations.
In June 2002, the Financial Accounting Standards Board issued SFAS No.
146, "Accounting for Costs Associated with Exit or Disposal Activities."
SFAS No. 146 nullifies Emerging Issues Task Force Issue No. 94-3,
"Liability Recognition for Certain Employee Termination Benefits and Other
Costs to Exit an Activity," under which a liability for an exit cost was
recognized at the date of an entity's commitment to an exit plan. SFAS No.
146 requires that a liability for a cost associated with an exit or
disposal activity be recognized at fair value when the liability is
incurred. The provisions of this statement are effective for exit or
disposal activities that are initiated after December 31, 2002.
INFLATION:
The overall effects of inflation on the Company have been nominal.
Although long-term inflation rates are difficult to predict, the Company
continues to strive to minimize the effect of inflation through improved
productivity and cost reduction programs as well as price adjustments
within the constraints of market competition.
FORWARD LOOKING STATEMENTS:
When included in this Quarterly Report on Form 10-Q or in documents
incorporated herein by reference, the words "expects," "intends,"
"anticipates," "believes," "estimates," and analogous expressions are
intended to identify forward-looking statements. Such statements are
inherently subject to a variety of risks and uncertainties that could
cause actual results to differ materially from those projected. Such risks
and uncertainties include, among others, the ability of the Company to
identify, acquire and operate additional on-site technical service
companies, general economic and business conditions, competition, changes
in foreign, political and economic conditions, fluctuating foreign
currencies compared to the U.S. dollar, rapid changes in technologies,
customer preferences and various other matters, many of which are beyond
the Company's control. These forward-looking statements are made pursuant
to the safe harbor provisions of the Private Securities Litigation Reform
Act of 1995 and speak only as of the date of this Quarterly Report on Form
10-Q. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or any changes in the Company's
24
expectations with regard thereto or any change in events, conditions, or
circumstances on which any statement is based.
ITEM 3 - QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
The Company is exposed to market risks in the ordinary course of business
that include foreign currency exchange rates. In an effort to mitigate the
risk, the Company, on a selective basis, will enter into forward exchange
contracts. At September 30, 2002, the Company had open contacts, which
equal approximately $7,166 at the contract rates, with a fair value of
approximately $7,116.
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 $62,000 of variable rate debt. For the three-month periods ended
September 30, 2002 and 2001, an instantaneous 100 basis point increase in
the interest rate would reduce the company's expected net income in the
subsequent three months by $98 and $201, respectively, assuming the
Company employed no intervention strategies.
ITEM 4 - CONTROLS AND PROCEDURES
Based on their evaluation, as of a date within 90 days of the filing date
of this Form 10-Q, our Chief Executive Officer and Chief Financial Officer
have concluded that our disclosure controls and procedures (as defined in
Rule 13a-14(c) and 15d-14(c) under the Securities Exchange Act of 1934, as
amended) are effective. There have been no significant changes in internal
controls or in other factors that could significantly affect these
controls subsequent to the date of their evaluation, including any
corrective actions with regard to significant deficiencies and material
weaknesses.
25
PART II OTHER INFORMATION
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
On August 15, 2002, the Company's stockholders voted on the following six
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 extend such
plan's expiration date; (iii) the amendment to the 1992 Director Stock Option
Plan to extend such plan's expiration date; (iv) the amendment to the 1992 Stock
Option Plan to increase the number of shares authorized; (v) the amendment to
the 1992 Director Stock Option Plan to increase the number of shares authorized;
and (vi) the ratification of the appointment of Ernest & Young LLP as
independent public accountants for the fiscal year ending March 31, 2003.
