EX-99.1 2 l31769aexv99w1.htm EX-99.1 EX-99.1
Exhibit 99.1
(BLACK BOX LOGO)
Investor Relations
Michael McAndrew
Chief Financial Officer
Black Box Corporation
Phone: (724) 873-6788
Fax: (724) 873-6799
Email: investors@blackbox.com
FOR IMMEDIATE RELEASE
BLACK BOX CORPORATION REPORTS FOURTH QUARTER AND FISCAL 2008 RESULTS
- Reports record annual revenues of $1.0 billion and record quarterly cash
flow of $44 million for the fourth quarter and $81 million for the fiscal year -
PITTSBURGH, PENNSYLVANIA, May 22, 2008 -- Black Box Corporation (NASDAQ:BBOX) today reported results for the fourth quarter of Fiscal 2008 and for the fiscal year ended March 31, 2008.
For the fourth quarter of Fiscal 2008, diluted earnings per share were 48¢ on net income of $8.4 million or 3.4% of revenues compared to diluted earnings per share of 37¢ on net income of $6.6 million or 2.7% of revenues for the same quarter last year. On a sequential quarter comparison basis, third quarter of Fiscal 2008 diluted earnings per share were 64¢ on net income of $11.3 million or 4.4% of revenues. Excluding reconciling items, operating earnings per share (which is a non-GAAP term and is defined below) for the fourth quarter of Fiscal 2008 were 74¢ on operating net income (which is a non-GAAP term and is defined below) of $13.1 million or 5.3% of revenues compared to operating earnings per share of 69¢ on operating net income of $12.2 million or 4.9% of revenues for the same quarter last year. Management believes that presenting operating earnings per share and operating net income is useful to investors because it provides a more meaningful comparison of the ongoing operations of the Company.
For the fourth quarter of Fiscal 2008, the Company’s pre-tax reconciling items were $7.8 million with an after tax impact on net income and EPS of $4.7 million and 26¢, respectively. During the fourth quarter of Fiscal 2007, the Company’s pre-tax reconciling items were $8.8 million with an after tax impact on net income and EPS of $5.6 million and 32¢, respectively. See below for further discussion regarding Management’s use of non-GAAP accounting measurements and a detailed presentation of the Company’s pre-tax reconciling items for the periods presented above.
Fourth quarter of Fiscal 2008 total revenues were $245 million, a decrease of $5 million or 2% from $250 million for the same quarter last year. On a sequential quarter comparison basis, third quarter of Fiscal 2008 total revenues were $258 million.
Fourth quarter of Fiscal 2008 cash provided by operating activities was $44 million or 528% of net income, compared to $12 million or 181% of net income for the same quarter last year. Fourth quarter of Fiscal 2008 free cash flow (which is a non-GAAP term and is defined below) was $43 million compared to $13 million for the same quarter last year. On a sequential quarter comparison basis, third quarter of Fiscal 2008 cash provided by operating activities was $25 million or 216% of net income and free cash flow was $23 million. Black Box utilized its fourth quarter of Fiscal 2008 free cash flow primarily to fund debt reduction of $24 million, to increase its cash position by $7 million, to repurchase $6 million of its common stock, to fund current and prior period acquisition activity of $4 million and to pay dividends of $1 million. Management believes that free cash flow, defined by the Company as cash provided by operating activities less net capital expenditures, plus proceeds from stock option exercises, plus or minus foreign currency translation adjustments, is an important measurement of liquidity as it represents the total cash available to the Company.
Fiscal 2008 diluted earnings per share were $2.22 on net income of $39.2 million or 3.9% of revenues compared to diluted earnings per share of $2.00 on net income of $35.6 million or 3.5% of revenues for the same period last year. Excluding reconciling items, Fiscal 2008 operating earnings per share were $3.20 on operating net income of $56.5 million or 5.6% of revenues compared to operating earnings per share of $2.97 on operating net income of $52.8 million or 5.2% of revenues for the same period last year.
For Fiscal 2008, the Company’s pre-tax reconciling items were $27.9 million with an after tax impact on net income and EPS of $17.2 million and 98¢, respectively. For Fiscal 2007, the Company’s pre-tax reconciling items were $26.5 million with an after tax impact on net income and EPS of $17.2 million and 97¢, respectively. See below for further discussion regarding Management’s use of non-GAAP accounting measurements and a detailed presentation of the Company’s pre-tax reconciling items for the periods presented above.
1000 Park Drive, Lawrence, PA 15055-1018 * (724) 746-5500 * Fax (724) 746-0746

 


 

