e10vq
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
þ QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 26, 2009
OR
o TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from ________ to ________
Commission File Number: 0-18706
Black Box Corporation
(Exact name of registrant as specified in its charter)
|
|
|
Delaware
|
|
95-3086563 |
(State or other jurisdiction of incorporation or organization)
|
|
(I.R.S. Employer Identification No.) |
|
|
|
1000 Park Drive, Lawrence, Pennsylvania
|
|
15055 |
(Address of principal executive offices)
|
|
(Zip Code) |
Registrants telephone number, including area code: 724-746-5500
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by
Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for
such shorter period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days. þ Yes o No
Indicate by check mark whether the registrant has submitted electronically and posted on its
corporate Web site, if any, every Interactive Data File required to be submitted and posted
pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months
(or for such shorter period that the registrant was required to submit and post such files).
o Yes o No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a
non-accelerated filer, or a smaller reporting company. See definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act.
(Check one):
|
|
|
|
|
|
|
Large accelerated filer þ
|
|
Accelerated filer o
|
|
Non-accelerated filer o
|
|
Smaller reporting company o |
|
|
|
(Do not check if a smaller reporting company) |
|
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act). o Yes þ No
As of October 30, 2009, there were 17,548,305 shares of common stock, par value $.001 (the common
stock), outstanding.
BLACK BOX CORPORATION
FOR THE QUARTER ENDED SEPTEMBER 26, 2009
INDEX
2
PART I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BLACK BOX CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
September 26, 2009 |
|
|
|
|
In thousands, except par value |
|
(Unaudited) |
|
|
March 31, 2009* |
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
23,785 |
|
|
$ |
23,720 |
|
Accounts receivable, net of allowance for doubtful accounts
of $9,901 and $9,934 |
|
|
139,646 |
|
|
|
163,975 |
|
Inventories, net |
|
|
53,269 |
|
|
|
55,898 |
|
Costs/estimated earnings in excess of billings on uncompleted
contracts |
|
|
85,428 |
|
|
|
66,066 |
|
Prepaid and other current assets |
|
|
29,242 |
|
|
|
30,809 |
|
|
|
|
|
|
Total current assets |
|
|
331,370 |
|
|
|
340,468 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
25,653 |
|
|
|
28,419 |
|
Goodwill |
|
|
646,603 |
|
|
|
621,948 |
|
Intangibles |
|
|
|
|
|
|
|
|
Customer relationships, net |
|
|
89,673 |
|
|
|
105,111 |
|
Other intangibles, net |
|
|
31,248 |
|
|
|
37,684 |
|
Other assets |
|
|
8,120 |
|
|
|
2,858 |
|
|
|
|
|
|
Total assets |
|
$ |
1,132,667 |
|
|
$ |
1,136,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
75,317 |
|
|
$ |
79,021 |
|
Accrued compensation and benefits |
|
|
25,902 |
|
|
|
30,446 |
|
Deferred revenue |
|
|
35,696 |
|
|
|
35,520 |
|
Billings in excess of costs/estimated earnings on uncompleted
contracts |
|
|
12,662 |
|
|
|
18,217 |
|
Income taxes |
|
|
7,063 |
|
|
|
5,164 |
|
Other liabilities |
|
|
47,885 |
|
|
|
41,891 |
|
|
|
|
|
|
Total current liabilities |
|
|
204,525 |
|
|
|
210,259 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
222,593 |
|
|
|
249,260 |
|
Other liabilities |
|
|
26,777 |
|
|
|
29,670 |
|
|
|
|
|
|
Total liabilities |
|
$ |
453,895 |
|
|
$ |
489,189 |
|
|
|
|
|
|
|
|
|
|
Stockholders equity |
|
|
|
|
|
|
|
|
Preferred stock authorized 5,000, par value $1.00, none issued |
|
$ |
-- |
|
|
$ |
-- |
|
Common stock authorized 100,000, par value $.001, 17,548 and
17,533 shares outstanding |
|
|
25 |
|
|
|
25 |
|
Additional paid-in capital |
|
|
448,351 |
|
|
|
445,774 |
|
Retained earnings |
|
|
534,906 |
|
|
|
521,023 |
|
Accumulated other comprehensive income |
|
|
18,585 |
|
|
|
3,572 |
|
Treasury stock, at cost 7,626 and 7,626 shares |
|
|
(323,095) |
|
|
|
(323,095) |
|
|
|
|
|
|
Total stockholders equity |
|
$ |
678,772 |
|
|
$ |
647,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,132,667 |
|
|
$ |
1,136,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
* Derived from audited financial statements |
See Notes to the Consolidated Financial Statements
3
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three (3) months ended |
|
|
Six (6) months ended |
|
|
|
September 26 and 27, |
|
|
September 26 and 27, |
|
In thousands, except per share amounts |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotline products |
|
$ |
45,511 |
|
|
$ |
56,819 |
|
|
$ |
87,793 |
|
|
$ |
112,458 |
|
On-Site services |
|
|
186,402 |
|
|
|
196,991 |
|
|
|
379,332 |
|
|
|
383,905 |
|
|
|
|
|
|
Total |
|
|
231,913 |
|
|
|
253,810 |
|
|
|
467,125 |
|
|
|
496,363 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotline products |
|
|
23,666 |
|
|
|
28,917 |
|
|
|
45,861 |
|
|
|
56,899 |
|
On-Site services |
|
|
125,973 |
|
|
|
131,836 |
|
|
|
256,577 |
|
|
|
258,265 |
|
|
|
|
|
|
Total |
|
|
149,639 |
|
|
|
160,753 |
|
|
|
302,438 |
|
|
|
315,164 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
82,274 |
|
|
|
93,057 |
|
|
|
164,687 |
|
|
|
181,199 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general & administrative expenses |
|
|
64,515 |
|
|
|
65,729 |
|
|
|
128,398 |
|
|
|
132,197 |
|
Intangibles amortization |
|
|
2,150 |
|
|
|
1,900 |
|
|
|
6,195 |
|
|
|
3,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
15,609 |
|
|
|
25,428 |
|
|
|
30,094 |
|
|
|
45,276 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income), net |
|
|
2,596 |
|
|
|
2,648 |
|
|
|
4,740 |
|
|
|
2,383 |
|
Other expenses (income), net |
|
|
(85) |
|
|
|
263 |
|
|
|
(227) |
|
|
|
167 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
13,098 |
|
|
|
22,517 |
|
|
|
25,581 |
|
|
|
42,726 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
4,912 |
|
|
|
8,218 |
|
|
|
9,593 |
|
|
|
15,594 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,186 |
|
|
$ |
14,299 |
|
|
$ |
15,988 |
|
|
$ |
27,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.47 |
|
|
$ |
0.82 |
|
|
$ |
0.91 |
|
|
$ |
1.55 |
|
|
|
|
|
|
Diluted |
|
$ |
0.47 |
|
|
$ |
0.82 |
|
|
$ |
0.91 |
|
|
$ |
1.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
17,548 |
|
|
|
17,524 |
|
|
|
17,544 |
|
|
|
17,520 |
|
|
|
|
|
|
Diluted |
|
|
17,548 |
|
|
|
17,528 |
|
|
|
17,544 |
|
|
|
17,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share |
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
$ |
0.12 |
|
|
$ |
0.12 |
|
|
See Notes to the Consolidated Financial Statements
4
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Six (6) months ended September 26 and 27, |
|
In thousands |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
15,988 |
|
|
$ |
27,132 |
|
Adjustments to reconcile net income to net cash provided by (used
for) operating activities |
|
|
|
|
|
|
|
|
Intangibles amortization and depreciation |
|
|
10,112 |
|
|
|
8,599 |
|
Loss (gain) on sale of property |
|
|
25 |
|
|
|
(21) |
|
Deferred taxes |
|
|
637 |
|
|
|
856 |
|
Tax impact from equity awards |
|
|
702 |
|
|
|
1,047 |
|
Stock compensation expense |
|
|
3,279 |
|
|
|
1,382 |
|
Change in fair value of interest-rate swap(s) |
|
|
177 |
|
|
|
(2,877) |
|
Changes in operating assets and liabilities (net of acquisitions): |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
23,064 |
|
|
|
11,804 |
|
Inventories, net |
|
|
3,624 |
|
|
|
5,321 |
|
All other current assets excluding deferred tax asset |
|
|
(10,715) |
|
|
|
(8,572) |
|
Liabilities exclusive of long-term debt |
|
|
(16,344) |
|
|
|
(6,286) |
|
|
|
|
|
|
Net cash provided by (used for) operating activities |
|
$ |
30,549 |
|
|
$ |
38,385 |
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
(1,033) |
|
|
$ |
(1,524) |
|
Capital disposals |
|
|
103 |
|
|
|
104 |
|
Acquisition of businesses (payments)/recoveries |
|
|
-- |
|
|
|
(48,620) |
|
Prior merger-related (payments)/recoveries |
|
|
(1,305) |
|
|
|
165 |
|
|
|
|
|
|
Net cash provided by (used for) investing activities |
|
$ |
(2,235) |
|
|
$ |
(49,875) |
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
$ |
74,855 |
|
|
$ |
143,710 |
|
Repayment of borrowings |
|
|
(101,848) |
|
|
|
(131,461) |
|
Deferred financing costs |
|
|
-- |
|
|
|
(125) |
|
Proceeds from the exercise of stock options |
|
|
-- |
|
|
|
545 |
|
Payment of dividends |
|
|
(2,104) |
|
|
|
(2,102) |
|
|
|
|
|
|
Net cash provided by (used for) financing activities |
|
$ |
(29,097) |
|
|
$ |
10,567 |
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange impact on cash |
|
$ |
848 |
|
|
$ |
73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase / (decrease) in cash and cash equivalents |
|
$ |
65 |
|
|
$ |
(850 |
) |
Cash and cash equivalents at beginning of period |
|
$ |
23,720 |
|
|
$ |
26,652 |
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
23,785 |
|
|
$ |
25,802 |
|
|
|
|
|
|
Supplemental Cash Flow: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
5,067 |
|
|
$ |
5,464 |
|
Cash paid for income taxes |
|
|
6,555 |
|
|
|
12,644 |
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
Dividends payable |
|
|
1,053 |
|
|
|
1,052 |
|
Capital leases |
|
|
4 |
|
|
|
603 |
|
|
See Notes to the Consolidated Financial Statements
5
BLACK BOX CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Note 1: Business and Basis of Presentation
Business
Black Box Corporation (Black Box or the Company) is the worlds largest dedicated network
infrastructure services provider. Black Box offers one-source network infrastructure services for
communications systems. The Companys services offerings include design, installation,
integration, monitoring and maintenance of voice, data and integrated communications systems. The
Companys primary services offering is voice solutions (Voice Services); the Company also offers
premise cabling and other data-related services (Data Services) and products. The Company
provides 24/7/365 technical support for all of its solutions which encompass all major voice and
data product manufacturers as well as 118,000 network infrastructure products (Hotline products)
that it sells through its catalog and Internet Web site (such catalog and Internet Web site
business, together with technical support for such business, being referred to as Hotline
Services) and its Voice Services and Data Services (collectively referred to as On-Site
services) offices. As of September 26, 2009, the Company had more than 3,000 professional
technical experts in 192 offices serving more than 175,000 clients in 141 countries throughout the
world. Founded in 1976, Black Box, a Delaware corporation, operates subsidiaries on five
continents and is headquartered near Pittsburgh in Lawrence, Pennsylvania.
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 Companys results for the interim periods presented. The
results as of and for interim periods 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 Companys most recent
Annual Report on Form 10-K as filed with the Securities and Exchange Commission (SEC) for the
fiscal year ended March 31, 2009 (the Form 10-K).
The Companys 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 September 30, 2009 and 2008 were September 26,
2009 and September 27, 2008. References herein to Fiscal Year or Fiscal mean the Companys
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 Company, which is the parent
company, and its subsidiaries. All significant intercompany accounts and transactions have been
eliminated in consolidation.
The preparation of financial statements in conformity with GAAP of America 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 allowances for doubtful accounts
receivable, sales returns, net realizable value of inventories, loss contingencies, warranty
reserves, intangible assets and goodwill. Actual results could differ from those estimates.
Management believes the estimates made are reasonable.
Certain reclassifications have been made to the financial statements for prior periods in order to
conform to the presentation for the three (3) and six (6) months ended September 30, 2009. The
Company evaluated subsequent events through the date the accompanying financial statements were
issued, which was November 5, 2009.
6
Note 2: Significant Accounting Policies / Recent Accounting Pronouncements
Significant Accounting Policies
The significant accounting policies used in the preparation of the Companys consolidated financial
statements are disclosed in Note 2 of the Notes to the Consolidated Financial Statements within the
Form 10-K. Additional significant accounting policies
adopted during Fiscal 2010 are disclosed below.
Stock-Based Compensation
Restricted stock units: The Company records expense for those stock awards, vesting during the
period, for which the requisite service period is expected to be rendered. The Company uses
historical data in order to project the future employee turnover rates used to estimate the number
of restricted stock units for which the requisite service period will not be rendered. 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 Companys common stock, par value $.001 (the common stock) on
the date of grant. The Company recognizes the fair value of awards into expense ratably over the
requisite service periods associated with the award.
Performance share awards: The Company records expense for those stock awards, vesting during the
period, for which the requisite service period is expected to be rendered. The Company uses
historical data in order to project the future employee turnover rates used to estimate the number
of performance shares for which the requisite service period will not be rendered. The fair value
of performance share awards subject to a cumulative Adjusted EBITDA target (as defined in the
performance share award agreement) 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 Company recognizes the
fair value of awards into expense ratably over the requisite service periods associated with the
award. The probability of vesting of the award and the applicable number of shares of common stock
to be issued are reassessed at each period end. The fair value of performance share awards subject
to the Companys total shareholder return ranking relative to the total shareholder return of the
common stock (or its equivalent) of the companies in a peer group (the Companys Relative TSR
Ranking) is determined on the grant date using a Monte-Carlo simulation valuation method which
includes several subjective assumptions. The Company recognizes the fair value of these awards into
expense ratably over the requisite service periods associated with the award. The assumptions are
summarized as follows:
Expected Volatility. The Company estimates the volatility of its common stock at the date of grant
based on the historical volatility of its common stock.
