Black Box Corporation
Black Box Corporation
Sales: 193.4 million (1996)
Stock Exchanges: NASDAQ
SICs: 5961 Mail Order Houses; 6719 Holding Companies
Black Box Corporation is a leading direct marketer of computer communications and networking equipment. They also offer technical services and solutions to businesses, large and small. In 1996 they offered over 6,000 products in 77 countries, through catalogue and other distribution sources, targeting business professionals, purchasing agents and resellers who make computer design decisions. Black Box emphasizes their superior customer and technical support over that offered by their competitors. Their broad end-user base consists of educational institutions, federal, state, and local governments, small organizations, and many of the world’s largest corporations. Black Box’s 1996 annual report lists their private label products which include: “PC communications and accessories, cables and connectors, tools and racks, testers and equipment protection, video and mass storage, switches, printer devices, converters, line drivers, modems, CSU and DSUs, muxes, and local area networks.” Over 90 percent of the company’s sales are private-label brands under the Black Box brand name, along with branded offerings from companies such as Intel, Bay Networks, Cisco Systems and U.S. Robotics. Black Box’s products are primarily voice, data, and connectivity-related, with more than 250 suppliers providing products for their private label, ensuring source diversification.
The company was distinguished as the first U.S. direct marketer to be ISO 9001 certified (by the International Organization for Standardization) for quality assurance and management systems, important in part because many overseas companies will only buy from ISO Certified companies. Their subsidiary and joint venture countries include Australia, Belgium, Brazil, Canada, France, Germany, Italy, Japan, Mexico, Netherlands, New Zealand, Spain, Switzerland, the United Kingdom, and the United States.
Networking in the 1970s
Black Box (previously Expandor, Inc.) evolved from Micom Systems, a company organized in 1973 to supply a wide range of networking equipment. Founders E. R. Yost and Richard Raub combined talents gained in sales experience, with engineering experience in the printing industry, respectively. Their first catalogue listed six products. The Black Box division concentrated on sales of mail-order data communications products and accessories, and performed very well until the mid-1980s when the telecommunications equipment business slowed. In 1988 two of Micom System’s shareholders brought suit against that company in an effort to stop a takeover bid from the MSI Corporation—a company formed for the purpose of acquiring Micom, by Odyssey Partners, a New York investment group intending to sell off parts of the company: Micom Digital Corporation and Micom-Interlan. The suit alleged that the price offered to shareholders ($16 per share) did not reflect adequate compensation over the market share value of $15.62, stating that “If the total assets of Micom were sold in whole or in part, the company’s common stockholders could realize an amount substantially in excess of the proposed transaction price. The defendants, listed as MSI, Micom, and nine of Micom’s directors, intend to appropriate these assets for themselves,” the suit claimed. They also stated that the sale came at a time when the company was entering a growth phase, according to Daniel J. Lyons of PC Week. Company officials advised stockholders that the merger was in their best interests, and to tender their shares. The $334 million sale came about as the result of an internal dispute within the board of directors concerning the future strategic direction of Micom Systems.
Entering the 1990s with Debt-Load
By 1990, following Black Box’s reorganization, the catalogue business had developed into a thriving enterprise, and the company moved its headquarters from Simi Valley, California, to its main facility in Lawrenceville, a suburb of Pittsburgh, Pennsylvania. Despite growing revenues, the company defaulted on a leveraged loan put together by Odyssey Partners and other financiers, forcing the company to make public offerings at a time of market uncertainty, and to refinance. The Micom buyout had been heavily reliant on debt, partly financed by a $138 million revolving credit loan. According to Anne Newman of the Wall Street Journal, Manufacturers Hanover Trust Company “issued $110 million in senior subordinated increasing rate notes, which carried a rate of $16.19 percent. An additional $34 million came from selling various preferred shares. Despite the sale of three subsidiaries, Black Box owed the revolving credit line $80.5 million as of July 1990.” Even with revenues for the year at $107 million, the notes became due and the interest payment was not met—interest expenses grew to $26.7 million, resulting in a loss applicable to common stock of $33.9 million for the year. Black Box filed a pre-packaged bankruptcy that primarily affected note and equity holdings. A public offering was made in 1992 by MB Communications, a holding company comprised of Black Box and Micom. Black Box became a stand-alone company in 1994 when the company distributed all of the outstanding shares of common stock of Micom Communications Corp. to all holders of the company’s outstanding common stock who held shares on the date of distribution. It had been decided that Black Box and its wholly owned subsidiary, Micom, supported two very diverse and incompatible product lines, attracting opposing types of investors to the organization. Black Box’s lucrative and predictable income invited investors in search of stable gains, while the less-stable Micom tended to attract risk-takers.
Another public offering in September 1996 created a marketplace for Odyssey stock, owners of 49 percent of the company at that time. The buy-out tactics of Odyssey Partners had been portrayed in less than favorable terms in a Wall Street Journal article by Jereski and Pullman, warning that Odyssey advertised their 20-year buyout record of 37 percent average returns, but added that “while Odyssey may have excelled, other investors have been hard-pressed to do as well. Odyssey has sold stock to the public in less than one fifth of the partnership’s 90-odd buyouts. But several of those companies have floundered in just a few years after Odyssey’s public stock sales.” All of Odyssey Partner’s holdings in the company were sold in the offering, with none of the proceeds of the sale going to Black Box, although the sale did allow the stockholder group to expand substantially, according to a 1996 Black Box annual report.
