BBOX Black Box Corp.

Black Box Corporation (NASDAQ:BBOX) today reported for the third quarter ended December 31, 2005 diluted earnings per share of 70 cents compared to 52 cents last year, an increase of 35%. Net income for the third quarter was $12.5 million or 6.9% of revenues, compared to $9.2 million or 7.3% of revenues last year. On a sequential comparison basis, second quarter diluted earnings per share were 74 cents with corresponding net income of $12.8 million or 6.9% of revenues. Excluding acquisition related expenses in the third quarter of Fiscal 2006 described below, diluted earnings per share were 75 cents and net income was $13.3 million or 7.3% of revenues. During the third quarter of Fiscal 2006, the Company incurred non-cash charges of $1.2 million pre-tax in connection with acquisition related expenses from the January 25, 2005 purchase of Norstan, Inc. ("Norstan"). Management believes that presenting diluted earnings per share and net income excluding acquisition related expenses is useful to investors because it provides a more meaningful comparison of the ongoing operations of the Company. Total revenues for the third quarter were $182 million, an increase of 44% from $127 million for the same period last year. On a sequential comparison basis, second quarter revenues were $185 million. Third quarter cash provided by operating activities was approximately $16 million or 131% of net income, compared to $14 million or 148% of net income for the same period last year. Third quarter free cash flow was $24 million compared to $14 million last year. On a sequential comparison basis, second quarter cash provided by operating activities was $12 million and free cash flow was $18 million. Black Box utilized its third quarter free cash flow of $24 million to fund $14 million of merger-related activity; debt reduction of $8 million; a dividend payment of $1 million; and net capital expenditures of $1 million. Management believes that free cash flow, defined by the Company as cash provided by operating activities less net capital expenditures, plus proceeds from option exercises, plus or minus foreign currency translation adjustments, is an important measurement of liquidity as it represents the total cash available to the Company. In accordance with SEC Regulation G, the attached financial charts include a reconciliation of the non-GAAP financial measures in this release to the most directly comparable GAAP measures. For the nine months ended December 31, 2005, diluted earnings per share were $1.88 compared to $1.66 for the same period last year, an increase of 13%. Corresponding net income for the nine-month period was $32.7 million or 6.0% of revenues, compared to $29.9 million or 7.9% of revenues for the same period last year. Excluding restructuring charges and acquisition related expenses for the nine months ended December 31, 2005 described below, diluted earnings per share were $2.28 and net income was $39.7 million or 7.3% of revenues. Total non-cash charges incurred for the nine months ended December 31, 2005 associated with acquisition related expenses of Norstan was $5.4 million pre-tax. For the nine-month period ended December 31, 2005, the Company incurred a pre-tax restructuring charge of $5.3 million related to staffing level adjustments and real estate consolidations in Europe and North America. Total nine-month revenues were $546 million, an increase of 45% from $378 million for the same period last year. Cash provided by operating activities for the nine-month period was $39 million or 119% of net income, compared to $34 million or 115% of net income last year. Free cash flow was $53 million compared to $39 million last year. Black Box utilized the nine-month free cash flow of $53 million to fund $41 million of merger-related activity; debt reduction of $7 million; dividend payments of $3 million; and net capital expenditures of $2 million. The Company's 6-month order backlog was $94 million at December 31, 2005 compared to $54 million at the same period last year. On a sequential comparison basis, second quarter 6-month order backlog was $101 million. Commenting on