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BBOX > SEC Filings for BBOX > Form 10-Q on 7-Nov-2012All Recent SEC Filings

Show all filings for BLACK BOX CORP

Form 10-Q for BLACK BOX CORP


7-Nov-2012

Quarterly Report


Item 2. Management's Discussion and Analysis of Financial Condition and Results
of Operations("MD&A").

The discussion and analysis for the three (3) months ended September 30, 2012 and 2011 as set forth below in this Part I, Item 2 should be read in conjunction with the response to Part 1, Item 1 of this report and the consolidated financial statements of Black Box Corporation ("Black Box," the "Company," "we" or "our"), including the related notes, and "Management's Discussion and Analysis of Financial Condition and Results of Operations" included in the Company's most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission ("SEC") for the fiscal year ended March 31, 2012 (the "Form 10-K"). The Company's fiscal year ends on March 31. The fiscal quarters consist of 13 weeks and generally end on the Saturday nearest each calendar quarter end, adjusted to provide relatively equivalent business days for each fiscal quarter. The actual ending dates for the periods presented as of September 30, 2012 and 2011 were September 29, 2012 and October 1, 2011, respectively. References to "Fiscal Year" or "Fiscal" mean the Company's fiscal year ended March 31 for the year referenced. All dollar amounts are presented in thousands except for per share amounts or unless otherwise noted.

The Company
Black Box is a leading communications system integrator dedicated to designing, sourcing, implementing and maintaining today's complex communications solutions. The Company's primary service offering is voice communications solutions ("Voice Communications"); the Company also offers premise cabling and other data-related services ("Data Infrastructure") and technology product solutions ("Technology Products"). The Company provides 24/7/365 technical support for all of its solutions, which encompass all major voice and data product manufacturers as well as an extensive range of technology products that it sells through its catalog and Internet Web site and its Voice Communications and Data Infrastructure (collectively referred to as "On-Site services") offices. As of September 30, 2012, the Company had more than 3,000 professional technical experts in approximately 200 offices serving more than 175,000 clients in approximately 150 countries throughout the world. Founded in 1976, Black Box, a Delaware corporation, operates subsidiaries on five continents and is headquartered near Pittsburgh in Lawrence, Pennsylvania.


Table of Contents

With respect to Voice Communications, the Company's revenues are primarily generated from the sale and/or installation of new voice communications systems, the maintenance of voice communications systems and moves, adds and changes ("MAC work") as clients' employees change locations or as clients move or remodel their physical space. The Company's diverse portfolio of product offerings allows it to service the needs of its clients independently of the manufacturer that they choose, which it believes is a unique competitive advantage. For the sale of new voice communications systems, most significant orders are subject to competitive bidding processes and, generally, competition can be significant for such new orders. The Company is continually bidding on new projects to replace projects that are completed. New voice communications systems orders often generate an agreement to maintain the voice communications system, which generally ranges from 1-3 years for commercial clients and 3-5 years for government clients. Sales of new voice communications systems and, to a lesser extent, MAC work, are dependent upon general economic growth and the Company's clients' capital spending. On the other hand, revenues from maintenance contracts generally are not dependent on the economy as clients seek to extend the life of their existing equipment and delay capital spending on new voice communications systems. The Company also has government contracts that generate significant revenues and are not as dependent on the overall economic environment as commercial clients. Maintenance and MAC work revenues are also dependent upon the Company's history and relationship with its clients and its long track record of providing high-quality service.

Similarly, the Company's revenues for Data Infrastructure are generated from the installation or upgrade of data networks and MAC work. The installation of new data networks is largely dependent upon commercial employment and building occupancy rates. Installed data networks, however, may need to be upgraded in order to provide for larger, faster networks to accommodate the growing use of network technology. Additionally, Data Infrastructure projects can include MAC work, similar to Voice Communications, which is dependent on economic factors that are the same as those factors discussed above in relation to the Voice Communications business.

There is and has been a trend toward convergence of voice and data networks, in each of which the Company has technical expertise which the Company believes is a competitive advantage. Both the Voice Communications and Data Infrastructure businesses generate backlog. At September 30, 2012, the Company's backlog, defined as expected revenue related to executed client purchase orders or contracts that are estimated to be complete within 180 days, was approximately $203,280 and relates primarily to Voice Communications and Data Infrastructure.

The Company generates Technology Products revenues from the sale of technology products through its catalog, Internet Web site and the Company's On-Site services offices. The sale of these products is a highly fragmented and competitive business. The Company has been in this business for over 35 years and has developed a reputation for providing high quality products, free 24/7/365 technical support, comprehensive warranties and rapid order fulfillment. With an average order size of less than one thousand dollars, the Company's Technology Products is less impacted by capital spending and more so by general information technology spending. The Company's Technology Products business provides additional distribution and support capabilities along with access to Black Box branded products to both the Voice Communications and Data Infrastructure businesses which provide cost benefits.

