FORM 10-Q
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 June 27, 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 July 31, 2009, there were 17,548,305 shares of common stock, par value $.001 (the common
stock), outstanding.
BLACK BOX CORPORATION
FOR THE QUARTER ENDED JUNE 27, 2009
INDEX
2
PART
I - FINANCIAL INFORMATION
Item 1. Financial Statements.
BLACK BOX CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
June 27, 2009 |
|
|
March 31, |
|
In thousands, except par value |
|
(Unaudited) |
|
|
2009* |
|
|
|
|
|
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
25,774 |
|
|
$ |
23,720 |
|
Accounts receivable, net of allowance for doubtful accounts of $10,034
and $9,934 |
|
|
152,328 |
|
|
|
163,975 |
|
Inventories, net |
|
|
54,009 |
|
|
|
55,898 |
|
Costs/estimated earnings in excess of billings on uncompleted contracts |
|
|
74,693 |
|
|
|
66,066 |
|
Prepaid and other current assets |
|
|
32,482 |
|
|
|
30,809 |
|
|
|
|
|
|
Total current assets |
|
|
339,286 |
|
|
|
340,468 |
|
|
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
|
27,078 |
|
|
|
28,419 |
|
Goodwill |
|
|
627,447 |
|
|
|
621,948 |
|
Intangibles |
|
|
|
|
|
|
|
|
Customer relationships, net |
|
|
102,803 |
|
|
|
105,111 |
|
Other intangibles, net |
|
|
35,956 |
|
|
|
37,684 |
|
Other assets |
|
|
3,130 |
|
|
|
2,858 |
|
|
|
|
|
|
Total assets |
|
$ |
1,135,700 |
|
|
$ |
1,136,488 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities |
|
|
|
|
|
|
|
|
Accounts payable |
|
$ |
79,240 |
|
|
$ |
79,021 |
|
Accrued compensation and benefits |
|
|
25,115 |
|
|
|
30,446 |
|
Deferred revenue |
|
|
35,262 |
|
|
|
35,520 |
|
Billings in excess of costs/estimated earnings on uncompleted contracts |
|
|
18,663 |
|
|
|
18,217 |
|
Income taxes |
|
|
7,745 |
|
|
|
5,164 |
|
Other liabilities |
|
|
36,985 |
|
|
|
41,891 |
|
|
|
|
|
|
Total current liabilities |
|
|
203,010 |
|
|
|
210,259 |
|
|
|
|
|
|
|
|
|
|
Long-term debt |
|
|
237,420 |
|
|
|
249,260 |
|
Other liabilities |
|
|
28,367 |
|
|
|
29,670 |
|
|
|
|
|
|
Total liabilities |
|
$ |
468,797 |
|
|
$ |
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 |
|
|
447,294 |
|
|
|
445,774 |
|
Retained earnings |
|
|
527,773 |
|
|
|
521,023 |
|
Accumulated other comprehensive income |
|
|
14,906 |
|
|
|
3,572 |
|
Treasury stock, at cost 7,626 and 7,626 shares |
|
|
(323,095) |
|
|
|
(323,095) |
|
|
|
|
|
|
Total stockholders equity |
|
$ |
666,903 |
|
|
$ |
647,299 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,135,700 |
|
|
$ |
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 June 27 and 28, |
In thousands, except per share amounts |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
Hotline products |
|
$ |
42,282 |
|
|
$ |
55,639 |
|
On-Site services |
|
|
192,930 |
|
|
|
186,914 |
|
|
|
|
|
|
Total |
|
|
235,212 |
|
|
|
242,553 |
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
Hotline products |
|
|
22,195 |
|
|
|
27,982 |
|
On-Site services |
|
|
130,604 |
|
|
|
126,429 |
|
|
|
|
|
|
Total |
|
|
152,799 |
|
|
|
154,411 |
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
82,413 |
|
|
|
88,142 |
|
|
|
|
|
|
|
|
|
|
Selling, general & administrative expenses |
|
|
63,883 |
|
|
|
66,468 |
|
Intangibles amortization |
|
|
4,045 |
|
|
|
1,826 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
14,485 |
|
|
|
19,848 |
|
|
|
|
|
|
|
|
|
|
Interest expense (income), net |
|
|
2,144 |
|
|
|
(265) |
|
Other expenses (income), net |
|
|
(142) |
|
|
|
(96) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
12,483 |
|
|
|
20,209 |
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
4,681 |
|
|
|
7,376 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,802 |
|
|
$ |
12,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.45 |
|
|
$ |
0.73 |
|
|
|
|
|
|
Diluted |
|
$ |
0.44 |
|
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding |
|
|
|
|
|
|
|
|
Basic |
|
|
17,539 |
|
|
|
17,516 |
|
|
|
|
|
|
Diluted |
|
|
17,539 |
|
|
|
17,518 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share |
|
$ |
0.06 |
|
|
$ |
0.06 |
|
|
|
|
|
|
|
|
|
|
|
See Notes to the Consolidated Financial Statements
4
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
|
|
|
|
|
|
|
|
|
|
|
Three (3) months ended June 27 and 28, |
In thousands |
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
Net income |
|
$ |
7,802 |
|
|
$ |
12,833 |
|
Adjustments to reconcile net income to net cash provided by (used
for) operating activities |
|
|
|
|
|
|
|
|
Intangibles amortization and depreciation |
|
|
6,078 |
|
|
|
4,252 |
|
Loss (gain) on sale of property |
|
|
76 |
|
|
|
6 |
|
Deferred taxes |
|
|
548 |
|
|
|
936 |
|
Tax impact from stock options |
|
|
123 |
|
|
|
160 |
|
Stock compensation expense |
|
|
1,643 |
|
|
|
542 |
|
Change in fair value of interest-rate swap(s) |
|
|
(203) |
|
|
|
(2,708) |
|
Changes in operating assets and liabilities (net of acquisitions): |
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
11,690 |
|
|
|
799 |
|
Inventories, net |
|
|
2,555 |
|
|
|
3,983 |
|
All other current assets excluding deferred tax asset |
|
|
(2,549) |
|
|
|
(1,694) |
|
Liabilities exclusive of long-term debt |
|
|
(11,676) |
|
|
|
(6,681) |
|
|
|
|
|
|
Net cash provided by (used for) operating activities |
|
$ |
16,087 |
|
|
$ |
12,428 |
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
(567) |
|
|
$ |
(652) |
|
Capital disposals |
|
|
29 |
|
|
|
22 |
|
Acquisition of businesses (payments)/recoveries |
|
|
-- |
|
|
|
(6,286) |
|
Prior merger-related (payments)/recoveries |
|
|
(916) |
|
|
|
165 |
|
|
|
|
|
|
Net cash provided by (used for) investing activities |
|
$ |
(1,454) |
|
|
$ |
(6,751) |
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
$ |
38,385 |
|
|
$ |
52,575 |
|
Repayment of borrowings |
|
|
(50,433) |
|
|
|
(58,448) |
|
Deferred financing costs |
|
|
-- |
|
|
|
(112) |
|
Payment of dividends |
|
|
(1,052) |
|
|
|
(1,051) |
|
|
|
|
|
|
Net cash provided by (used for) financing activities |
|
$ |
(13,100) |
|
|
$ |
(7,036) |
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange impact on cash |
|
$ |
521 |