the third quarter results, Fred C. Young, Chief Executive Officer, said, "We are pleased with our overall results for the quarter and nine-months to date. We attribute this success to our worldwide operating excellence, effective marketing of our DVH(TM) technical services and relatively stable end-markets." Continuing on, Mr. Young said, "Our goals moving forward will be to finish FY06 strong and carry this momentum into our FY07." The Company will conduct a conference call beginning at 5:00 p.m. Eastern Standard Time today, January 31, 2006. Fred C. Young, Chief Executive Officer, will host the call. To participate in the call, please dial 612-332-1025 approximately 15 minutes prior to the starting time and ask to be connected to the Black Box Earnings Call. A replay of the conference call will be available for one week after the teleconference by dialing 320-365-3844 and using access code 804811. Any forward-looking statements contained in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. You can identify these forward-looking statements by the fact they use words such as "should," "anticipate," "estimate," "approximate," "expect," "target," "may," "will," "project," "intend," "plan," "believe," and other words of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. Although it is not possible to predict or identify all risk factors, they may include levels of business activity and operating expenses, expenses relating to corporate compliance requirements, cash flows, global economic conditions, successful integration of the Norstan business, the timing and costs of restructuring programs, successful marketing of DVH (Data, Voice, Hotline) services and successful implementation of our M&A program, including identifying appropriate targets, consummating transactions and successfully integrating the businesses. Additional risk factors are included in the Company's Annual Report on Form 10-K. We can give no assurance that any goal, plan or target set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments. Black Box is the world's largest technical services company dedicated to designing, building and maintaining today's complicated data and voice infrastructure systems. Black Box services 152,000 clients in 141 countries with 143 offices throughout the world. To learn more, visit the Black Box website at www.blackbox.com. Black Box and the Double Diamond logo are registered trademarks and DVH is a trademark of BB Technologies, Inc. -0- *T BLACK BOX CORPORATION CONSOLIDATED STATEMENTS OF INCOME Three months ended Nine months ended ----------------------- ----------------------- In thousands, except December 31, January 1, December 31, January 1, per share 2005 2005 2005 2005 ---------------------------------------------------------------------- Revenues $182,135 $126,896 $546,467 $377,846 Cost of sales 108,733 75,878 328,243 222,633 --------- --------- --------- --------- Gross profit 73,402 51,018 218,224 155,213 Selling, general & administrative exp 50,441 36,762 152,008 107,886 Restructuring charges 0 0 5,290 0 Intangibles amortization 1,349 59 4,235 187 --------- --------- --------- --------- Operating income 21,612 14,197 56,691 47,140 Interest expense, net 2,397 519 6,686 1,436 Other expenses, net 114 46 79 93 --------- --------- --------- --------- Income before income taxes 19,101 13,632 49,926 45,611 Provision for income taxes 6,590 4,383 17,224 15,736 --------- --------- --------- --------- Net income $12,511 $9,249 $32,702 $29,875 ========= ========= ========= ========= Basic earnings per common share $0.72 $0.54 $1.92 $1.71 ========= ========= ========= ========= Diluted earnings per common share $0.70 $0.52 $1.88 $1.66 ========= ========= ========= ========= Weighted average common shares 17,286 17,293 17,050 17,499 ========= ========= ========= ========= Weighted average common & common equivalent shares outstanding 17,786 17,694 17,362 17,949 ========= ========= ========= ========= BLACK BOX CORPORATION CONSOLIDATED BALANCE SHEETS December 31, March 31, In thousands 2005 2005 ---------------------------------------------------------------------- Assets Cash and cash equivalents $12,143 $11,592 Accounts receivable, net 125,632 116,865 Lease receivables 465 1,697 Inventories, net 53,448 57,176 Costs and estimated earnings in excess of billings on uncompleted contracts 28,093 25,695 Deferred tax asset 11,084 9,236 Net current assets of discontinued operations 376 549 Other current assets 17,642 14,724 ---------- --------- Total current assets 248,883 237,534 ---------- --------- Property, plant and equipment, net 36,117 38,268 Goodwill, net 468,871 444,567 Intangibles, net 55,573 44,157 Lease receivables, net of current portion - 473 Deferred tax asset 3,979 3,793 Discontinued operations, net of current portion 153 373 Other assets 4,327 3,725 ---------- --------- Total assets $817,903 $772,890 ========== ========= Liabilities Current maturities of long-term debt $716 $692 Current maturities of discounted lease rentals 70 890 Accounts payable 39,487 36,032 Billings in excess of costs and estimated earnings on uncompleted contracts 11,604 8,947 Deferred revenue 21,473 21,456 Accrued liabilities: Compensation and benefits 12,650 13,073 Restructuring 4,589 6,709 Other liabilities 40,274 33,905 Income taxes 9,013 3,295 ---------- --------- Total current liabilities 139,876 124,999 ---------- --------- Long-term debt 141,304 147,196 Discounted lease rentals 3 30 Other liabilities 169 75 Restructuring reserve 7,970 9,889 Stockholders' Equity Common stock 24 24 Additional paid-in capital 355,981 336,290 Retained earnings 458,252 428,632 Treasury stock, at cost (296,811) (296,797) Accumulated other comprehensive gain 11,135 22,552 ---------- --------- Total stockholders' equity 528,581 490,701 ---------- --------- Total liabilities and stockholders' equity $817,903 $772,890 ========== ========= BLACK BOX CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS Three Months Ended Nine Months Ended ------------------------------------------------ December 31, January 1, December 31, January 1, In thousands 2005 2005 2005 2005 ---------------------------------------------------------------------- Operating Activities Net income $12,511 $9,249 $32,702 $29,875 Adjustments to reconcile net income to cash provided by operating activities: Intangibles amortization 1,349 59 4,235 187 Depreciation 2,284 1,658 6,778 4,370 Deferred tax provision (30) 1,237 (2,083) 1,775 Stock compensation expense -- -- -- 680 Tax impact from exercised options (1,376) (231) (3,347) (3,389) Changes in operating assets and liabilities: Accounts receivable, net 8,986 (6,951) 73 1,153 Inventories, net (31) (314) 5,673 (2,412) Other current assets 966 4,413 1,270 888 Proceeds from lease contracts 464 -- 1,746 -- Accounts payable and accrued liabilities (8,685) 4,567 (8,135) 1,278 ------------------------------------------------ Net cash provided by operating activities $16,438 $13,687 $38,912 $34,405 ------------------------------------------------ Investing Activities Capital expenditures, net $(1,320) $(908) $(1,919) $(1,849) Acquisition of businesses, net of cash acquired (13,828) (151) (40,682) (498) Prior merger- related payments (213) -- (378) -- ------------------------------------------------ Net cash used in investing activities $(15,361) $(1,059) $(42,979) $(2,347) ------------------------------------------------ Financing Activities (Repayments) / proceeds on borrowings, net $(8,131) $(11,940) $(7,418) $4,036 Repayments on discounted lease rentals (180) -- (847) -- Proceeds from exercise of options 8,892 1,625 16,344 7,310 Payment of dividends (1,028) (1,035) (3,049) (2,809) Deferred financing costs -- -- -- (235) Purchase of treasury stock (4) (11) (14) (37,585) ------------------------------------------------ Net cash (used) / provided in financing activities $(451) $(11,361) $5,016 $(29,283) Foreign currency exchange impact on cash $(408) $(33) $(398) $(1,134) ------------------------------------------------ Increase in cash & cash equivalents $218 $1,234 $551 $1,641 Cash & cash equivalents at beginning of period 11,925 9,713 11,592 9,306 ------------------------------------------------ Cash & cash equivalents at end of period $12,143 $10,947 $12,143 $10,947 ================================================ RECONCILIATIONS: In addition to reported results under U.S. GAAP for the fiscal periods, the following financial highlights tables also include, where appropriate, a reconciliation of free cash flow, cash provided by operating activities excluding restructuring payments and satisfaction of a litigation judgment, net income excluding restructuring charges and acquisition related expenses and diluted EPS excluding restructuring charges and acquisition related expenses (which are non-GAAP measures), to the most directly comparable GAAP measure. All dollar amounts are in thousands. A reconciliation of cash provided by operating activities to free cash flow is presented below: 3Q06 2Q06 3Q05 3Q06YTD 3Q05YTD ---------------------------------------------------------------------- Cash provided by operating activities $16,438 $11,671 $13,687 $38,912 $34,405 Capital expenditures (1,551) (1,108) (938) (3,151) (2,579) Capital disposals 231 188 30 1,232 730 Proceeds from stock option exercises 8,892 7,316 1,625 16,344 7,310 Foreign currency exchange impact on cash (408) 44 (33) (398) (1,134) ---------------------------------------------------------------------- Free cash flow $23,602 $18,111 $14,371 $52,939 $38,732 ---------------------------------------------------------------------- A reconciliation of cash provided by operating activities to cash provided by operating activities excluding restructuring payments and satisfaction of a litigation judgment is presented below: 3Q06 2Q06 3Q05 3Q06YTD 3Q05YTD ---------------------------------------------------------------------- Cash provided by operating activities $16,438 $11,671 $13,687 $38,912 $34,405 Restructuring payments 1,537 2,786 -- 9,165 -- Satisfaction of a litigation judgment -- -- -- 1,778 -- ---------------------------------------------------------------------- Cash provided by operating activities excluding restructuring payments and satisfaction of a litigation judgment $17,975 $14,457 $13,687 $49,855 $34,405 ---------------------------------------------------------------------- A reconciliation of net income to net income excluding restructuring charges and acquisition related expenses is presented below: 3Q06 3Q05 3Q06YTD 3Q05YTD ---------------------------------------------------------------------- Net income $12,511 $9,249 $32,702 $29,875 % of revenues 6.9% 7.3% 6.0% 7.9% Restructuring charges, after tax impact -- -- 3,465 -- Acquisition related expenses, after tax impact 815 -- 3,500 -- ---------------------------------------------------------------------- Net income excluding restructuring charges and acquisition related expenses $13,326 $9,249 $39,667 $29,875 % of revenues 7.3% 7.3% 7.3% 7.9% ---------------------------------------------------------------------- A reconciliation of diluted earnings per common share (EPS) to diluted EPS excluding restructuring charges and acquisition related expenses is presented below: 3Q06 3Q05 3Q06YTD 3Q05YTD ---------------------------------------------------------------------- Diluted EPS $0.70 $0.52 $1.88 $1.66 EPS impact of restructuring charges -- -- 0.20 -- EPS impact of acquisition related expenses 0.05 -- 0.20 -- ---------------------------------------------------------------------- Diluted EPS excluding restructuring charges and acquisition related expenses $0.75 $0.52 $2.28 $1.66 ---------------------------------------------------------------------- SUPPLEMENTAL INFORMATION: Additionally, the following supplemental information is being provided for comparisons of third quarter ended December 31, 2005 reported results to this year's second quarter and prior year's third quarter. All dollar amounts are in thousands unless noted otherwise. Information on revenues and operating income by geography is presented below. Management believes it is important to separately present the Fiscal 2006 restructuring charges and acquisition related expenses (hereafter referred to as "special charges"). Management believes this enables a clearer understanding of the ongoing operations of the Company. 