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Fiscal 2008 total revenues were $1.02 billion, equivalent to $1.02 billion for the same period last year.
Fiscal 2008 cash provided by operating activities was $81 million or 207% of net income compared to $37 million or 103% of net income for the same period last year. Free cash flow was $81 million compared to $46 million for the same period last year. Black Box utilized its Fiscal 2008 free cash flow primarily to fund debt reduction of $43 million, to fund current and prior period acquisition activity of $17 million, to increase its cash position by $9 million, to repurchase $6 million of its common stock and to pay dividends of $4 million.
The Company’s six-month order backlog was $159 million at March 31, 2008 compared to $159 million for the same quarter ended last year. On a sequential quarter end comparison basis, the Company’s six-month order backlog was $165 million at December 29, 2007.
For Fiscal 2009, the Company is targeting reported revenues of approximately $1.0 billion; corresponding operating earnings per share in the range of $3.25 to $3.40; and cash provided by operating activities in the range of 90% to 100% of operating net income.
All of the above exclude acquisition-related expense, stock-based compensation expense, historical stock option granting practices investigation costs and the impact of changes in the fair market value of the Company’s interest rate swap, and all of the above are before any new mergers and acquisition activity that has not been announced.
Commenting on Fiscal 2008 and the Fiscal 2009 outlook, Terry Blakemore, President and Chief Executive Officer, said, “We realized many significant accomplishments in Fiscal 2008. We achieved the highest Revenues the Company has experienced during its 32 year existence at $1.0 billion, which includes 5% organic growth (3% organic growth excluding the impact of foreign currency).”
“Additionally, we are especially pleased with achieving 10.6% Adjusted Operating income percentage, up nearly a full point from Fiscal 2007. This was primarily the result of the continued success of integrating NextiraOne. Most notably, we generated record operating cash flow of $44 million for the fourth quarter and $81 million for the fiscal year. In combination, we believe these financial accomplishments significantly strengthen our position in this competitive marketplace. We continue to believe that the Black Box technical service model is unique to the industry and provides the best value proposition to our clients, which allows us to achieve these types of results.”
Mr. Blakemore went on to say, “As we look to Fiscal 2009, we are taking a pragmatic view of the current economic environment and its effects on our end-markets. Our current projections for Fiscal 2009 are based on achieving Revenues of approximately $1.0 billion for a third consecutive year coupled with a significant improvement in Adjusted Operating income percentage to over 11% and the continued generation of substantial operating cash flow. With all of that in mind, we will continue to stay focused on providing the highest quality technical support services, Data, Voice and Hotline, to our clients around the world while continuing to strategically leverage our operational and financial strengths in support of our longer term goal to significantly grow Black Box by consummating high quality M&A opportunities.”
The Company will conduct a conference call beginning at 5:00 p.m. Eastern Daylight Time today, May 22, 2008. Terry Blakemore, President and Chief Executive Officer, will host the call. To participate in the call, please dial 612-332-1025 approximately 15 minutes prior to the starting time and ask to be connected to the Black Box Earnings Call. A replay of the conference call will be available for one week after the teleconference by dialing 320-365-3844 and using access code 917181.
Black Box is the world’s largest technical services company dedicated to designing, building and maintaining today’s complicated data and voice infrastructure systems. Black Box services 175,000 clients in 141 countries with 188 offices throughout the world. To learn more, visit the Black Box Web site at http://www.blackbox.com.
Black Box®, the Double Diamond logo and DVH are registered trademarks of BB Technologies, Inc.
1000 Park Drive, Lawrence, PA 15055-1018 * (724) 746-5500 * Fax (724) 746-0746

 


 

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Any forward-looking statements contained in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and speak only as of the date of this release. You can identify these forward-looking statements by the fact they use words such as “should,” “anticipate,” “estimate,” “approximate,” “expect,” “target,” “may,” “will,” “project,” “intend,” “plan,” “believe” and other words of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. Although it is not possible to predict or identify all risk factors, they may include the timing and final outcome of the ongoing review of the Company’s stock option practices, including the related Securities and Exchange Commission (“SEC”) investigation, shareholder derivative lawsuit and tax matters, and the impact of any actions that may be required or taken as a result of such review, SEC investigation, shareholder derivative lawsuit or tax 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 (Data, Voice, Hotline) services, successful implementation of our M&A program, including identifying appropriate targets, consummating transactions and successfully integrating the businesses, competition, changes in foreign, political and economic conditions, fluctuating foreign currencies compared to the U.S. dollar, rapid changes in technologies, client preferences, the Company’s arrangements with suppliers of voice equipment and technology and various other matters, many of which are beyond the Company’s control. Additional risk factors are included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2007. We can give no assurance that any goal, plan or target set forth in forward-looking statements can be achieved and readers are cautioned not to place undue reliance on such statements, which speak only as of the date made. We undertake no obligation to release publicly any revisions to forward-looking statements as a result of future events or developments.
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BLACK BOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
                                 
