Black Box Corporation 10-K
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
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ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 |
For the fiscal year ended March 31, 2008
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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)
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Delaware
(State or other jurisdiction of incorporation or organization)
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95-3086563
(I.R.S. Employer Identification No.) |
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1000 Park Drive, Lawrence, Pennsylvania
(Address of principal executive offices)
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15055
(Zip Code) |
Registrants telephone number, including area code: 724-746-5500
Securities registered pursuant to Section 12(b) of the Act:
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(Title of each class) |
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(Name of each exchange on which registered) |
Common Stock, $.001 par value
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The NASDAQ Global Market |
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of
the Securities Act. o Yes þ No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or
Section 15(d) of the Act. o Yes þ No
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 if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§
229.405 of this chapter) is not contained herein, and will not be contained, to the best of
registrants knowledge, in definitive proxy or information statements incorporated by reference in
Part III of this Form 10-K or any amendment to this Form 10-K. þ
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 the definitions of large accelerated filer, accelerated filer and smaller reporting company in
Rule 12b-2 of the Exchange Act. (Check One):
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Large accelerated filer þ
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Accelerated filer o
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Non-accelerated filer o
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Smaller reporting company o |
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(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
The aggregate market value of the voting stock held by non-affiliates of the registrant as of
September 29, 2007 (based on closing price of such stock as reported by NASDAQ on such date) was
$749,466,792. For purposes of this calculation only, directors and executive officers of the
registrant and their affiliates are deemed to be affiliates of the registrant.
As of May 23, 2008, there were 17,516,305 shares of common stock, par value $.001 (the common
stock), outstanding.
DOCUMENTS INCORPORATED BY REFERENCE
Proxy Statement for 2008 Annual Meeting of Stockholders (the Proxy Statement) Part III
BLACK BOX CORPORATION
FOR THE FISCAL YEAR ENDED MARCH 31, 2008
INDEX
PART I
Item 1. Business.
Overview. Black Box Corporation (Black Box, we, the Company or our) is the worlds largest
dedicated network infrastructure services provider. Black Box offers one-source network
infrastructure services for communication systems. The Companys service offerings include design,
installation, integration, monitoring and maintenance of voice, data and integrated communication
systems. The Companys primary service offering is voice solutions, while providing premise
cabling and other data-related services and products. The Company provides 24/7/365 technical
support for all of its solutions which encompasses all major voice and data 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. With more than 3,000 professional
technical experts and 187 offices (as of March 31, 2008), Black Box serves 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.
Black Box differentiates itself from its competitors by providing exceptional levels of superior
technical services for communication solutions, its capability to provide these services globally
and its private-labeled BLACK BOX® brand network infrastructure products which feature
some of the most comprehensive warranties in the industry.
As the worlds largest and highest quality network infrastructure services company 100% dedicated
to this market, Black Box is in a unique position to capitalize on its service advantages, current
leadership position, diverse and loyal client base and strong financial performance.
The Companys fiscal year ends on March 31. References to Fiscal Year or Fiscal mean the
Companys fiscal year ended March 31 for the year referenced. All dollar amounts are in thousands
except for per share amounts or unless otherwise noted.
Industry Background. Black Box participates in the worldwide network infrastructure market
estimated at $20 billion.
Products and services are distributed to this market primarily through value-added resellers,
manufacturers, direct marketers, large system integrators and other technical services companies.
These companies range from very large, international companies, some of which have access to
greater resources than those available to Black Box, to small, local or regionally-focused
companies. In addition, competition for our Hotline Services business includes direct marketing
manufacturers, mass merchandisers, big box retailers, web retailers and others. Black Box
believes that it competes on the basis of its solution features offerings, technical capabilities,
service levels and price.
Business Strategy. Black Boxs business strategy is to provide its clients with one source for
services and products to meet all their networking infrastructure needs whether at a single
location or multiple locations worldwide. The Company believes that its combination of worldwide
Voice Services and Data Services performed at client locations integrated with Hotline Services
provides a unique advantage over its competitors in the network infrastructure market. The
Company believes its record of consistent operating profitability, positive cash flow and its high
rate of repeat clients is evidence of the strength of its strategy. Keys to the Companys success
include the following:
Expert Technical Support Deployed Three Ways.
