Search the web
Welcome, Guest
[Sign Out, My Account]
EDGAR_Online

Quotes & Info
Enter Symbol(s):
e.g. YHOO, ^DJI
Symbol Lookup | Financial Search
BBOX > SEC Filings for BBOX > Form 10-Q on 6-Nov-2013All Recent SEC Filings

Show all filings for BLACK BOX CORP

Form 10-Q for BLACK BOX CORP


6-Nov-2013

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 and six-months ended September 30, 2013 and 2012 as set forth below in this Part I, Item 2 should be read in conjunction with the response to Part I, 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, 2013 (the "Form 10-K"). References to "2Q14" mean the three-month period ended September 30, 2013 while references to "2Q13" mean the three-month period ended September 30, 2012. References to "2QYTD14" mean the six-month period ended September 30, 2013 while references to "2QYTD13" mean the six-month period ended September 30, 2012. 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, 2013 and 2012 were September 28, 2013 and September 29, 2012, 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 Corporation ("Black Box" or the "Company") is a leading communications system integrator dedicated to designing, sourcing, implementing and maintaining today's complex communications solutions. The Company offers Products and Services that it distributes through two platforms that it has built over its 37-year history.
The Products Platform ("Product") is comprised of global sales and distribution, free 24/7/365 technical support, custom solutions, same-day delivery, lifetime warranties, quality control, global product management and sourcing. The current product categories offered through this platform include:
infrastructure,

high performance keyboard, video and mouse (KVM) switches,

audio-visual (AV), multi-media and digital signage, and

specialty networking.

The Company generates revenues in its Product business from the sale of technology products through its catalogs and Internet Web site. These products are sold in a highly fragmented and competitive market. The Company has been in this business for over 37 years and has developed a reputation for being a reliable provider of high-quality communications and infrastructure products. With an average order size of less than one thousand dollars, product revenues are less impacted by capital spending and more so by general information technology spending.
The Services Platform ("Service") is comprised of engineering and design, network operations centers, technical certifications, local and national sales teams, remote monitoring, on-site service teams and technology partner centers of excellence which include dedicated sales and engineering resources. The primary services offered through this platform include:
communications lifecycle services,

unified communications,

structured cabling,

video/AV services,

in-building wireless and

data center services.


Table of Contents

The Company generates revenues in its Service business from the design, sale and/or installation of new communications systems, the support of existing communications systems and moves, adds and changes ("MAC work"). The Company's diverse portfolio of offerings allows it to service the needs of its clients independent of the technology that they choose, which it believes is a unique competitive advantage. For the sale and implementation of new communications systems, or other major projects, 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 maintain and grow service revenues. Projects account for the majority of service revenues and are primarily driven by the overall economic environment and information technology capital spending. The Company also serves government clients whose revenues are not as dependent on the overall economic environment as commercial clients but are subject to governmental budgetary constraints. New communications systems orders often generate a post-implementation maintenance agreement to support the system, which generally ranges from 1-3 years for commercial clients and 3-5 years for government clients. Historically, such an agreement would result in a fixed fee earned ratably over the term of the contract. Recently, some of our clients have adopted a variable fee model based on time and materials per occurrence, similar to MAC work. While this shift decreases our contractually obligated revenues, the variable model also generates profitable revenues. Revenues from maintenance contracts generally are not dependent on the economy as clients contract for maintenance to extend the life of their existing equipment and delay capital spending on new communications systems. Maintenance and MAC work revenues are also dependent upon the Company's relationship with its clients and its long track record of providing high-quality service.
Our service business generates backlog which is defined by the Company as orders and contracts considered to be firm. At September 30, 2013, the Company's total backlog, which relates primarily to Services, was $336,523, of which $232,350 is expected to be completed within the next twelve months.
Our two platforms introduce scale, flexibility and leverage to the business, and provide the following competitive advantages:
a diversified client base that ranges from small organizations to many of the world's largest corporations and institutions,

key relationships with leading technology partners,

a broad geographic footprint of approximately 200 offices serving more than 175,000 clients in approximately 150 countries throughout the world,

deep organic resources with 4,020 team members world-wide, approximately 3,000 of whom are technical and engineering talent who provide our clients with on-site and remote services,

dedicated sales force of over 300 direct sales people world-wide, and

a strong financial position with a stable balance sheet and positive cash flow for 37 consecutive years.