Risk-Free Rate. The Company derives its risk-free interest rate on the observed interest rates
with an equivalent remaining term equal to the expected life of the award.
Dividend yield. The Company estimates the dividend yield assumption based on the Companys
historical and projected dividend payouts.
Recent Accounting Pronouncements
Fair Value Measurements
In September, 2006, the Financial Accounting Standards Board (FASB) issued guidance on Fair
Value Measurements, which defines fair value, establishes a framework for measuring fair value in
generally accepted accounting principles and expands disclosures about fair value measurements. On
April 1, 2008, the Company adopted this guidance, with the exception of a one-year deferral of
implementation for non-financial assets and liabilities that are not recognized or disclosed at
fair value in the financial statements on a recurring basis (at least annually), which was adopted
on April 1, 2009. The significant categories of assets and liabilities included in the Companys
deferred implementation are non-financial assets and liabilities initially measured at fair value
in a business combination and impairment assessments of long-lived assets, goodwill and intangible
assets. The requirements of this guidance were applied prospectively. The adoption of the
portions of this guidance which were permitted to be initially deferred did not have a material
impact on the Companys consolidated financial statements.
Non-controlling Interests
In December, 2007, the FASB issued guidance on Noncontrolling Interests in Consolidated Financial
Statements. This guidance establishes accounting and reporting standards for the non-controlling
interest in a subsidiary and for the deconsolidation of a subsidiary. This guidance clarifies that
a non-controlling interest in a subsidiary is an ownership interest in the consolidated entity that
should be reported as equity in the consolidated financial statements. This guidance requires
consolidated net income to be reported at amounts that include the amounts attributable to both the
parent and the non-controlling interest. The adoption of this guidance did not have a material
impact on the Companys consolidated financial statements.
7
Business Combinations
In December, 2007, the FASB issued guidance on Business Combinations. This guidance defines the
acquirer as the entity that obtains control of one or more businesses in the business combination,
establishes the acquisition date as the date that the
acquirer achieves control and requires the acquirer to recognize the assets acquired, liabilities
assumed and any non-controlling interest at their fair values as of the acquisition date. This
guidance requires, among other things, that acquisition-related costs be recognized separately from
the acquisition. In April, 2009, the FASB issued guidance on the Accounting for Assets Acquired
and Liabilities Assumed in a Business Combination That Arise from Contingencies, which amends the
provisions related to the initial recognition and measurement, subsequent measurement and
disclosure of assets and liabilities arising from contingencies in a business combination. For the
Company, this guidance applies prospectively to business combinations for which the acquisition
date is on or after April 1, 2009. This guidance may have a material impact on business
combinations after adoption, but the impact will depend on the facts and circumstances of those
specific business combinations.
Useful lives of Intangible Assets
In April, 2008, the FASB issued guidance on Determination of the Useful Life of Intangible
Assets. This guidance provides the factors that should be considered in developing assumptions
about renewal or extension used in estimating the useful life of a recognized intangible asset and
expands the disclosure requirements. The provisions of this guidance for determining the useful
life of a recognized intangible asset will be applied prospectively to intangible assets acquired
after adoption. The disclosure requirements shall be applied prospectively to all intangible
assets recognized as of, and subsequent to, adoption. The adoption of this guidance did not have a
material impact on the Companys consolidated financial statements.
Postretirement Benefit Plan Assets
In December, 2008, the FASB issued guidance on Employers Disclosures about Postretirement Benefit
Plan Assets regarding disclosures about plan assets of defined benefit pension or other
postretirement plans. This guidance is effective for financial statements issued for fiscal years
ending after December 15, 2009. The Company is evaluating the impact of the adoption of this
guidance on its consolidated financial statements.
Interim Disclosures about Fair Value of Financial Instruments
In April, 2009, the FASB issued guidance on Interim Disclosures about Fair Value of Financial
Instruments, which require disclosures about fair value of financial instruments for interim
reporting periods in addition to the existing requirement for annual financial statements. The
adoption of this guidance did not have a material impact on the Companys consolidated financial
statements.
Subsequent Events
In May, 2009, the FASB issued guidance on Subsequent Events. This guidance establishes standards
for the accounting and disclosure of subsequent events (events which occur after the balance sheet
date but before financial statements are issued or are available to be issued). This guidance
requires an entity to disclose the date subsequent events were evaluated and whether that
evaluation took place on the date financial statements were issued or were available to be issued.
The adoption of this guidance did not have a material impact on the Companys consolidated
financial statements.
FASB Accounting Standards Codification
In June, 2009, the FASB issued Accounting Standards Codification (ASC) Update 2009-01, The FASB
Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles-a
replacement of FASB Statement No. 162 (ASC Update 2009-01). ASC Update 2009-01 is intended to
be the source of authoritative generally accepted accounting principles and reporting standards.
Its primary purpose is to improve clarity and use of existing standards by grouping authoritative
literature under common topics. ASC Update 2009-01 is effective for financial statements issued
for interim and annual periods ending after September 15, 2009. ASC Update 2009-01 does not change
or alter existing GAAP. The adoption of ASC Update 2009-01 did not have a material impact on the
Companys consolidated financial statements.
Revenue Arrangements with Multiple Deliverables
In October, 2009, the FASB issued ASC Update 2009-13, Revenue Recognition (Topic 605) (ASC
Update 2009-13). ASC Update 2009-13 provides amendments to the criteria in Subtopic 605-24 for
separating consideration in multiple-deliverable revenue arrangements. It establishes a hierarchy
of selling prices to determine the selling price of each specific deliverable which includes
vendor-specific objective evidence (if available), third-party evidence (if vendor-specific
evidence is not available) or estimated selling price if neither of the first two are available.
ASC Update 2009-13 also eliminates the residual method for allocating revenue between the elements
of an arrangement and requires that arrangement consideration be allocated at the inception of the
arrangement. Finally, ASC Update 2009-13 expands the disclosure requirements regarding a vendors
multiple-deliverable revenue arrangements. ASC Update 2009-13 should be applied on a prospective
basis for revenue arrangements entered into or materially modified in fiscal years beginning on or
after June 15, 2010. The Company is evaluating the impact of the adoption of ASC Update 2009-13 on
its consolidated financial statements.
8
Note 3: Inventories
The Companys inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
March 31, 2009 |
|
|
Raw materials |
|
$ |
1,516 |
|
|
$ |
1,624 |
|
Finished goods |
|
|
71,591 |
|
|
|
74,564 |
|
|
|
|
|
|
Subtotal |
|
$ |
73,107 |
|
|
$ |
76,188 |
|
Excess and obsolete inventory reserves |
|
|
(19,838) |
|
|
|
(20,290) |
|
|
|
|
|
|
Inventory, net |
|
$ |
53,269 |
|
|
$ |
55,898 |
|
|
Note 4: Goodwill
The following table summarizes changes to Goodwill at the Companys reporting units for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North |
|
|
|
|
|
|
|
|
|
|
|
|
America |
|
|
Europe |
|
|
All Other |
|
|
Total |
|
|
Balance as of March 31, 2009 |
|
$ |
555,270 |
|
|
$ |
64,672 |
|
|
$ |
2,006 |
|
|
$ |
621,948 |
|
Currency translation |
|
|
(16) |
|
|
|
7,561 |
|
|
|
87 |
|
|
|
7,632 |
|
Prior period acquisitions |
|
|
17,023 |
|
|
|
-- |
|
|
|
-- |
|
|
|
17,023 |
|
|
|
|
|
|
|
|
|
|
Balance as of September 30, 2009 |
|
$ |
572,277 |
|
|
$ |
72,233 |
|
|
$ |
2,093 |
|
|
$ |
646,603 |
|
|
Note 5: Intangible Assets
The following table summarizes the gross carrying amount, accumulated amortization and net carrying
amount by intangible asset class for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
March 31, 2009 |
|
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
Carrying |
|
|
Accum. |
|
|
Carrying |
|
|
Carrying |
|
|
Accum. |
|
|
Carrying |
|
|
|
Amount |
|
|
Amort. |
|
|
Amount |
|
|
Amount |
|
|
Amort. |
|
|
Amount |
|
|
Definite-lived |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreements |
|
$ |
11,171 |
|
|
$ |
7,662 |
|
|
$ |
3,509 |
|
|
$ |
15,115 |
|
|
$ |
6,517 |
|
|
$ |
8,598 |
|
Customer relationships |
|
|
109,261 |
|
|
|
19,588 |
|
|
|
89,673 |
|
|
|
120,077 |
|
|
|
14,966 |
|
|
|
105,111 |
|
Acquired backlog |
|
|
13,500 |
|
|
|
13,500 |
|
|
|
-- |
|
|
|
14,230 |
|
|
|
12,883 |
|
|
|
1,347 |
|
|
|
|
|
|
Total |
|
$ |
133,932 |
|
|
$ |
40,750 |
|
|
$ |
93,182 |
|
|
$ |
149,422 |
|
|
$ |
34,366 |
|
|
$ |
115,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
35,992 |
|
|
|
8,253 |
|
|
|
27,739 |
|
|
|
35,992 |
|
|
|
8,253 |
|
|
|
27,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
169,924 |
|
|
$ |
49,003 |
|
|
$ |
120,921 |
|
|
$ |
185,414 |
|
|
$ |
42,619 |
|
|
$ |
142,795 |
|
|
The Companys indefinite-lived intangible assets consist solely of the Companys trademark
portfolio. The Companys definite-lived intangible assets are comprised of employee non-compete
agreements, customer relationships and backlog obtained through business acquisitions.
The following table summarizes the changes to carrying amounts of intangible assets for the periods
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Competes |
|
|
Customer |
|
|
|
|
|
|
Trademarks |
|
|
and Backlog |
|
|
Relationships |
|
|
Total |
|
|
Balance at March 31, 2009 |
|
$ |
27,739 |
|
|
$ |
9,945 |
|
|
$ |
105,111 |
|
|
$ |
142,795 |
|
Amortization expense |
|
|
-- |
|
|
|
(1,573) |
|
|
|
(4,622) |
|
|
|
(6,195) |
|
Prior period acquisitions |
|
|
-- |
|
|
|
(4,891) |
|
|
|
(10,816) |
|
|
|
(15,707) |
|
Currency translation |
|
|
-- |
|
|
|
28 |
|
|
|
-- |
|
|
|
28 |
|
|
|
|
|
|
|
|
|
|
Balance at September 30, 2009 |
|
$ |
27,739 |
|
|
$ |
3,509 |
|
|
$ |
89,673 |
|
|
$ |
120,921 |
|
|
9
Intangibles amortization was $2,150 and $1,900 for the three (3) months ended September 30, 2009
and 2008, respectively, and $6,195 and $3,726 for the six (6) months ended September 30, 2009 and
2008, respectively. The Company acquired definite-lived intangibles from the completion of several
acquisitions during Fiscal 2009. Intangibles amortization for certain Fiscal
2009 acquisitions are based on preliminary allocations of purchase price and is dependant upon
certain estimates and assumptions, which are preliminary, and when finalized, may vary from the
amounts reported herein.
The following table details the estimated intangibles amortization expense for the remainder of
Fiscal 2010, each of the succeeding four fiscal years and the periods thereafter. These estimates
are based on the carrying amounts of intangible assets as of September 30, 2009 that are subject to
change pending the outcome of purchase accounting related to certain acquisitions:
|
|
|
|
|
Fiscal |
|
|
|
|
|
2010 |
$ |
|
5,661 |
|
2011 |
|
|
10,673 |
|
2012 |
|
|
10,203 |
|
2013 |
|
|
8,918 |
|
2014 |
|
|
7,906 |
|
Thereafter |
|
|
49,821 |
|
|
|
|
Total |
$ |
|
93,182 |
|
|
Note 6: Indebtedness
The Companys long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
March 31, 2009 |
|
|
Revolving credit agreement |
|
$ |
221,335 |
|
|
$ |
247,650 |
|
Capital lease obligations |
|
|
2,307 |
|
|
|
2,908 |
|
Other |
|
|
26 |
|
|
|
99 |
|
|
|
|
|
|
Total debt |
|
$ |
223,668 |
|
|
$ |
250,657 |
|
Less: current portion (included in Other liabilities) |
|
|
(1,075) |
|
|
|
(1,397) |
|
|
|
|
|
|
Long-term debt |
|
$ |
222,593 |
|
|
$ |
249,260 |
|
|
Revolving Credit Agreement
On January 30, 2008, the Company entered into a Third Amended and Restated Credit Agreement dated
as of January 30, 2008 (the Credit Agreement) with Citizens Bank of Pennsylvania, as agent, and a
group of lenders. The Credit Agreement expires on January 30, 2013. Borrowings under the Credit
Agreement are permitted up to a maximum amount of $350,000, which includes up to $20,000 of
swing-line loans and $25,000 of letters of credit. The Credit Agreement may be increased by the
Company up to an additional $100,000 with the approval of the lenders and may be unilaterally and
permanently reduced by the Company to not less than the then outstanding amount of all borrowings.
Interest on outstanding indebtedness under the Credit Agreement accrues, at the Companys option,
at a rate based on either: (a) the greater of (i) the prime rate per annum of the agent then in
effect and (ii) 0.50% plus the rate per annum announced by the Federal Reserve Bank of New York as
being the weighted-average of the rates on overnight Federal funds transactions arranged by Federal
funds brokers on the previous trading day or (b) a rate per annum equal to the LIBOR rate plus
0.50% to 1.125% (determined by a leverage ratio based on the Companys consolidated EBITDA). The
Credit Agreement requires the Company to maintain compliance with certain non-financial and
financial covenants such as leverage and fixed-charge coverage ratios. As of September 30, 2009,
the Company was in compliance with all financial covenants under the Credit Agreement.