    Three-months Ended     Fiscal Year Ended  
  March 31,   March 31,
In thousands, except per share amounts
  2008     2007       2008     2007    
 
 
Revenues
                               
Hotline products
    $      60,287       $      57,845        $       235,314        $     222,903  
 
 
                               
On-Site services
    185,210       191,939       781,428       793,407  
         
Total
    245,497       249,784       1,016,742       1,016,310  
 
                               
Cost of sales
                               
Hotline products
    30,301       30,585       122,011       113,780  
 
 
                               
On-Site services
    126,216       126,775       528,111       528,541  
         
Total
    156,517       157,360       650,122       642,321  
 
                               
Gross profit
    88,980       92,424       366,620       373,989  
 
                               
Selling, general & administrative expenses
    67,260       72,614       275,309       290,355  
 
 
                               
Intangibles amortization
    1,635       4,171       6,679       10,285  
         
 
                               
Operating income
    20,085       15,639       84,632       73,349  
 
                               
Interest expense (income), net
    6,095       5,185       21,298       18,407  
 
 
                               
Other expenses (income), net
    (41)       (23)       (197)       42  
         
 
                               
Income before provision for income taxes
    14,031       10,477       63,531       54,900  
 
                               
Provision for income taxes
    5,637       3,849       24,298       19,291  
         
 
                               
Net income
    $      8,394       $      6,628        $       39,233        $     35,609  
         
 
                               
Earnings per common share:
                               
Basic
    $      0.48       $      0.38        $       2.23        $     2.03  
         
 
 
                               
Diluted
    $      0.48       $      0.37        $       2.22        $     2.00  
         
 
                               
Weighted average common shares outstanding
                               
Basic
    17,614       17,493       17,605       17,512  
         
 
 
                               
Diluted
    17,616       17,682       17,653       17,808  
         
 
                               
Dividends per share
    $      0.06       $      0.06        $       0.24        $     0.24  
 
 
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BLACK BOX CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
                  
In thousands, except par value
      March 31, 2008        March 31, 2007  
 
Assets
               
 
Cash and cash equivalents
    $      26,652        $       17,157  
 
Accounts receivable, net
    162,289       161,733  
 
Inventories, net
    67,537       72,807  
 
Costs/estimated earnings in excess of billings on uncompleted contracts
    58,611       61,001  
 
Prepaid and other current assets
    31,529       31,057  
 
         
 
Total current assets
    346,618       343,755  
 
               
Property, plant and equipment, net
    32,822       39,051  
 
Goodwill, net
    586,856       568,647  
 
Intangibles:
               
 
Customer relationships, net
    67,331       68,016  
 
Other intangibles, net
    32,524       33,258  
 
Other assets
    9,315       37,364  
 
       
 
Total assets
    $      1,075,466        $       1,090,091  
 
 
       
 
               
Liabilities
               
 
Accounts payable
    $      71,670        $       74,727  
 
Accrued compensation and benefits
    22,654       21,811  
 
Deferred revenue
    37,467       35,630  
 
Billings in excess of costs/estimated earnings on uncompleted contracts
    19,946       19,027  
 
Income taxes
    13,810       13,430  
 
Other liabilities
    47,040       62,071  
 
         
 
Total current liabilities
    212,587       226,696  
 
Long-term debt
    195,904       238,194  
 
Other liabilities
    25,086       25,505  
 
         
 
Total liabilities
    433,577       490,395  
 
               
Stockholders’ equity
               
 
Common stock
    25       25  
 
Additional paid-in capital
    444,995       441,283  
 
Retained earnings
    479,921       450,022  
 
Accumulated other comprehensive income
    40,043       25,399  
 
Treasury stock
    (323,095)       (317,033)  
 
         
 
Total stockholders’ equity
    641,889       599,696  
 
         
 
Total liabilities and stockholders’ equity
    $      1,075,466        $       1,090,091  
 
         
 
 
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BLACK BOX CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
                                 
    Three-months Ended     Fiscal Year Ended  
    March 31,   March 31,
In thousands
  2008     2007     2008     2007  
 
 
Operating Activities
                               
 
Net income
    $      8,394     $    6,628        $       39,233        $     35,609  
 
Adjustments to reconcile net income to net cash provided by (used for)
operating activities:
                               
 
Intangibles amortization and depreciation
    4,273       7,277       17,737       22,610  
 
Loss (gain) on sale of property
    21       --       462       --  
 
Deferred taxes
    2,406       (536)       6,516       (1,266)  
 