The Company services a variety of clients within most major industries, with the highest concentration in the government, business services, manufacturing, banking, retail, healthcare and technology industry verticals. 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 from us even in economic downturns. In connection with a new management team and a renewed business strategy, the Company has realigned its organizational structure, which resulted in the identification of new operating segments (North America Products, North America Services, International Products and International Services) for the purpose of making operational decisions and assessing financial performance which was effective, on a prospective basis, beginning on April 1, 2013. See Note 4 and Note 14 to the Consolidated Financial Statements for additional information.


                                      Table of Contents

2QYTD14 vs 2QYTD13 Summary
                                                        2QYTD14      2QYTD13   % Change
Revenues                                             $  493,707   $  507,998         (3 )%
Gross profit margin                                        31.2 %       31.4 %       (1 )%
Operating income margin                                     5.3 %        5.1 %        4  %
Diluted EPS                                          $     0.78   $     0.77          1  %
Net cash provided by (used for) operating activities $   29,462   $   14,440        104  %

Diluted EPS was $0.78, an increase of 1% compared to Diluted EPS of $0.77 in the same period last year as a result of:
a $14,291 decrease in Revenues which includes a decrease in Product Revenues as of result of a decrease in North America Products due to reduced spending in both direct and indirect channels by our government clients as a result of the sequestration and a decrease in Service Revenues due to slower than anticipated client adoption of rapidly changing communications technology in North America,

a $5,169 decrease in Gross profit as a result of the decrease in Revenues noted above,

a $4,786 decrease in Selling, general and administrative expenses which were primarily the result of costs savings from restructuring activity in the prior year, a decrease in restructuring expenses of $3,158 and a decrease in stock-based compensation expense of $632 partially offset by current period investments for growth programs,

a $1,522 decrease in Interest expense (income), net resulting from the change in the fair value of the interest-rate swap of $1,665 (from a loss of $1,195 in 2Q13YTD to a gain of $470 in 2Q14YTD),

a $2,157 increase in Provision for income taxes as a result of an increase in Income before provision for income taxes and an increase in the effective rate from 38.0% to 44.9% due to the write-off of certain deferred tax assets related to equity awards, and

a 955 reduction in Diluted weighted-average common shares outstanding resulting from the Company's common stock repurchases.

Net cash provided by operating activities was $29,462, an increase of 104% compared to Net cash provided by operating activities of $14,440 in the same period last year primarily due to a $2,375 increase in Costs/estimated earnings in excess of billings on uncompleted contracts compared to a $22,804 increase in Costs/estimated earnings in excess of billings on uncompleted contracts. As a reminder, Costs/estimated earnings in excess of billings on uncompleted contracts includes contracts for which contract billing terms do not necessarily coincide with percentage-of-completion revenue recognition.