|
|
$ |
(55) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase / (decrease) in cash and cash equivalents |
|
$ |
2,054 |
|
|
$ |
(1,414) |
|
Cash and cash equivalents at beginning of period |
|
$ |
23,720 |
|
|
$ |
26,652 |
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
25,774 |
|
|
$ |
25,238 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow: |
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
2,726 |
|
|
$ |
2,877 |
|
Cash paid for income taxes |
|
|
1,606 |
|
|
|
5,210 |
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
Dividends payable |
|
|
1,052 |
|
|
|
1,051 |
|
Capital leases |
|
|
4 |
|
|
|
244 |
|
|
|
|
|
|
|
|
|
|
|
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 June 27, 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 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 accounting principles generally accepted in the
United States 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 June 30, 2009 and 2008 were June 27, 2009 and
June 28, 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 accounting principles generally accepted
in the United States 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 months ended June 30, 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 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 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 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.
Recent Accounting Pronouncements
Fair Value Measurements
In September, 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial
Accounting Standards (SFAS) No. 157, Fair Value Measurements (SFAS 157), which defines fair
value, establishes a framework for measuring fair value in generally accepted accounting principles
and expands disclosures about fair value measurements. In February, 2008, the FASB issued FASB
Staff Position (FSP) SFAS 157-1, Application of FASB Statement No. 157 to FASB Statement No. 13
and Other Accounting Pronouncements That Address Fair Value Measurements for Purposes of Lease
Classification or Measurement under Statement 13, which removes certain leasing transactions from
the scope of SFAS 157. On April 1, 2008, the Company adopted the provisions of SFAS 157 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) as provided by FSP SFAS 157-2, Effective Date of FASB Statement No. 157. The
significant categories of assets and liabilities included in the Companys deferred implementation
of SFAS 157 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 SFAS 157 were applied prospectively. The adoption of the portions of SFAS 157
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 SFAS No. 160, Noncontrolling Interests in Consolidated
Financial Statementsan Amendment to Accounting Research Bulletin No. 51 (SFAS 160). SFAS 160
amends Accounting Research Bulletin No. 51 to establish accounting and reporting standards for the
non-controlling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160
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.
SFAS 160 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 SFAS 160 did not
have a material impact on the Companys consolidated financial statements.
7
Business Combinations
In December, 2007, the FASB issued SFAS No. 141 (revised 2007), Business Combinations (SFAS
141(R)). SFAS 141(R) retains the fundamental requirements of the original pronouncement requiring
that the purchase method be used for all business combinations. SFAS 141(R) 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. SFAS 141(R) requires, among other things, that
acquisition-related costs be recognized separately from the acquisition. In April, 2009, the FASB
issued FSP SFAS 141(R)-1, 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, SFAS 141(R) applies
prospectively to business combinations for which the acquisition date is on or after April 1, 2009.
The adoption of SFAS 141(R) did not have a material impact on the Companys consolidated financial
statements. SFAS 141(R) 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 FSP FASB 142-3, Determination of the Useful Life of Intangible
Assets (SFAS 142-3). SFAS 142-3 amends the factors that should be considered in developing
assumptions about renewal or extension used in estimating the useful life of a recognized
intangible asset under SFAS No. 142, Goodwill and Other Intangible Assets (SFAS 142) and
expands the disclosure requirements of SFAS 142. The provisions of SFAS 142-3 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 SFAS 142-3 did
not have a material impact on the Companys consolidated financial statements.
Postretirement Benefit Plan Assets
In December, 2008, the FASB issued FSP FASB 132R-1, Employers Disclosures about Postretirement
Benefit Plan Assets (SFAS 132R-1). This statement provides additional guidance regarding
disclosures about plan assets of defined benefit pension or other postretirement plans. SFAS
132R-1 is effective for financial statements issued for fiscal years ending after December 15,
2009. The Company is evaluating the impact of the adoption of SFAS 132R-1 on its consolidated
financial statements.
Interim Disclosures about Fair Value of Financial Instruments
In April, 2009, the FASB issued FSP No. SFAS 107-1 and APB 28-1, Interim Disclosures about Fair
Value of Financial Instruments (SFAS 107-1 and APB 28-1), 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 SFAS 107-1 and APB 28-1 did not have
a material impact on the Companys consolidated financial statements.
Subsequent Events
In May, 2009, the FASB issued SFAS No. 165, Subsequent Events (SFAS 165). SFAS 165 establishes
standards for accounting for and disclosing subsequent events (events which occur after the balance
sheet date but before financial statements are issued or are available to be issued). SFAS 165
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 SFAS 165 did not have a material impact on the Companys consolidated financial
statements. The Company evaluated subsequent events through the day prior to the date the
accompanying financial statements were issued, which was August 5, 2009.