In the meantime, the business of generating income through catalogue sales continued to preoccupy managers. It became policy to invest in the technology Black Box uses to run its own business. The company put out at least three catalogues per year and has concentrated efforts on streamlining the production, ordering, and inter-company communications systems, having learned from their early utilization of new technology in the form of fax equipment, for example, that the fastest and easiest communications could make a far-reaching difference. The machines allowed moment-by-moment reviews of catalogue pages in progress, diminished the chances of disagreement between Black Box and vendors, who previously ordered via telephone, simplified technical application inquiries and requests, and allowed for efficient product review—services deemed important for a competitive company whose bottom line is customer service. All aspects of its business have been managed by information systems that “monitor sales trends, make informed purchasing decisions, perform statistical analyses of its customer database and provide product availability and order status,” according to company reports. The company began listing its products and services on the Internet in 1995.
Growing Optimism in the Late 1990s
Black Box is on the leading edge of technology, although basic hardware such as cables and connectors comprise the largest portion of Black Box revenues. The company offers products such as fast and easy-to-use Global Teleconnect Kits that contain adapters and tools to connect a portable PC for modem links to various international power systems; it also offers Modem Splitters, high speed units with cables which allow three-way sharing of a single modem, and all sorts of component and user connectors. The 24-hour, 7-days-a-week certified technical support experts answer questions pertaining to all aspects of product use, in addition to more general consumer questions not directly related to Black Box products, and claim that most questions are solved within 20 minutes. The company promotes the technical education of the consumer through its phone, fax, video, and online support systems. Black Box provides a 45-day return or exchange policy, warranties of at least one year and lifetime warranties on many products—90 percent of the orders received are repeat customers. The company also stresses the speed at which they deliver, citing in its 1996 annual report the example of an exhibit scheduled to open within 24 hours at the largest amusement park in Sao Paulo, Brazil, at which the display videos were not working: “They called Black Box where technical support quickly gave them the right solution, then immediately hand-delivered the product to the amusement park. The exhibit opened on time.”
The mission of Black Box Corporation is to grow profitably as the leader in providing quality connectivity solutions and support services through a combination of state-of-the-art technical and direct marketing skills to all the customers we serve on a global basis.
Guided by the success strategies of their past, Black Box worked to increase its market share in countries where it was already established, with particular attention placed on its subsidiaries in Japan, the U.K., France, and Brazil. Japanese revenues increased by 59 percent in fiscal 1996, and 30 percent in the U.K. International revenues increased overall by 32 percent. The company opened a new subsidiary in Mexico, which achieved break-even results by the fourth quarter. Black Box tripled the number of new products introduced from the previous year to more than 1,000 in 1996, and increased the circulation of its specifically-targeted publications. A steady rise in revenues increased from $142 million in 1994, to $193.4 million in 1996—with selling, general, and administrative expenses accounting for 33.2 percent of that figure. Their longterm debt was reduced to $41.1 million, and New York analysts from Southcoast Capital Corporation predict that the company should be debt-free early in calendar 1998.
Black Box performed consistently well in the early 1990s. In May 1997 the Black Box board of directors announced that it authorized management to buy back the company’s stock, depending on market prices and other factors. Due to rapid growth of the data communications industry, competitively-priced distributors such as Black Box stand to prosper. They are distributors, not manufacturers, and as such they avoid substantial risks, while providing competitively priced products and offering a high level of service in a broadening international market.
Black Box de Mexico, S.A. de C.V.; Black Box de Brazil Industria e Comercia Ltda.; Black Box Japan Kabushiki Kaisha; Black Box United Kingdom; Black Box France; Black Box Netherlands; Black Box Belgium; Black Box Switzerland; Black Box Australia; Black Box Canada; Black Box Germany; Black Box Italy.
“Black Box Corp. (New Securities Issues),” The Wall Street Journal, September 20, 1995, p. C16 (w), p. CIS (e).
“Black Box Corp. (Who’s News),” The Wall Street Journal, December 19, 1995, p. B6 (w).
“Black Box Corp. (Who’s News),” The Wall Street Journal, May 30, 1996, p. B16(w).
“Black Box Corp. (Who’s News),” The Wall Street Journal, November 10, 1995, p. B3(w), p. B18 (e).
“Black Box Expects to Post Earning Rise for Fiscal 4th Quarter,” The Wall Street Journal, May 8, 1996, p. B 10B:5.
“Black Box Unit Starts Operations,” The Wall Street Journal, May 25, 1995, p. B6:5.
Gianturco, Michael, “The Affordable Black Box,” Forbes, January 31, 1994, p. 114, vol. 153.
Jereski, Laura, and Pulliam, Susan, “Odyssey’s Lemons Have Become Lemonade, But Leave Sour Taste,” The Wall Street Journal, September 25, 1995, p. Cl:5.
Ramirez, Anthony, “Hot-Wiring Overseas Telephone Calls,” The New York Times, January 9, 1992, p. Cl (n), p. Dl (1).
Rowinsky, Walt, “Black Box Corp.: Power Control Center SP200A,” P.C. Magazine. January 29, 1991, p. 309.