NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Business, Basis of Presentation and Going Concern
Business
Black Box Corporation ("Black Box," or "the Company”) is a leading digital solutions provider dedicated to helping customers design, build, manage, and secure their IT infrastructure. The Company offers Services and Products that it distributes through two platforms it has built over its
42
-year history. The Services platform is comprised of engineering and design, network operations centers, technical certifications, national and international sales teams, remote monitoring, on-site service teams and technology partner centers of excellence which includes dedicated sales and engineering resources. The primary services offered through this platform include: (i) communications lifecycle services, (ii) unified communications, (iii) structured cabling, (iv) video/AV services (v) in-building wireless and (vi) data center services. The Products platform provides networking solutions through the sale of products including: (i) IT infrastructure, (ii) specialty networking, (iii) multimedia and (iv) keyboard/video/mouse ("KVM") switching. Founded in 1976, Black Box, a Delaware corporation, is headquartered near Pittsburgh in Lawrence, Pennsylvania.
Basis of Presentation
The accompanying unaudited interim consolidated financial statements of Black Box have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Company believes that these consolidated financial statements reflect all normal, recurring adjustments needed to present fairly the Company’s results for the interim periods presented. The results as of and for interim periods presented may not be indicative of the results of operations for any other interim period or for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto 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, 2018
(the "Form 10-K").
The Company’s fiscal year ends on March 31. The fiscal quarters consist of
13
weeks and end on the Saturday generally nearest each calendar quarter end, adjusted to provide relatively equivalent business days for each fiscal quarter. The actual ending dates for the periods presented in these Notes to the Consolidated Financial Statements as of
June 30, 2018
and
2017
were
June 30, 2018
and
July 1, 2017
, respectively. References herein to "Fiscal Year" or "Fiscal" mean the Company’s fiscal year ended March 31 for the year referenced. All references to dollar amounts herein are presented in thousands, except per share amounts, unless otherwise noted.
The consolidated financial statements include the accounts of the parent company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain items in the consolidated financial statements of prior years have been reclassified to conform to the current year’s presentation. These reclassifications had no effect on reported net income (loss), comprehensive income (loss), cash flows, total assets or total stockholders' equity.
The preparation of financial statements in conformity with GAAP requires Company management ("Management") to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include project progress towards completion to estimated budget, allowances for doubtful accounts receivable, sales returns, net realizable value of inventories, loss contingencies, warranty reserves, property, plant and equipment, intangible assets and goodwill. Actual results could differ from those estimates. Management believes the estimates made are reasonable.
In the second quarter of Fiscal 2018, Management completed a plan to sell the Company's current headquarters' building and adjacent vacant land and move to another local facility that better aligns to the needs of the business. At that time, Management believed it was probable that the sale of the building and land would occur in the next twelve months. As of the third quarter of Fiscal 2018, Management believes that only the sale of certain parcels of the adjacent vacant land is probable to occur in the next twelve months. As of the
first
quarter of
Fiscal 2019
, Management continues to believe that only the sale of certain parcels of the adjacent vacant land is probable to occur in the next twelve months. These assets, all of which are Property, plant and equipment, are presented as "Assets held for sale" on the Consolidated Balance Sheets. These assets are reported under the North America Products operating segment.
Going Concern
Our financial statements have been prepared assuming that we will continue as a going concern, which contemplates that we will realize our assets and satisfy our liabilities and commitments in the ordinary course of business.
Please see Note 6 for a description of and defined terms regarding our Credit Agreement, Amended Credit Agreement, and Second Amended Credit Agreement. On June 29, 2018, the Company and all the Lenders entered into the Second Amendment to our Credit Agreement ("Second Amended Credit Agreement" or "Second Amendment") in order to waive and modify certain covenants and other provisions contained in the Amended Credit Agreement and to fund its ongoing operations with the LIFO Facility. The Company would have defaulted the minimum Adjusted EBITDA covenant and certain other covenants as defined by the Amended Credit Agreement had these defaults not been waived under the Second Amendment. See Note 6 for additional information. We anticipate that our principal sources of liquidity, including this LIFO Facility, will be sufficient to fund our activities through approximately December 2018.
Beyond that date, current conditions raise substantial doubt about our ability to repay our indebtedness under the Second Amended Credit Agreement upon maturity and to meet the covenants as defined under the Second Amendment. These conditions raise substantial doubt about the Company’s ability to continue as a going concern. These conditions are based on the Company's recurring losses from operations and negative operating cash flow, which have resulted in the need to take significant steps to generate additional liquidity.
Our ability to continue as a going concern is dependent on raising additional capital to repay our indebtedness when due and to fund our operations and ultimately on generating future profitable operations. As part of the Company’s review of its strategic alternatives, the Company agreed under the Second Amended Credit Agreement to pursue the sale of its Federal Business (as defined in Note 6). The Company entered into an executed purchase agreement with respect to the sale of the Federal Business on August 17, 2018 which is expected to close on or before August 31, 2018. The Company believes the expected net proceeds from the sale of the Federal Business will enable the Company to take further steps to generate additional liquidity, including entering into a transaction, selling additional assets or businesses, or obtaining alternative financing, as well as making changes to the overall cost structure of the business. We believe these plans, if successfully executed, may remediate the current liquidity concerns. However, there can be no assurance that we will be able to raise sufficient additional capital through these plans, which have not yet been consummated outside of an executed purchase agreement with respect to the sale of the Federal Business, to repay all of our indebtedness under the Second Amended Credit Agreement.
Note 2: Significant Accounting Policies
Significant Accounting Policies
The significant accounting policies used in the preparation of the Company’s consolidated financial statements are disclosed in Note 2 of the Notes to the Consolidated Financial Statements within the Form 10-K. The Company's significant accounting policy as it relates to revenues has been updated to reflect ASC 606 (as defined in the Recent Accounting Pronouncements below).
Under ASC 606, the Company recognizes revenues in a manner that best depicts the transfer of promised goods or services to customers for amounts that reflect the consideration to which we expect to be entitled in exchange for those goods or services. Products revenues are recognized at the point in time in which control of the products transfer to customers. Services revenues include network integration services, in which revenues are recognized over time either using either a cost-to-cost input method or a time and materials input method as those services are provided. The Company has historically made reasonably accurate estimates of the extent of progress towards completion under the cost-to-cost input method. However, due to uncertainties inherent in the estimation process, actual results could differ materially from those estimates. Services revenues also include on demand services, in which revenues are recognized typically when completed, due to the short-term duration of this work (which typically spans
one
to
thirty
days), and maintenance services, in which revenues are recognized over time using a time-based method. These maintenance services are generally pre-billed and are recorded in deferred revenue within the Company’s Consolidated Balance Sheets and recognized into revenues over the service period. Refer to Note 3 for additional information.
Recent Accounting Pronouncements
In May 2014, the FASB issued Accounting Standards Update ("ASU" or the "Update") No. 2014-09, "Revenue from Contracts with Customers", along with subsequent Updates (collectively, "ASC 606" or "the standard"), that outline a single comprehensive model for entities to use in accounting for revenue arising from contracts with customers. The core principle of the standard is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expected to be entitled in exchange for those goods or services. The standard is effective for annual reporting periods (including interim periods therein) beginning after December 15, 2017 for public companies. Entities can use either of two methods: (i) retrospective to each prior period presented with the option to elect certain practical expedients as defined within the standard; or (ii) retrospective with the cumulative effect of initially applying the standard recognized at the date of initial application and providing certain additional disclosures as defined in the standard. As of April 1, 2018, the Company adopted ASC 606 using the modified retrospective method for all contracts not completed as of the date of adoption. Refer to Note 3 for additional information.