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 18,451,982 250,111 0 0
Thomas G. Greig 18,451,984 250,109 0 0
William R. Newlin 18,299,218 402,875 0 0
Brian D. Young 18,426,713 275,380 0 0
Fred C. Young 18,379,019 323,074 0 0
The amendment to the 1992 Stock Option Plan to extend the expiration date was
approved by the following vote:
Shares Shares Voted Shares Broker
Voted For Against Abstaining Non-Votes
- --------- ------- ---------- ---------
14,348,671 4,311,839 41,583 0
The amendment to the 1992 Director Stock Option Plan to extend the expiration
date was approved by the following vote:
Shares Shares Voted Shares Broker
Voted For Against Abstaining Non-Votes
- --------- ------- ---------- ---------
15,744,291 2,916,262 41,540 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
- --------- ------- ---------- ---------
11,197,043 7,463,314 41,735 1
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
- --------- ------- ---------- ---------
12,679,263 5,979,694 43,135 1
26
The appointment of Ernst & Young LLP as independent public accountants for the
fiscal year ending March 31, 2003 was approved by the following vote:
Shares Shares Voted Shares Broker
Voted For Against Abstaining Non-Votes
- --------- ------- ---------- ---------
18,396,910 285,589 19,593 1
27
ITEM 6 - EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
10.1 1992 Stock Option Plan, as amended through August 15,
2002.
10.2 1992 Director Stock Option Plan, as amended through
August 15, 2002.
21.1 Subsidiaries of the Company
99.1 Certification of the Chief Executive Officer and Chief
Financial Officer pursuant to 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
(b) Reports on Form 8-K
Current report on Form 8-K for the event dated August 14, 2002
reporting under Item 9 that the certifications required by 18 U.S.C.
Section 1350 accompanied the Company's Form 10-Q for the quarter
ended June 30, 2002, which was filed with the Securities and
Exchange Commission on such date.
28
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:
------------------------------------
November 14, 2002 Anna M. Baird
Chief Financial Officer, Treasurer,
and Principal Accounting Officer
29
CERTIFICATIONS
I, Fred C. Young, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Black Box
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
30
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Fred C. Young
- -------------------------------------
Fred C. Young
Chief Executive Officer
I, Anna M. Baird, certify that:
1. I have reviewed this quarterly report on Form 10-Q of Black Box
Corporation;
2. Based on my knowledge, this quarterly report does not contain any
untrue statement of a material fact or omit to state a material fact
necessary to make the statements made, in light of the circumstances
under which such statements were made, not misleading with respect
to the period covered by this quarterly report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all
material respects the financial condition, results of operations and
cash flows of the registrant as of, and for, the periods presented
in this quarterly report;
4. The registrant's other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant
and we have:
a) designed such disclosure controls and procedures to
ensure that material information relating to the
registrant, including its consolidated subsidiaries, is
made known to us by others within those entities,
particularly during the period in which this quarterly
report is being prepared;
31
b) evaluated the effectiveness of the registrant's
disclosure controls and procedures as of a date within
90 days prior to the filing date of this quarterly
report (the "Evaluation Date"); and
c) presented in this quarterly report our conclusions about
the effectiveness of the disclosure controls and
procedures based on our evaluation as of the Evaluation
Date;
5. The registrant's other certifying officer and I have disclosed,
based on our most recent evaluation, to the registrant's auditors
and the audit committee of registrant's board of directors (or
persons performing the equivalent function):
a) all significant deficiencies in the design or operation
of internal controls which could adversely affect the
registrant's ability to record, process, summarize and
report financial data and have identified for the
registrant's auditors any material weaknesses in
internal controls; and
b) any fraud, whether or not material, that involves
management or other employees who have a significant
role in the registrant's internal controls; and
6. The registrant's other certifying officer and I have indicated in
this quarterly report whether or not there were significant changes
in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of our most recent
evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
Date: November 14, 2002
/s/ Anna M. Baird
- -------------------------------------
Anna M. Baird
Chief Financial Officer
32
EXHIBIT INDEX
Exhibit
No.
- -------
10.1 1992 Stock Option Plan, as amended through August 15, 2002.
10.2 1992 Director Stock Option Plan, as amended through August 15,
2002.
21.1 Subsidiaries of the Company
99.1 Certification of the Chief Executive Officer and Chief Financial
Officer pursuant to 18 U.S.C. Section 1350 as adopted pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002.
33