Tax impact from stock options
    857       474       5,177       1,136  
 
Stock compensation expense
    498       1,832       3,217       9,308  
 
Change in fair value of interest-rate swap
    2,555       426       4,576       1,734  
 
Changes in operating assets and liabilities (net of acquisitions):
                               
 
Accounts receivable, net
    18,345       19,846       4,852       19,202  
 
Inventories, net
    7,124       3,034       7,829       (3,595)  
 
All other current assets excluding deferred tax asset
    2,569       2,642       12,328       3,349  
 
Liabilities exclusive of long-term debt
    (2,657)       (29,583)       (20,806)       (51,451)  
         
 
Net cash provided by (used for) operating activities
    $      44,385     $    12,040        $       81,121        $     36,636  
 
                               
 
Investing Activities
                               
 
Capital expenditures
    $      (829)     $    (2,411)        $       (3,241)        $     (5,886)  
 
Capital disposals
    19       474       105       1,017  
 
Acquisition of businesses (payments)/recoveries
    (3,056)       5,162       (13,713)       (127,716)  
 
Prior merger-related (payments)/recoveries
    (1,236)       (893)       (3,432)       (2,324)  
         
 
Net cash provided by (used for) investing activities
    $      (5,102)     $    2,332        $       (20,281)        $     (134,909)  
 
                               
 
Financing Activities
                               
 
Proceeds from borrowings
    $      43,475     $    40,233        $       196,750        $     354,254  
 
Repayment of borrowings
    (67,652)       (55,133)       (240,030)       (240,079)  
 
Deferred financing costs
    (471)       --       (471)       --  
 
Repayment on discounted lease rentals
    --       (3)       --       (30)  
 
Proceeds from exercise of options
    706       2,829       5,878       14,970  
 
Payment of dividends
    (1,060)       (1,046)       (4,225)       (4,203)  
 
Purchase of Treasury stock
    (6,059)       (3)       (6,062)       (20,209)  
         
 
Net cash provided by (used for) financing activities
    $      (31,061)     $    (13,123)        $       (48,160)        $     104,703  
 
                               
Foreign currency exchange impact on cash
    $      (1,679)     $    546        $       (3,185)        $     (480)  
         
 
                               
Increase / (decrease) in cash and cash equivalents
    $      6,543     $    1,795        $       9,495        $     5,950  
 
Cash and cash equivalents at beginning of period
    $      20,109     $    15,362        $       17,157        $     11,207  
         
 
Cash and cash equivalents at end of period
    $      26,652     $    17,157        $       26,652        $     17,157  
         
 
 