Table of Contents

Results of Operations
Segments
We conduct our business globally and manage our business by geographic-service
type under the following four operating segments: North America Products, North
America Services, International Products and International Services. The
Revenues, Gross profit and Operating income amounts in the table below are
presented on a basis consistent with accounting principles generally accepted in
the United States. As a result of the segment change (discussed in Note 14 of
the Notes to the Consolidated Financial Statements), the Company has restated
prior period information to conform to the current year's presentation.
                            2Q14        2Q13   % Change        2QYTD14     2QYTD13   % Change
Revenues
North America Products $  21,615   $  24,116        (10 )%   $  42,651   $  45,358         (6 )%
International Products $  21,576   $  23,537         (8 )%   $  48,748   $  47,648          2  %
Total Products         $  43,191   $  47,653         (9 )%   $  91,399   $  93,006         (2 )%
North America Services $ 194,518   $ 203,418         (4 )%   $ 384,184   $ 397,444         (3 )%
International Services $   9,101   $   9,090          -  %   $  18,124   $  17,548          3  %
Total Services         $ 203,619   $ 212,508         (4 )%   $ 402,308   $ 414,992         (3 )%
Total Revenues         $ 246,810   $ 260,161         (5 )%   $ 493,707   $ 507,998         (3 )%
Gross profit
North America Products $   9,377   $  10,622        (12 )%   $  18,289   $  20,311        (10 )%
% of Revenues               43.4 %      44.0 %       (1 )%        42.9 %      44.8 %       (4 )%
International Products $   9,565   $  10,364         (8 )%   $  20,366   $  21,205         (4 )%
% of Revenues               44.3 %      44.0 %        1  %        41.8 %      44.5 %       (6 )%
Total Products         $  18,942   $  20,986        (10 )%   $  38,655   $  41,516         (7 )%
% of Revenues               43.9 %      44.0 %        -  %        42.3 %      44.6 %       (5 )%
North America Services $  56,220   $  56,704         (1 )%   $ 111,407   $ 113,305         (2 )%
% of Revenues               28.9 %      27.9 %        4  %        29.0 %      28.5 %        2  %
International Services $   1,966   $   2,364        (17 )%   $   4,097   $   4,507         (9 )%
% of Revenues               21.6 %      26.0 %      (17 )%        22.6 %      25.7 %      (12 )%
Total Services         $  58,186   $  59,068         (1 )%   $ 115,504   $ 117,812         (2 )%
% of Revenues               28.6 %      27.8 %        3  %        28.7 %      28.4 %        1  %
Total Gross Profit        77,128      80,054         (4 )%     154,159     159,328         (3 )%
% of Revenues               31.2 %      30.8 %        1  %        31.2 %      31.4 %       (1 )%
Operating income
North America Products $   2,874   $   3,151         (9 )%   $   3,978   $   4,986        (20 )%
% of Revenues               13.3 %      13.1 %        2  %         9.3 %      11.0 %      (16 )%
International Products $     924   $   1,508        (39 )%   $   2,573   $   3,435        (25 )%
% of Revenues                4.3 %       6.4 %      (33 )%         5.3 %       7.2 %      (26 )%
Total Products         $   3,798   $   4,659        (19 )%   $   6,551   $   8,421        (22 )%
% of Revenues                8.8 %       9.8 %      (10 )%         7.2 %       9.1 %      (21 )%
North America Services $   9,678   $   8,659         12  %   $  19,101   $  16,385         17  %
% of Revenues                5.0 %       4.3 %       16  %         5.0 %       4.1 %       22  %
International Services $      53   $     666        (92 )%   $     329   $   1,038        (68 )%
% of Revenues                0.6 %       7.3 %      (92 )%         1.8 %       5.9 %      (70 )%
Total Services         $   9,731   $   9,325          4  %   $  19,430   $  17,423         12  %
% of Revenues                4.8 %       4.4 %        9  %         4.8 %       4.2 %       14  %
Total Operating Income    13,529      13,984         (3 )%      25,981      25,844          1  %
% of Revenues                5.5 %       5.4 %        2  %         5.3 %       5.1 %        4  %