The maximum amount of debt outstanding under the Credit Agreement, the weighted average balance
outstanding under the Credit Agreement and the weighted average interest rate on all outstanding
debt for the three (3) months ended September 30, 2009 was $251,095, $243,393 and 1.4%,
respectively, compared to $244,500, $221,457 and 3.5%, respectively, for the three (3) months ended
September 30, 2008. The maximum amount of debt outstanding under the Credit Agreement, the
weighted average balance outstanding under the Credit Agreement and the weighted average interest
rate on all outstanding debt for the six (6) months ended September 30, 2009 was $261,750, $249,113
and 1.5%, respectively, compared to $244,500, $216,384 and 3.6%, respectively, for the six (6)
months ended September 30, 2008.
Capital lease obligations
The capital lease obligations are primarily for equipment. The lease agreements have remaining
terms ranging from less than one year to four years with interest rates ranging from 3.3% to 12.2%.
10
Other
Other debt is comprised of other third-party, non-employee loans. The loans have remaining terms
of less than one to four years with interest rates ranging from 6.0% to 7.2%.
Unused available borrowings
As of September 30, 2009, the Company had $4,256 outstanding in letters of credit and $124,409
available under the 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 Companys derivatives reflects this credit risk.
Foreign Currency Contracts:
The Company enters into foreign currency contracts to hedge exposure to variability in expected
fluctuations in foreign currencies. As of September 30, 2009, 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 which have been designated as cash
flow hedges. These contracts had a notional amount of $73,617 and will expire within eleven (11)
months. There was no hedge ineffectiveness for the six (6) months ended September 30, 2009 and
2008, respectively.
Interest-rate Swaps:
On July 26, 2006, the Company entered into a five-year floating-to-fixed interest-rate swap that is
based on a 3-month LIBOR rate versus a 5.44% fixed rate, has a notional value of $100,000 reducing
to $50,000 after three years and does not qualify for hedge accounting. On June 15, 2009, the
Company entered into a three-year floating-to-fixed interest-rate swap that is based on a 3-month
LIBOR rate versus a 2.28% fixed rate, has a notional value of $100,000 reducing to $50,000 after
two years and does not qualify for hedge accounting. Each interest-rate swap discussed above is
collectively hereinafter referred to as the interest-rate swaps.
The following tables detail the effect of derivative instruments on the Companys Consolidated
Balance Sheets and Consolidated Statements of Income for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset Derivatives |
|
Liability Derivatives |
|
|
|
|
|
|
|
Fair Value |
|
|
Fair |
|
|
Fair Value |
|
|
Fair |
|
|
|
|
|
|
|
at |
|
|
Value at |
|
|
at |
|
|
Value at |
|
|
|
|
|
|
|
September |
|
|
March 31, |
|
|
September |
|
|
March 31, |
|
|
|
Classification |
|
|
30, 2009 |
|
|
2009 |
|
|
30, 2009 |
|
|
2009 |
|
|
Derivatives
designated as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency |
|
liabilities |
$ |
| -- |
|
$ |
|
-- |
|
$ |
|
1,296 |
|
$ |
|
1,872 |
|
contracts |
|
(short-term) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Prepaid and |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency |
|
other current |
|
$ |
|
3,035 |
|
$ |
|
923 |
|
$ |
|
-- |
|
$ |
|
-- |
|
contracts |
|
assets |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not
designated
as hedging instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate swaps |
|
Liabilities |
|
$ |
|
-- |
|
$ |
|
-- |
|
$ |
|
5,513 |
|
$ |
|
5,336 |
|
|
|
(short-term) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
Classification |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Derivatives designated as hedging
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in |
|
Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income on (effective |
|
comprehensive |
|
$ |
(433 |
) |
|
$ |
86 |
|
|
$ |
(578 |
) |
|
$ |
304 |
|
portion) net of taxes |
|
income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(Gain) loss reclassified from
AOCI into |
|
Selling, general |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
income (effective portion) net of taxes |
|
& administrative |
|
$ |
119 |
|
|
$ |
29 |
|
|
$ |
190 |
|
|
$ |
(6 |
) |
|
|
expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended |
|
|
Six months ended |
|
|
|
|
|
|
|
September 30, |
|
|
September 30, |
|
|
|
Classification |
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Derivatives not designated as hedging
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in income |
|
Interest expense |
|
$ |
(380 |
) |
|
$ |
169 |
|
|
$ |
(177 |
) |
|
$ |
2,877 |
|
|
(income), net |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 8: Acquisitions
Fiscal 2010 acquisitions:
There have been no acquisitions during the three (3) and six (6) month ended September 30, 2009.
Fiscal 2009 acquisitions:
During the fourth quarter of Fiscal 2009, the Company acquired Scottel Voice & Data, Inc.
(Scottel), a privately-held company headquartered in Culver City, CA. Scottel has an active
customer base which includes commercial, education and various government agency accounts. In
connection with the Scottel acquisition, the Company has made a preliminary allocation to goodwill
and definite-lived intangible assets, respectively. The definite-lived intangible assets recorded
represent the estimated fair market value of customer relationships and non-compete agreements
which the Company estimates are to be amortized over a period of three to 10 years.
During the third quarter of Fiscal 2009, the Company acquired Network Communications Technologies,
Inc. (NCT), a privately-held company based out of Charlotte, NC. NCT has an active customer base
which includes commercial, education and various government agency accounts. In connection with
the NCT acquisition, the Company has made a preliminary allocation to goodwill and definite-lived
intangible assets, respectively. The definite-lived intangible assets recorded represent the
estimated fair market value of customer relationships and non-compete agreements which the Company
estimates are to be amortized over a period of two to 15 years.
Also, during the third quarter of Fiscal 2009, the Company acquired ACS Communications, Inc.
(ACS), a privately-held company based out of Austin, TX. ACS has an active customer base which
includes commercial, education and various government agency accounts. In connection with the ACS
acquisition, the Company has made a preliminary allocation to goodwill and definite-lived
intangible assets, respectively. The definite-lived intangible assets recorded represent the
estimated fair market value of customer relationships and non-compete agreements which the Company
estimates are to be amortized over a period of five to nine years.
During the second quarter of Fiscal 2009, the Company acquired Mutual Telecom Services Inc.
(MTS), a privately-held company based out of Needham, MA. MTS is a global telecommunications
services and solutions provider primarily servicing clients in the Department of Defense and other
federal agencies. In connection with the MTS acquisition, the Company made allocations to goodwill
and definite-lived intangible assets, respectively. The definite-lived intangible assets recorded
represent the fair market value of customer relationships, non-compete agreements and backlog which
will be amortized over a period of one to 13 years.
During the first quarter of Fiscal 2009, the Company acquired UCI Communications LLC (UCI), a
privately-held company based out of Mobile, AL. UCI has an active customer base which includes
commercial, education and various government agency accounts. In connection with the UCI
acquisition, the Company made allocations to goodwill and definite-lived
intangible assets, respectively. The definite-lived intangible assets recorded represent the fair
market value of customer relationships and non-compete agreements which will be amortized over a
period of five to nine years.
12
The acquisitions of Scottel, NCT, ACS, MTS and UCI, both individually and in the aggregate, did not
have a material impact on the Companys consolidated financial statements.
As disclosed above, the allocation of the purchase price for Scottel, ACS and NCT is based on
preliminary estimates of the fair values of certain assets acquired and liabilities assumed as of
the date of the acquisition. Management is currently assessing the fair values of the tangible and
intangible assets acquired and liabilities assumed. The preliminary allocations of purchase price
are dependant upon certain estimates and assumptions, which are preliminary and may vary from the
amounts reported herein.
The results of operations of Scottel, NCT, ACS, MTS and UCI are included within the Companys
Consolidated Statements of Income beginning on their respective acquisition dates.
Note 9: 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 charges) in an attempt to right-size the organization
and more appropriately align the expense structure with anticipated revenues and changing market
demand for its solutions and services. Employee severance is generally payable within the next six
(6) months with certain facility costs extending through Fiscal 2014.
The Company incurred restructuring charges of $649 and $841 for the three (3) months ended
September 30, 2009 and 2008, respectively, and $1,763 and $1,023 for the six (6) months ended
September 30, 2009 and 2008, respectively. These costs have been recorded in Selling, general &
administrative expenses in the Companys Consolidated Statements of Income.
The following table summarizes the changes to the restructuring reserve for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee |
|
|
|
|
|
|
|
|
Severance |
|
Facility Closures |
|
Total |
|
|
Balance at March 31, 2009 |
|
$ |
4,165 |
|
|
$ |
6,349 |
|
|
$ |
10,514 |
|
Restructuring charge |
|
|
1,662 |
|
|
|
101 |
|
|
|
1,763 |
|
Acquisition adjustments |
|
|
26 |
|
|
|
-- |
|
|
|
26 |
|
Asset write-downs |
|
|
-- |
|
|
|
(158) |
|
|
|
(158) |
|
Cash expenditures |
|
|
(4,498) |
|
|
|
(1,775) |
|
|
|
(6,273) |
|
|
|
|
|
|
|
|
Balance at September 30, 2009 |
|
$ |
1,355 |
|
|
$ |
4,517 |
|
|
$ |
5,872 |
|
|
Of the $5,872 above, $3,637 is classified as a current liability under Other liabilities on the
Companys Consolidated Balance Sheets for the period ended September 30, 2009.
Note 10: Income Taxes
The Company recorded income tax expense of $4,912, an effective tax rate of 37.5%, and $8,218, an
effective tax rate of 36.5%, for the three (3) months ended September 30, 2009 and 2008,
respectively, and $9,593, an effective tax rate of 37.5%, and $15,594, an effective tax rate of
36.5%, for the six (6) months ended September 30, 2009 and 2008, respectively. The effective rate
for the six (6) months ended September 30, 2009 of 37.5% differs from the federal statutory rate
primarily due to state income taxes, foreign currency exchange effects on previously-taxed income
and interest and penalties related to uncertain income tax positions partially offset by foreign
earnings taxed at a lower statutory rate.
The Company provides for income taxes at the end of each interim period based on the estimated
effective tax rate for the full fiscal year. Cumulative adjustments to the Companys estimate are
recorded in the interim period in which a change in the estimated annual effective rate is
determined.
During Fiscal 2008, the Internal Revenue Service (IRS) commenced an examination of the Companys
U.S. federal income tax return for Fiscal 2006 and continued its examination of the Companys U.S.
federal income tax return for Fiscal 2004 and Fiscal 2005. During Fiscal 2009, the IRS proposed
and the Company accepted certain tax adjustments for Fiscal 2004, Fiscal 2005 and Fiscal 2006.
During the first quarter of Fiscal 2010, the IRS concluded its audits of tax years 2004, 2005 and
2006 with no further adjustments; however, those tax years remain open to re-examination until the
statute of limitations expires in December 2009.
Fiscal 2008 and Fiscal 2007 remain open to examination by the IRS. Fiscal 2004 through Fiscal 2008
remain open to examination by state and foreign taxing jurisdictions.
13
Note 11: Stock-based Compensation
On August 12, 2008 (the Effective Date), the Companys stockholders approved the 2008 Long-Term
Incentive Plan (the Incentive Plan) which is designed to advance the Companys interests and the
interests of Companys stockholders by providing incentives to certain employees, directors,
consultants, independent contractors and persons to whom an offer of employment has been extended
by the Company (hereinafter referred to as Eligible Persons). The Incentive Plan replaced the
1992 Stock Option Plan, as amended (the Employee Plan), and the 1992 Director Stock Option Plan,
as amended (the Director Plan), on the Effective Date. Stock option grants under the Employee
Plan and the Director Plan, prior to the effective date of the Incentive Plan, remain outstanding
and will continue to be administered in accordance with the terms of their respective plans and
plan agreements.
Awards (as defined below) under the Incentive Plan may include, but need not be limited to, one or
more of the following types, either alone or in any combination thereof: (i) stock options,
(ii) stock appreciation rights, (iii) restricted stock, (iv) restricted stock units,
(v) performance grants, (vi) other share-based awards and (vii) any other type of award deemed by
the Compensation Committee of the Board of Directors of the Company (the Board) or any successor
thereto, or such other committee of the Board as is appointed by the Board to administer the
Incentive Plan, in its sole discretion, to be consistent with the purposes of the Incentive Plan
(hereinafter referred to as Awards).
The maximum aggregate number of shares of common stock available for issuance under Awards granted
under the Incentive Plan shall be 900,000 plus the number of shares that remain available for the
grant of stock options under the Employee Plan and the Director Plan on the Effective Date, plus
the number of shares subject to stock options outstanding under the Employee Plan and the Director
Plan on the Effective Date that are forfeited or cancelled prior to exercise. The following table
details the shares of common stock available for grant under the Incentive Plan as of September 30,
2009.
|
|
|
|
|
Shares in thousands |
| |
Shares |
|
|
|
|
|
|
|
Shares initially authorized under the Incentive Plan |
|
|
900 |
|
|
|
|
|
|
Number of shares that were available for the grant of stock options under the Employee
Plan and the Director Plan on August 12, 2008, the Effective Date |
|
|
888 |
|
|
|
|
|
|
Number of shares subject to stock options outstanding under the Employee Plan and the
Director Plan on
August 12, 2008, the Effective Date, that were forfeited or cancelled,
prior to exercise, through September 30, 2009 |
|
|
559 |
|
|
|
|
|
Shares authorized for grant under the Incentive Plan as of September 30, 2009 |
|
|
2,347 |
|
|
|
|
|
|
Shares available for grant under the Incentive Plan as of September 30, 2009 1 |
|
|
1,670 |
|
|
1 The aggregate number of shares available for issuance is reduced by 1.87 shares for
each issuance of a full value award (e.g., restricted stock units and performance shares). |
The Company recognized stock-based compensation expense of $1,636 ($1,022 net of tax) or $0.06 per
diluted share and $840 ($533 net of tax) or $0.03 per diluted share for the three (3) months ended
September 30, 2009 and 2008, respectively, and $3,279 ($2,049 net of tax) or $0.12 per diluted
share and $1,382 ($878 net of tax) or $0.05 per diluted share for the six (6) months ended
September 30, 2009 and 2008, respectively. Stock-based compensation expense is recorded in
Selling, general & administrative expense within the Companys Consolidated Statements of Income.