FASB Accounting Standards Codification
In June, 2009, the FASB issued SFAS No. 168, The FASB Accounting Standards Codification and the
Hierarchy of Generally Accepted Accounting Principles (SFAS 168). SFAS 168 will become the
source of authoritative U.S. generally accepted accounting principles recognized by the FASB to be
applied by nongovernmental entities. On the effective date, SFAS 168 will supersede all
then-existing non-SEC accounting and reporting standards. All other non-grandfathered non-SEC
accounting literature not included in the codification will become non-authoritative. SFAS 168 is
effective for financial statements issued for interim and annual periods ending after September 15,
2009. The adoption of SFAS 168 will have no impact on the Companys consolidated financial
statements.
8
Note 3: Inventories
The Companys inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
March 31, 2009 |
|
|
Raw materials |
|
$ |
1,673 |
|
|
$ |
1,624 |
|
Finished goods |
|
|
72,254 |
|
|
|
74,564 |
|
|
|
|
|
|
Subtotal |
|
$ |
73,927 |
|
|
$ |
76,188 |
|
Excess and obsolete inventory reserves |
|
|
(19,918) |
|
|
|
(20,290) |
|
|
|
|
|
|
Inventory, net |
|
$ |
54,009 |
|
|
$ |
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 |
|
|
(8) |
|
|
|
5,475 |
|
|
|
98 |
|
|
|
5,565 |
|
Prior period acquisitions |
|
|
(66) |
|
|
|
-- |
|
|
|
-- |
|
|
|
(66) |
|
|
|
|
|
|
|
|
|
|
Balance as of June 30, 2009 |
|
$ |
555,196 |
|
|
$ |
70,147 |
|
|
$ |
2,104 |
|
|
$ |
627,447 |
|
|
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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
June 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 |
|
$ |
15,272 |
|
|
$ |
7,392 |
|
|
$ |
7,880 |
|
|
$ |
15,115 |
|
|
$ |
6,517 |
|
|
$ |
8,598 |
|
Customer relationships |
|
|
120,077 |
|
|
|
17,274 |
|
|
|
102,803 |
|
|
|
120,077 |
|
|
|
14,966 |
|
|
|
105,111 |
|
Acquired backlog |
|
|
14,230 |
|
|
|
13,893 |
|
|
|
337 |
|
|
|
14,230 |
|
|
|
12,883 |
|
|
|
1,347 |
|
|
|
|
|
|
Total |
|
$ |
149,579 |
|
|
$ |
38,559 |
|
|
$ |
111,020 |
|
|
$ |
149,422 |
|
|
$ |
34,366 |
|
|
$ |
115,056 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
35,992 |
|
|
|
8,253 |
|
|
|
27,739 |
|
|
|
35,992 |
|
|
|
8,253 |
|
|
|
27,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
185,571 |
|
|
$ |
46,812 |
|
|
$ |
138,759 |
|
|
$ |
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 |
|
|
-- |
|
|
|
(1,737) |
|
|
|
(2,308) |
|
|
|
(4,045) |
|
Currency translation |
|
|
-- |
|
|
|
9 |
|
|
|
-- |
|
|
|
9 |
|
|
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
27,739 |
|
|
$ |
8,217 |
|
|
$ |
102,803 |
|
|
$ |
138,759 |
|
|
Intangibles amortization was $4,045 and $1,826 for the three (3) months ended June 30, 2009 and
2008, respectively. The Company acquired definite-lived intangibles from the completion of several
acquisitions during Fiscal 2009. Intangibles amortization for Fiscal 2009 acquisitions are based
on preliminary allocations of purchase price and is dependant upon certain estimates and
assumptions, which are preliminary and may vary from the amounts reported herein.
9
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 June 30, 2009 that are subject to
change pending the outcome of purchase accounting related to certain acquisitions:
|
|
|
|
|
Fiscal |
|
|
|
|
|
2010
|
|
$ |
9,445 |
|
2011
|
|
|
11,493 |
|
2012
|
|
|
11,023 |
|
2013
|
|
|
9,738 |
|
2014
|
|
|
8,150 |
|
Thereafter
|
|
|
61,171 |
|
|
|
|
|
Total
|
|
$ |
111,020 |
|
|
Note 6: Indebtedness
The Companys long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
March 31, 2009 |
|
|
Revolving credit agreement |
|
$ |
235,965 |
|
|
$ |
247,650 |
|
Capital lease obligations |
|
|
2,597 |
|
|
|
2,908 |
|
Other |
|
|
51 |
|
|
|
99 |
|
|
|
|
|
|
Total debt |
|
$ |
238,613 |
|
|
$ |
250,657 |
|
Less: current portion (included in Other liabilities) |
|
|
(1,193) |
|
|
|
(1,397) |
|
|
|
|
|
|
Long-term debt |
|
$ |
237,420 |
|
|
$ |
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 June 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 June 30, 2009 was $261,750, $255,027 and 1.6%, respectively,
compared to $222,820, $211,197 and 3.7%, respectively, for the three (3) months ended June 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%.
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 June 30, 2009, the Company had $4,329 outstanding in letters of credit and $109,706 available
under the Credit Agreement.
10
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 June 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 $69,002 and will expire within ten (10)
months. There was no hedge ineffectiveness for the three (3) months ended June 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
three 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 |
|
|
Fair |
|
|
Fair |
|
|
Fair |
|
|
|
|
|
Value at |
|
|
Value at |
|
|
Value at |
|
|
Value at |
|
|
|
|
|
June 30, |
|
|
March |
|
|
June 30, |
|
|
March |
|
|
|
Classification |
|
2009 |
|
|
31, 2009 |
|
|
2009 |
|
|
31, 2009 |
|
|
Derivatives designated as
hedging
instruments under
SFAS 133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency contracts |
|
Other liabilities (short-term) |
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
753 |
|
|
$ |
1,872 |
|
Foreign currency contracts |
|
Prepaid and other current assets |
|
$ |
3,229 |
|
|
$ |
923 |
|
|
$ |
-- |
|
|
$ |
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivatives not designated
as hedging instruments
under SFAS 133 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest-rate swaps |
|
Other Liabilities (short-term) |
|
$ |
-- |
|
|
$ |
-- |
|
|
$ |
5,133 |
|
|
$ |
5,336 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Classification |
|
2009 |
|
|
2008 |
|
|
Derivatives
designated as
hedging instruments
under
SFAS 133 |
|
|
|
|
|
|
|
|
|
|
Gain (loss)
recognized in
Comprehensive
income on
(effective
portion) net of
taxes |
|
Other comprehensive income |
|
$ |
(145) |
|
|
$ |
218 |
|
Gain (loss)
reclassified from
AOCI into income
(effective
portion) net of
taxes |
|
Selling, general & administrative expenses |
|
$ |
71 |
|
|
$ |
35 |
|
|
11
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Three months ended June 30, |
|
|
Classification |
|
2009 |
|
|
2008 |
|
|
Derivatives not designated as
hedging instruments under SFAS
133 |
|
|
|
|
|
|
|
|
|
|
Gain (loss) recognized in income |
|
Interest expense (income), net |
|
$ |
203 |
|
|
$ |
2,708 |
|
|
Note 8: Acquisitions
Fiscal 2010 acquisitions:
There have been no acquisitions during the three (3) month period ended June 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 15 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 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,
non-compete agreements and backlog which the Company estimates are to be amortized over a period of
one to 15 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 the Company estimates are to be amortized
over a period of five to nine years.