Table of Contents

2Q14 vs 2Q13
Total Revenues were $246,810, a decrease of 5% when compared to Total Revenues of $260,161 in the same period last year. Product Revenues were $43,191, a decrease of 9% compared to Product Revenues of $47,653 in the same period last year primarily as a result of a decrease in North America Products due to reduced spending in both direct and indirect channels by our government clients as a result of the sequestration and budget uncertainty which, the Company believes, may negatively impact Product Revenues, relative to historic levels, for the foreseeable future, and a decrease in demand for International Products. The decrease in Product Revenues was partially offset by the successes of the new direct sales team. Service Revenues were $203,619, a decrease of 4% compared to Service Revenues of $212,508 in the same period last year primarily due to a decrease in commercial revenues in North America Services resulting from slower than anticipated economic recovery and sluggish client adoption of the rapidly changing communications technology and a decrease in government revenues in North America Services as a result of improved project time-lines on several projects during 1Q14. The decrease in North America Services was partially offset by the success of its Cisco and wireless solutions practices. Total Gross profit margin was 31.2%, an increase of 1% compared to Total Gross profit margin of 30.8% in the same period last year. Product Gross profit margin was 43.9%, consistent with Product Gross profit margin of 44.0% in the same period last year. Service Gross profit margin was 28.6%, an increase of 3% compared to Service Gross profit margin of 27.8% in the same period last year, which included the impact of a lower than normal gross profit margin on a federal project, primarily due to project mix and client-type mix. The selling prices for our services and the resulting gross profit margins continue to be impacted by competition for lower priority budget dollars.
Total Operating income margin was 5.5%, an increase of 2% compared to Total Operating income margin of 5.4% in the same period last year. Product Operating income margin was 8.8%, a decrease of 10% compared to Product Operating income margin of 9.8% in the same period last year, primarily due to current period investments for growth programs. Service Operating income margin was 4.8%, an increase of 9% compared to Service Operating income margin of 4.4% in the same period last year, primarily due to a decrease in Selling, general and administrative expenses and higher gross margins as a result of project mix noted above. The decrease in Selling, general and administrative expenses is the result of costs savings from restructuring activity in the prior year and a decrease in restructuring expenses of $1,317 partially offset by current period investments for growth programs.
2QYTD14 vs 2QYTD13
Total Revenues were $493,707, a decrease of 3% when compared to Total Revenues of $507,998 in the same period last year. Product Revenues were $91,399, a decrease of 2% compared to Product Revenues of $93,006 in the same period last year primarily as a result of a decrease in North America Products due to reduced spending in both direct and indirect channels by our government clients as a result of the sequestration which, the Company believes, may negatively impact Product Revenues, relative to historic levels, for the foreseeable future, and a decrease in demand for International Products, partially offset by a large order in International Products sold through integrators within business services whose end-users were government clients. The decrease in Product Revenues was partially offset by the successes of the new direct sales team. Service Revenues were $402,308, a decrease of 3% compared to Service Revenues of $414,992 in the same period last year primarily due to a decrease in commercial revenues in North America Services resulting from slower than anticipated economic recovery and sluggish client adoption of the rapidly changing communications technology partially offset by an increase in government revenues in North America Services as a result of improved project time-lines on several projects. The decrease in North America Services was partially offset by the success of its Cisco and wireless solutions practices.
Total Gross profit margin was 31.2%, a decrease of 1% compared to Total Gross profit margin of 31.4% in the same period last year. Product Gross profit margin was 42.3%, a decrease of 5% compared to Product Gross profit margin of 44.6% in the same period last year, primarily due to lower gross profit margins on the large order noted above, competitive pricing pressures and product mix. Service Gross profit margin was 28.7%, an increase of 1% compared to Service Gross profit margin of 28.4% in the same period last year, which included the impact of a lower than normal gross profit margin on a federal project, primarily due to project mix and client-type mix. The selling prices for our services and the resulting gross profit margins continue to be impacted by competition for lower priority budget dollars.


Table of Contents

Total Operating income margin was 5.3%, an increase of 4% compared to Total Operating income margin of 5.1% in the same period last year. Product Operating income margin was 7.2%, a decrease of 21% compared to Product Operating income margin of 9.1% in the same period last year, primarily due to the lower gross profit margins noted above and current period investments for growth programs. Service Operating income margin was 4.8%, an increase of 14% compared to Service Operating income margin of 4.2% in the same period last year, primarily due to a decrease in Selling, general and administrative expenses and higher gross profit margins as a result of project mix noted above. The decrease in Selling, general and administrative expenses is the result of costs savings from restructuring activity in the prior year, a decrease in restructuring expenses of $3,158 and a decrease in stock-based compensation expense of $632, partially offset by current period investments for longer growth programs.
For the reasons noted above, and the anticipated continued investment by the Company in longer-term programs designed to accelerate the growth in revenue and market penetration which, the Company anticipates, will result in its Operating income margin remaining at or near current levels for the remainder of Fiscal 2014, the Company recently lowered its revenue and earnings guidance for Fiscal 2014.

Interest expense, Other expense and Income Taxes

                             2Q14      2Q13   % Change       2QYTD14    2QYTD13   % Change
Interest expense          $ 1,378   $ 1,893        (27 )%   $  2,301   $  3,823        (40 )%
% of Revenues                 0.6 %     0.7 %      (14 )%        0.5 %      0.8 %      (38 )%
Income taxes              $ 5,656   $ 4,370         29  %   $ 10,164   $  8,007         27  %
Effective income tax rate    50.3 %    38.0 %       32  %       44.9 %     38.0 %       18  %