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Non-GAAP Financial Measures
As a supplement to United States Generally Accepted Accounting Principles (“GAAP”), the Company provides non-GAAP financial measures such as free cash flow, cash provided by operating activities excluding restructuring payments, operating net income, operating earnings per share (EPS), Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), Adjusted EBITDA, Adjusted Operating income and Same-office revenue comparisons to illustrate the Company’s operational performance. These non-GAAP financial measures exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. Pursuant to the requirements of Regulation G, the Company has provided Management explanations regarding their use and the usefulness of non-GAAP financial measures, definitions of the non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures, which are provided below.
Management uses non-GAAP financial measures (a) to evaluate the Company’s historical and prospective financial performance as well as its performance relative to its competitors, (b) to set internal sales targets and associated operating budgets, (c) to allocate resources, (d) to measure operational profitability and (e) as an important factor in determining variable compensation for Management and its team members. Moreover, the Company has historically reported these non-GAAP financial measures as a means of providing consistent and comparable information with past reports of financial results.
While Management believes these non-GAAP financial measures provide useful supplemental information to investors, there are limitations associated with the use of non-GAAP financial measures. The limitations include (i) the non-GAAP financial measures are not prepared in accordance with GAAP, are not reported by all of the Company’s competitors and may not be directly comparable to similarly-titled measures of the Company’s competitors due to potential differences in the exact method of calculation, (ii) the non-GAAP financial measures exclude restructuring, severance and other acquisition integration costs (collectively referred to as “restructuring charges” or “restructuring payments”) incurred during the periods reported that will impact future operating results, (iii) the non-GAAP financial measures exclude certain non-cash amortization of intangible assets on acquisitions, however, they do not specifically exclude the added benefits of these costs, such as revenue and contributing operating margin, (iv) the non-GAAP financial measures exclude non-cash stock-based compensation charges, which are similar to cash compensation paid to employees and are an integral part of achieving our operating results, (v) the non-GAAP financial measures exclude non-cash asset write-up depreciation expense on acquisitions related to acquisitions made during recent years which is derived from the book value to fair market value write-up on acquired assets, (vi) the non-GAAP financial measures exclude historical stock option granting practices investigation costs, (vii) the non-GAAP financial measures exclude the non-cash change in fair value of the interest rate swap which will continue to impact the Company’s earnings until the interest rate swap is settled, (viii) the non-GAAP financial measures exclude expenses incurred as a result of measures taken by the Company to address the application of Section 409A of the Internal Revenue Code of 1986, as amended (hereinafter referred to as “409A expenses”) and (ix) there is no assurance the excluded items in the non-GAAP financial measures will not occur in the future. The Company compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures.
Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. The Company’s non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measurements, and should be read only in conjunction with the Company’s consolidated financial statements prepared in accordance with GAAP.
Free cash flow
Free cash flow is defined by the Company as cash provided by operating activities less net capital expenditures, plus proceeds from stock option exercises, plus or minus foreign currency translation adjustments. Management’s reasons for exclusion of each item are explained in further detail below.
Net capital expenditures
The Company believes net capital expenditures must be taken into account along with cash provided by operating activities to more properly reflect the actual cash available to the Company. Net capital expenditures are typically material and directly impact the availability of the Company’s operating cash. Net capital expenditures are comprised of capital expenditures and capital disposals.
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Proceeds from stock option exercises
The Company believes that proceeds from stock option exercises should be added to cash provided by operating activities to more accurately reflect the actual cash available to the Company. The Company has demonstrated a recurring inflow of cash related to its stock-based compensation plans and since this cash is immediately available to the Company, it directly impacts the availability of the Company’s operating cash. The amount of proceeds from stock option exercises is dependent upon a number of variables, including the number and exercise price of outstanding options and the trading price of the Company’s common stock. In addition, the timing of stock option exercises is under the control of the individual option holder and is not in the control of the Company. As a result, there can be no assurance as to the timing or amount of any proceeds from stock option exercises.
Foreign currency translation adjustment
Due to the size of the Company’s international operations, and the ability of the Company to utilize cash generated from foreign operations locally without the need to convert such currencies to U.S. dollars on a regular basis, the Company believes that it is appropriate to adjust its operating cash flows to take into account the positive and / or negative impact of such charges as such adjustment provides an appropriate measure of the availability of the Company’s operating cash on a world-wide basis. A limitation of adjusting cash flows to account for the foreign currency impact is that it may not provide an accurate measure of cash available in U.S. dollars.
A reconciliation of cash provided by operating activities to free cash flow is presented below:
                                         
    4Q08     3Q08     4Q07     FY08     FY07    
 
Cash provided by operating activities
    $      44,385       $      24,504       $      12,040         $      81,121       $      36,636  
Capital expenditures
    (829)       (486)       (2,411)       (3,241)       (5,886)  
Capital disposals
    19       35       474       105       1,017  
Foreign currency exchange impact on cash
    (1,679)       (599)       546       (3,185)       (480)  
             
Free cash flow before stock option exercises
    $      41,896       $      23,454       $      10,649       $      74,800       $      31,287  
Proceeds from stock option exercises
    706       2       2,829       5,878       14,970  
         
Free cash flow
    $      42,602       $      23,456       $      13,478       $      80,678       $      46,257  
 
Cash provided by operating activities excluding restructuring payments
Cash provided by operating activities excluding restructuring payments is defined by the Company as cash provided by operating activities plus restructuring payments. Restructuring payments are the cash payments made during the period for restructuring charges. The Company believes that restructuring payments should be added to cash provided by operating activities to more accurately reflect the cash flow from operations.
A reconciliation of cash provided by operating activities to cash provided by operating activities excluding restructuring payments is presented below:
                                         
    4Q08     3Q08     4Q07     FY08     FY07    
 
Cash provided by operating activities
    $      44,385       $      24,504       $      12,040       $      81,121       $      36,636  
Restructuring payments
    2,758       2,990       3,446         13,273       17,913  
         
Cash provided by operating activities excluding restructuring payments
    $      47,143       $      27,494       $      15,486       $      94,394       $      54,549  
 