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, NCT, ACS and MTS 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.
12
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 $1,114 and $182 for the three (3) months ended June
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 |
|
|
1,013 |
|
|
|
101 |
|
|
|
1,114 |
|
Acquisition adjustments |
|
|
26 |
|
|
|
-- |
|
|
|
26 |
|
Asset write-downs |
|
|
-- |
|
|
|
(158) |
|
|
|
(158) |
|
Cash expenditures |
|
|
(3,036) |
|
|
|
(919) |
|
|
|
(3,955) |
|
|
|
|
|
|
|
|
Balance at June 30, 2009 |
|
$ |
2,168 |
|
|
$ |
5,373 |
|
|
$ |
7,541 |
|
|
Of the $7,541 above, $4,837 is classified as a current liability under Other liabilities on the
Companys Consolidated Balance Sheets for the period ended June 30, 2009.
Note 10: Income Taxes
The Company recorded income tax expense of $4,681, an effective tax rate of 37.5%, and $7,376, an
effective tax rate of 36.5%, for the three (3) months ended June 30, 2009 and 2008, respectively.
The effective rate for the three (3) months ended June 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
accounted for in accordance with FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes 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.
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.
13
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 June 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 June 30, 2009 |
|
353 |
|
|
Shares authorized for grant under the Incentive Plan as of June 30, 2009 |
|
2,141 |
|
|
|
Shares available for grant under the Incentive Plan as of June 30, 2009 1 |
|
1,464 |
|
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 $1,643 ($1,027 net of tax) or $0.06 per
diluted share and $542 ($344 net of tax) or $0.02 per diluted share for the three (3) months ended
June 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.
|
|
|
|
|
|
|
|
|
|
|
Three (3) months ended June 30, |
|
|
2009 |
|
|
2008 |
|
|
Expected life (in years) |
|
|
5.0 |
|
|
|
4.8 |
|
Risk free interest rate |
|
|
2.7% |
|
|
|
3.4% |
|
Annual forfeiture rate |
|
|
2.5% |
|
|
|
2.4% |
|
Volatility |
|
|
45.5% |
|
|
|
30.4% |
|
Dividend yield |
|
|
0.9% |
|
|
|
0.7% |
|
|
14
The following table summarizes the Companys stock option activity for the period presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Weighted- Average Exercise |
|
|
Weighted- average Remaining Contractual Life |
|
|
Intrinsic Value |
|
|
|
(in 000s) |
|
|
Price |
|
|
(Years) |
|
|
(000s) |
|
|
Outstanding at March 31, 2009 |
|
|
3,309 |
|
|
$ |
36.45 |
|
|
|
|
|
|
|
|
|
Granted |
|
|
167 |
|
|
|
33.11 |
|
|
|
|
|
|
|
|
|
Exercised |
|
|
-- |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
Forfeited or expired |
|
|
(45) |
|
|
|
38.87 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at June 30, 2009 |
|
|
3,431 |
|
|
$ |
36.25 |
|
|
|
6.0 |
|
|
$ |
6,443 |
|
Exercisable at June 30, 2009 |
|
|
2,541 |
|
|
$ |
38.51 |
|
|
|
5.0 |
|
|
$ |
2,250 |
|
|
The weighted-average grant-date
fair value of options granted during the three (3) month period
ending June 30, 2009 and 2008 was $13.16 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 June 26, 2009
of $34.58, 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 shares 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 |
|
|
|
13.16 |
|
Forfeited |
|
|
(6) |
|
|
|
8.56 |
|
Vested |
|
|
(360) |
|
|
|
8.85 |
|
|
|
|
|
|
|
Non-vested as of June 30, 2009 |
|
|
890 |
|
|
$ |
9.36 |
|
|
As of June 30, 2009, there was $6,795 of total unrecognized pre-tax stock-based compensation
expense related to non-vested stock options which is expected to be recognized over a
weighted-average period of 2.0 years. As of June 30, 2009, the Company had not valued certain
grants, for accounting purposes, made during the first quarter of Fiscal 2010. Valuation is
expected to occur during the second quarter of Fiscal 2010 which will impact the total unrecognized
pre-tax stock-based compensation expense and the weighted-average grant-date fair value.
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 |
|
|
|
33.11 |
|
Vested |
|
|
(15) |
|
|
|
33.11 |
|
Forfeited |
|
|
-- |
|
|
|
-- |
|
|
|
|
Outstanding at June 30, 2009 |
|
|
153 |
|
|
$ |
33.11 |
|
|
The
total fair value of shares vested during the three (3) month period ending June 30, 2009 and
2008 was $497 and $0, respectively.
As of June 30, 2009, there was $854 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 2.9 years. As of June 30, 2009, the Company had not valued certain
grants, for accounting purposes, made during the first quarter of Fiscal 2010. Valuation
is expected to occur during the second quarter of Fiscal 2010 which will impact the total
unrecognized pre-tax stock-based compensation expense and the weighted-average grant-date fair
value.