In February 2018, the FASB issued ASU No. 2018-02, "Income Statement - Reporting Comprehensive Income (Topic 220): Reclassification of Certain Tax Effects from Accumulated Other Comprehensive Income." The amendments in this Update allow for a reclassification from accumulated other comprehensive income to retained earnings for stranded tax effects resulting from the Tax Cuts and Jobs Act. This Update is effective for all entities for fiscal years beginning after December 15, 2018, and interim periods within those fiscal years. The Company is currently evaluating the impact of this Update.
Note 3: Revenues
ASC 606 adoption and cumulative effect
As of April 1, 2018, the Company adopted ASU No. 2014-09, Revenue from Contracts with Customers, and subsequent Updates (collectively, "ASC 606" or "the standard") using the modified retrospective method for all contracts not completed as of the date of adoption. The reported results for periods presented in Fiscal 2019 reflect the application of ASC 606 while the reported results for periods presented in Fiscal 2018 were prepared under ASC 605, Revenue Recognition. The adoption of ASC 606 represents a change in accounting principle that will more closely align revenue recognition with the delivery of the Company's services and will provide financial statement readers with enhanced disclosures. The core principle of ASC 606 is that an entity recognizes revenue to depict the transfer of promised goods or services to customers in an amount that reflects the consideration to which the entity expected to be entitled in exchange for those goods or services.
Under the modified retrospective method, the Company recognized the cumulative effect of adopting ASC 606 as an adjustment to the opening balance of retained earnings at the beginning of Fiscal 2019. This adjustment to the opening balance of retained earnings was a decrease of
$2,752
. This decrease in retained earnings was mainly due to the deferral of
$1,826
of revenues and gross profit associated with materials costs incurred as part of installation projects in order to best depict the Company's performance on these projects, where progress is measured over time using a cost-to-cost input method; this deferral resulted in a decrease in costs/estimated earnings in excess of billings of
$1,371
and an increase in billings in excess of costs/estimated earnings of
$455
. The adoption of ASC 606 had no impact on the Company’s net cash used for operating activities and only resulted in offsetting adjustments to net loss and various working capital balances.
Disaggregation of revenues
The following table breaks down revenues by offering types at the operating segment level for the first quarter of Fiscal 2019. Refer to the Performance obligations section below for further information on these offering types.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Offering Types
|
Timing of Revenue Recognition
|
North America Products
|
|
North America
Services
|
|
International Products
|
|
International Services
|
|
Total
|
|
Products
|
Point in time
|
$
|
15,800
|
|
$
|
—
|
|
$
|
15,752
|
|
$
|
—
|
|
$
|
31,552
|
|
Projects
|
Over time
|
—
|
|
60,576
|
|
—
|
|
8,259
|
|
68,835
|
|
Services
|
Over time
|
—
|
|
88,192
|
|
—
|
|
2,220
|
|
90,412
|
|
Total
|
|
$
|
15,800
|
|
$
|
148,768
|
|
$
|
15,752
|
|
$
|
10,479
|
|
$
|
190,799
|
|
Performance obligations
Under ASC 606, revenues are to be recognized when or as performance obligations are satisfied by transferring control of a promised good or service to a customer. Companies must determine, at contract inception, whether control of a good or service transfers to a customer over time or at a point in time.
Products revenues represent product-only networking solutions sold through our Products platform. The Company employs point in time revenue recognition to our Products revenues when control of these products transfer to our customers, which generally occurs upon shipment from the Company's location. Payments are due from customers after we satisfy these performance obligations. While it is our standard business practice to control products and services before these products and services are transferred to customers, and thus act as the principal in arrangements, there are certain arrangements in which the Company acts as an agent whereby revenues are recognized for the amounts into which we expect to be entitled to when our performance obligations as the agent are satisfied, which has historically been at a point in time.
Projects include installation projects from our Services platform, which comprise both product sales and corresponding installation services (collectively, installation projects).
The Company employs over time revenue recognition to our installation projects either on a cost-to-cost input method or a time and materials input method, depending on the nature and pricing structure of the arrangement. For installation projects, the timing of when payments are due varies by contract, but is often based on certain milestones being met which will not always coincide with the timing in which our performance obligations are satisfied; this results in the costs and estimated earnings in excess of billings and billings in excess of costs and estimated earnings accounts as reported within the Company's Consolidated Balance Sheets.
Services revenues include our maintenance services and on demand services. The company employs over time revenue recognition to our maintenance services on a time-based method. Revenues are recognized on our on demand services typically when completed, due to the short-term duration of this work (which typically spans
one
to
thirty
days). In limited cases, the Company also provides extended warranties, which are considered separate performance obligations; revenues for these warranties are recognized over time using a time-based method as well. For maintenance services, payments may be due prior to the commencement of the maintenance period, periodically during the maintenance period and/or after the completion of the maintenance period. Payments received in advance of their related maintenance service periods will result in deferred revenue as reported within the Company's Consolidated Balance Sheets.
Payment terms do not have any significant financing components and while contracts can have certain types of variable consideration, including discounts, rebates and returns, all of which factor into our estimated amounts of consideration to which the Company will be entitled under ASC 606, these are currently neither significant nor constrained.
Revenues recognized in the first quarter of Fiscal 2019 from performance obligations satisfied (or partially satisfied) in previous periods, as a result of changes in estimates under the cost-to-cost input method or otherwise, were not significant. Revenues related to remaining unsatisfied performance obligations from open contracts that have not yet been recognized through the first quarter of Fiscal 2019 are
$302,397
,
$157,438
of which is expected to be recognized in the next six months.
Contract balances
The following table summarizes information about the Company's contract balances.
|
|
|
|
|
|
|
|
|
|
|
|
|
Contract Balances
|
June 30, 2018
|
|
March 31,
2018
|
|
$ Change
|
|
% Change
|
|
Accounts receivable, net of allowance for doubtful accounts
|
$
|
124,895
|
|
$
|
114,510
|
|
$
|
10,385
|
|
9
|
%
|
Costs/estimated earnings in excess of billings on uncompleted contracts
|
77,008
|
|
82,358
|
|
(5,350
|
)
|
(6
|
)%
|
Billings in excess of costs/estimated earnings on uncompleted contracts
|
13,163
|
|
14,667
|
|
(1,504
|
)
|
(10
|
)%
|
Deferred revenue - current
|
28,294
|
|
27,713
|
|
581
|
|
2
|
%
|
Deferred revenue - long-term
|
3,535
|
|
2,758
|
|
777
|
|
28
|
%
|
Accounts receivable increased
$10,385
mainly due to the timing of revenues recognized in the quarter, primarily driven by our commercial services and federal businesses within North America Services. Costs in excess of billings decreased
$5,350
as a result of as a result of changes related to customer projects in the North America commercial services business as well as due to the ASC 606 adjustment to best depict the Company's performance on projects under the cost-to-cost input method, as described above. Billings in excess of costs decreased
$1,504
stemming from an increase in average collection days, primarily driven by the commercial and federal businesses in North America Services, partially offset by an increase due to the aforementioned ASC 606 adjustment. Deferred revenue, including the long-term portion which is included in Other liabilities within the Company's Consolidated Balance Sheets, increased
$1,358
as a result of deferral of revenues associated with certain extended warranties under ASC 606, partially offset by changes related to customer maintenance contracts in the North America commercial services business. During the three months ended June 30, 2018, the Company recognized revenues of
$15,872
and
$7,601
that was included in deferred revenue and billings in excess of costs at March 31, 2018, respectively.