The Company services a variety of clients within most major industries, with the highest concentration in government, business services, manufacturing, banking, retail, healthcare and technology. Factors that impact those verticals, therefore, could have an impact on the Company. While the Company generates most of its revenues in North America, the Company also generates revenues from around the world, primarily Europe, such that factors that impact European markets could impact the Company.

Company management ("Management") strives to develop extensive and long-term relationships with high-quality clients as Management believes that satisfied clients will demand quality services and product offerings even in economic downturns.

Management is presented with and reviews revenues and operating income by geographical segment. In addition, revenues and gross profit information by service type are provided herein for purposes of further analysis.

The Company targets strategic acquisitions which it believes will deepen its capabilities and expand market opportunity. The Company has completed two (2) strategic acquisitions from April 1, 2011 through September 30, 2012 that have had an impact on the Company's consolidated financial statements and, more specifically, North America Voice Communications and North America Data Infrastructure for the periods under review. There were no acquisitions during Fiscal 2013. During Fiscal 2012, the Company acquired InnerWireless, Inc. ("InnerWireless") which is its first acquisition in the rapidly-growing in-building wireless market and PS Technologies, LLC ("PS Tech") which is its first acquisition in the rapidly-growing enterprise video communications market. The acquisitions noted above are collectively referred to as the "Acquired Companies." The results of operations of the Acquired Companies are included within the Company's Consolidated Statements of Operations beginning on their respective acquisition dates.


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The Company incurs certain expenses such as the amortization of intangible assets on acquisitions, restructuring expense and the change in fair value of the interest-rate swaps that it excludes when evaluating the continuing operations of the Company. The following table summarizes those expenses and the impact on Operating income and Income before provision for income taxes for the periods presented:

                                          Three (3) months ended        Six (6) months ended
                                               September 30                 September 30
                                               2012           2011           2012         2011
Amortization of intangible assets on
acquisitions                           $      3,468    $     3,163   $      6,926   $    6,212
Restructuring expense                         2,051              -          4,031            -
Impact on Operating income             $     (5,519 )  $    (3,163 ) $    (10,957 ) $   (6,212 )
Change in fair value of the
interest-rate swaps                             549           (604 )        1,195       (1,516 )
Impact on Income before provision for  $     (6,068 )  $    (2,559 ) $    (12,152 ) $   (4,696 )
income taxes

The following table provides information on Revenues and Operating income by reportable geographic segment (North America, Europe and All Other). The table below should be read in conjunction with the following discussions.

                                      Three (3) months ended                       Six (6) months ended
                                           September 30                                September 30
                                    2012                  2011                  2012                  2011
                                           % of                  % of                  % of                  % of
                                          total                 total                 total                 total
                                    $   revenue           $   revenue           $   revenue           $   revenue
Revenues
North America               $ 227,534      87.5 % $ 251,457      87.6 % $ 442,802      87.1 % $ 484,794      87.3 %
Europe                         22,365       8.6 %    26,483       9.2 %    46,007       9.1 %    52,837       9.5 %
All Other                      10,262       3.9 %     9,231       3.2 %    19,189       3.8 %    17,966       3.2 %
Total                       $ 260,161       100 % $ 287,171       100 % $ 507,998     100.0 % $ 555,597     100.0 %
Operating income
North America               $  11,810             $  18,316             $  21,371             $  32,302
% of North America revenues       5.2 %                 7.3 %                 4.8 %                 6.7 %
Europe                      $     900             $   2,839             $   2,161             $   5,117
% of Europe revenues              4.0 %                10.7 %                 4.7 %                 9.7 %
All Other                   $   1,274             $   1,279             $   2,312             $   1,893
% of All Other revenues          12.4 %                13.9 %                12.0 %                10.5 %
Total                       $  13,984       5.4 % $  22,434       7.8 % $  25,844       5.1 % $  39,312       7.1 %


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The following table provides information on Revenues and Gross profit by service type (Data Infrastructure, Voice Communications and Technology Products). The table below should be read in conjunction with the following discussions.