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.
|
|
|
|
|
|
|
|
|
|
Three (3) months ended June, |
|
|
|
2009 |
|
|
2008 |
|
|
Risk free interest rate |
|
|
1.0% |
|
|
|
-- |
|
Dividend yield |
|
|
0.7% |
|
|
|
-- |
|
|
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 |
|
|
|
36.62 |
|
Vested |
|
|
-- |
|
|
|
-- |
|
Forfeited |
|
|
-- |
|
|
|
-- |
|
|
|
|
Outstanding at June 30, 2009 |
|
|
100 |
|
|
$ |
36.62 |
|
|
No shares vested during the three (3) month period ending June 30, 2009 and 2008.
As of June 30, 2009, there was $2,120 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 1.9 years. As of June 30, 2009, the Company had not valued certain
grants, for accounting purposes, made during the first quarter of Fiscal 2010. Valuation is
expected to occur during the second quarter of Fiscal 2010 which will impact the total unrecognized
pre-tax stock-based compensation expense and the weighted-average grant-date fair value.
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 June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
Net income |
|
$ |
7,802 |
|
|
$ |
12,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted-average common shares outstanding (basic) |
|
|
17,539 |
|
|
|
17,516 |
|
Effect of dilutive securities from equity awards |
|
|
-- |
|
|
|
2 |
|
|
|
|
|
|
Weighted-average common shares outstanding (diluted) |
|
|
17,539 |
|
|
|
17,518 |
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
0.45 |
|
|
$ |
0.73 |
|
|
|
|
|
|
Dilutive earnings per common share |
|
$ |
0.44 |
|
|
$ |
0.73 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
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 3,433,649 and 2,514,877 non-dilutive equity awards outstanding for the three (3) months ended
June 30, 2009 and 2008, respectively, that are not included in the corresponding period
Weighted-average common shares outstanding (diluted) computation. As of June 30, 2009, the Company
had not valued certain grants, for accounting purposes, made during first quarter of Fiscal 2010.
Valuation is expected to occur during the second quarter of Fiscal 2010 which may impact the
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 June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
Net income |
|
$ |
7,802 |
|
|
$ |
12,833 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency translation adjustment |
|
|
11,503 |
|
|
|
(417) |
|
Derivative Instruments (net of tax): |
|
|
|
|
|
|
|
|
Net change in fair value of cash flow hedging instruments (net of tax) |
|
|
(145) |
|
|
|
218 |
|
Amounts reclassified into results of operations |
|
|
71 |
|
|
|
(35) |
|
Pension (net of tax): |
|
|
|
|
|
|
|
|
Unrealized gain (loss) |
|
|
(130) |
|
|
|
-- |
|
Amounts reclassified into results of operations |
|
|
35 |
|
|
|
-- |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Other comprehensive income (loss) |
|
$ |
11,334 |
|
|
$ |
(234) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income (loss) |
|
$ |
19,136 |
|
|
$ |
12,599 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
The components of AOCI consisted of the following for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
June 30, 2009 |
|
|
March 31, 2009 |
|
|
Foreign currency translation adjustment |
|
$ |
17,878 |
|
|
$ |
6,375 |
|
Unrealized gains/(losses) on derivatives
designated and qualified as cash flow
hedges |
|
|
(9) |
|
|
|
65 |
|
Unrecognized gain on defined benefit pension |
|
|
(2,963) |
|
|
|
(2,868) |
|
|
|
|
|
|
Accumulated other comprehensive income |
|
$ |
14,906 |
|
|
$ |
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 June 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 June 30, 2009 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Foreign currency contracts |
|
$ |
-- |
|
|
$ |
3,229 |
|
|
$ |
-- |
|
|
$ |
3,229 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities at Fair Value as of June 30, 2009 |
|
|
Level 1 |
|
Level 2 |
|
Level 3 |
|
Total |
Foreign currency contracts |
|
$ |
-- |
|
|
$ |
753 |
|
|
$ |
-- |
|
|
$ |
753 |
|
Interest-rate swaps |
|
|
-- |
|
|
|
5,133 |
|
|
|
-- |
|
|
|
5,133 |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
-- |
|
|
$ |
5,886 |
|
|
$ |
-- |
|
|
$ |
5,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17
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.
The following table presents financial information about the Companys reportable segments by
geographic region for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three (3) months ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
North America |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
204,583 |
|
|
$ |
196,336 |
|
Operating income |
|
|
11,575 |
|
|
|
14,484 |
|
Depreciation |
|
|
1,921 |
|
|
|
2,268 |
|
Intangibles amortization |
|
|
4,034 |
|
|
|
1,804 |
|
Assets (as of June 30) |
|
|
1,047,304 |
|
|
|
961,199 |
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
23,886 |
|
|
$ |
35,768 |
|
Operating income |
|
|
2,089 |
|
|
|
3,813 |
|
Depreciation |
|
|
84 |
|
|
|
127 |
|
Intangibles amortization |
|
|
10 |
|
|
|
18 |
|
Assets (as of June 30) |
|
|
134,666 |
|
|
|
159,528 |
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
6,743 |
|
|
$ |
10,449 |
|
Operating income |
|
|
821 |
|
|
|
1,551 |
|
Depreciation |
|
|
28 |
|
|
|
31 |
|
Intangibles amortization |
|
|
1 |
|
|
|
4 |
|
Assets (as of June 30) |
|
|
18,974 |
|
|
|
21,642 |
|
|
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 June 30, 2009 and 2008:
|
|
|
|
|
|
|
|
|
|
|
As of June 30, |
|
|
2009 |
|
|
2008 |
|
|
Segment assets for North America, Europe and All Other |
|
$ |
1,200,944 |
|
|
$ |
1,142,369 |
|
Corporate eliminations |
|
|
(65,244) |
|
|
|
(70,006) |
|
|
|
|
|
|
Total consolidated assets |
|
$ |
1,135,700 |
|
|
$ |
1,072,363 |
|
|
The following table presents financial information about the Company by service type for the
periods presented:
|
|
|
|
|
|
|
|
|
|
|
Three (3) months ended June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
Data Services |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
51,410 |
|
|
$ |
46,884 |
|
Gross profit |
|
|
13,947 |
|
|
|
13,287 |
|
|
|
|
|
|
|
|
|
|
Voice Services |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
141,520 |
|
|
$ |
140,030 |
|
Gross profit |
|
|
48,379 |
|
|
|
47,198 |
|
|
|
|
|
|
|
|
|
|
Hotline Services |
|
|
|
|
|
|
|
|
Revenues |
|
$ |
42,282 |
|
|
$ |
55,639 |
|
Gross profit |
|
|
20,087 |
|
|
|
27,657 |
|
|
The sum of service type revenues and gross profit equals consolidated revenues and gross profit.