Practical expedients and policy elections
The Company has taken the practical expedient as outlined in ASC 606-10-65-1(f)(4) which aggregates the effect to the opening balance sheet of all contract modifications that occur through the adoption date. We have also taken the practical expedient as outlined in ASC 340-40-25-4 where we will recognize the incremental costs of obtaining a contract as an expense when incurred if the amortization period of the asset that the entity otherwise would have recognized is one year or less. While the Company has incremental commission costs associated with contracts greater than one year in duration, these amounts earned for the first quarter of Fiscal 2019 were not significant. The Company also incurs incremental costs to fulfill contracts, which are capitalized and amortized over the associated contract lives; however, these amounts for the first quarter of Fiscal 2019 were not significant.
Regarding policy elections, the Company has elected to account for shipping and handling activities performed by the Company after the transfer of title as activities to fulfill the promise to transfer products and not evaluate whether these activities are promised services that should be treated as separate performance obligations. The Company has also elected to present all sales taxes collected from customers on a net basis.
The impact of applying these practical expedients and policy elections are not significant to our results.
Transition impact
The following tables summarize the impacts of adopting ASC 606 on the Company's consolidated financial statements as of and for the three months ended June 30, 2018:
|
|
|
|
|
|
|
|
|
Consolidated Balance Sheet
|
As of June 30, 2018
|
In thousands
|
As reported
|
|
Adjustments
|
|
Balances without Adoption of ASC 606
|
|
Accounts receivable, net of allowance for doubtful accounts
|
124,895
|
|
$
|
(14
|
)
|
124,881
|
|
Inventories, net
|
24,228
|
|
$
|
11
|
|
24,239
|
|
Costs/estimated earnings in excess of billings on uncompleted contracts
|
77,008
|
|
$
|
1,330
|
|
78,338
|
|
Other assets
|
30,102
|
|
$
|
(357
|
)
|
29,745
|
|
Deferred revenue
|
28,294
|
|
$
|
(1,012
|
)
|
27,282
|
|
Billings in excess of costs/estimated earnings on uncompleted contracts
|
13,163
|
|
$
|
(457
|
)
|
12,706
|
|
Other liabilities
|
34,606
|
|
$
|
(199
|
)
|
34,407
|
|
Retained earnings
|
(45,737
|
)
|
$
|
2,638
|
|
(43,099
|
)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Operations
|
Three-months ended June 30, 2018
|
In thousands, except per share amounts
|
As reported
|
|
Adjustments
|
|
Balances without Adoption of ASC 606
|
|
Revenues
|
|
|
|
Products
|
$
|
31,552
|
|
$
|
(27
|
)
|
$
|
31,525
|
|
Services
|
159,247
|
|
(92
|
)
|
159,155
|
|
Total
|
190,799
|
|
(119
|
)
|
190,680
|
|
Cost of sales *
|
|
|
|
Products
|
18,218
|
|
(8
|
)
|
18,210
|
|
Services
|
118,707
|
|
2
|
|
118,709
|
|
Total
|
136,925
|
|
(6
|
)
|
136,919
|
|
Gross profit
|
53,874
|
|
(113
|
)
|
53,761
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated Statement of Operating Cash Flows
|
Three-months ended June 30, 2018
|
In thousands
|
As reported
|
|
Adjustments
|
|
Balances without Adoption of ASC 606
|
|
Net income (loss)
|
$
|
(7,322
|
)
|
$
|
(113
|
)
|
$
|
(7,435
|
)
|
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities
|
|
|
|
Intangibles amortization
|
1,473
|
|
—
|
|
1,473
|
|
Depreciation
|
2,243
|
|
—
|
|
2,243
|
|
Loss (gain) on sale of property
|
(8
|
)
|
—
|
|
(8
|
)
|
Deferred taxes
|
478
|
|
—
|
|
478
|
|
Stock compensation expense
|
1,004
|
|
—
|
|
1,004
|
|
Provision for obsolete inventory
|
340
|
|
—
|
|
340
|
|
Provision for (recovery of) doubtful accounts
|
186
|
|
—
|
|
186
|
|
Changes in operating assets and liabilities (net of acquisitions)
|
|
|
|
Accounts receivable
|
(11,425
|
)
|
4
|
|
(11,421
|
)
|
Inventories
|
1,750
|
|
(4
|
)
|
1,746
|
|
Costs/estimated earnings in excess of billings on uncompleted contracts
|
3,804
|
|
40
|
|
3,844
|
|
All other assets
|
(2,929
|
)
|
(47
|
)
|
(2,976
|
)
|
Accounts payable
|
7,791
|
|
—
|
|
7,791
|
|
Billings in excess of costs/estimated earnings on uncompleted contracts
|
(1,929
|
)
|
(3
|
)
|
(1,932
|
)
|
All other liabilities
|
2,224
|
|
123
|
|
2,347
|
|
Net cash provided by (used for) operating activities
|
$
|
(2,320
|
)
|
$
|
—
|
|
$
|
(2,320
|
)
|
Note 4: Inventories
The Company’s Inventories consist of the following:
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
March 31, 2018
|
|
Raw materials
|
$
|
1,730
|
|
$
|
1,816
|
|
Finished goods
|
31,680
|
|
34,635
|
|
Inventory, gross
|
$
|
33,410
|
|
$
|
36,451
|
|
Excess and obsolete inventory reserves
|
(9,182
|
)
|
(9,459
|
)
|
Inventories, net
|
$
|
24,228
|
|
$
|
26,992
|
|
Note 5: Intangible Assets
The following table summarizes the gross carrying amount, accumulated amortization and net carrying amount by intangible asset class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 30, 2018
|
March 31, 2018
|
|
Gross Carrying Amount
|
|
Accum. Amort.
|
|
Net Carrying Amount
|
|
Gross Carrying Amount
|
|
Accum. Amort.
|
|
Net Carrying Amount
|
|
Definite-lived
|
|
|
|
|
|
|
Non-compete agreements
|
$
|
845
|
|
$
|
845
|
|
$
|
—
|
|
$
|
864
|
|
$
|
864
|
|
$
|
—
|
|
Customer relationships
|
122,385
|
|
89,692
|
|
32,693
|
|
122,438
|
|
88,281
|
|
34,157
|
|
Total
|
$
|
123,230
|
|
$
|
90,537
|
|
$
|
32,693
|
|
$
|
123,302
|
|
$
|
89,145
|
|
$
|
34,157
|
|
Indefinite-lived
|
|
|
|
|
|
|
Trademarks
|
24,276
|
|
8,253
|
|
16,023
|
|
24,276
|
|
8,253
|
|
16,023
|
|
Total
|
$
|
147,506
|
|
$
|
98,790
|
|
$
|
48,716
|
|
$
|
147,578
|
|
$
|
97,398
|
|
$
|
50,180
|
|
The Company’s indefinite-lived intangible assets consist solely of the Company’s trademark portfolio. The Company’s definite-lived intangible assets now consist solely of customer relationships.