3Q06 2Q06 3Q05 3Q06YTD 3Q05YTD ---------------------------------------------------------------------- Revenues: North America $143,173 $146,754 $78,642 $426,788 $242,966 Europe 29,950 29,199 38,947 92,899 107,337 All Other 9,012 9,097 9,307 26,780 27,543 --------------------------------------------- Total $182,135 $185,050 $126,896 $546,467 $377,846 Operating Income: North America $15,740 $16,537 $8,345 $44,136 $27,090 % of North America revenues 11.0% 11.3% 10.6% 10.3% 11.1% Europe $4,101 $3,427 $4,016 $7,161 $13,365 % of Europe revenues 13.7% 11.7% 10.3% 7.7% 12.5% All Other $1,771 $1,943 $1,836 $5,394 $6,685 % of All Other revenues 19.7% 21.4% 19.7% 20.1% 24.3% --------------------------------------------- Total $21,612 $21,907 $14,197 $56,691 $47,140 % of Total revenues 11.9% 11.8% 11.2% 10.4% 12.5% Special Charges: North America $1,245 $1,274 -- $6,898 -- Europe -- -- -- 3,742 -- All Other -- -- -- -- -- --------------------------------------------- Total $1,245 $1,274 -- $10,640 -- Operating Income Excluding Special Charges: North America $16,985 $17,811 $8,345 $51,034 $27,090 % of North America revenues 11.9% 12.1% 10.6% 12.0% 11.1% Europe $4,101 $3,427 $4,016 $10,903 $13,365 % of Europe revenues 13.7% 11.7% 10.3% 11.7% 12.5% All Other $1,771 $1,943 $1,836 $5,394 $6,685 % of All Other revenues 19.7% 21.4% 19.7% 20.1% 24.3% --------------------------------------------- Total $22,857 $23,181 $14,197 $67,331 $47,140 % of Total revenues 12.5% 12.5% 11.2% 12.3% 12.5% ---------------------------------------------------------------------- Information on revenues and gross profit for data services, voice services and hotline services is presented below: 3Q06 2Q06 3Q05 3Q06YTD 3Q05YTD ---------------------------------------------------------------------- Revenues: Data Services $47,083 $52,584 $53,410 $152,568 $152,136 Voice Services 82,281 78,410 16,219 233,620 53,619 Hotline Services 52,771 54,056 57,267 160,279 172,091 --------------------------------------------- Total $182,135 $185,050 $126,896 $546,467 $377,846 Gross Profit: Data Services $14,794 $15,482 $16,149 $45,800 $46,011 % of Data Services revenues 31.4% 29.4% 30.2% 30.0% 30.2% Voice Services $32,145 $31,173 $5,469 $91,156 $18,607 % of Voice Services revenues 39.1% 39.8% 33.7% 39.0% 34.7% Hotline Services $26,463 $27,227 $29,400 $81,268 $90,595 % of Hotline Services revenues 50.1% 50.4% 51.3% 50.7% 52.6% --------------------------------------------- Total $73,402 $73,882 $51,018 $218,224 $155,213 % of Total revenues 40.3% 39.9% 40.2% 39.9% 41.1% ---------------------------------------------------------------------- Information on revenues on a same-office basis as compared to prior year is presented below: 3Q06 3Q05 Change ---------------------------------------------------------------------- Revenues as reported $182,135 $126,896 44% Less revenues from offices added since 3Q05 (60,371) -- ------------ ------------------------ Revenues on same-office basis $121,764 $126,896 (4%) -------------------------------- ------------ ------------------------ Information on revenues on a same-office basis as compared to prior quarter is presented below: 3Q06 2Q06 Change ---------------------------------------------------------------------- Revenues as reported $182,135 $185,050 (2%) Less revenues from offices added since 3Q05 (60,371) (54,920) ------------ ------------------------ Revenues on same-office basis $121,764 $130,130 (6%) -------------------------------- ------------ ------------------------ Information on various balance sheet ratios, backlog and headcount is presented below. Dollar amounts are in millions. 3Q06 2Q06 3Q05 ---------------------------------------------------------------------- Accounts Receivable: Gross Accounts Receivable $ $133.9 $139.5 $108.8 Reserve $ / % $8.3/6.2% $7.7/5.5% $10.2/9.4% ------ ------ ----- Net Accounts Receivable $ $125.6 $131.8 $98.6 Net Days Sales Outstanding 57 days 57 days 64 days Inventory: Gross Inventory $ $66.9 $66.6 $48.2 Reserve $ / % $13.5/20.2% $13.4/20.1% $5.0/10.4% ----- ----- ----- Net Inventory $ $53.4 $53.2 $43.2 Net Inventory Turns 6.8x 6.9x 7.9x Six-Month Order Backlog $94 $101 $54 Team Members 3,273 3,282 2,538 ---------------------------------------------------------------------- *T