18
Note 16: Commitments and Contingencies
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 stipulated that responses by the defendants, including the Company, are due on or
before October 23, 2009 and the court has entered an order to that effect. The Company and certain
other parties have committed to participate in a mediation of these claims. The Company may have
indemnification obligations arising out of this matter to its current and former directors and
officers named in this litigation. The Company may incur 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 June 30, 2009, the total amount of such fees is $8,255, of which $5,000, the
insurance policy limit, has been paid by the insurance company. The Company recorded expense of
$264 and $0 during the three (3) months ended June 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
Item 2. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The discussion and analysis for the three (3) months ended June 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 June 30, 2009 and 2008 were June 27, 2009 and June 28,
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 June 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 June 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 June 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 |
|
|
$ |
3,359 |
|
|
$ |
3,022 |
|
|
$ |
3,022 |
|
|
$ |
13,434 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
4,031 |
|
|
$ |
3,359 |
|
|
$ |
3,022 |
|
|
$ |
3,022 |
|
|
$ |
13,434 |
|
|
20
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 June 30, |
|
|
|
2009 |
|
|
2008 |
|
|
|
|
|
|
|
% of total |
|
|
|
|
|
|
% of total |
|
|
|
$ |
|
|
revenue |
|
|
$ |
|
|
revenue |
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
204,583 |
|
|
|
87.0% |
|
|
$ |
196,336 |
|
|
|
81.0% |
|
Europe |
|
|
23,886 |
|
|
|
10.1% |
|
|
|
35,768 |
|
|
|
14.7% |
|
All Other |
|
|
6,743 |
|
|
|
2.9% |
|
|
|
10,449 |
|
|
|
4.3% |
|
|
|
|
|
|
Total |
|
$ |
235,212 |
|
|
|
100% |
|
|
$ |
242,553 |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
11,575 |
|
|
|
|
|
|
$ |
14,484 |
|
|
|
|
|
% of North America revenues |
|
|
5.7% |
|
|
|
|
|
|
|
7.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
$ |
2,089 |
|
|
|
|
|
|
$ |
3,813 |
|
|
|
|
|
% of Europe revenues |
|
|
8.7% |
|
|
|
|
|
|
|
10.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
$ |
821 |
|
|
|
|
|
|
$ |
1,551 |
|
|
|
|
|
% of All Other revenues |
|
|
12.2% |
|
|
|
|
|
|
|
14.8% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
14,485 |
|
|
|
6.2% |
|
|
$ |
19,848 |
|
|
|
8.2% |
|
|
21
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 June 30, |
|
|
2009 |
|
2008 |
|
|
|
|
|
|
% of total |
|
|
|
|
|
|
% of total |
|
|
|
$ |
|
|
revenue |
|
|
$ |
|
|
revenue |
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Services |
|
$ |
51,410 |
|
|
|
21.9% |
|
|
$ |
46,884 |
|
|
|
19.3% |
|
Voice Services |
|
|
141,520 |
|
|
|
60.1% |
|
|
|
140,030 |
|
|
|
57.7% |
|
Hotline Services |
|
|
42,282 |
|
|
|
18.0% |
|
|
|
55,639 |
|
|
|
23.0% |
|
|
|
|
|
|
Total |
|
$ |
235,212 |
|
|
|
100% |
|
|
$ |
242,553 |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Services |
|
$ |
13,947 |
|
|
|
|
|
|
$ |
13,287 |
|
|
|
|
|
% of Data Services revenues |
|
|
27.1% |
|
|
|
|
|
|
|
28.3% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voice Services |
|
$ |
48,379 |
|
|
|
|
|
|
$ |
47,198 |
|
|
|
|
|
% of Voice Services revenues |
|
|
34.2% |
|
|
|
|
|
|
|
33.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotline Services |
|
$ |
20,087 |
|
|
|
|
|
|
$ |
27,657 |
|
|
|
|
|
% of Hotline Services revenues |
|
|
47.5% |
|
|
|
|
|
|
|
49.7% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
82,413 |
|
|
|
35.0% |
|
|
$ |
88,142 |
|
|
|
36.3% |
|
|
First quarter of Fiscal 2010 (1Q10) compared to first quarter of Fiscal 2009 (1Q09):
Total Revenues
Total revenues for 1Q10 were $235,212, a decrease of 3% compared to total revenues for 1Q09 of
$242,553. The Acquired Companies contributed incremental revenue of $39,405 and $3,151 for 1Q10
and 1Q09, respectively. Excluding the effects of the acquisitions and the negative exchange rate
impact of $5,715 in 1Q10 relative to the U.S. dollar, total revenues would have decreased 16% from
$239,402 to $201,522 for the reasons discussed below.
Revenues by Geography
North America
Revenues in North America for 1Q10 were $204,583, an increase of 4% compared to revenues for 1Q09
of $196,336. The Acquired Companies contributed incremental revenue of $39,405 and $3,151 for 1Q10
and 1Q09, respectively. Excluding the effects of the acquisitions and the negative exchange rate
impact of $735 in 1Q10 relative to the U.S. dollar, North American revenues would have decreased
14% from $193,185 to $165,913. 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 1Q10 were $23,886, a decrease of 33% compared to revenues for 1Q09 of
$35,768. Excluding the negative exchange rate impact of $4,772 in 1Q10 relative to the U.S.
dollar, Europe revenues would have decreased 20% from $35,768 to $28,658. 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 1Q10 were $6,743, a decrease of 35% compared to revenues for 1Q09 of
$10,449. Excluding the negative exchange rate impact of $208 in 1Q10 relative to the U.S. dollar,
All Other revenues would have decreased 33% from $10,449 to $6,951.