The following table summarizes the changes to the net carrying amounts by intangible asset class:
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks
|
|
Customer relationships
|
|
Total
|
|
March 31, 2018
|
$
|
16,023
|
|
$
|
34,157
|
|
$
|
50,180
|
|
Intangibles amortization
|
—
|
|
(1,473
|
)
|
(1,473
|
)
|
Foreign currency translation adjustment
|
—
|
|
9
|
|
9
|
|
June 30, 2018
|
$
|
16,023
|
|
$
|
32,693
|
|
$
|
48,716
|
|
The following table details the estimated intangibles amortization expense for the remainder of Fiscal
2019
, each of the succeeding four fiscal years and the periods thereafter.
|
|
|
|
|
Fiscal
|
|
2019
|
$
|
4,076
|
|
2020
|
5,119
|
|
2021
|
4,659
|
|
2022
|
3,058
|
|
2023
|
2,802
|
|
Thereafter
|
12,979
|
|
Total
|
$
|
32,693
|
|
`Note 6: Indebtedness
The Company’s debt consists of the following:
|
|
|
|
|
|
|
|
In thousands, except par value
|
June 30, 2018
|
|
March 31, 2018
|
|
Short-term debt
|
|
|
Revolving credit agreement
(1)
|
$
|
110,000
|
|
$
|
110,000
|
|
Term loan
(1)
|
45,722
|
|
47,500
|
|
Other
|
298
|
|
332
|
|
Short-term debt
|
156,020
|
|
157,832
|
|
|
|
|
Long-term debt
|
|
|
Other
|
387
|
|
477
|
|
Long-term debt
|
387
|
|
477
|
|
|
|
|
Total Debt
|
$
|
156,407
|
|
$
|
158,309
|
|
(1) Refer below for additional details regarding the Company's amended credit agreement which includes a revolving credit agreement and a term loan.
In addition, the Company finances certain vendor-specific inventory under an unsecured revolving arrangement through third parties which provide extended payment terms beyond those offered by the vendor at no incremental cost to the Company. The outstanding balance for these unsecured revolving arrangements was
$2,696
as of
June 30, 2018
,
$2,478
of which is classified as a current liability, and
$1,814
as of
March 31, 2018
,
$1,596
of which was classified as a current liability. These balances are recorded as other liabilities within the Company's Consolidated Balance Sheets.
On May 9, 2016, the Company refinanced its then existing
$200,000
credit facility in the form of a line of credit pursuant to a new credit agreement (the "Credit Agreement") with PNC Bank, National Association, as administrative agent, Bank of America, N.A., as syndication agent, and certain other lender parties (the "Banks"). The Credit Agreement expires on May 9, 2021. Borrowings under the Credit Agreement were permitted up to a maximum amount of
$200,000
, and included up to
$15,000
of swing-line loans and
$25,000
of letters of credit. Interest on outstanding indebtedness under the Credit Agreement accrued, at the Company’s option, at a rate based on either: (a) a Base Rate Option equal to the highest of (i) the federal funds open rate, plus fifty (50) basis points (
0.5%
), (ii) the bank’s prime rate, and (iii) the daily LIBOR rate, plus 100 basis points (
1.0%
), in each case plus
0%
to
1.00%
(determined by a leverage ratio based on the Company’s consolidated EBITDA) or (b) a rate per annum equal to the LIBOR rate plus
1.00%
to
2.00%
(determined by a leverage ratio based on the Company’s consolidated EBITDA). The Credit Agreement required the Company to maintain compliance with certain non-financial and financial covenants such as leverage and interest coverage ratios.
The Company’s obligations under the Credit Agreement were secured by substantially all of the assets of the Company’s material direct and indirect subsidiaries that are incorporated (or organized) under the laws of the District of Columbia or under the laws of any state or commonwealth of the United States and are guaranteed by such domestic subsidiaries.
On August 9, 2017, the Company and certain of the Banks entered into an Amendment and Joinder Agreement to amend and restate the Credit Agreement (as amended and restated, the “Amended Credit Agreement”) in order to avoid a default of its leverage covenant. Under the Amended Credit Agreement, the credit facility was reduced to
$170,000
comprised of a
$50,000
term loan and
$120,000
line of credit. As of August 9, 2017,
$50,000
was borrowed under the term loan and
$52,528
remained outstanding under the line of credit. The amortization of the term loan is
$1,250
per quarter for four (4) quarters beginning in the quarter ending December 31, 2017 and
$2,500
per quarter beginning in the quarter ending December 31, 2018 through the end of the Amended Credit Agreement on May 9, 2021, the same expiration date of the Credit Agreement. Mandatory prepayments of the term loan are required with the net proceeds from certain asset sales, insurance recoveries and debt or equity issuances, as well as from
75%
to
50%
of any excess cash flow generated in Fiscal 2019 and Fiscal 2020. Interest on the term loan is, at the Company’s option: (i) a Base Rate Option equal to the highest of (x) the federal funds open rate, plus fifty (50) basis points (
0.5%
), (y) the bank’s prime rate, and (z) the daily LIBOR rate, plus 100 basis points (
1.0%
), in each case plus
2.5%
or (ii) LIBOR plus
3.5%
. Interest on outstanding indebtedness under the line of credit accrues, at the Company’s option, at a rate based on either: (a) the Base Rate Option plus
0.25%
to
2.00%
(determined by a leverage ratio based on the Company’s consolidated EBITDA) or (b) a rate per annum equal to the LIBOR rate plus
1.25%
to
3.00%
(determined by a leverage ratio based on the Company’s consolidated EBITDA).
Under the Amended Credit Agreement, the leverage ratio covenant is suspended until the second quarter of Fiscal 2019. The Amended Credit Agreement contains a minimum Adjusted EBITDA covenant and a provision requiring the Company to repay revolving credit loans with any excess cash. During that same period, a covenant will limit capital expenditures to an agreed upon amount. The ability of the Company to make dividends or other distributions (including stock repurchases other than up to a limited dollar amount for tax payments from vested equity awards) has been eliminated.
The leverage ratio covenant that starts in the second quarter of Fiscal 2019 will be
4.00
to 1.00 and will reduce to
3.00
to 1.00 over the remaining life of the credit facility. A fixed charge coverage ratio of
1.00
to 1.00 begins in the second quarter of Fiscal 2019 increasing to
1.10
to 1.00 in the fourth quarter of Fiscal 2019 and thereafter.
The Company’s obligations under the Amended Credit Agreement are secured by substantially all of the assets of the Company and the Company’s direct and indirect subsidiaries that are incorporated (or organized) under the laws of the District of Columbia or under the laws of any state or commonwealth of the United States (a “U.S. Entity”) and are guaranteed by such domestic subsidiaries. Under the Amended Credit Agreement, the Company and each U.S. Entity pledged
65%
of the voting ownership interests and
100%
of the non-voting ownership interests of its foreign subsidiaries.