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 (10) 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.
14
|
|
|
|
|
|
|
|
|
|
|
Six (6) months ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
Expected life (in years) |
|
|
5.0 |
|
|
|
4.8 |
|
Risk free interest rate |
|
|
2.6% |
|
|
|
3.4% |
|
Annual forfeiture rate |
|
|
2.2% |
|
|
|
2.4% |
|
Volatility |
|
|
45.6% |
|
|
|
30.4% |
|
Dividend yield |
|
|
0.9% |
|
|
|
0.7% |
|
|
The following table summarizes the Companys stock option activity for the period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
Remaining |
|
|
|
|
|
|
|
|
|
|
Average |
|
|
Contractual |
|
|
Intrinsic |
|
|
|
Shares |
|
|
Exercise |
|
|
Life |
|
|
Value |
|
|
|
(in 000s) |
|
|
Price |
|
|
(Years) |
|
|
(000s) |
|
|
Outstanding at March 31, 2009 |
|
|
3,309 |
|
|
$ |
36.45 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
167 |
|
|
|
33.11 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(251) |
|
|
|
43.82 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at September 30, 2009 |
|
|
3,225 |
|
|
$ |
35.70 |
|
|
|
6.1 |
|
|
$ |
-- |
|
Exercisable at September 30, 2009 |
|
|
2,338 |
|
|
$ |
37.93 |
|
|
|
5.1 |
|
|
$ |
-- |
|
|
The weighted-average grant-date fair value of options granted during the six (6) months ended
September 30, 2009 and 2008 was $12.54 and $8.65, respectively. The aggregate intrinsic value in
the preceding table represents the total pre-tax intrinsic value, based on the Companys average
stock price (i.e., the average of the open and close prices of the common stock) on September 25,
2009 of $25.29, which would have been received by the optionholders had all optionholders exercised
their options as of that date.
The following table summarizes certain information regarding the Companys non-vested stock options
for the period presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
Shares |
|
|
Average Grant- |
|
|
|
(in 000s) |
|
|
Date Fair Value |
|
|
Non-vested as of March 31, 2009 |
|
|
1,089 |
|
|
$ |
8.85 |
|
Granted |
|
|
167 |
|
|
|
12.54 |
|
Forfeited |
|
|
(9) |
|
|
|
8.56 |
|
Vested |
|
|
(360) |
|
|
|
8.85 |
|
|
|
|
| |
|
Non-vested as of September 30, 2009 |
|
|
887 |
|
|
$ |
9.54 |
|
|
As of September 30, 2009, there was $6,583 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 1.8 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 Companys restricted stock unit activity for the period
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
Shares |
|
|
Average Grant- |
|
|
|
(in 000s) |
|
|
Date Fair Value |
|
|
Outstanding at March 31, 2009 |
|
|
-- |
|
|
$ |
-- |
|
Granted |
|
|
168 |
|
|
|
29.12 |
|
Vested |
|
|
(15) |
|
|
|
33.11 |
|
Forfeited |
|
|
-- |
|
|
|
-- |
|
|
|
|
Outstanding at September 30, 2009 |
|
|
153 |
|
|
$ |
28.73 |
|
|
The total fair value of shares vested during the six (6) months ended September 30, 2009 and 2008
was $497 and $0, respectively.
As of September 30, 2009, there was $3,917 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 2.7 years.
15
Performance share awards
Performance share awards are subject to certain performance goals including the Companys Relative
TSR Ranking and cumulative Adjusted EBITDA over a two-year period. The Companys Relative TSR
Ranking metric is based on the two-year cumulative return to shareholders 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 Companys Relative TSR Ranking) is
estimated on the grant date using the Monte-Carlo simulation which includes the following
weighted-average assumptions.
|
|
|
|
|
|
|
|
|
|
|
Six (6) months ended September 30, |
|
|
2009 |
|
2008 |
|
|
Expected Volatility |
|
|
59.1 |
% |
|
|
-- |
|
Risk free interest rate |
|
|
1.1 |
% |
|
|
-- |
|
Dividend yield |
|
|
0.8 |
% |
|
|
-- |
|
|
The following table summarizes the Companys performance share award activity for the period
presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
| |
Weighted- |
|
|
|
Shares |
|
|
|
Average Grant- |
|
|
|
(in 000s) |
|
|
|
Date Fair Value |
|
|
Outstanding at March 31, 2009 |
|
|
-- |
|
|
$ |
-- |
|
Granted |
|
|
100 |
|
|
|
33.05 |
|
Vested |
|
|
-- |
|
|
|
-- |
|
Forfeited |
|
|
-- |
|
|
|
-- |
|
|
|
Outstanding at September 30, 2009 |
|
|
100 |
|
|
$ |
33.05 |
|
|
No shares vested during the six (6) months ended September 30, 2009 and 2008.
As of September 30, 2009, there was $2,815 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 1.7 years.
Note 12: Earnings Per Share
The following table details the computation of basic and diluted earnings per common share from
continuing operations for the periods presented (share numbers in thousands):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three (3) months ended |
|
|
Six (6) months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Net income |
|
$ |
8,186 |
|
|
$ |
14,299 |
|
|
$ |
15,988 |
|
|
$ |
27,132 |
|
|
|
|
|
|
|
Weighted-average common shares outstanding
(basic) |
|
|
17,548 |
|
|
|
17,524 |
|
|
|
17,544 |
|
|
|
17,520 |
|
Effect of dilutive securities from equity awards |
|
|
-- |
|
|
|
4 |
|
|
|
-- |
|
|
|
2 |
|
|
|
|
|
|
Weighted-average common shares outstanding
(diluted) |
|
|
17,548 |
|
|
|
17,528 |
|
|
|
17,544 |
|
|
|
17,522 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.47 |
|
|
$ |
0.82 |
|
|
$ |
0.91 |
|
|
$ |
1.55 |
|
|
|
|
|
|
Dilutive earnings per common share |
|
$ |
0.47 |
|
|
$ |
0.82 |
|
|
$ |
0.91 |
|
|
$ |
1.55 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 3,477,658 and 2,240,189 non-dilutive equity awards outstanding for the three (3) months ended
September 30, 2009 and 2008, respectively, and 3,465,354 and 2,240,189 non-dilutive equity awards
outstanding for the six (6) months ended September 30, 2009 and 2008, respectively, that are not
included in the corresponding period Weighted-average common shares outstanding (diluted)
computation.
16
Note 13: Comprehensive income and AOCI
The following table details the computation of comprehensive income for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three (3) months ended |
|
|
Six (6) months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Net income |
|
$ |
8,186 |
|
|
$ |
14,299 |
|
|
$ |
15,988 |
|
|
$ |
27,132 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
3,967 |
|
|
|
(12,464) |
|
|
|
15,470 |
|
|
|
(12,881) |
|
Derivative Instruments (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of cash flow hedging
instruments (net of tax) |
|
|
(433) |
|
|
|
86 |
|
|
|
(578) |
|
|
|
304 |
|
Amounts reclassified into results of operations |
|
|
119 |
|
|
|
29 |
|
|
|
190 |
|
|
|
(6) |
|
Pension (net of tax): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) |
|
|
(9) |
|
|
|
-- |
|
|
|
(139) |
|
|
|
-- |
|
Amounts reclassified into results of operations |
|
|
35 |
|
|
|
-- |
|
|
|
70 |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
$ |
3,679 |
|
|
$ |
(12,349) |
|
|
$ |
15,013 |
|
|
$ |
(12,583) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
11,865 |
|
|
$ |
1,950 |
|
|
$ |
31,001 |
|
|
$ |
14,549 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of AOCI consisted of the following for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
September 30, 2009 |
|
|
March 31, 2009 |
|
|
Foreign currency translation adjustment |
|
$ |
21,845 |
|
|
$ |
6,375 |
|
Unrealized gains (losses) on derivatives designated and qualified
as cash flow hedges |
|
|
(323) |
|
|
|
65 |
|
Unrecognized gain (losses) on defined benefit pension |
|
|
(2,937) |
|
|
|
(2,868) |
|
|
|
|
|
|
Accumulated other comprehensive income |
|
$ |
18,585 |
|
|
$ |
3,572 |
|
|
Note 14: Fair Value Disclosures
The following table presents information about the Companys assets and liabilities measured at
fair value on a recurring basis as of September 30, 2009, and indicate the fair value hierarchy of
the valuation techniques utilized by the Company to determine such fair value.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Assets at Fair Value as of September 30, 2009 |
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Foreign currency contracts |
|
$ |
-- |
|
|
$ |
3,035 |
|
|
$ |
-- |
|
|
$ |
3,035 |
|
|
|
|
Liabilities at Fair Value as of September 30, 2009 |
|
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Foreign currency contracts |
|
$ |
-- |
|
|
$ |
1,296 |
|
|
$ |
-- |
|
|
$ |
1,296 |
|
Interest-rate swaps |
|
|
-- |
|
|
|
5,513 |
|
|
|
-- |
|
|
|
5,513 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
-- |
|
|
$ |
6,809 |
|
|
$ |
-- |
|
|
$ |
6,809 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 15: Segment Reporting
Management reviews financial information for the consolidated Company accompanied by disaggregated
information on revenues, operating income and assets by geographic region for the purpose of making
operational decisions and assessing financial performance. Additionally, Management is presented
with and reviews revenues and gross profit by service type. The accounting policies of the
individual operating segments are the same as those of the Company.
17
The following table presents financial information about the Companys reportable segments by
geographic region for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three (3) months ended |
|
|
Six (6) months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
North America |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
199,928 |
|
|
$ |
211,467 |
|
|
$ |
404,511 |
|
|
$ |
407,803 |
|
Operating income |
|
|
11,813 |
|
|
|
20,163 |
|
|
|
23,388 |
|
|
|
34,647 |
|
Depreciation |
|
|
1,759 |
|
|
|
2,301 |
|
|
|
3,680 |
|
|
|
4,569 |
|
Intangibles amortization |
|
|
2,138 |
|
|
|
1,876 |
|
|
|
6,172 |
|
|
|
3,680 |
|
Assets (as of September 30) |
|
|
1,034,087 |
|
|
|
1,009,034 |
|
|
|
1,034,087 |
|
|
|
1,009,034 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
24,172 |
|
|
$ |
31,753 |
|
|
$ |
48,058 |
|
|
$ |
67,521 |
|
Operating income |
|
|
2,555 |
|
|
|
3,456 |
|
|
|
4,644 |
|
|
|
7,269 |
|
Depreciation |
|
|
93 |
|
|
|
115 |
|
|
|
177 |
|
|
|
242 |
|
Intangibles amortization |
|
|
11 |
|
|
|
19 |
|
|
|
21 |
|
|
|
37 |
|
Assets (as of September 30) |
|
|
134,769 |
|
|
|
148,661 |
|
|
|
134,769 |
|
|
|
148,661 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
7,813 |
|
|
$ |
10,590 |
|
|
$ |
14,556 |
|
|
$ |
21,039 |
|
Operating income |
|
|
1,241 |
|
|
|
1,809 |
|
|
|
2,062 |
|
|
|
3,360 |
|
Depreciation |
|
|
32 |
|
|
|
31 |
|
|
|
60 |
|
|
|
62 |
|
Intangibles amortization |
|
|
1 |
|
|
|
5 |
|
|
|
2 |
|
|
|
9 |
|
Assets (as of September 30) |
|
|
23,606 |
|
|
|
20,922 |
|
|
|
23,606 |
|
|
|
20,922 |
|
|
The sum of the segment revenues, operating income, depreciation and intangibles amortization equals
the consolidated revenues, operating income, depreciation and intangibles amortization. The
following reconciles segment assets to total consolidated assets as of September 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
As of September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
Segment assets for North America, Europe and All Other |
|
$ |
1,192,462 |
|
|
$ |
1,178,617 |
|
Corporate eliminations |
|
|
(59,795) |
|
|
|
(71,085) |
|
|
|
|
|
|
Total consolidated assets |
|
$ |
1,132,667 |
|
|
$ |
1,107,532 |
|
|
The following table presents financial information about the Company by service type for the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three (3) months ended |
|
|
Six (6) months ended |
|
|
|
September 30, |
|
|
September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
Data Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
43,928 |
|
|
$ |
42,714 |
|
|
$ |
95,338 |
|
|
$ |
89,598 |
|
Gross profit |
|
|
12,142 |
|
|
|
12,879 |
|
|
|
26,089 |
|
|
|
26,166 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voice Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
142,474 |
|
|
$ |
154,277 |
|
|
$ |
283,994 |
|
|
$ |
294,307 |
|
Gross profit |
|
|
48,287 |
|
|
|
52,276 |
|
|
|
96,666 |
|
|
|
99,474 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotline Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
45,511 |
|
|
$ |
56,819 |
|
|
$ |
87,793 |
|
|
$ |
112,458 |
|
Gross profit |
|
|
21,845 |
|
|
|
27,902 |
|
|
|
41,932 |
|
|
|
55,559 |
|
|
The sum of service type revenues and gross profit equals consolidated revenues and gross profit.
18
Note 16: Commitments and Contingencies
Regulatory Matters
As previously disclosed, the Company received a subpoena, dated December 8, 2004, from the United
States General Services Administration (GSA), Office of Inspector General. The subpoena requires
production of documents and information. The Company understands that the materials are being
sought in connection with an investigation regarding potential violations of the terms of a GSA
Multiple Award Schedule contract. On October 2, 2007, the Company was contacted by the United
States Department of Justice which informed the Company that it was reviewing allegations by the
GSA that certain of the Companys pricing practices under a GSA Multiple Award Schedule contract
violated the Civil False Claims Act. The Company has executed an agreement with the United States
tolling the statute of limitations on any action by the United States through November 30, 2009 in
order for the parties to discuss the merits of these allegations prior to the possible commencement
of any litigation by the United States.