22
Revenue by Service Type
Data Services
Revenues from Data Services for 1Q10 were $51,410, an increase of 10% compared to revenues for 1Q09
of $46,884. The Acquired Companies contributed incremental revenue of $13,308 and $0 for 1Q10 and
1Q09, respectively. Excluding the effects of the acquisitions and the negative exchange rate
impact of $2,605 in 1Q10 relative to the U.S. dollar for its international Data Services, Data
Services revenues would have decreased 13% from $46,884 to $40,707. 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 1Q10 were $141,520, an increase of 1% compared to revenues for
1Q09 of $140,030. The Acquired Companies contributed incremental revenue of $26,097 and $3,151 for
1Q10 and 1Q09, respectively. Excluding the effects of the acquisitions, Voice Services revenues
would have decreased 16% from $136,879 to $115,423. 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 1Q10 were $42,282, a decrease of 24% compared to revenues for
1Q09 of $55,639. Excluding the negative exchange rate impact of $3,110 in 1Q10 relative to the
U.S. dollar for its International Hotline Services, Hotline Services revenues would have decreased
18% from $55,639 to $45,392. 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 1Q10 were $82,413, a decrease of 7% compared to gross profit dollars for
1Q09 of $88,142. Gross profit as a percent of revenues for 1Q10 was 35.0%, a decrease of 1.3%
compared to gross profit as a percentage of revenues for 1Q09 of 36.3%. 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 1Q10 were $13,947, or 27.1% of revenues, compared to
gross profit dollars for 1Q09 of $13,287, or 28.3% of revenues. Gross profit dollars for Voice
Services for 1Q10 were $48,379, or 34.2% of revenues, compared to gross profit dollars for 1Q09 of
$47,198, or 33.7% of revenues. Gross profit dollars for Hotline Services for 1Q10 were $20,087, or
47.5% of revenues, compared to gross profit dollars for 1Q09 of $27,657, or 49.7% 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 1Q10 were $63,883, a decrease of $2,585 compared to
Selling, general & administrative expenses for 1Q09 of $66,468. Selling, general & administrative
expenses as a percent of revenue for 1Q10 were 27.2% compared to 27.4% for 1Q09. The decrease in
Selling, general & administrative expense dollars and Selling, general & administrative expenses as
a percent of revenue 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.
Intangibles amortization
Intangibles amortization for 1Q10 was $4,045, an increase of $2,219 compared to Intangibles
amortization for 1Q09 of $1,826. The increase was primarily attributable to the addition of
intangible assets from acquisitions completed subsequent to the first 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 1Q10 was $14,485, or 6.2% of revenues, a
decrease of $5,363 compared to Operating income for 1Q09 of $19,848, or 8.2% of revenues.
Interest expense (income), net
Net interest expense for 1Q10 was $2,144, or 0.9% of revenues, compared to net interest income for
1Q09 of $265, or 0.1% of revenues. The Companys interest-rate swaps contributed gains of $203 and
$2,708 for 1Q10 and 1Q09, respectively, due to the change in fair value. Excluding the effect of
the interest-rate swaps, net interest expense would have decreased $96 from
$2,443, or 1.0% of revenues, to $2,347 or 1.0% of revenues. This decrease in net interest expense
is due to a decrease in the weighted-average interest rate from 3.7% for 1Q09 to 1.6% for 1Q10
partially offset by increases in the weighted-average outstanding debt from $211,197 for 1Q09 to
$255,027 for 1Q10.
23
Provision for income taxes
The tax provision for 1Q10 was $4,681, an effective tax rate of 37.5%. This compares to the tax
provision for 1Q09 of $7,376, an effective tax rate of 36.5%. The tax rate for 1Q10 was higher
than 1Q09 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 1Q10 was $7,802, or 3.3% of revenues, compared to Net
income for 1Q09 of $12,833, or 5.3% of revenues.
Liquidity and Capital Resources
Operating Activities
Net cash provided by operating activities during 1Q10 was $16,087. Significant factors
contributing to the source of cash were: net income of $7,802 inclusive of non-cash charges of
$6,078 and $1,643 for amortization / depreciation expense and stock compensation expense,
respectively, as well as decreases in net inventory of $2,555 and net trade accounts receivable of
$11,690, and an increase in accrued taxes of $2,442. Significant factors contributing to a use of
cash include decreases in billings in excess of costs, restructuring reserves, accrued compensation
and benefits and deferred revenue of $2,488, $3,041, $5,688 and $1,290, respectively, and an
increase in costs in excess of billings of $4,464. Changes in the above accounts are based on
average Fiscal 2010 exchange rates.
Net cash provided by operating activities during 1Q09 was $12,428. Significant factors
contributing to the source of cash were: net income of $12,833 inclusive of non-cash charges of
$4,252 and $542 for amortization / depreciation expense and stock compensation expense,
respectively, as well as decreases in net inventory of $3,983, costs in excess of billings of
$1,040 and the deferred tax provision of $1,096, and increases in trade accounts payable of $1,910
and accrued taxes of $1,167. Significant factors contributing to a use of cash include a non-cash
charge of $2,708 for the change in fair value of interest rate swap, as well as decreases in
billings in excess of costs of $3,321, accrued expenses of $2,755 and restructuring reserves of
$2,973, and an increase in prepaid and other current assets of $2,813. Changes in the above
accounts are based on average Fiscal 2009 exchange rates.
As of June 30, 2009 and 2008, the Company had cash and cash equivalents of $25,774 and $25,238,
respectively, working capital of $136,276 and $136,782, respectively, and a current ratio of 1.67
and 1.66, 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 1Q10 was $1,454. Significant factors contributing to
the cash outflow were: $916 for holdbacks and contingent fee payments related to prior period
acquisitions and $567 for gross capital expenditures.
Net cash used by investing activities during 1Q09 was $6,751. Significant factors contributing to
the cash outflow were: $6,286 to acquire UCI, $2,456 for holdbacks and contingent fee payments
related to prior period acquisitions and $652 for gross capital expenditures. A significant source
of cash inflow was $2,622 for the return of previously-escrowed amounts relating to the acquisition
of the USA Commercial and Government and Canadian operations of NextiraOne, LLC.