On June 29, 2018, the Company and certain direct and indirect wholly-owned subsidiaries of the Company (collectively, the “Guarantors” and together with the Company, the “Loan Parties”) entered into a Second Amendment (the “Second Amended Credit Agreement” or the “Second Amendment”) with PNC Bank, National Association, as administrative agent (the “Agent”), and certain other lenders party thereto (together with the Agent, the “Lenders”) to amend the Credit Agreement entered into among the Loan Parties, the Agent and the Lenders on May 9, 2016 (as amended by the Amendment and Joinder Agreement, dated August 9, 2017, the “Amended Credit Agreement,” and as further amended by the “Second Amended Credit Agreement”).
The Second Amended Credit Agreement established a new “last in first out” senior revolving credit facility in an amount not to exceed
$10,000
(the “LIFO Facility”). The borrowings under the LIFO Facility will be used to finance the Company’s cash flow needs, subject to an approved budget and certain variance restrictions, including payments to vendors to allow the Company to operate in the ordinary course of its business. Interest on the LIFO Facility is LIBOR plus
10.0%
. The Company entered into the Second Amendment to waive and modify certain covenants and other provisions contained in the Amended Credit Agreement and to fund its ongoing operations with the LIFO Facility. The Company would have defaulted the minimum Adjusted EBITDA covenant and certain other covenants as defined by the Amended Credit Agreement had these defaults not been waived under the Second Amendment.
The Company continues to engage Raymond James & Associates (“Raymond James”) as its financial advisor to assist the Company in exploring strategic alternatives. As part of the Company’s review of its alternatives, the Company has agreed under the Second Amended Credit Agreement to pursue the sale (the “Sale Transaction”) of its federal government IT services business (the “Federal Business”). The Federal Business is part of the Services business segment. Under the Second Amendment, the Company must meet certain milestone dates leading to the consummation of the Sale Transaction, including the delivery of an executed purchase agreement in respect of the Sale Transaction on or before July 31, 2018, and the consummation of the Sale Transaction on or before August 31, 2018 (the “Sale Milestones”). The Agent, in its sole discretion, may extend the Sale Milestone dates and the Agent did extend the date by which the Company must execute the sales agreement to August 17, 2018. The Company entered into an executed purchase agreement with respect to the sale of the Federal Business on August 17, 2018 which is expected to close on or before August 31, 2018. All net cash proceeds of the Sale Transaction will first be used to pay down loans outstanding under the LIFO Facility, and after, repayment of such loans, the Company’s other indebtedness under the Second Amended Credit Agreement.
The Second Amended Credit Agreement, among other things, (i) waived certain potential defaults and events of default under the Amended Credit Agreement; (ii) deferred principal and interest payments on the Company’s existing term loans and revolving loans, except the LIFO Facility, until December 15, 2018; provided that the aggregate amount of deferred principal and interest payments through the closing of the Sale Transaction will be due upon such closing; and (iii) modified the interest rates applicable to such outstanding loans so that interest accrues at a rate equal to: (a) for the term loan, the highest of (1) the federal funds open rate plus
0.5%
, (2) the Agent’s prime rate or (3) LIBOR plus
1.0%
(the “Base Rate”), in each case plus
2.5%
, and (b) for the revolving loans, the Base Rate plus an amount between
0.25%
and
2.0%
(as determined by a leverage ratio based on the Company’s consolidated EBITDA).
The Second Amended Credit Agreement also revised the Company’s covenants under the Amended Credit Agreement to, among other things, (i) suspend the leverage ratio and fixed charge coverage ratio covenants until December 15, 2018; (ii) modify the minimum consolidated EBITDA covenant to require that the Company’s minimum consolidated EBITDA for the three fiscal month period ending on the close of each fiscal month equal or exceed (i) negative
$3,000
for the fiscal months ending June 30, 2018, July 31, 2018 and August 31, 2018, and (ii) negative
$3,500
for the fiscal months ending September 30, 2018 and thereafter;
(iii) reduce the sub-limit for the issuance of letters of credit to
$10,000
; (iv) require periodic delivery of updated budgets and budget variance reports to the Agent and compliance with certain disbursement and net cash flow variance thresholds; (v) restrict the incurrence of expenses related to implementation of the ERP system; (vii) require that the net cash proceeds from certain asset sales and certain excess cash be used to prepay the Company’s obligations under the Amended Credit Agreement; and (viii) require the repatriation to the Loan Parties of cash on hand above a certain amount maintained by certain excluded foreign subsidiaries of the Loan Parties and restrict the transfer of assets by the Loan Parties (other than inventory in the course of ordinary business) to such excluded foreign subsidiaries unless accounted for in the budget.
The Company’s obligations under the Second Amended Credit Agreement continue to be secured by substantially all of the personal property assets of the Company and all of the Company’s direct and indirect owned subsidiaries that are incorporated (or organized) under the laws of the District of Columbia or under the laws of any state or commonwealth of the United States (other than BBOX Holdings Mexico LLC). In addition, under the Second Amendment, the Company’s obligations are required to be secured by additional collateral, including (i) a first-priority pledge of all of the capital stock of each existing and subsequently acquired or organized subsidiary of the Loan Parties not pledged under the Credit Agreement, with certain exceptions; and (ii) mortgages over certain material real property of the Loan Parties located in the U.S. The Company is also required to cause the execution of deposit account control agreements with respect to certain U.S. bank accounts of the Loan Parties and to deliver to the Agent executed assignment agreements and forms of notice of assignment with respect to certain federal government contracts. Such notices may be sent upon an event of default or potential default.
Effectiveness of the Second Amendment was subject to certain conditions precedent, each of which were satisfied on June 29, 2018. The outstanding balance of the LIFO Facility and all accrued and unpaid interest, fees and expenses are due and payable on December 15, 2018 or the earlier proper termination of the LIFO Facility by the Agent following an event of default.
The maximum amount of debt outstanding under the Second Amended Credit Agreement, the weighted-average balance outstanding under the Second Amended Credit Agreement and the weighted-average interest rate on all outstanding debt for the three-months ended
June 30, 2018
was
$157,500
,
$156,186
and
5.7%
, respectively, compared to
$171,237
,
$140,455
and
2.8%
, respectively, for the three-months ended
June 30, 2017
under the Credit Agreement.
As of
June 30, 2018
, the Company had
$9,825
outstanding in letters of credit and
$10,000
in unused commitments, which are limited by a financial covenant, under the Second Amended Credit Agreement.
Note 7: Derivative Instruments and Hedging Activities
The Company is exposed to certain market risks, including the effect of changes in foreign currency exchange rates and interest rates. The Company uses derivative instruments to manage financial exposures that occur in the normal course of business. It does not hold or issue derivatives for speculative trading purposes. The Company is exposed to non-performance risk from the counterparties in its derivative instruments. This risk would be limited to any unrealized gains on current positions. To help mitigate this risk, the Company transacts only with counterparties that are rated as investment grade or higher and all counterparties are monitored on a continuous basis. The fair value of the Company’s derivatives reflects this credit risk.