Operating net income and operating earnings per share (EPS)
Management believes that operating net income, defined by the Company as net income plus reconciling items, and operating EPS, defined as operating net income divided by weighted average common shares outstanding (diluted), provide investors additional important information to enable them to assess, in a way Management assesses, the Company’s current and future operations. Reconciling items include restructuring charges, amortization of intangible assets on acquisitions, stock-based compensation expense, asset write-up depreciation expense on acquisitions, historical stock option granting practices investigation costs, the change in fair value of the interest rate swap and 409A expenses. Management’s reason for exclusion of each item is explained in further detail below.
Restructuring charges
The Company believes that incurring costs in the current period(s) as part of a restructuring plan or as a result of economies of scale from acquisitions will result in a long-term positive impact on financial performance in the future. Restructuring charges are presented in accordance with GAAP in the Company’s Condensed Consolidated Statements of Income. However, due to the material amount of additional costs incurred during a single or possibly successive periods, Management believes that exclusion of these costs and their related tax impact provides a more accurate reflection of the Company’s ongoing financial performance.
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Page 9
Amortization of intangible assets on acquisitions
The Company incurs non-cash amortization expense from intangible assets related to various acquisitions it has made in recent years. Management excludes these expenses and their related tax impact for the purpose of calculating non-GAAP financial measures when it evaluates the continuing operational performance of the Company because these costs are fixed at the time of an acquisition, are then amortized over a period of several years after the acquisition and generally cannot be changed or influenced by Management after the acquisition.
Stock-based compensation expense
The Company records non-cash stock-based compensation expense equal to the fair value of share-based payment awards to its directors, executives and employees. Non-cash stock-based compensation is an integral part of ongoing operations since it is considered similar to other types of compensation to employees. However, Management believes that varying levels of stock-based compensation expense could result in misleading period-over-period comparisons and is providing an adjusted disclosure, which excludes stock-based compensation and its related tax impact.
Asset write-up depreciation expense on acquisitions
The Company incurs non-cash asset write-up depreciation expense on acquisitions related to acquisitions made during recent years. Specifically, this non-cash expenditure is derived from the book value to fair market value write-up on acquired assets. Asset write-ups are depreciated over their remaining useful life which generally falls between one to five years. Management excludes these expenses and their related tax impact for the purpose of calculating non-GAAP financial measures when it evaluates the continuing operational performance of the Company because these costs are fixed from acquisition to the end of the asset’s useful life, and generally cannot be changed or influenced by Management after the acquisition.
Historical stock option granting practices investigation costs
The Company incurred significant costs in connection with its investigation of historical stock option granting practices during the current year. Management excludes these expenses and their related tax impact for the purpose of calculating non-GAAP financial measures when it evaluates the continuing operational performance of the Company because these costs are generally non-recurring and cannot be changed or influenced by Management.
Change in fair value of the interest rate swap
To mitigate the risk of interest-rate fluctuations associated with the Company’s variable rate debt, the Company entered into a five-year interest rate swap (“interest rate swap”) that does not qualify as a cash flow hedge. Thus, the Company records the change in fair value of the interest rate swap as an asset/liability within the Company’s Condensed Consolidated Balance Sheets with the offset to Interest expense (income) within the Company’s Condensed Consolidated Statements of Income. Management excludes this non-cash expense (income) and the related tax impact for the purpose of calculating non-GAAP financial measures when it evaluates the continuing operational performance of the Company because these costs generally cannot be changed or influenced by Management.
409A expenses
The Company incurred significant costs as a result of measures taken to address the application of Section 409A of the Internal Revenue Code of 1986, as amended, related to its stock options. Management excludes these expenses and their related tax impact for the purpose of calculating non-GAAP financial measures when it evaluates the continuing operational performance of the Company because these costs are generally non-recurring and cannot be changed or influenced by Management.
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Page 10
The following table represents the Company’s pre-tax reconciling items:
                                         
    4Q08     3Q08     4Q07     FY08     FY07  
 
Non-cash charges:
                                       
Amortization of intangible assets on acquisitions
  $ 1,599     $ 1,335     $ 4,127     $ 6,501     $ 10,075  
Stock-based compensation expense
    498       (152)       1,832       3,217       9,308  
Asset write-up depreciation expense on acquisitions
    614       457       742       2,178       2,646  
Change in fair value of interest rate swap
    2,555       1,583       426       4,576       1,734  
         
Total Non-cash charges
  $ 5,266     $ 3,223     $ 7,127     $ 16,472     $ 23,763  
 
                                       
Cash charges:
                                       
Restructuring charges
  $ 2,255     $ 1,513     $ 1,099     $ 8,671     $ 2,214  
Historical stock option granting practices
investigation costs
    69       134       542       1,221       542  
409A expenses
    183       1,341       --       1,524       --  
         
Total Cash charges
  $ 2,507     $ 2,988     $ 1,641     $ 11,416     $ 2,756  
         
Total pre-tax reconciling items
  $ 7,773     $ 6,211     $ 8,768     $ 27,888     $ 26,519  
 
A reconciliation of net income to operating net income is presented below:
                                         
    4Q08     3Q08     4Q07     FY08     FY07  
 
Net income
  $ 8,394     $ 11,341     $ 6,628     $ 39,233     $ 35,609  
% of revenues
    3.4%       4.4%       2.7%       3.9%       3.5%  
Reconciling items, after tax
    4,662       3,817       5,611       17,222       17,201  
         