                                 Three (3) months ended                       Six (6) months ended
                                      September 30                                September 30
                               2012                  2011                  2012                  2011
                                      % of                  % of                  % of                  % of
                                     total                 total                 total                 total
                               $   revenue           $   revenue           $   revenue           $   revenue
Revenues
Data Infrastructure    $  61,747      23.7 % $  66,291      23.1 % $ 123,521      24.3 % $ 128,672      23.2 %
Voice Communications     151,924      58.4 %   170,551      59.4 %   293,839      57.9 %   328,877      59.2 %
Technology Products       46,490      17.9 %    50,329      17.5 %    90,638      17.8 %    98,048      17.6 %
Total                  $ 260,161       100 % $ 287,171       100 % $ 507,998     100.0 % $ 555,597     100.0 %
Gross profit
Data Infrastructure    $  16,291             $  15,912             $  31,876             $  31,560
% of Data
Infrastructure              26.4 %                24.0 %                25.8 %                24.5 %
revenues
Voice Communications   $  43,349             $  50,285             $  87,091             $  99,766
% of Voice
Communications              28.5 %                29.5 %                29.6 %                30.3 %
revenues
Technology Products    $  20,414             $  22,669             $  40,361             $  44,121
% of Technology             43.9 %                45.0 %                44.5 %                45.0 %
Products revenues
Total                  $  80,054      30.8 % $  88,866      30.9 % $ 159,328      31.4 % $ 175,447      31.6 %

Three (3) months ended September 30, 2012 ("2Q13") compared to three (3) months ended September 30, 2011 ("2Q12"):

Total Revenues
Total revenues for 2Q13 were $260,161, a decrease of 9% compared to total revenues for 2Q12 of $287,171. The Acquired Companies contributed incremental revenue of $15,619 and $8,053 for 2Q13 and 2Q12, respectively. Excluding the effects of the acquisitions and the negative exchange rate impact of $2,178 in 2Q13 relative to the U.S. dollar, total revenues would have decreased 12% from $279,118 in 2Q12 to $246,720 in 2Q13 for the reasons discussed below.

Revenues by Geography

North America
Revenues in North America for 2Q13 were $227,534, a decrease of 10% compared to revenues for 2Q12 of $251,457. The Acquired Companies contributed incremental revenue of $15,619 and $8,053 for 2Q13 and 2Q12, respectively. Excluding the effects of the acquisitions and the negative exchange rate impact of $107 in 2Q13 relative to the U.S. dollar, North American revenues would have decreased 13% from $243,404 in 2Q12 to $212,022 in 2Q13. The Company believes that this decrease was primarily due to decreased activity for Voice Communications within the government revenue vertical primarily caused by delays in funding as well as project and task order initiation and decreased activity within the business services, retail services and healthcare revenue verticals and for Data Infrastructure within the business services, financial services and retail services revenue verticals along with relatively comparable activity for Technology Products.

Europe
Revenues in Europe for 2Q13 were $22,365, a decrease of 16% compared to revenues for 2Q12 of $26,483. Excluding the negative exchange rate impact of $1,973 in 2Q13 relative to the U.S. dollar, European revenues would have decreased 8% from $26,483 in 2Q12 to $24,338 in 2Q13. The Company believes this decrease was primarily due a general decrease in activity for its Technology Products along with relatively comparable activity for Data Infrastructure.


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All Other
Revenues for All Other for 2Q13 were $10,262, an increase of 11% compared to revenues for 2Q12 of $9,231. Excluding the negative exchange rate impact of $98 in 2Q13 relative to the U.S. dollar, All Other revenues would have increased 12% from $9,231 in 2Q12 to $10,360 in 2Q13.

Revenue by Service Type

Data Infrastructure
Revenues from Data Infrastructure for 2Q13 were $61,747, a decrease of 7% compared to revenues for 2Q12 of $66,291. The Acquired Companies contributed incremental revenue of $8,547 and $0 for 2Q13 and 2Q12, respectively. Excluding the effects of the acquisitions and the negative exchange rate impact of $721 in 2Q13 relative to the U.S. dollar for international Data Infrastructure, Data Infrastructure revenues would have decreased 19% from $66,291 in 2Q12 to $53,921 in 2Q13. The Company believes that this decrease was primarily due to decreased activity in North America within the business services, financial services and retail services revenue verticals along with relatively comparable activity in Europe.

Voice Communications
Revenues from Voice Communications for 2Q13 were $151,924, a decrease of 11% compared to revenues for 2Q12 of $170,551. The Acquired Companies contributed incremental revenue of $7,072 and $8,053 for 2Q13 and 2Q12, respectively. Excluding the effects of the acquisitions, Voice Communications revenues would have decreased 11% from $162,498 in 2Q12 to $144,852 in 2Q13. The Company believes that this decrease was primarily due to decreased activity within the government revenue vertical primarily caused by delays in funding as well as project and task order initiation and decreased activity within the business services, retail services and healthcare revenue verticals. There was no exchange rate impact on Voice Communications revenues as all of the Company's Voice Communications revenues are denominated in U.S. dollars.