The Company enters into foreign currency contracts to hedge exposure to variability in expected fluctuations in foreign currencies. All of the foreign currency contracts have been designated and qualify as cash flow hedges. The effective portion of any changes in the fair value of the derivative instruments is recorded in Accumulated Other Comprehensive Income ("AOCI") until the hedged forecasted transaction occurs or the recognized currency transaction affects earnings. Once the forecasted transaction occurs or the recognized currency transaction affects earnings, the effective portion of any related gains or losses on the cash flow hedge is reclassified from AOCI to the Company’s Consolidated Statements of Operations.
As of
June 30, 2018
, the Company had open contracts in Australian and Canadian dollars, Danish krone, Euros, Mexican pesos, Norwegian kroner, British pounds sterling, Swedish krona, Swiss francs and Japanese yen, all of which have been designated as cash flow hedges. These contracts had a notional amount of
$47,885
and will expire within
2
months. There was no hedge ineffectiveness during Fiscal
2019
or Fiscal
2018
.
The following tables summarize the carrying amounts of derivative assets/liabilities and the impact on the Company’s Consolidated Statements of Operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives
|
Liability Derivatives
|
|
|
June 30,
|
|
March 31,
|
|
June 30,
|
|
March 31,
|
|
|
Classification
|
2018
|
|
2018
|
|
2018
|
|
2018
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
|
|
|
|
Foreign currency contracts
|
Other liabilities (current)
|
|
|
$
|
2,446
|
|
$
|
225
|
|
Foreign currency contracts
|
Other assets (current)
|
$
|
12
|
|
$
|
45
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three-months ended
|
|
|
June 30
|
|
Classification
|
2018
|
|
2017
|
|
Derivatives designated as hedging instruments
|
|
|
|
|
Gain (loss) recognized in other comprehensive income (effective portion), net of taxes
|
Other comprehensive
income
|
$
|
(741
|
)
|
$
|
(667
|
)
|
Amounts reclassified from AOCI into results of operations (effective portion), net of taxes
|
Selling, general &
administrative expenses
|
10
|
|
386
|
|
Note 8: Fair Value Disclosures
Recurring fair value measurements
The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of
June 30, 2018
, and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Level 1
|
|
Level 2
|
|
Level 3
|
|
Total
|
|
Assets at Fair Value
|
|
|
|
|
Defined benefit pension plan assets
(1)
|
$
|
26,707
|
|
$
|
11,308
|
|
$
|
—
|
|
$
|
38,015
|
|
Foreign currency contracts
|
$
|
—
|
|
$
|
12
|
|
$
|
—
|
|
$
|
12
|
|
Total Assets at Fair Value
|
$
|
26,707
|
|
$
|
11,320
|
|
$
|
—
|
|
$
|
38,027
|
|
Liabilities at Fair Value
|
|
|
|
|
Foreign currency contracts
|
$
|
—
|
|
$
|
2,446
|
|
$
|
—
|
|
$
|
2,446
|
|
(1) The fair value of pension plan assets is measured annually, thus this value is as of
March 31, 2018
.
Non-recurring fair value measurements
The Company's assets and liabilities that are measured at fair value on a non-recurring basis include non-financial assets and liabilities initially measured at fair value in a business combination.
Note 9: Stockholder's Equity
Accumulated Other Comprehensive Income
The components of AOCI consisted of the following for the periods presented:
|
|
|
|
|
|
|
|
|
June 30, 2018
|
|
March 31, 2018
|
|
Foreign Currency Translation Adjustment
|
$
|
(377
|
)
|
$
|
3,379
|
|
Derivative Instruments
|
(679
|
)
|
52
|
|
Defined Benefit Pension
|
(11,318
|
)
|
(11,423
|
)
|
Accumulated other comprehensive income
|
$
|
(12,374
|
)
|
$
|
(7,992
|
)
|
Common Stock Repurchases
The following table presents information about the Company's common stock repurchases:
|
|
|
|
|
|
|
|
|
Three-months ended
|
|
June 30
|
|
2018
|
|
2017
|
|
Shares of common stock purchased
|
47,644
|
|
44,507
|
|
Aggregate purchase price
|
$
|
112
|
|
$
|
393
|
|
Average purchase price
|
$
|
2.35
|
|
$
|
8.84
|
|
During the
three
-months ended
June 30, 2018
, the Company made tax payments of
$112
and withheld
47,644
shares of common stock, which were designated as treasury shares, at an average price per share of
$2.35
, in order to satisfy employee income taxes due as a result of the vesting of certain restricted stock units. During the
three
-months ended
June 30, 2017
, the Company made tax payments of
$393
and withheld
44,507
shares of common stock, which were designated as treasury shares, at an average price per share of
$8.84
, in order to satisfy employee income taxes due as a result of the vesting of certain restricted stock units.
Since the inception of its repurchase programs beginning in April 1999 and through
June 30, 2018
, the Company has repurchased
11,392,851
shares of common stock for an aggregate purchase price of
$408,621
, or an average purchase price per share of
$35.87
. These shares do not include the treasury shares withheld for tax payments due upon the vesting of certain restricted stock units and performance shares. As of
June 30, 2018
,
1,107,149
shares were available under the most recent repurchase programs.
Under the Second Amended Credit Agreement, the Company is no longer permitted to repurchase common stock through its repurchase program but is allowed to repurchase a limited amount of shares for tax payments related to the vesting of certain restricted stock units and performance shares, as applicable. This restriction is in effect until May 9, 2021, the termination date of the Second Amended Credit Agreement. See Note 6 for additional information regarding our Second Amended Credit Agreement.
Note 10: Income Taxes
On December 22, 2017, the Tax Cuts and Jobs Act was enacted, which among numerous provisions reduced the federal statutory corporate tax rate from 35% to
21%
. Based on the provisions of the Tax Reform, the Company adjusted its estimated annual effective income tax rate to incorporate the lower federal corporate tax rate into the tax provision for the current quarter ended
June 30, 2018
. Under the new Global Intangible Low-Taxed Income (GILTI) tax rules of the Tax Reform, and the application of ASC 740, Income Taxes, the Company’s accounting policy is to treat taxes due on future U.S. inclusions in taxable income related to GILTI as a current-period expense when incurred (the “period cost method”) and has been incorporated into the tax provision for the current quarter ended
June 30, 2018
.
Pursuant to SEC Staff Accounting Bulletin 118 (regarding the application of ASC 740 associated with the enactment of the Tax Reform), the Company continues to evaluate the impact of various domestic and international provisions of the Tax Reform as well as the impact of additional guidance that may be provided. The final impact of the Tax Reform may differ due to changes in interpretations, assumptions made by the Company, and the issuance of additional guidance.
The Company's benefit from income taxes for the three-months ended
June 30, 2018
was
$150
, an effective tax rate of
2.0%
on a loss before provision for income taxes of
$7,472
, compared to a benefit from income taxes of
$4,498
, an effective tax rate of
31.6%
on a loss before provision for income taxes of
$14,245
for the three-months ended
June 30, 2017
. The decrease in the benefit was primarily due to valuation allowances booked against U.S. deferred tax assets. The effective tax rate for the three-months ended June 30, 2018 of
2.0%
differs from the federal statutory rate primarily due to valuation allowances booked and the mix of income across various taxing jurisdictions.
The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate adjusted for certain discrete items for the full fiscal year. Cumulative adjustments to the Company's estimate are recorded in the interim period in which a change in the estimated annual effective rate is determined.