Financing Activities
Net cash used by financing activities during 1Q10 was $13,100. Significant factors contributing to
the cash outflow were $12,048 of net payments on long-term debt and $1,052 for the payment of
dividends.
Net cash used by financing activities during 1Q09 was $7,036. Significant factors contributing to
the cash outflow were $5,873 of net payments on long term debt and $1,051 for the payment of
dividends.
24
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 June 30, 2009, the Company was in compliance with all financial covenants
under the Credit Agreement.
As of June 30, 2009, the Company had total debt outstanding of $238,613. Total debt was comprised
of $235,965 outstanding under the Credit Agreement, $2,597 of obligations under capital leases and
$51 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 June 30, 2009
was $261,750, $255,027 and 1.6%, respectively, compared to $222,820, $211,197 and 3.7%,
respectively, for the three (3) months ended June 30, 2008.
Dividends
Fiscal 2010
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
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.
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 June 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 June 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.
25
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 June 30, 2009, the total amount of such fees is $8,255, of which $5,000, the
insurance policy limit, has been paid by the insurance company. The Company recorded expense of
$264 and $0 during the three (3) months ended June 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.
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 June 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, including the NextiraOne business, 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.
26
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 June 30,
2009, the Company had total long-term obligations of $235,965 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 $85,965 was in
variable rate obligations. As of June 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 $212 ($133 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
three 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 June 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 1.25 to
1.58 Australian dollar, 1.10 to 1.30 Canadian dollar, 5.29 to 5.93 Danish krone, 0.70 to 0.80 Euro,
15.17 to 15.99 Mexican peso, 5.77 to 7.22 Norwegian kroner, 0.59 to 0.71 British pounds sterling, 6.60 to
9.02 Swedish krona, 1.07 to 1.19 Swiss franc and 90.13 to 98.16 Japanese yen, all per U.S. dollar.
The total open contracts had a notional amount of $69,002 and will expire within ten (10) months.
27
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 June 30, 2009. Based upon this assessment, Management has
concluded that the Companys disclosure controls and procedures were effective as of June 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
acquisitions of Scottel, NCT, ACS and MTS during Fiscal 2009. Scottel, NCT, ACS and MTS represent
approximately 3%, 1%, 3% and 5%, respectively, of the Companys total assets as of June 30, 2009.
Managements assessment and conclusion on the effectiveness of the Companys disclosure controls
and procedures as of June 30, 2009 excludes an assessment of the internal control over financial
reporting of Scottel, NCT, ACS and MTS.
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.
28
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 June 27, 2009. See Part I, Item 3, Legal Proceedings of the Form 10-K for
more information regarding legal proceedings as of March 31, 2009.
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 stipulated that responses by the defendants, including the Company, are due on or
before October 23, 2009 and the court has entered an order to that effect. The Company and certain
other parties have committed to participate in a mediation of these claims. The Company may have
indemnification obligations arising out of this matter to its current and former directors and
officers named in this litigation. The Company may incur costs or expenses in relation to this
matter that could be material.
Item 1A. Risk Factors.
The following is provided to update the risk factors previously disclosed in Part I, Item 1A,
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. 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). 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.
29
Item 6. Exhibits.
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.1
|
|
Description of Fiscal 2010 Annual Incentive Plan (1) |
|
|
|
10.2
|
|
Form of Black Box Corporation Nonqualified Stock Option Agreement (for employees pursuant to
the 2008 Long-Term Incentive Plan) (1) |
|
|
|
10.3
|
|
Form of Black Box Corporation Restricted Stock Unit Agreement (for employees pursuant to the
2008 Long-Term Incentive Plan)
(1) |
|
|
|
10.4
|
|
Form of Black Box Corporation Restricted Stock Unit Agreement for Nonemployee Directors
(pursuant to the 2008 Long-Term Incentive Plan) (1) |
|
|
|
10.5
|
|
Form of Black Box Corporation Performance Share Award Agreement (for employees pursuant to
the 2008 Long-Term Incentive Plan) (1) |
|
|
|
21.1
|
|
Subsidiaries of the Registrant (2) |
|
|
|
31.1
|
|
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) |
|
|
|
31.2
|
|
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) |
|
|
|
32.1
|
|
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. |
|
(2) |
|
Filed as Exhibit 21.1 to the Annual Report on Form 10-K of the Company, file number
0-18706, filed with the SEC on May 29, 2009 and incorporated herein by reference. |
30
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.
|
|
|
|
|
Dated: August 6, 2009
|
BLACK BOX CORPORATION
|
|
|
/s/ Michael McAndrew
|
|
|
Michael McAndrew, Vice President, Chief |
|
|
Financial Officer, Treasurer, Secretary and
Principal Accounting Officer |
|
31
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description |
10.1
|
|
Description of Fiscal 2010 Annual Incentive Plan (1) |
|
|
|
10.2
|
|
Form of Black Box Corporation Nonqualified Stock Option Agreement (for employees pursuant to
the 2008 Long-Term Incentive Plan) (1) |
|
|
|
10.3
|
|
Form of Black Box Corporation Restricted Stock Unit Agreement (for employees pursuant to the
2008 Long-Term Incentive Plan)
(1) |
|
|
|
10.4
|
|
Form of Black Box Corporation Restricted Stock Unit Agreement for Nonemployee Directors
(pursuant to the 2008 Long-Term Incentive Plan) (1) |
|
|
|
10.5
|
|
Form of Black Box Corporation Performance Share Award Agreement (for employees pursuant to
the 2008 Long-Term Incentive Plan) (1) |
|
|
|
21.1
|
|
Subsidiaries of the Registrant (2) |
|
|
|
31.1
|
|
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) |
|
|
|
31.2
|
|
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) |
|
|
|
32.1
|
|
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. |
|
(2) |
|
Filed as Exhibit 21.1 to the Annual Report on Form 10-K of the Company, file number
0-18706, filed with the SEC on May 29, 2009 and incorporated herein by reference. |
32