Technology Products
Revenues from Technology Products for 2Q13 were $46,490, a decrease of 8% compared to revenues for 2Q12 of $50,329. Excluding the negative exchange rate impact of $1,457 in 2Q13 relative to the U.S. dollar for international Technology Products, Technology Products revenues would have decreased 5% from $50,329 in 2Q12 to $47,947 in 2Q13. The Company believes this decrease was primarily due to a general decrease in activity in Europe along with relatively comparable activity in North America.

Gross profit
Gross profit for 2Q13 was $80,054, a decrease of 10% compared to gross profit for 2Q12 of $88,866. Gross profit as a percent of revenues for 2Q13 was 30.8%, a decrease of 0.1% compared to Gross profit as a percent of revenues for 2Q12 of 30.9%. The Company believes the decrease in gross profit is primarily due to the decrease in revenues. The Company believes the decrease in gross profit as a percent of revenue was due primarily to competitive pricing pressure for projects in Voice Communications and Technology Products (primarily in Europe) and a federal project in Voice Communications that carried lower than normal gross profit as a percent of revenue partially offset by a percentage increase in Data Infrastructure primarily due to project mix.

Gross profit for Data Infrastructure for 2Q13 was $16,291, or 26.4% of revenues, compared to gross profit for 2Q12 of $15,912, or 24.0% of revenues. Gross profit for Voice Communications for 2Q13 was $43,349, or 28.5% of revenues, compared to gross profit for 2Q12 of $50,285, or 29.5% of revenues. Gross profit for Technology Products for 2Q13 was $20,414, or 43.9% of revenues, compared to gross profit for 2Q12 of $22,669, or 45.0% of revenues. Please see the preceding paragraph for the analysis of gross profit variances by segment.

Selling, general & administrative expenses Selling, general & administrative expenses for 2Q13 were $62,596, a decrease of 1% compared to Selling, general & administrative expenses for 2Q12 of $63,256. Selling, general & administrative expenses as a percent of revenues for 2Q13 were 24.1%, an increase of 2.1%, compared to Selling, general & administrative expenses as a percent of revenues for 2Q12 of 22.0%. The decrease in Selling, general & administrative expenses was primarily due to the impact of the Company's continued effort to provide an efficient cost structure and a decrease in stock-based compensation expense of $311, partially offset by additional operating expenses for the Acquired Companies of $2,418 and restructuring expense of $1,705. The increase in Selling, general & administrative expenses as a percent of revenue over the prior year was primarily due to decreased revenues and the increase in restructuring expense discussed above partially offset by the cost-savings from restructuring activities and the decrease in stock-based compensation expense discussed above.


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Selling, general & administrative expenses generally include expenses for sales and marketing, engineering, product management, centers of excellence and corporate expenses. Many of these expenses do not change significantly with changes in revenue.

Intangibles amortization
Intangibles amortization for 2Q13 was $3,474, an increase of 9% compared to Intangibles amortization for 2Q12 of $3,176. The increase was primarily attributable to the addition of intangible assets from acquisitions completed subsequent to the second quarter of Fiscal 2012 partially offset by the amortization run-out for certain intangible assets.

Operating income
As a result of the foregoing, Operating income for 2Q13 was $13,984, a decrease of 38% compared to Operating income for 2Q12 of $22,434 and Operating income as a percent of revenues for 2Q13 was 5.4%, a decrease of 2.4% compared to Operating income as a percent of revenues for 2Q12 of 7.8%.

Interest expense (income), net
Interest expense for 2Q13 was $1,893, an increase of 146% compared to Interest expense for 2Q12 of $769. Interest expense as a percent of revenues for 2Q13 was 0.7%, an increase of 0.4% compared to Interest expense as a percent of revenues for 2Q12 of 0.3%. The Company's interest-rate swaps (as defined below) contributed a loss of $549 and a gain of $604 for 2Q13 and 2Q12, respectively, due to the change in fair value. Excluding the Company's interest-rate swaps, Interest expense is relatively comparable period over period.

Excluding the Company's interest-rate swaps, the decrease in Interest expense is primarily due to a decrease in fixed settlements on the interest rate swaps caused by a reduction in the weighted-average swap rate partially offset by increases in the weighted-average interest rate from 1.0% for 2Q12 to 1.6% for 2Q13 and in the weighted-average outstanding debt from $203,889 for 2Q12 to $206,331 for 2Q13. The increase in the weighted-average interest rate is due primarily to the Credit Agreement (see below) entered into by the Company on March 23, 2012 that has slightly less favorable terms than did its predecessor.