Fiscal 2015 through Fiscal 2017 remain open to examination by the Internal Revenue Service and Fiscal 2013 through Fiscal 2017 remain open to examination by certain state and foreign taxing jurisdictions.
A valuation allowance is provided on deferred tax assets if determined that it is more likely than not that the asset will not be realized. The Company considers all available evidence, both positive and negative, in assessing the need for a valuation allowance in each taxing jurisdiction. The evidence considered in evaluating deferred tax assets includes but is not limited to cumulative financial income over the three-year period ended
June 30, 2018
, excluding significant one-time charges for impairment (goodwill
and other), the composition and reversal patterns of existing taxable and deductible temporary differences between financial reporting and tax, and subjective projected future income.
Based on the available evidence, a valuation allowance of
$514
has been recorded against U.S. deferred tax assets and certain foreign net operating losses for the three months ended
June 30, 2018
. Future positive and negative events, such as the significant underperformance relative to projected or future operating results, will be monitored accordingly and a determination will be made on the ability to realize deferred tax assets at that time.
Note 11: Stock-based Compensation
In August 2008, the Company’s stockholders approved the 2008 Long-Term Incentive Plan, as amended (the "Incentive Plan"), which replaced the 1992 Stock Option Plan, as amended, and the 1992 Director Stock Option Plan, as amended. As of
June 30, 2018
, the Incentive Plan is authorized to issue stock options, restricted stock units and performance shares, among other types of awards, for up to
6,676,734
shares of common stock, par value
$0.001
per share (the "common stock").
The Company recognized stock-based compensation expense of
$1,004
and
$2,198
for the three-months ended
June 30, 2018
and
2017
, respectively. The Company recognized total income tax benefit for stock-based compensation arrangements of
$251
and
$818
for the three-months ended
June 30, 2018
and
2017
, respectively. Stock-based compensation expense is recorded in Selling, general & administrative expenses within the Company’s Consolidated Statements of Operations.
Stock options
Stock option awards are granted with an exercise price equal to the closing market price of the common stock on the date of grant; such stock options generally become exercisable in equal amounts over a
three
-year period and have a contractual life of
ten
years from the grant date. The fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model, which includes the following weighted-average assumptions.
|
|
|
|
|
|
|
Three-months ended
|
|
June 30
|
|
2018
|
|
2017
|
|
Expected life (in years)
|
5.0
|
|
6.1
|
|
Risk-free interest rate
|
2.9
|
%
|
2.1
|
%
|
Annual forfeiture rate
|
6.3
|
%
|
2.7
|
%
|
Expected volatility
|
59.5
|
%
|
45.3
|
%
|
Dividend yield
|
—
|
%
|
3.9
|
%
|
The following table summarizes the Company’s stock option activity:
|
|
|
|
|
|
|
|
|
|
|
|
Shares (in 000’s)
|
|
Weighted-Average Exercise Price
|
|
Weighted-Average Remaining Contractual Life (Years)
|
Intrinsic Value (000’s)
|
|
March 31, 2018
|
1,110
|
|
$
|
19.30
|
|
|
|
Granted
|
1,950
|
|
2.81
|
|
|
|
Exercised
|
—
|
|
—
|
|
|
|
Forfeited or cancelled
|
(195
|
)
|
29.02
|
|
|
|
June 30, 2018
|
2,865
|
|
$
|
7.42
|
|
8.4
|
$
|
—
|
|
Exercisable
|
663
|
|
$
|
20.66
|
|
3.9
|
$
|
—
|
|
The weighted-average grant-date fair value of options granted during the
three
-months ended
June 30, 2018
and
2017
was
$1.47
and
$2.51
, respectively. The intrinsic value of options exercised during the
three
-months ended
June 30, 2018
and
2017
was
$0
and
$0
, respectively. The aggregate intrinsic value in the preceding table is based on the closing stock price of the common stock on
June 29, 2018
, which was
$2.03
.
The following table summarizes certain information regarding the Company’s non-vested stock options:
|
|
|
|
|
|
|
|
Shares (in 000’s)
|
|
Weighted-Average Grant-Date Fair Value
|
|
March 31, 2018
|
402
|
|
$
|
2.89
|
|
Granted
|
1,950
|
|
1.47
|
|
Vested
|
(148
|
)
|
3.34
|
|
Forfeited
|
—
|
|
—
|
|
June 30, 2018
|
2,204
|
|
$
|
1.60
|
|
As of
June 30, 2018
, there was
$2,996
of total unrecognized pre-tax stock-based compensation expense related to non-vested stock options, which is expected to be recognized over a weighted-average period of
2.5
years.
Restricted stock units
Restricted stock unit awards are subject to a service condition and typically vest in equal amounts over a
three
-year period from the grant date. The fair value of restricted stock units is determined based on the number of restricted stock units granted and the closing market price of the common stock on the date of grant.
The following table summarizes the Company’s restricted stock unit activity:
|
|
|
|
|
|
|
|
Shares (in 000’s)
|
|
Weighted-Average Grant-Date Fair Value
|
|
March 31, 2018
|
361
|
|
$
|
9.70
|
|
Granted
|
15
|
|
2.22
|
|
Vested
|
(141
|
)
|
11.33
|
|
Forfeited
|
(3
|
)
|
9.37
|
|
June 30, 2018
|
232
|
|
$
|
8.23
|
|
The total fair value of shares that vested during the
three
-months ended
June 30, 2018
and
2017
was
$332
and
$1,894
, respectively.
As of
June 30, 2018
, there was
$1,500
of total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock units, which is expected to be recognized over a weighted-average period of
1.6
years.
Performance share awards
Performance share awards are subject to one of the performance goals - the Company's Relative Total Shareholder Return ("TSR") Ranking or cumulative Adjusted EBITDA - each over a
three
-year period. The Company’s Relative TSR Ranking metric is based on the three-year cumulative return to stockholders from the change in stock price and dividends paid between the starting and ending dates. The fair value of performance share awards (subject to cumulative Adjusted EBITDA) is determined based on the number of performance shares granted and the closing market price of the common stock on the date of grant. The fair value of performance share awards (subject to the Company’s Relative TSR Ranking) is estimated on the grant date using the Monte-Carlo simulation valuation method.
There have been no performance share awards granted in Fiscal 2019. The following table summarizes the Company’s performance share award activity:
|
|
|
|
|
|
|
|
Shares (in 000’s)
|
|
Weighted-Average Grant-Date Fair Value
|
|
March 31, 2018
|
327
|
|
$
|
11.14
|
|
Granted
|
—
|
|
—
|
|
Vested
|
(46
|
)
|
19.56
|
|
Forfeited
|
—
|
|
—
|
|
June 30, 2018
|
281
|
|
$
|
9.74
|
|
The total fair value of shares that vested during the
three
-months ended
June 30, 2018
and
2017
was
$0
and
$0
, respectively, as there were no payouts because certain performance obligations were not met.
As of
June 30, 2018
, there was
$534
of total unrecognized pre-tax stock-based compensation expense related to non-vested performance share awards, which is expected to be recognized over a weighted-average period of
1.6
years.