Operating Net Income
  $ 13,056     $ 15,158     $ 12,239     $ 56,455     $ 52,810  
% of revenues
    5.3%       5.9%       4.9%       5.6%       5.2%  
 
A reconciliation of diluted earnings per common share (EPS) to operating EPS (may not sum due to rounding) is presented below:
                                         
    4Q08     3Q08     4Q07     FY08     FY07  
 
Diluted EPS
  $ 0.48     $ 0.64     $ 0.37     $ 2.22     $ 2.00  
EPS impact of reconciling items
    0.26       0.21       0.32       0.98       0.97  
         
Operating EPS
  $ 0.74     $ 0.85     $ 0.69     $ 3.20     $ 2.97  
 
EBITDA and Adjusted EBITDA
Management believes that EBITDA, defined as income before provision for income taxes plus interest, depreciation and amortization, is a widely accepted measure of profitability that may be used to measure the Company’s ability to service its debt. Adjusted EBITDA, defined as EBITDA plus stock compensation expense, may also be used to measure the Company’s ability to service its debt.
A reconciliation of net income to EBITDA is presented below:
                                         
    4Q08     3Q08     4Q07     FY08     FY07  
 
Income before provision for income taxes
  $ 14,031     $ 18,453     $ 10,477     $ 63,531     $ 54,900  
Interest
    6,095       5,780       5,185       21,298       18,407  
Depreciation / Amortization
    4,273       4,119       7,277       17,737       22,610  
         
EBITDA
  $ 24,399     $ 28,352     $ 22,939     $ 102,566     $ 95,917  
Stock compensation expense
    498       (152)       1,832       3,217       9,308  
         
Adjusted EBITDA
  $ 24,897     $ 28,200     $ 24,771     $ 105,783     $ 105,225  
 
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Page 11
Supplemental Information:
The following supplemental information, including geographical segment results, service type results, same office revenue comparisons and significant balance sheet ratios and other information is being provided for comparisons of reported results for the fourth quarter of Fiscal 2008 and 2007, third quarter of Fiscal 2008 and/or Fiscal 2008 and 2007. All dollar amounts are in thousands unless noted otherwise.
Geographical Segment Results:
Management is presented with and reviews revenues, operating income and adjusted operating income by geographical segment. Adjusted operating income is defined by the Company as operating income plus reconciling items. Reconciling items include restructuring charges, amortization of intangible assets on acquisitions, stock-based compensation expense, asset write-up depreciation expense on acquisitions, historical stock option granting practices investigation costs and 409A expenses. See above for additional details provided by Management regarding non-GAAP financial measures. Revenues, operating income and adjusted operating income for North America, Europe and All Other are presented below:
                                         
    4Q08     3Q08     4Q07        FY08     FY07     
 
Revenues:
                                       
North America
    $      199,763       $      210,635       $      205,828       $      837,402       $      850,088  
Europe
    35,119       37,303       34,479       138,927       129,278  
All Other
    10,615       10,386       9,477       40,413       36,944  
         
Total
    $      245,497       $      258,324       $      249,784       $      1,016,742       $      1,016,310  
 
                                       
Operating income:
                                       
North America
    $      12,998       $      16,280       $      8,277       $      57,964       $      49,481  
% of North America revenues
    6.5%       7.7%       4.0%       6.9%       5.8%  
Europe
    $      5,072       $      5,966       $      5,308       $      19,278       $      16,442  
% of Europe revenues
    14.4%       16.0%       15.4%       13.9%       12.7%  
All Other
    $      2,015       $      1,971       $      2,054       $      7,390       $      7,426  
% of All Other revenues
    19.0%       19.0%       21.7%       18.3%       20.1%  
         
Total
    $      20,085       $      24,217       $      15,639       $      84,632       $      73,349  
% of Total revenues
    8.2%       9.4%       6.3%       8.3%       7.2%  
 
                                       
Reconciling items (pretax):
                                       
North America
    $      5,218       $      4,628       $      8,342       $      23,312       $      24,785  
Europe
    --       --       --       --       --  
All Other
    --       --       --       --       --  
         
Total
    $      5,218       $      4,628       $      8,342       $      23,312       $      24,785  
 
                                       
Adjusted Operating income:
                                       
North America
    $      18,216       $      20,908       $      16,619       $      81,276       $      74,266  
% of North America revenues
    9.1%       9.9%       8.1%       9.7%       8.7%  
Europe
    $      5,072       $      5,966       $      5,308       $      19,278       $      16,442  
% of Europe revenues
    14.4%       16.0%       15.4%       13.9%       12.7%  
All Other
    $      2,015       $      1,971       $      2,054       $      7,390       $      7,426  
% of All Other revenues
    19.0%       19.0%       21.7%       18.3%       20.1%  
         