See Note 10 regarding the status of certain IRS matters.
Litigation Matters
In November 2006, two stockholder derivative lawsuits were filed against the Company itself, as a
nominal defendant, and several of the Companys current and former officers and directors in the
United States District Court for the Western District of Pennsylvania. The two substantially
identical stockholder derivative complaints allege that the individual defendants improperly
backdated grants of stock options to several officers and directors in violation of the Companys
stockholder-approved stock option plans during the period 1996-2002, improperly recorded and
accounted for backdated stock options in violation of generally accepted accounting principles,
improperly took tax deductions based on backdated stock options in violation of the Internal
Revenue Code of 1986, as amended, produced and disseminated false financial statements and SEC
filings to the Companys stockholders and to the market that improperly recorded and accounted for
the backdated option grants, concealed the alleged improper backdating of stock options and
obtained substantial benefits from sales of Company stock while in the possession of material
inside information. The complaints seek damages on behalf of the Company against certain current
and former officers and directors and allege breach of fiduciary duty, unjust enrichment,
securities law violations and other claims. The two lawsuits have been consolidated into a single
action as In re Black Box Corporation Derivative Litigation, Master File No. 2:06-CV-1531-JFC, and
plaintiffs filed an amended consolidated shareholder derivative complaint on August 31, 2007. The
parties have requested that the due date for responses by the defendants, including the Company, be
extended until further order of the court, and the court has entered an order to that effect.
During the second quarter of Fiscal 2010, the Company recorded expense of $3,992, including the
amounts shown below under Expenses Incurred by the Company, in connection with an agreement in
principle for settlement of this action and related matters arising out of the Companys review of
its historical stock option practices. This expense is recorded in Selling, general &
administrative expense within the Companys Consolidated Statements of Income. This settlement is
subject to the execution of documentation regarding the settlement as well as court approval. The
Company may incur additional costs or expenses in relation to this matter that could be material.
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 the matters described
under this caption Litigation Matters are adequately provided for, covered by insurance, without
merit or not probable that an unfavorable outcome will result.
Expenses Incurred by the Company
The Company has incurred significant expenses, in excess of its insurance deductible of $500,
during prior fiscal periods, and expects to continue to incur additional expenses during the
remainder of Fiscal 2010, in relation to the following previously-disclosed items (i) the review by
the Audit Committee of the Board of the Companys historical stock option granting practices and
related accounting for stock option grants, (ii) the informal inquiry and formal order of
investigation by the SEC regarding the Companys past stock option granting practices, (iii) the
derivative action relating to the Companys historical stock option granting practices filed
against the Company as a nominal defendant and certain of the Companys current and former
directors and officers, as to whom it may have indemnification obligations and (iv) related
matters. As of September 30, 2009, the total amount of such fees is $8,777, of which $5,000, the
insurance policy limit, has been paid by the insurance company. The Company recorded expense of
$512 and $332 during the three (3) months ended September 30, 2009 and 2008, respectively, and $776
and $332 during the six (6) months ended September 30, 2009 and 2008, respectively. These expenses
are recorded in Selling, general & administrative expense within the Companys Consolidated
Statements of Income. The amount of expenses that the Company could incur in the future with
respect to these matters could be material.
There has been no other significant or unusual activity during Fiscal 2010.
19
Note 17: Subsequent Events
On October 2, 2009, the Company acquired Quanta Systems, LLC (Quanta), a privately-held company
headquartered in Gaithersburg, MD. Quanta has an active customer base which includes various
United States Department of Defense and government agency accounts. Annual historical revenues of
Quanta are approximately $12 million.
On October 26, 2009, the Company acquired CBS Technologies Corp. (CBS), a privately-held company
headquartered in Islandia, NY. CBS has an active customer base which includes commercial,
education and various government agency accounts. Annual historical revenues of CBS are
approximately $12 million.
The acquisitions of Quanta and CBS, both individually and in the aggregate, will not have a
material impact on the Companys consolidated financial statements.
20
Item 2. Managements Discussion and Analysis of Financial Condition and Results of
Operations.
The discussion and analysis for the three (3) and six (6) months ended September 30, 2009 and 2008
as set forth below in this Item 2 should be read in conjunction with the response to Part 1, Item 1
of this report and the consolidated financial statements of Black Box Corporation (Black Box, the
Company, we or our), including the related notes, and Managements Discussion and Analysis
of Financial Condition and Results of Operations included in the Companys most recent Annual
Report on Form 10-K as filed with the Securities and Exchange Commission (SEC) for the fiscal
year ended March 31, 2009 (the Form 10-K). The Companys fiscal year ends on March 31. The
fiscal quarters consist of 13 weeks and generally end on the Saturday nearest each calendar quarter
end, adjusted to provide relatively equivalent business days for each fiscal quarter. The actual
ending dates for the periods presented as of September 30, 2009 and 2008 were September 26, 2009
and September 27, 2008. References to Fiscal Year or Fiscal mean the Companys fiscal year
ended March 31 for the year referenced. All dollar amounts are presented in thousands unless
otherwise noted.
The Company
Black Box is the worlds largest dedicated network infrastructure services provider. Black Box
offers one-source network infrastructure services for communications systems. The Companys
services offerings include design, installation, integration, monitoring and maintenance of voice,
data and integrated communications systems. The Companys primary services offering is voice
solutions (Voice Services); the Company also offers premise cabling and other data-related
services (Data Services) and products. The Company provides 24/7/365 technical support for all
of its solutions which encompass all major voice and data product manufacturers as well as 118,000
network infrastructure products (Hotline products) that it sells through its catalog and Internet
Web site (such catalog and Internet Web site business, together with technical support for such
business, being referred to as Hotline Services) and its Voice Services and Data Services
(collectively referred to as On-Site services) offices. As of September 30, 2009, the Company
had more than 3,000 professional technical experts in 192 offices serving more than 175,000 clients
in 141 countries throughout the world. Founded in 1976, Black Box, a Delaware corporation,
operates subsidiaries on five continents and is headquartered near Pittsburgh in Lawrence,
Pennsylvania.
Company management (Management) is presented with and reviews revenues and operating income by
geographical segment. In addition, revenues and gross profit information by service type are
provided herein for purposes of further analysis.
The Company has completed several acquisitions from April 1, 2008 through September 30, 2009 that
have had an impact on the Companys consolidated financial statements and, more specifically, North
America Voice Services and North America Data Services for the periods under review. Fiscal 2009
acquisitions include (i) Scottel Voice & Data, Inc. (Scottel), (ii) Network Communications
Technologies, Inc. (NCT), (iii) ACS Communications, Inc. (ACS), (iv) Mutual Telecom Services
Inc. (MTS) and (v) UCI Communications LLC (UCI). The acquisitions noted above are collectively
referred to as the Acquired Companies. The results of operations of the Acquired Companies are
included within the Companys Consolidated Statements of Income beginning on their respective
acquisition dates.
The Company incurs certain expenses (i.e., expenses incurred as a result of certain acquisitions)
that it excludes when evaluating the continuing operations of the Company. The following table is
included to provide a schedule of the current and an estimate of these future expenses for Fiscal
2010 (by quarter) based on information available to the Company as of September 30, 2009.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q10 |
|
|
2Q10 |
|
|
3Q10 |
|
|
4Q10 |
|
|
Fiscal 2010 |
|
|
Selling,
general & administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset write-up depreciation expense on
acquisitions |
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets on
acquisitions |
|
$ |
4,031 |
|
|
$ |
2,134 |
|
|
$ |
2,817 |
|
|
$ |
2,817 |
|
|
$ |
11,799 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,031 |
|
|
$ |
2,134 |
|
|
$ |
2,817 |
|
|
$ |
2,817 |
|
|
$ |
11,799 |
|
|
21
The following table is included to provide a schedule of these expenses during Fiscal 2009 (by
quarter).
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q09 |
|
|
2Q09 |
|
|
3Q09 |
|
|
4Q09 |
|
|
Fiscal 2009 |
|
|
Selling, general & administrative expenses |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset write-up depreciation expense on
acquisitions |
|
$ |
448 |
|
|
$ |
448 |
|
|
$ |
485 |
|
|
$ |
507 |
|
|
$ |
1,888 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of intangible assets on
acquisitions |
|
$ |
1,791 |
|
|
$ |
1,864 |
|
|
$ |
3,231 |
|
|
$ |
3,785 |
|
|
$ |
10,671 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,239 |
|
|
$ |
2,312 |
|
|
$ |
3,716 |
|
|
$ |
4,292 |
|
|
$ |
12,559 |
|
|
The following table provides information on Revenues and Operating income by reportable geographic
segment (North America, Europe and All Other). The table below should be read in conjunction with
the following discussions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three (3) months ended September 30, |
|
|
Six (6) months ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
total |
|
|
|
|
|
|
|
total |
|
|
|
|
|
|
|
total |
|
|
|
|
|
|
|
total |
|
|
|
|
$ |
|
|
|
revenue |
|
|
|
$ |
|
|
|
revenue |
|
|
|
$ |
|
|
|
revenue |
|
|
|
$ |
|
|
|
revenue |
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
199,928 |
|
|
|
86.2% |
|
|
$ |
211,467 |
|
|
|
83.3% |
|
|
$ |
404,511 |
|
|
|
86.6% |
|
|
$ |
407,803 |
|
|
|
82.2% |
|
Europe |
|
|
24,172 |
|
|
|
10.4% |
|
|
|
31,753 |
|
|
|
12.5% |
|
|
|
48,058 |
|
|
|
10.3% |
|
|
|
67,521 |
|
|
|
13.6% |
|
All Other |
|
|
7,813 |
|
|
|
3.4% |
|
|
|
10,590 |
|
|
|
4.2% |
|
|
|
14,556 |
|
|
|
3.1% |
|
|
|
21,039 |
|
|
|
4.2% |
|
|
|
|
|
|
Total |
|
$ |
231,913 |
|
|
|
100% |
|
|
$ |
253,810 |
|
|
|
100% |
|
|
$ |
467,125 |
|
|
|
100% |
|
|
$ |
496,363 |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
11,813 |
|
|
|
|
|
|
$ |
20,163 |
|
|
|
|
|
|
$ |
23,388 |
|
|
|
|
|
|
$ |
34,647 |
|
|
|
|
|
% of North
America revenues |
|
|
5.9% |
|
|
|
|
|
|
|
9.5% |
|
|
|
|
|
|
|
5.8% |
|
|
|
|
|
|
|
8.5% |
|
|
|
|
|
|
Europe |
|
$ |
2,555 |
|
|
|
|
|
|
$ |
3,456 |
|
|
|
|
|
|
$ |
4,644 |
|
|
|
|
|
|
$ |
7,269 |
|
|
|
|
|
% of Europe
revenues |
|
|
10.6% |
|
|
|
|
|
|
|
10.9% |
|
|
|
|
|
|
|
9.7% |
|
|
|
|
|
|
|
10.8% |
|
|
|
|
|
|
All Other |
|
$ |
1,241 |
|
|
|
|
|
|
$ |
1,809 |
|
|
|
|
|
|
$ |
2,062 |
|
|
|
|
|
|
$ |
3,360 |
|
|
|
|
|
% of All Other
revenues |
|
|
15.9% |
|
|
|
|
|
|
|
17.1% |
|
|
|
|
|
|
|
14.2% |
|
|
|
|
|
|
|
16.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
15,609 |
|
|
|
6.7% |
|
|
$ |
25,428 |
|
|
|
10.0% |
|
|
$ |
30,094 |
|
|
|
6.4% |
|
|
$ |
45,276 |
|
|
|
9.1% |
|
|
22
The following table provides information on Revenues and Gross profit by service type (Data
Services, Voice Services and Hotline Services). The table below should be read in conjunction with
the following discussions.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three (3) months ended September 30, |
|
|
Six (6) months ended September 30, |
|
|
|
2009 |
|
|
2008 |
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
total |
|
|
|
|
|
|
total |
|
|
|
|
|
|
total |
|
|
|
|
|
|
total |
|
|
|
$ |
|
|
revenue |
|
|
$ |
|
|
revenue |
|
|
$ |
|
|
revenue |
|
|
$ |
|
|
revenue |
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Services |
|
$ |
43,928 |
|
|
|
18.9% |
|
|
$ |
42,714 |
|
|
|
16.8% |
|
|
$ |
95,338 |
|
|
|
20.4% |
|
|
$ |
89,598 |
|
|
|
18.0% |
|
Voice Services |
|
|
142,474 |
|
|
|
61.5% |
|
|
|
154,277 |
|
|
|
60.8% |
|
|
|
283,994 |
|
|
|
60.8% |
|
|
|
294,307 |
|
|
|
59.3% |
|
Hotline Services |
|
|
45,511 |
|
|
|
19.6% |
|
|
|
56,819 |
|
|
|
22.4% |
|
|
|
87,793 |
|
|
|
18.8% |
|
|
|
112,458 |
|
|
|
22.7% |
|
|
|
|
|
|
Total |
|
$ |
231,913 |
|
|
|
100% |
|
|
$ |
253,810 |
|
|
|
100% |
|
|
$ |
467,125 |
|
|
|
100% |
|
|
$ |
496,363 |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Services |
|
$ |
12,142 |
|
|
|
|
|
|
$ |
12,879 |
|
|
|
|
|
|
$ |
26,089 |
|
|
|
|
|
|
$ |
26,166 |
|
|
|
|
|
% of Data
Services revenues |
|
|
27.6% |
|
|
|
|
|
|
|
30.2% |
|
|
|
|
|
|
|
27.4% |
|
|
|
|
|
|
|
29.2% |
|
|
|
|
|
|
Voice Services |
|
$ |
48,287 |
|
|
|
|
|
|
$ |
52,276 |
|
|
|
|
|
|
$ |
96,666 |
|
|
|
|
|
|
$ |
99,474 |
|
|
|
|
|
% of Voice
Services revenues |
|
|
33.9% |
|
|
|
|
|
|
|
33.9% |
|
|
|
|
|
|
|
34.0% |
|
|
|
|
|
|
|
33.8% |
|
|
|
|
|
Hotline Services |
|
$ |
21,845 |
|
|
|
|
|
|
$ |
27,902 |
|
|
|
|
|
|
$ |
41,932 |
|
|
|
|
|
|
$ |
55,559 |
|
|
|
|
|
|
% of Hotline
Services revenues |
|
|
48.0% |
|
|
|
|
|
|
|
49.1% |
|
|
|
|
|
|
|
47.8% |
|
|
|
|
|
|
|
49.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
82,274 |
|
|
|
35.5% |
|
|
$ |
93,057 |
|
|
|
36.7% |
|
|
$ |
164,687 |
|
|
|
35.3% |
|
|
$ |
181,199 |
|
|
|
36.5% |
|
|
Second quarter of Fiscal 2010 (2Q10) compared to second quarter of Fiscal 2009
(2Q09):
Total Revenues
Total revenues for 2Q10 were $231,913, a decrease of 9% compared to total revenues for 2Q09 of
$253,810. The Acquired Companies contributed incremental revenue of $34,753 and $10,510 for 2Q10
and 2Q09, respectively. Excluding the effects of the acquisitions and the negative exchange rate
impact of $1,846 in 2Q10 relative to the U.S. dollar, total revenues would have decreased 18% from
$243,300 to $199,006 for the reasons discussed below.