Note 12: Earnings (loss) Per Share
The following table details the computation of basic and diluted earnings (loss) per common share from continuing operations for the periods presented (share numbers in table in thousands):
|
|
|
|
|
|
|
|
|
Three-months ended
|
|
June 30
|
|
2018
|
|
2017
|
|
Net income (loss)
|
$
|
(7,322
|
)
|
$
|
(9,747
|
)
|
Weighted-average common shares outstanding (basic)
|
15,164
|
|
15,020
|
|
Effect of dilutive securities from equity awards
|
—
|
|
—
|
|
Weighted-average common shares outstanding (diluted)
|
15,164
|
|
15,020
|
|
Basic earnings (loss) per common share
|
$
|
(0.48
|
)
|
$
|
(0.65
|
)
|
Dilutive earnings (loss) per common share
|
$
|
(0.48
|
)
|
$
|
(0.65
|
)
|
|
|
|
The Weighted-average common shares outstanding (diluted) computation is not impacted during any period where the exercise price of a stock option is greater than the average market price. There were
3,242,964
and
1,796,632
non-dilutive equity awards outstanding for the three-months ended
June 30, 2018
and
2017
, respectively, that are not included in the corresponding period Weighted-average common shares outstanding (diluted) computation.
Note 13: Segment Information
The Company conducts business globally and is managed on a geographic-service type basis consisting of
four
operating segments which are (i) North America Products, (ii) North America Services, (iii) International Products and (iv) International Services. These operating segments are also the Company's reporting units for purposes of testing goodwill for impairment and its reporting segments for financial reporting purposes. Revenues within our North America segments are primarily attributed to the United States while revenues within our International segments are attributed to countries in Europe, the Pacific Rim and Latin America.
The accounting policies of the operating segments are the same as those of the Company. The Company allocates resources to its operating segments and evaluates the performance of the operating segments based upon operating income.
The financial results for the Company's reporting segments are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Products
|
|
North America Services
|
|
International Products
|
|
International Services
|
|
Total
|
|
1Q19
|
|
|
|
|
|
Revenues
|
$
|
15,800
|
|
$
|
148,768
|
|
$
|
15,752
|
|
$
|
10,479
|
|
$
|
190,799
|
|
Gross profit
|
6,752
|
|
38,691
|
|
6,582
|
|
1,849
|
|
53,874
|
|
Operating income (loss)
|
(1,269
|
)
|
(2,033
|
)
|
(398
|
)
|
(740
|
)
|
(4,440
|
)
|
Depreciation
|
465
|
|
1,521
|
|
147
|
|
110
|
|
2,243
|
|
Intangibles amortization
|
—
|
|
1,473
|
|
—
|
|
—
|
|
1,473
|
|
Restructuring expense
|
1
|
|
147
|
|
24
|
|
26
|
|
198
|
|
Capital expenditures
|
146
|
|
304
|
|
56
|
|
22
|
|
528
|
|
Assets (as of June 30)
|
39,199
|
|
276,160
|
|
39,267
|
|
12,233
|
|
366,859
|
|
|
|
|
|
|
|
1Q18
|
|
|
|
|
|
Revenues
|
$
|
17,263
|
|
$
|
152,630
|
|
$
|
15,625
|
|
$
|
6,126
|
|
$
|
191,644
|
|
Gross profit
|
7,779
|
|
37,530
|
|
6,082
|
|
1,212
|
|
52,603
|
|
Operating income (loss)
|
(1,474
|
)
|
(7,356
|
)
|
(3,741
|
)
|
(326
|
)
|
(12,897
|
)
|
Depreciation
|
449
|
|
1,634
|
|
164
|
|
77
|
|
2,324
|
|
Intangibles amortization
|
—
|
|
2,117
|
|
113
|
|
—
|
|
2,230
|
|
Restructuring expense
|
1,306
|
|
1,278
|
|
1,713
|
|
25
|
|
4,322
|
|
Capital expenditures
|
129
|
|
699
|
|
253
|
|
16
|
|
1,097
|
|
Assets (as of June 30)
|
48,092
|
|
318,422
|
|
32,007
|
|
14,431
|
|
412,952
|
|
Note 14: Commitments and Contingencies
In connection with the Amended Credit Agreement disclosed in Note 6, the Company is required to make payments of
$8,750
on its term loan over the next 12 months. Correspondingly, the Company expects its long-term payments (greater than 1 year) under the credit facility to decrease by
$8,750
.
The Company is involved in, or has pending, various legal proceedings, claims, suits and complaints arising out of the normal course of business. Based on the facts currently available to the Company, Management believes these matters are adequately provided for, covered by insurance, without merit or not probable that an unfavorable material outcome will result.
There has been no other significant or unusual activity during Fiscal
2019
.
Note 15: Restructuring
The Company has incurred and continues to incur costs related to facility consolidations, such as idle facility rent obligations and the write-off of leasehold improvements, and employee severance (collectively referred to as “restructuring expense”) in a continued effort to consolidate back office functions and to make its organization more efficient. These restructuring activities are compartmentalized and are not part of an overall plan and therefore the Company cannot estimate the total amount to be incurred in connection with the activity. Employee severance is generally payable within the next twelve months with certain facility costs extending through Fiscal 2019.
The following table summarizes the changes to the restructuring liability for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
Employee
Severance
|
|
Facility
Closures
|
|
Total
|
|
Balance at March 31, 2018
|
$
|
2,652
|
|
$
|
104
|
|
$
|
2,756
|
|
Restructuring expense
|
209
|
|
(11
|
)
|
198
|
|
Cash expenditures
|
(956
|
)
|
(78
|
)
|
(1,034
|
)
|
Balance at June 30, 2018
|
$
|
1,905
|
|
$
|
15
|
|
$
|
1,920
|
|
The restructuring liability amount shown above is classified as a current liability under other liabilities on the Company’s Consolidated Balance Sheets for the period ended
June 30, 2018
.
The following table summarizes restructuring expense, which is recorded in Selling, general & administrative expenses in the Company’s Consolidated Statements of Operations, for the
three
-months ended
June 30, 2018
, for the Company’s reporting segments:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America Products
|
|
North America Services
|
|
International Products
|
|
International Services
|
|
Total
|
|
Employee Severance
|
$
|
1
|
|
$
|
158
|
|
$
|
24
|
|
$
|
26
|
|
$
|
209
|
|
Facility Closures
|
—
|
|
(11
|
)
|
—
|
|
—
|
|
(11
|
)
|
Total
|
$
|
1
|
|
$
|
147
|
|
$
|
24
|
|
$
|
26
|
|
$
|
198
|
|
Company management is continuing to assess ways to align costs with revenues to improve profitability.
Note 16: Subsequent Event
On August 17, 2018, the Company entered into a definitive agreement to sell the Federal Business to a private equity firm for a cash purchase price of $75 million. The buyer has agreed to purchase 100% of the equity interests of the Federal Business on a debt-free, cash-free basis. Consummation of the transaction is subject to customary closing conditions and the parties anticipate a closing on or before August 31, 2018. All net cash proceeds of the Sale Transaction will first be used to pay down loans outstanding under the LIFO Facility, and after, repayment of such loans, the Company’s other indebtedness under the Second Amended Credit Agreement. Refer to Note 6 for additional information. Revenues and gross profit for the Federal Business for the fiscal year ended March 31, 2018 were $119.0 million and $30.1 million, respectively.