Total
    $      25,303       $      28,845       $      23,981       $      107,944       $      98,134  
% of Total revenues
    10.3%       11.2%       9.6%       10.6%       9.7%  
 
1000 Park Drive, Lawrence, PA 15055-1018 * (724) 746-5500 * Fax (724) 746-0746

 


 

Page 12
Service Type Results:
Management is presented with and reviews revenues and gross profit for Data Services, Voice Services and Hotline Services which are presented below:
                                         
    4Q08     3Q08     4Q07     FY08     FY07  
 
Revenues:
                                       
Data Services
  47,615     50,474     44,801     194,454     182,129  
Voice Services
    137,595       148,581       147,138       586,974       611,278  
Hotline Services
    60,287       59,269       57,845       235,314       222,903  
         
Total
  245,497     258,324     249,784     1,016,742     1,016,310  
 
                                       
Gross profit:
                                       
Data Services
  13,285     15,911     14,138     57,747     55,598  
% of Data Services revenues
    27.9%       31.5%       31.6%       29.7%       30.5%  
Voice Services
  45,709     49,832     51,026     195,570     209,268  
% of Voice Services revenues
    33.2%       33.5%       34.7%       33.3%       34.2%  
Hotline Services
  29,986     28,378     27,260     113,303     109,123  
% of Hotline Services revenues
    49.7%       47.9%       47.1%       48.1%       49.0%  
         
Total
  88,980     94,121     92,424     366,620     373,989  
% of Total revenues
    36.2%       36.4%       37.0%       36.1%       36.8%  
 
Same-office revenue comparisons:
Management is presented with and reviews revenues on a same-office basis which excludes the effects of revenues from acquisitions. While the information provided below is presented on a consolidated basis, the revenue from offices added below relates primarily to North America Voice Services. Reported same-office comparisons for the Company’s North America and Voice Services segments can be determined by excluding the revenues from offices added since 1Q07 or 3Q08 as shown below.
Information on quarterly revenues on a same-office basis compared to the same period last year is presented below:
                         
    4Q08     4Q07     % Change
 
Reported revenues
  245,497     249,784       (2%)  
Less revenues from offices added since 1Q07
    (61,641)       (72,040)          
 
               
Reported revenues on same-office basis
    183,856       177,744       3%  
Foreign currency impact
    (4,880)       --          
 
               
Revenues on same-office basis (excluding foreign currency impact)
  178,976     177,744       1%  
 
 
Information on year-to-date revenues on a same-office basis compared to the same period last year is presented below:
 
    FY08     FY07     % Change
 
Reported revenues
  1,016,742     1,016,310       0%  
Less revenues from offices added since 1Q07
    (270,918)       (304,721)          
 
               
Reported revenues on same-office basis
    745,824       711,589       5%  
Foreign currency impact
    (15,413)       --          
 
               
Revenues on same-office basis (excluding foreign currency impact)
  730,411     711,589       3%  
 
 
Information on revenues on a same-office basis compared to the sequential quarter is presented below:
 
    4Q08     3Q08     % Change
 
Reported revenues
  245,497     258,324       (5 %)
Less revenues from offices added since 3Q08
    (176)       --          
 
               
Reported revenues on same-office basis
    245,321       258,324       (5 %)
Foreign currency impact
    (595)       --          
 
               
Revenues on same-office basis (excluding foreign currency impact)
  244,726     258,324       (5 %)
 
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Page 13
Significant Balance Sheet ratios and Other Information:
Information on certain balance sheet ratios, backlog and headcount is presented below. Dollar amounts are in millions.
                                                 
    4Q08             3Q08             4Q07      
 
Accounts receivable:
                                               
Gross accounts receivable
  $ 174.9             $ 192.2             $ 176.0          
Reserve $ / %
  $ 12.6       7.2 %   $ 12.7       6.6 %   $ 14.3       8.1%  
 
                                         
Net accounts receivable
  $ 162.3             $ 179.5             $ 161.7          
 
                                               
Net days sales outstanding
  55 days             58 days             53 days          
 
                                               
Inventory:
                                               
Gross inventory
  $ 87.9             $ 95.3             $ 95.6          
Reserve $ / %
  $ 20.4       23.2 %   $ 21.1       22.2 %   $ 22.8       23.8%  
 
                                         
Net inventory
  $ 67.5             $ 74.2             $ 72.8          
 
                                               
Net inventory turns
    7.1x               7.0x               7.2x          
 
                                               
Six-month order backlog
  $ 159             $ 165             $ 159          
 
                                               
Team members
    4,313               4,488               4,581          
 
1000 Park Drive, Lawrence, PA 15055-1018 * (724) 746-5500 * Fax (724) 746-0746