Revenues by Geography
North America
Revenues in North America for 2Q10 were $199,928, a decrease of 5% compared to revenues for 2Q09 of
$211,467. The Acquired Companies contributed incremental revenue of $34,753 and $10,510 for 2Q10
and 2Q09, respectively. Excluding the effects of the acquisitions and the negative exchange rate
impact of $303 in 2Q10 relative to the U.S. dollar, North American revenues would have decreased
18% from $200,957 to $165,478. The Company believes that this decrease is primarily due to weaker
general economic conditions that affected client demand across all services segments.
23
Europe
Revenues in Europe for 2Q10 were $24,172, a decrease of 24% compared to revenues for 2Q09 of
$31,753. Excluding the negative exchange rate impact of $1,948 in 2Q10 relative to the U.S.
dollar, Europe revenues would have decreased 18% from
$31,753 to $26,120. The Company believes the decrease is primarily due to weaker general economic
conditions that affected client demand for its Data Services and Hotline Services.
All Other
Revenues for All Other for 2Q10 were $7,813, a decrease of 26% compared to revenues for 2Q09 of
$10,590. Excluding the positive exchange rate impact of $405 in 2Q10 relative to the U.S. dollar,
All Other revenues would have decreased 30% from $10,590 to $7,408.
Revenue by Service Type
Data Services
Revenues from Data Services for 2Q10 were $43,928, an increase of 3% compared to revenues for 2Q09
of $42,714. The Acquired Companies contributed incremental revenue of $12,700 and $0 for 2Q10 and
2Q09, respectively. Excluding the effects of the acquisitions and the negative exchange rate
impact of $1,326 in 2Q10 relative to the U.S. dollar for its international Data Services, Data
Services revenues would have decreased 24% from $42,714 to $32,554. The Company believes this
decrease is primarily due to weaker general economic conditions that affected client demand for
these services.
Voice Services
Revenues from Voice Services for 2Q10 were $142,474, a decrease of 8% compared to revenues for 2Q09
of $154,277. The Acquired Companies contributed incremental revenue of $22,053 and $10,510 for
2Q10 and 2Q09, respectively. Excluding the effects of the acquisitions, Voice Services revenues
would have decreased 16% from $143,767 to $120,421. The Company believes this decrease is
primarily due to weaker general economic conditions that affected client demand for these services.
There was no exchange rate impact on Voice Services revenues as all of the Companys Voice Services
revenues are denominated in U.S. dollars.
Hotline Services
Revenues from Hotline Services for 2Q10 were $45,511, a decrease of 20% compared to revenues for
2Q09 of $56,819. Excluding the negative exchange rate impact of $520 in 2Q10 relative to the U.S.
dollar for its international Hotline Services, Hotline Services revenues would have decreased 19%
from $56,819 to $46,031. The Company believes this decrease is primarily due to weaker general
economic conditions that affected client demand for these products and services.
Gross profit
Gross profit dollars for 2Q10 were $82,274, a decrease of 12% compared to gross profit dollars for
2Q09 of $93,057. Gross profit as a percent of revenues for 2Q10 was 35.5%, a decrease of 1.2%
compared to gross profit as a percentage of revenues for 2Q09 of 36.7%. The Company believes the
percent decrease was due primarily to the impact of a lower margin project in its Data Services
segment and client mix in its Hotline Services segment.
Gross profit dollars for Data Services for 2Q10 were $12,142, or 27.6% of revenues, compared to
gross profit dollars for 2Q09 of $12,879, or 30.2% of revenues. Gross profit dollars for Voice
Services for 2Q10 were $48,287, or 33.9% of revenues, compared to gross profit dollars for 2Q09 of
$52,276, or 33.9% of revenues. Gross profit dollars for Hotline Services for 2Q10 were $21,845, or
48.0% of revenues, compared to gross profit dollars for 2Q09 of $27,902, or 49.1% of revenues.
Please see the preceding paragraph for the analysis of gross profit variances by segment.
Selling, general & administrative expenses
Selling, general & administrative expenses for 2Q10 were $64,515, a decrease of $1,214 compared to
Selling, general & administrative expenses for 2Q09 of $65,729. Selling, general & administrative
expenses as a percent of revenue for 2Q10 were 27.8% compared to 25.9% for 2Q09. The decrease in
Selling, general & administrative expense dollars over the prior year was primarily due to the
Companys continued effort to right-size the organization and more properly align the expense
structure with anticipated revenues and changing market demand for its solutions and services
partially offset by increases in historical stock option granting practices investigation and
related matters costs of $3,660 (including $3,992 in 2Q10 in connection with an agreement in
principle for settlement of the pending shareholder derivative lawsuit and matters related to the
Companys review of its historical stock option practices) and non-cash stock-based compensation
expense of $796.
24
Intangibles amortization
Intangibles amortization for 2Q10 was $2,150, an increase of $250 compared to Intangibles
amortization for 2Q09 of $1,900. The increase was primarily attributable to the addition of
intangible assets from acquisitions completed subsequent to the second quarter of Fiscal 2009
partially offset by the amortization run-out for certain intangible assets.
Operating income
As a result of the foregoing, Operating income for 2Q10 was $15,609, or 6.7% of revenues, a
decrease of $9,819 compared to Operating income for 2Q09 of $25,428, or 10.0% of revenues.
Interest expense (income), net
Net interest expense for 2Q10 was $2,596, or 1.1% of revenues, compared to net interest expense for
2Q09 of $2,648, or 1.0% of revenues. The Companys interest-rate swaps contributed a loss of $380
and a gain of $169 for 2Q10 and 2Q09, respectively, due to the change in fair value. Excluding the
effect of the interest-rate swaps, net interest expense would have decreased $601 from $2,817, or
1.1% of revenues, to $2,216 or 1.0% of revenues. This decrease in net interest expense is due to a
decrease in the weighted-average interest rate from 3.5% for 2Q09 to 1.4% for 2Q10 partially
offset by increases in the weighted-average outstanding debt from $221,457 for 2Q09 to $243,393 for
2Q10.
Provision for income taxes
The tax provision for 2Q10 was $4,912, an effective tax rate of 37.5%. This compares to the tax
provision for 2Q09 of $8,218, an effective tax rate of 36.5%. The tax rate for 2Q10 was higher
than 2Q09 due to changes in the overall mix of taxable income among worldwide offices and foreign
currency exchange effects on previously-taxed income. The Company anticipates that its deferred
tax asset is realizable in the foreseeable future.
Net income
As a result of the foregoing, Net income for 2Q10 was $8,186, or 3.5% of revenues, compared to Net
income for 2Q09 of $14,299, or 5.6% of revenues.
Six months Fiscal 2010 (2QYTD10) compared to six months of Fiscal 2009 (2QYTD09):
Total Revenues
Total revenues for 2QYTD10 were $467,125, a decrease of 6% compared to total revenues for 2QYTD09
of $496,363. The Acquired Companies contributed incremental revenue of $76,478 and $17,170 for
2QYTD10 and 2QYTD09, respectively. Excluding the effects of the acquisitions and the negative
exchange rate impact of $7,562 in 2QYTD10 relative to the U.S. dollar, total revenues would have
decreased 17% from $479,193 to $398,209 for the reasons discussed below.
Revenues by Geography
North America
Revenues in North America for 2QYTD10 were $404,511, a decrease of 1% compared to revenues for
2QYTD09 of $407,803. The Acquired Companies contributed incremental revenue of $76,478 and $17,170
for 2QYTD10 and 2QYTD09, respectively. Excluding the effects of the acquisitions and the negative
exchange rate impact of $1,039 in 2QYTD10 relative to the U.S. dollar, North American revenues
would have decreased 16% from $390,633 to $329,072. The Company believes that this decrease is
primarily due to weaker general economic conditions that affected client demand across all services
segments.
Europe
Revenues in Europe for 2QYTD10 were $48,058, a decrease of 29% compared to revenues for 2QYTD09 of
$67,521. Excluding the negative exchange rate impact of $6,720 in 2QYTD10 relative to the U.S.
dollar, Europe revenues would have decreased 19% from $67,521 to $54,778. The Company believes the
decrease is primarily due to weaker general economic conditions that affected client demand for its
Data Services and Hotline Services.
All Other
Revenues for All Other for 2QYTD10 were $14,556, a decrease of 31% compared to revenues for 2QYTD09
of $21,039. Excluding the positive exchange rate impact of $197 in 2QYTD10 relative to the U.S.
dollar, All Other revenues would have decreased 32% from $21,039 to $14,359.
25
Revenue by Service Type
Data Services
Revenues from Data Services for 2QYTD10 were $95,338, an increase of 6% compared to revenues for
2QYTD09 of $89,598. The Acquired Companies contributed incremental revenue of $26,008 and $0 for
2QYTD10 and 2QYTD09, respectively. Excluding the effects of the acquisitions and the negative
exchange rate impact of $3,932 in 2QYTD10 relative to the U.S. dollar for its international Data
Services, Data Services revenues would have decreased 18% from $89,598 to $73,262. The Company
believes this decrease is primarily due to weaker general economic conditions that affected client
demand for these services.
Voice Services
Revenues from Voice Services for 2QYTD10 were $283,994, a decrease of 4% compared to revenues for
2QYTD09 of $294,307. The Acquired Companies contributed incremental revenue of $50,470 and $17,170
for 2QYTD10 and 2QYTD09, respectively. Excluding the effects of the acquisitions, Voice Services
revenues would have decreased 16% from $277,137 to $233,524. The Company believes this decrease is
primarily due to weaker general economic conditions that affected client demand for these services.
There was no exchange rate impact on Voice Services revenues as all of the Companys Voice
Services revenues are denominated in U.S. dollars.
Hotline Services
Revenues from Hotline Services for 2QYTD10 were $87,793, a decrease of 22% compared to revenues for
2QYTD09 of $112,458. Excluding the negative exchange rate impact of $3,630 in 2QYTD10 relative to
the U.S. dollar for its international Hotline Services, Hotline Services revenues would have
decreased 19% from $112,458 to $91,423. The Company believes this decrease is primarily due to
weaker general economic conditions that affected client demand for these products and services.
Gross profit
Gross profit dollars for 2QYTD10 were $164,687, a decrease of 9% compared to gross profit dollars
for 2QYTD09 of $181,199. Gross profit as a percent of revenues for 2QYTD10 was 35.3%, a decrease
of 1.2% compared to gross profit as a percentage of revenues for 2QYTD09 of 36.5%. The Company
believes the percent decrease was due primarily to the impact of a lower margin project in its Data
Services segment and client mix in its Hotline Services segment.
Gross profit dollars for Data Services for 2QYTD10 were $26,089, or 27.4% of revenues, compared to
gross profit dollars for 2QYTD09 of $26,166, or 29.2% of revenues. Gross profit dollars for Voice
Services for 2QYTD10 were $96,666, or 34.0% of revenues, compared to gross profit dollars for
2QYTD09 of $99,474, or 33.8% of revenues. Gross profit dollars for Hotline Services for 2QYTD10
were $41,932, or 47.8% of revenues, compared to gross profit dollars for 2QYTD09 of $55,559, or
49.4% of revenues. Please see the preceding paragraph for the analysis of gross profit variances
by segment.
Selling, general & administrative expenses
Selling, general & administrative expenses for 2QYTD10 were $128,398, a decrease of $3,799 compared
to Selling, general & administrative expenses for 2QYTD09 of $132,197. Selling, general &
administrative expenses as a percent of revenue for 2QYTD10 were 27.5% compared to 26.6% for
2QYTD09. The decrease in Selling, general & administrative expense dollars over the prior year was
primarily due to the Companys continued effort to right-size the organization and more properly
align the expense structure with anticipated revenues and changing market demand for its solutions
and services partially offset by increases in historical stock option review costs of $3,924
(including $3,992 in 2Q10 in connection with an agreement in principle for settlement of the
pending shareholder derivative lawsuit and matters related to the Companys review of its
historical stock option practices) and non-cash stock-based compensation expense of $1,897.
Intangibles amortization
Intangibles amortization for 2QYTD10 was $6,195, an increase of $2,469 compared to Intangibles
amortization for 2QYTD09 of $3,726. The increase was primarily attributable to the addition of
intangible assets from acquisitions completed subsequent to the second quarter of Fiscal 2009
partially offset by the amortization run-out for certain intangible assets.