2Q14 vs 2Q13
Interest expense was $1,378, a decrease of 27% compared to Interest expense of $1,893 in the same period last year primarily as a result of a change in the fair value of the interest-rate swap of $562 (from a loss of $549 in 2Q13 to a gain of $13 in 2Q14). Interest expense as a percent of Revenues was 0.6%, a decrease of 14% compared to Interest expense as a percent of Revenues of 0.7% in the same period last year. The weighted-average outstanding debt and weighted-average interest rate was $187,704 and 1.5%, respectively, compared to $206,331 and 1.6% in the same period last year.
Income taxes was $5,656, an increase of 29% compared to Income taxes of $4,370 in the same period last year. The effective income tax rate was 50.3%, an increase of 32% compared to effective income tax rate of 38.0% in the same period last year. The effective tax rate increase from 38.0% to 50.3% was primarily due to the write-off of certain deferred tax assets related to equity awards.
2QYTD14 vs 2QYTD13
Interest expense was $2,301, a decrease of 40% compared to Interest expense of $3,823 in the same period last year primarily as a result of a change in the fair value of the interest-rate swap of $1,665 (from a loss of $1,195 in 2QYTD13 to a gain of $470 in 2QYTD14). Interest expense as a percent of Revenues was 0.5%, a decrease of 38% compared to Interest expense as a percent of Revenues of 0.8% in the same period last year. The weighted-average outstanding debt and weighted-average interest rate was $190,415 and 1.6%, respectively, compared to $198,503 and 1.5% in the same period last year.
Income taxes was $10,164, an increase of 27% compared to Income taxes of $8,007 in the same period last year. The effective income tax rate was 44.9%, an increase of 18% compared to effective income tax rate of 38.0% in the same period last year. The effective tax rate increase from 38.0% to 44.9% was primarily due to the write-off of certain deferred tax assets related to equity awards.


Table of Contents

Liquidity and Capital Resources
Overview
A majority of our revenue is generated through individual sales of products and services. Less than 20% of our revenue is generated from long-term support contracts. We depend on repeat client business, as well as our ability to develop new client business, to sustain and grow our revenue. Most significant orders are subject to a competitive bidding process and, generally, competition can be significant for such new orders. Our business model provides us with flexibility in terms of capital expenditures and other required operating expenses. For the foreseeable future, we expect to continue to generate net cash provided by operating activities that exceeds our capital expenditures and other required operating expenses and will be available for discretionary investments. We seek to allocate the net cash provided by our operating activities in a manner that will enhance per share results. Our historical discretionary investments include: strategic acquisitions of high quality growth-oriented companies, a return to our shareholders through dividends and common stock repurchases and repaying our debt.
Liquidity Position
The following is a summary of our capitalization and liquidity position.

                                            2Q14       4Q13       2Q13
Cash and cash equivalents              $  26,841  $  30,720  $  25,496
Working capital                        $ 181,397  $ 184,229  $ 172,156
Long-term debt                         $ 173,096  $ 187,648  $ 190,508
Stockholders' equity                   $ 486,911  $ 482,247  $ 480,211
Unused portion of the Credit Agreement $ 222,945  $ 208,340  $ 204,906

We expect that our cash, the unused portion of the Credit Agreement (hereinafter defined) and net cash provided by operating activities should be sufficient to cover the Company's working capital requirements, capital expenditures, dividend program, potential stock repurchases, potential future acquisitions or strategic investments and other cash needs for at least the next 12 months. Sources and Uses of Cash
The following is a summary of our sources and uses of cash.

                                                       2QYTD14    2QYTD13
Net cash provided by (used for) operating activities $  29,462   $ 14,440
Net cash provided by (used for) investing activities $  (4,845 ) $ (4,931 )
Net cash provided by (used for) financing activities $ (28,312 ) $ (6,437 )

Net cash provided by (used for) operating activities Net cash provided by operating activities was $29,462, due primarily to Net income of $12,490, inclusive of non-cash charges and a decrease in accounts receivable of $4,912, compared to net cash provided by operating activities of $14,440 in the same period last year, due primarily to Net income of $13,065, inclusive of non-cash charges and a decrease in trade accounts receivable of $10,693, partially offset by an increase in costs in excess of billings of $22,804 (primarily due to large contracts where contract billing terms do not necessarily coincide with percentage-of-completion revenue recognition) and decreases in accrued compensation of $7,402 (primarily due to the payment of Fiscal 2012 year-end bonuses and incentive compensation during 1Q13). Changes in . . .

  Add BBOX to Portfolio     Set Alert         Email to a Friend  
Get SEC Filings for Another Symbol: Symbol Lookup
Quotes & Info for BBOX - All Recent SEC Filings
Copyright © 2014 Yahoo! Inc. All rights reserved. Privacy Policy - Terms of Service
SEC Filing data and information provided by EDGAR Online, Inc. (1-800-416-6651). All information provided "as is" for informational purposes only, not intended for trading purposes or advice. Neither Yahoo! nor any of independent providers is liable for any informational errors, incompleteness, or delays, or for any actions taken in reliance on information contained herein. By accessing the Yahoo! site, you agree not to redistribute the information found therein.