Provision for income taxes
The tax provision for 2Q13 was $4,370, an effective tax rate of 38.0%. This compares to the tax provision for 2Q12 of $6,548, an effective tax rate of 30.6%. The tax rate for 2Q13 was higher than 2Q12 primarily due to a reduction in reserves during 2Q12 related to the settlement of an Internal Revenue Service audit for Fiscal 2007 through Fiscal 2010. The Company anticipates that its deferred tax asset is realizable in the foreseeable future.

Net income
As a result of the foregoing, Net Income for 2Q13 was $7,133, a decrease of 52% compared to Net income for 2Q12 of $14,844 and Net income as a percent of revenues for 2Q13 was 2.7%, a decrease of 2.5% compared to Net income as a percent of revenues for 2Q12 of 5.2%.

Six (6) months ended September 30, 2012 ("2QYTD13") compared to six (6) months ended September 30, 2011 ("2QYTD12"):

Total Revenues
Total revenues for 2QYTD13 were $507,998, a decrease of 9% compared to total revenues for 2QYTD12 of $555,597. The Acquired Companies contributed incremental revenue of $29,758 and $8,053 for 2QYTD13 and 2QYTD12, respectively. Excluding the effects of the acquisitions and the negative exchange rate impact of $4,714 in 2QYTD13 relative to the U.S. dollar, total revenues would have decreased 12% from $547,544 in 2QYTD12 to $482,954 in 2QYTD13 for the reasons discussed below.


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Revenues by Geography

North America
Revenues in North America for 2QYTD13 were $442,802, a decrease of 9% compared to revenues for 2QYTD12 of $484,794. The Acquired Companies contributed incremental revenue of $29,758 and $8,053 for 2QYTD13 and 2QYTD12, respectively. Excluding the effects of the acquisitions and the negative exchange rate impact of $360 in 2QYTD13 relative to the U.S. dollar, North American revenues would have decreased 13% from $476,741 in 2QYTD12 to $413,404 in 2QYTD13. The Company believes that this decrease was primarily due to decreased activity for Voice Communications within the government revenue vertical primarily caused by delays in funding as well as project and task order initiation and decreased activity within the business services, retail services and healthcare revenue verticals and for Data Infrastructure within the business services, financial services, retail services and manufacturing revenue verticals along with relatively comparable activity for Technology Products.

Europe
Revenues in Europe for 2QYTD13 were $46,007, a decrease of 13% compared to revenues for 2QYTD12 of $52,837. Excluding the negative exchange rate impact of $4,198 in 2QYTD13 relative to the U.S. dollar, European revenues would have decreased 5% from $52,837 in 2QYTD12 to $50,205 in 2QYTD13. The Company believes this decrease was primarily due a general decrease in activity for its Technology Products along with relatively comparable activity for Data Infrastructure.

All Other
Revenues for All Other for 2QYTD13 were $19,189, an increase of 7% compared to revenues for 2QYTD12 of $17,966. Excluding the negative exchange rate impact of $156 in 2QYTD13 relative to the U.S. dollar, All Other revenues would have increased 8% from $17,966 in 2QYTD12 to $19,345 in 2QYTD13.

Revenue by Service Type

Data Infrastructure
Revenues from Data Infrastructure for 2QYTD13 were $123,521, a decrease of 4% compared to revenues for 2QYTD12 of $128,672. The Acquired Companies contributed incremental revenue of $16,578 and $0 for 2QYTD13 and 2QYTD12, respectively. Excluding the effects of the acquisitions and the negative exchange rate impact of $1,602 in 2QYTD13 relative to the U.S. dollar for international Data Infrastructure, Data Infrastructure revenues would have decreased 16% from $128,672 in 2QYTD12 to $108,545 in 2QYTD13. The Company believes that this decrease was primarily due to decreased activity in North America within the business services, financial services, retail services and manufacturing revenue verticals along with relatively comparable activity in Europe.

Voice Communications
Revenues from Voice Communications for 2QYTD13 were $293,839, a decrease of 11% compared to revenues for 2QYTD12 of $328,877. The Acquired Companies contributed incremental revenue of $13,180 and $8,053 for 2QYTD13 and 2QYTD12, respectively. Excluding the effects of the acquisitions, Voice Communications revenues would have decreased 13% from $320,824 in 2QYTD12 to $280,659 in 2QYTD13. The Company believes that this decrease was primarily due to decreased activity within the government revenue vertical primarily caused by delays in funding as well as project and task order initiation and decreased activity within the business . . .

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