26
Operating income
As a result of the foregoing, Operating income for 2QYTD10 was $30,094, or 6.4% of revenues, a
decrease of $15,182 compared to Operating income for 2QYTD09 of $45,276, or 9.1% of revenues.
Interest expense (income), net
Net interest expense for 2QYTD10 was $4,740, or 1.0% of revenues, compared to net interest expense
for 2QYTD09 of $2,383, or 0.5% of revenues. The Companys interest-rate swaps contributed a loss
of $177 and a gain of $2,877 for 2QYTD10 and 2QYTD09, respectively, due to the change in fair
value. Excluding the effect of the interest-rate swaps, net interest expense would have decreased
$697 from $5,260, or 1.1% of revenues, to $4,563 or 1.0% of revenues. This decrease in net
interest expense is due to a decrease in the weighted-average interest rate from 3.6% for
2QYTD09 to 1.5% for 2QYTD10 partially offset by increases in the weighted-average outstanding debt
from $216,384 for 2QYTD09 to $249,113 for 2QYTD10.
Provision for income taxes
The tax provision for 2QYTD10 was $9,593, an effective tax rate of 37.5%. This compares to the tax
provision for 2QYTD09 of $15,594, an effective tax rate of 36.5%. The tax rate for 2QYTD10 was
higher than 2QYTD09 due to changes in the overall mix of taxable income among worldwide offices and
foreign currency exchange effects on previously-taxed income. The Company anticipates that its
deferred tax asset is realizable in the foreseeable future.
Net income
As a result of the foregoing, Net income for 2QYTD10 was $15,988, or 3.4% of revenues, compared to
Net income for 2QYTD09 of $27,132, or 5.5% of revenues.
Liquidity and Capital Resources
Operating Activities
Net cash provided by operating activities during 2QYTD10 was $30,549. Significant factors
contributing to the source of cash were: net income of $15,988 inclusive of non-cash charges of
$10,112 and $3,279 for amortization / depreciation expense and stock compensation expense,
respectively, as well as decreases in net inventory of $3,624, net trade accounts receivable of
$23,064 and an increase in accrued expenses of $3,457. Significant factors contributing to a use
of cash include decreases in billings in excess of costs, restructuring reserves, accrued
compensation and benefits and trade accounts payable of $7,220, $4,737, $5,162 and $3,821,
respectively, and an increase in costs in excess of billings of $13,733. Changes in the above
accounts are based on average Fiscal 2010 exchange rates.
Net cash provided by operating activities during 2QYTD09 was $38,385. Significant factors
contributing to the source of cash were: net income of $27,132, inclusive of non-cash charges of
$8,599 and $1,382 for amortization / depreciation expense and stock compensation expense,
respectively, as well as decreases in net inventory of $5,321, net trade accounts receivable of
$11,804 and the deferred tax provision of $1,903, and increases in accrued compensation and
benefits of $1,451 and accrued taxes of $1,366. Significant factors contributing to a use of cash
include a non-cash charge of $2,877 for change in fair value of interest rate swap, as well as
decreases in trade accounts payable, deferred revenue and restructuring reserves of $1,716, $1,759
and $4,254, respectively, and an increase in costs in excess of billings of $4,670. Changes in
the above accounts are based on average Fiscal 2009 exchange rates.
As of September 30, 2009 and 2008, the Company had cash and cash equivalents of $23,785 and
$25,802, respectively, working capital of $126,845 and $127,224, respectively, and a current ratio
of 1.6 and 1.6, respectively.
The Company believes that its cash provided by operating activities and availability under its
credit facility will be sufficient to fund the Companys working capital requirements, capital
expenditures, dividend program, potential stock repurchases, potential future acquisitions or
strategic investments and other cash needs for the next 12 months.
Investing Activities
Net cash used by investing activities during 2QYTD10 was $2,235. Significant factors contributing
to the cash outflow were: $1,305 for holdbacks and contingent fee payments related to prior period
acquisitions and $1,033 for gross capital expenditures.
Net cash used by investing activities during 2QYTD09 was $49,875. Significant factors contributing
to the cash outflow were: $48,620 to acquire MTS and UCI and $1,524 for gross capital expenditures.
27
Financing Activities
Net cash used by financing activities during 2QYTD10 was $29,097. Significant factors contributing
to the cash outflow were $26,993 of net payments on long-term debt and $2,104 for the payment of
dividends.
Net cash provided by financing activities during 2QYTD09 was $10,567. Significant factors
contributing to the cash inflow were $12,249 of net borrowings on long-term debt and $545 of
proceeds from the exercise of stock options. Significant factors contributing to the cash outflow
were $2,102 for the payment of dividends.
Total Debt
Revolving Credit Agreement On January 30, 2008, the Company entered into a Third Amended and
Restated Credit Agreement dated as of January 30, 2008 (the Credit Agreement) with Citizens Bank
of Pennsylvania, as agent, and a group of lenders. The Credit Agreement expires on January 30,
2013. Borrowings under the Credit Agreement are permitted up to a maximum amount of $350,000,
which includes up to $20,000 of swing-line loans and $25,000 of letters of credit. The Credit
Agreement may be increased by the Company up to an additional $100,000 with the approval of the
lenders and may be unilaterally and permanently reduced by the Company to not less than the then
outstanding amount of all borrowings. Interest on outstanding indebtedness under the Credit
Agreement accrues, at the Companys option, at a rate based on either: (a) the greater of (i) the
prime rate per annum of the agent then in effect and (ii) 0.50% plus the rate per annum announced
by the Federal Reserve Bank of New York as being the weighted-average of the rates on overnight
Federal funds transactions arranged by Federal funds brokers on the previous trading day or (b) a
rate per annum equal to the LIBOR rate plus 0.50% to 1.125% (determined by a leverage ratio based
on the Companys consolidated EBITDA). The Credit Agreement requires the Company to maintain
compliance with certain non-financial and financial covenants such as leverage and fixed-charge
coverage ratios. As of September 30, 2009, the Company was in compliance with all financial
covenants under the Credit Agreement.
As of September 30, 2009, the Company had total debt outstanding of $223,668. Total debt was
comprised of $221,335 outstanding under the Credit Agreement, $2,307 of obligations under capital
leases and $26 of various other third-party, non-employee loans. The maximum amount of debt
outstanding under the Credit Agreement, the weighted average balance outstanding under the Credit
Agreement and the weighted average interest rate on all outstanding debt for the three (3) months
ended September 30, 2009 was $251,095, $243,393 and 1.4%, respectively, compared to $244,500,
$221,457 and 3.5%, respectively, for the three (3) months ended September 30, 2008. The maximum
amount of debt outstanding under the Credit Agreement, the weighted average balance outstanding
under the Credit Agreement and the weighted average interest rate on all outstanding debt for the
six (6) months ended September 30, 2009 was $261,750, $249,113 and 1.5%, respectively, compared to
$244,500, $216,384 and 3.6%, respectively, for the six (6) months ended September 30, 2008.
Dividends
Fiscal 2010
2Q10 - The Board declared a cash dividend of $0.06 per share on all outstanding shares of the
common stock. The dividend totaled $1,053 and was paid on October 9, 2009 to stockholders of
record at the close of business on September 25, 2009.
1Q10 - The Board declared a cash dividend of $0.06 per share on all outstanding shares of the
common stock. The dividend totaled $1,052 and was paid on July 10, 2009 to stockholders of record
at the close of business on June 26, 2009.
Fiscal 2009
2Q09 - The Board declared a cash dividend of $0.06 per share on all outstanding shares of the
common stock. The dividend totaled $1,052 and was paid on October 14, 2008 to stockholders of
record at the close of business on September 26, 2008.
1Q09 - The Board declared a cash dividend of $0.06 per share on all outstanding shares of the
common stock. The dividend totaled $1,051 and was paid on July 14, 2008 to stockholders of record
at the close of business on June 30, 2008.
While the Company expects to continue to declare quarterly dividends, the payment of future
dividends is at the discretion of the Board and the timing and amount of any future dividends will
depend upon earnings, cash requirements and financial condition of the Company. Under the Credit
Agreement, the Company is permitted to make any distribution or dividend as long as no Event of
Default or Potential Default (each as defined in the Credit Agreement) occurs or is continuing.
28
Repurchase of Common Stock
Fiscal 2010
There were no purchases of common stock during Fiscal 2010.
Fiscal 2009
There were no purchases of common stock during Fiscal 2009.
Since the inception of the repurchase program in April 1999 through September 30, 2009, the Company
has repurchased 7,626,195 shares of common stock for an aggregate purchase price of $323,095, or an
average purchase price per share of $42.37. As of September 30, 2009, 873,805 shares were
available under repurchase programs approved by the Board. Additional repurchases of common stock
may occur from time to time depending upon factors such as the Companys cash flows and general
market conditions. While the Company expects to continue to repurchase shares of common stock for
the foreseeable future, there can be no assurance as to the timing or amount of such repurchases.
Under the Credit Agreement, the Company is permitted to repurchase its common stock as long as no
Event of Default or Potential Default (each as defined in the Credit Agreement) occurs or is
continuing, the leverage ratio (after taking into consideration the payment made to repurchase such
common stock) would not exceed 2.75 to 1.0 and the availability to borrow under the Credit Facility
would not be less than $20 million.
Expenses Incurred by the Company
The Company has incurred significant expenses, in excess of its insurance deductible of $500,
during prior fiscal periods, and expects to continue to incur additional expenses during the
remainder of Fiscal 2010, in relation to the following previously-disclosed items (i) the review by
the Audit Committee of the Board of the Companys historical stock option granting practices and
related accounting for stock option grants, (ii) the informal inquiry and formal order of
investigation by the SEC regarding the Companys past stock option granting practices, (iii) the
derivative action relating to the Companys historical stock option granting practices filed
against the Company as a nominal defendant and certain of the Companys current and former
directors and officers, as to whom it may have indemnification obligations and (iv) related
matters. As of September 30, 2009, the total amount of such fees is $8,777, of which $5,000, the
insurance policy limit, has been paid by the insurance company. The Company recorded expense of
$512 and $332 during the three (3) months ended September 30, 2009 and 2008, respectively, and $776
and $332 during the six (6) months ended September 30, 2009 and 2008, respectively. The amount of
expenses that the Company could incur in the future with respect to these matters could be
material.
Legal Proceedings
See the matters discussed in Part II, Item 1, Legal Proceedings, of this Quarterly Report on Form
10-Q (the Form 10-Q), which information is incorporated herein by reference.
Inflation
The overall effects of inflation on the Company have been nominal. Although long-term inflation
rates are difficult to predict, the Company continues to strive to minimize the effect of inflation
through improved productivity and cost reduction programs as well as price adjustments within the
constraints of market competition.
Valuation of Goodwill
At March 31, 2009, the Companys market capitalization was below tangible book value. The Company
has monitored market conditions during the six month period ended September 30, 2009 noting that
the Companys market capitalization continues to be below tangible book value for all points during
that period. Correspondingly, the Company has completed procedures to evaluate the adequacy of its
estimates and assumptions used in the discounted cash flow valuation model which was used to derive
an estimated fair value of its reporting units as of March 31, 2009. The results of these interim
procedures provide that those estimates and assumptions are adequate and that no additional
procedures need to be performed as of September 30, 2009.
29
Historically, Management has reviewed disaggregated financial information by geographic region for
the purpose of making operational decisions and assessing financial performance. Based on the
evolution of the Company over the last several years, Management is currently considering
alternative reporting segments for the purpose of making those operational decisions and assessing
financial performance. This contemplated change in reporting segments would affect the reporting
units currently being used in the Companys annual impairment analysis. In the event that the
Company determines goodwill is impaired as a
result of this change in reporting segments, it would need to recognize a non-cash impairment
charge, which could have a material adverse effect on its consolidated balance sheet and results of
operations.
Critical Accounting Policies/ Impact of Recently Issued Accounting Pronouncements
Critical Accounting Policies
The Companys critical accounting policies require the most difficult, subjective or complex
judgments, often as a result of the need to make estimates about the effect of matters that are
inherently uncertain and are the most important to the portrayal of the Companys consolidated
financial statements. The Companys critical accounting policies are disclosed in Part II, Item 7,
Managements Discussion and Analysis of Financial Condition and Results of Operations, of the
Form 10-K. There have been no changes to the Companys critical accounting policies during the
three (3) months ended September 30, 2009.
Impact of Recently Issued Accounting Pronouncements
See Note 2 of the Notes to the Consolidated Financial Statements for further discussion of
recently-issued accounting standards and the related impact on the Companys consolidated financial
statements.
Cautionary Forward Looking Statements
When included in the Form 10-Q or in documents incorporated herein by reference, the words
should, expects, intends, anticipates, believes, estimates, approximates, targets,
plans and analogous expressions are intended to identify forward-looking statements. One can
also identify forward-looking statements by the fact that they do not relate strictly to historical
or current facts. Such 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, such risks and uncertainties may include, among
others, the final outcome of the review of the Companys stock option granting practices, including
the related SEC investigation, shareholder derivative lawsuit, tax matters and
insurance/indemnification matters, and the impact of any actions that may be required or taken as a
result of such review, SEC investigation, shareholder derivative lawsuit, tax matters or
insurance/indemnification matters, levels of business activity and operating expenses, expenses
relating to corporate compliance requirements, cash flows, global economic and business conditions,
successful integration of acquisitions, the timing and costs of restructuring programs, successful
marketing of DVH services, successful implementation of the Companys M&A program, including
identifying appropriate targets, consummating transactions and successfully integrating the
businesses, successful implementation of the Companys government contracting programs,
competition, changes in foreign, political and economic conditions, fluctuating foreign currencies
compared to the U.S. dollar, rapid changes in technologies, client preferences, the Companys
arrangements with suppliers of voice equipment and technology and various other matters, many of
which are beyond the Companys control. These forward-looking statements are made pursuant to the
safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and speak only as of
the date of this Form 10-Q. The Company expressly disclaims any obligation or undertaking to
release publicly any updates or any changes in the Companys expectations with regard thereto or
any change in events, conditions or circumstances on which any statement is based.
30
Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risks in the ordinary course of business that include
interest-rate volatility and foreign currency exchange rates volatility. Market risk is measured
as the potential negative impact on earnings, cash flows or fair values resulting from a
hypothetical change in interest rates or foreign currency exchange rates over the next year. The
Company does not hold or issue any other financial derivative instruments (other than those
specifically noted below) nor does it engage in speculative trading of financial derivatives.
Interest-rate Risk
The Companys primary interest-rate risk relates to its long-term debt obligations. As of
September 30, 2009, the Company had total long-term obligations of $221,335 under the Credit
Agreement. Of the outstanding debt, $150,000 was in variable rate debt that was effectively
converted to a fixed rate through multiple interest-rate swap agreements (discussed in more detail
below) and $71,335 was in variable rate obligations. As of September 30, 2009, an instantaneous
100 basis point increase in the interest rate of the variable rate debt would reduce the Companys
net income in the subsequent fiscal quarter by $176 ($110 net of tax) assuming the Company employed
no intervention strategies.
To mitigate the risk of interest-rate fluctuations associated with the Companys variable rate
long-term debt, the Company has implemented an interest-rate risk management strategy that
incorporates the use of derivative instruments to minimize significant unplanned fluctuations in
earnings caused by interest-rate volatility. The Companys goal is to manage interest-rate
sensitivity by modifying the re-pricing characteristics of certain balance sheet liabilities so
that the net-interest margin is not, on a material basis, adversely affected by the movements in
interest rates.
On July 26, 2006, the Company entered into a five-year floating-to-fixed interest-rate swap that is
based on a 3-month LIBOR rate versus a 5.44% fixed rate, has a notional value of $100,000 reducing
to $50,000 after three years and does not qualify for hedge accounting. On June 15, 2009, the
Company entered into a three-year floating-to-fixed interest-rate swap that is based on a 3-month
LIBOR rate versus a 2.28% fixed rate, has a notional value of $100,000 reducing to $50,000 after
two years and does not qualify for hedge accounting. Changes in the fair market value of the
interest-rate swap are recorded as an asset or liability within the Companys Consolidated Balance
Sheets and Interest expense (income) within the Companys Consolidated Statements of Income.
Foreign Exchange Rate Risk
The Company has operations, clients and suppliers worldwide, thereby exposing the Companys
financial results to foreign currency fluctuations. In an effort to reduce this risk of foreign
currency fluctuations, the Company generally sells and purchases inventory based on prices
denominated in U.S. dollars. Intercompany sales to subsidiaries are generally denominated in the
subsidiaries local currency. The Company has entered and will continue in the future, on a
selective basis, to enter into foreign currency contracts to reduce the foreign currency exposure
related to certain intercompany transactions, primarily trade receivables and loans. 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 Companys Consolidated Statements of
Income. In the event it becomes probable that the hedged forecasted transaction will not occur,
the ineffective portion of any gain or loss on the related cash flow hedge would be reclassified
from AOCI to the Companys Consolidated Statements of Income.
As of September 30, 2009, the Company had open foreign currency contracts in Australian and
Canadian dollars, Danish krone, Euros, Mexican pesos, Norwegian kroner, British pounds sterling,
Swedish krona, Swiss francs and Japanese yen. The open contracts have contract rates ranging from
1.17 to 1.33 Australian dollar, 1.08 to 1.27 Canadian dollar, 5.07 to 5.30 Danish krone, 0.68 to
0.79 Euro, 15.17 to 15.99 Mexican peso, 5.83 to 6.97 Norwegian kroner, 0.59 to 0.71 British pounds
sterling, 6.92 to 8.05 Swedish krona, 1.04 to 1.15 Swiss franc and 90.13 to 90.13 Japanese yen, all
per U.S. dollar. The total open contracts had a notional amount of $73,617 and will expire within
eleven (11) months.
31
Item 4. Controls and Procedures.
Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
Management, including the Companys Chief Executive Officer and Chief Financial Officer, is
responsible for establishing and maintaining adequate disclosure controls and procedures (as
defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the
Exchange Act)) for the Company. Management assessed the effectiveness of the Companys
disclosure controls and procedures as of September 30, 2009. Based upon this assessment,
Management has concluded that the Companys disclosure controls and procedures were effective as of
September 30, 2009 to provide reasonable assurance that information required to be disclosed by the
Company in the reports filed or submitted by it under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms, and to
provide reasonable assurance that information required to be disclosed by the Company in such
reports is accumulated and communicated to Management, including its principal executive officer
and principal financial officer, as appropriate to allow timely decisions regarding required
disclosure.
The SECs general guidance permits the exclusion of an assessment of the effectiveness of a
registrants disclosure controls and procedures as they relate to its internal control over
financial reporting for an acquired business during the first year following such acquisition if,
among other circumstances and factors, there is not adequate time between the acquisition date and
the date of assessment. As previously noted in this Form 10-Q, Black Box completed the acquisition
of Scottel during Fiscal 2009. Scottel represents approximately 4% of the Companys total assets
as of September 30, 2009. Managements assessment and conclusion on the effectiveness of the
Companys disclosure controls and procedures as of September 30, 2009 excludes an assessment of the
internal control over financial reporting of Scottel.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Companys internal control over financial reporting (as such
term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal
quarter that have materially affected or are reasonably likely to materially affect the Companys
internal control over financial reporting.
Limitations on the Effectiveness of Controls
All internal control systems, no matter how well designed, have inherent limitations. Therefore,
even those systems determined to be effective can provide only reasonable assurance with respect to
financial statement preparation and presentation. Because of its inherent limitations, the
Companys internal control over financial reporting may not prevent or detect misstatements. In
addition, projections of any evaluation of effectiveness to future periods are subject to the risk
that controls may become inadequate because of changes in conditions, or that the degree of
compliance with the policies and procedures may deteriorate.
32
PART II OTHER INFORMATION
Item 1. Legal Proceedings.
Except as noted below, there has been no material developments in legal proceedings during the
three (3) months ended September 30, 2009. See Part I, Item 3, Legal Proceedings of the Form
10-K for more information regarding legal proceedings as of March 31, 2009.
Regulatory Matters
As previously disclosed, the Company received a subpoena, dated December 8, 2004, from the United
States General Services Administration (GSA), Office of Inspector General. The subpoena requires
production of documents and information. The Company understands that the materials are being
sought in connection with an investigation regarding potential violations of the terms of a GSA
Multiple Award Schedule contract. On October 2, 2007, the Company was contacted by the United
States Department of Justice which informed the Company that it was reviewing allegations by the
GSA that certain of the Companys pricing practices under a GSA Multiple Award Schedule contract
violated the Civil False Claims Act. The Company has executed an agreement with the United States
tolling the statute of limitations on any action by the United States through November 30, 2009 in
order for the parties to discuss the merits of these allegations prior to the possible commencement
of any litigation by the United States.
Litigation Matters
In November 2006, two stockholder derivative lawsuits were filed against the Company itself, as a
nominal defendant, and several of the Companys current and former officers and directors in the
United States District Court for the Western District of Pennsylvania. The two substantially
identical stockholder derivative complaints allege that the individual defendants improperly
backdated grants of stock options to several officers and directors in violation of the Companys
stockholder-approved stock option plans during the period 1996-2002, improperly recorded and
accounted for backdated stock options in violation of generally accepted accounting principles,
improperly took tax deductions based on backdated stock options in violation of the Internal
Revenue Code of 1986, as amended, produced and disseminated false financial statements and SEC
filings to the Companys stockholders and to the market that improperly recorded and accounted for
the backdated option grants, concealed the alleged improper backdating of stock options and
obtained substantial benefits from sales of Company stock while in the possession of material
inside information. The complaints seek damages on behalf of the Company against certain current
and former officers and directors and allege breach of fiduciary duty, unjust enrichment,
securities law violations and other claims. The two lawsuits have been consolidated into a single
action as In re Black Box Corporation Derivative Litigation, Master File No. 2:06-CV-1531-JFC, and
plaintiffs filed an amended consolidated shareholder derivative complaint on August 31, 2007. The
parties have requested that the due date for responses by the defendants, including the Company, be
extended until further order of the court, and the court has entered an order to that effect.
During the second quarter of Fiscal 2010, the Company recorded expense of $3,992 in connection with
an agreement in principle for settlement of this action and related matters arising out of the
Companys review of its historical stock option practices. This settlement is subject to the
execution of documentation regarding the settlement as well as court approval. The Company may
incur additional costs or expenses in relation to this matter that could be material.
33
Item 1A. Risk Factors.
The following is provided to update the following risk factor previously disclosed in Part I, Item
1A, Risk Factors, of the Form 10-K.
We are dependent upon certain key supply chain and distribution agreements. Through our recent
acquisitions, we have significant arrangements with a small number of suppliers of voice
technology. If we experience disruptions in our supply chain with these manufacturers for any
reason or lose our distribution rights, we may not be able to fulfill customer commitments with an
acceptable alternative or we may not be able to obtain alternative solutions at similar costs. On
January 14, 2009, Nortel Networks Corporation (Nortel) announced that Nortel and certain other
subsidiaries of Nortel sought relief from their creditors in proceedings commenced in Canada, the
United States and other jurisdictions (the Nortel Bankruptcy). Nortel further announced that
certain of its affiliates, including the Nortel Government Solutions business, will continue to
operate in the ordinary course and are not included in these proceedings. On July 20, 2009, Nortel
announced that it had entered into a stalking horse asset and share sale agreement with Avaya,
Inc. (Avaya) for its Enterprise Solutions business for a purchase price of US$475 million, which
included a bidding process where other qualified bidders could submit higher or otherwise better
offers for a specified period of time. This agreement includes the planned sale of substantially
all of the assets of the Enterprise Solutions business globally as well as the shares of Nortel
Government Solutions Incorporated and
DiamondWare, Ltd. (the Nortel Enterprise Solutions Business). On September 14, 2009, Nortel
announced that it had chosen Avaya as the successful bidder for its enterprise solutions business
for a purchase price of US$900 million. As previously disclosed, the Companys distribution
agreement with Avaya terminated on September 8, 2007. There can be no assurance that the sale of
the Nortel Enterprise Solutions Business will not impact the Companys business with the Nortel
Enterprise Solutions Business. As a result, the Company cannot determine whether these events will
have a material adverse effect on the Company in the future.
The information set forth under the captions Litigation Matters and Expenses
Incurred by the Company in Note 16: Commitments and Contingencies, of the Notes to the
Consolidated Financial Statements in this Form 10-Q, is incorporated herein by reference in order
to update the information previously disclosed in the risk factor entitled We have significant
matters resulting from our stock option investigation and related matters included in Part I,
Item 1A, Risk Factors of the Form 10-K.
The information set forth under the caption Valuation of Goodwill in Managements Discussion and
Analysis of Financial Condition and Results of Operations in this Form 10-Q is incorporated herein
by reference in order to supplement the information previously disclosed in the risk factor
entitled We have a significant amount of goodwill that could be subject to impairment included in
Part I, Item 1A, Risk Factors of the Form 10-K.
Item 4. Submission of Matters to a Vote of Security Holders.
On August 11, 2009, the Companys stockholders voted on the following two (2) matters at the
Companys annual meeting of the stockholders: (i) the election of directors; and (ii) the
ratification of the appointment of BDO Seidman, LLP as the independent registered public accounting
firm for the Company for the fiscal year ending March 31, 2010. Out of the 17,533,305 shares of
common stock outstanding as of the record date for the annual meeting of June 15, 2009, 16,332,290
shares were present at the meeting.
(i) Each of the Companys nominees for director was elected at the annual meeting by the following
vote:
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
|
Shares |
|
|
|
|
Voted For |
|
|
|
Withheld |
|
|
William F. Andrews |
|
|
14,941,402 |
|
|
|
1,390,888 |
|
R. Terry Blakemore |
|
|
16,025,085 |
|
|
|
307,205 |
|
Richard L. Crouch |
|
|
14,823,699 |
|
|
|
1,508,591 |
|
Thomas W. Golonski |
|
|
14,822,720 |
|
|
|
1,509,570 |
|
Thomas G. Greig |
|
|
14,789,916 |
|
|
|
1,542,374 |
|
Edward A. Nicholson, Ph.D. |
|
|
15,990,902 |
|
|
|
341,388 |
|
|
(ii) |
|
The appointment of BDO Seidman, LLP as the independent registered public accounting firm for
the Company for the fiscal year ending March 31, 2010 was ratified by the following vote: |
|
|
|
|
|
|
|
Shares Voted For |
|
Shares Voted Against |
|
Shares Abstaining |
|
Broker Non-Votes |
|
|
|
|
|
|
|
|
16,315,813
|
|
6,088
|
|
10,387
|
|
2 |
|
|
|
|
|
|
|
|
34
Item 6. Exhibits.
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
Subsidiaries of the Registrant (1) |
|
|
|
|
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002
(1) |
|
|
|
|
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002
(1) |
|
|
|
|
|
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule
13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1) |
(1) Filed herewith.
35
SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused
this report to be signed on its behalf by the undersigned thereunto duly authorized.
|
|
|
|
|
|
BLACK BOX CORPORATION
|
|
|
Dated: November 5, 2009 |
|
|
|
|
/s/ Michael McAndrew
|
|
|
Michael McAndrew, Vice President, Chief |
|
|
Financial Officer, Treasurer,
Secretary and
Principal Accounting Officer |
|
36
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
Subsidiaries of the Registrant (1) |
|
|
|
|
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002
(1) |
|
|
|
|
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities
Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002
(1) |
|
|
|
|
|
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule
13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350 as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1) |
(1) Filed herewith.
37