Locally at Client Sites. Black Box provides complete voice, data and integrated solutions
including design, installation, remote monitoring and routine and emergency maintenance with
consistent high quality and uniformity. The Company maintains certifications from leading voice
and data product manufacturers, including AVST®, Cisco®,
Microsoft®, Mitel®, Nortel®, NEC®,
ShoreTel®, Siemens® and Vertical®, among others. In addition, the
Company maintains what it believes is the industrys largest staff of Registered Communications
Distribution Designers (RCDDs) who assure that all designs meet or exceed ANSI, TIA/EIA and
National Electric Code® standards.
24/7/365 Technical Support. Black Box provides around-the-clock, seven days per week
technical support, available to clients in 141 countries worldwide. In Fiscal 2008 and Fiscal
2007, the Companys technical experts responded to approximately 1.3 million and 1.5 million,
respectively, client calls. Black Box specialists receive continuous training to stay up-to-date
on the latest technologies.
www.blackbox.com Internet Web Site. Black Box offers its 24/7/365 technical support on-line
at http://www.blackbox.com. With one click by an existing or a potential client on Talk to a
Tech, a technical expert makes contact with that person immediately. Technical information,
including Black Box Explains and Technology Overviews, is always available as well as the
ability to easily design and configure custom products on-line.
3
Worldwide Coverage. With 187 offices serving 141 countries, Black Box has the largest
footprint in the industry, serving every major industry sector. This worldwide coverage and 32
years of experience makes one-source project management a reality for Black Box clients. Black Box
ensures that clients with these needs receive consistent high-quality design, workmanship and
technology from a single service provider. The Company is exposed to certain risks because of its
global operations discussed under the caption International operations in Part I, Item 1A, Risk
Factors, which is incorporated herein by reference.
Strategic Partnerships with Leading Voice and Data Product Manufacturers. Black Box has
partnerships and distribution agreements with leading voice and data product manufacturers. Access
to these multi-technology platforms provides Black Box clients with the convenience of a one-source
provider for its network infrastructure needs.
Quality Networking Solutions and Comprehensive Warranties. Black Box products and services
are covered by an umbrella of protection that extends beyond standard warranties. Black Box was
the first in the industry to introduce a No Questions Asked product warranty program offering
full protection regardless of cause of failure, including accidental, surge or water damage for the
life of the warranty and many products are guaranteed for life. Exclusive to Black Box are its
Guaranteed-for-Life Structured Cabling System and Certification Plus® guarantees that
provide assurance that a clients network will operate within the application it was designed to
support for life.
Brand Name. BLACK BOX is a widely-recognized brand name associated with high quality
products and services. The Company believes that the BLACK BOX trademark is important to its
business.
ISO 9001:2000 Certified. Black Box has received ISO 9001:2000 certification in Australia,
Brazil, Canada, Chile, France, Germany, Ireland, Italy, Japan, Mexico, Netherlands, Puerto Rico,
Singapore, Spain, the United Kingdom and the United States. Rigorous quality control processes
must be documented and practiced to earn and maintain ISO 9001:2000 certification.
Proprietary Client List. Over the course of its 32 year history, the Company has built a
proprietary mailing list of approximately 1.5 million names representing over 1.4 million clients.
This database includes information on the past purchases of its clients. The Company routinely
analyzes this data in an effort to enhance client purchasing and ensure that targeted marketing
programs reach their specified audiences. The Company believes that its proprietary client list is
a valuable asset that represents a significant competitive advantage. The Company does not rent
its client list.
Rapid Order Fulfillment. Black Box has developed efficient inventory management and order
fulfillment systems that allow most standard products to be shipped that same day. Requests for
same day counter-to-counter delivery and special labeling, kitting and packaging are also available
from Black Box.
Growth Strategy. The principle components of Black Boxs growth strategy include: (i)
cross-selling marketing activities capitalizing on its one-source solution of DVH®
(Data, Voice and Hotline) Services, (ii) expanded product offerings and (iii) expanded global
technical support services primarily through mergers and acquisitions.
Mergers and Acquisitions. As part of the growth strategy through mergers and acquisitions,
the Company has completed the following transactions during Fiscal 2008, Fiscal 2007 and Fiscal
2006:
Fiscal 2008:
During the fourth quarter of Fiscal 2008, the Company acquired BellSouth Communication Systems, LLC
d/b/a AT&T Communication Systems Southeasts (AT&T) NEC TDM voice CPE business line in AT&Ts
southeast region.
During the third quarter of Fiscal 2008, the Company acquired B & C Telephone, Inc. (B&C), a
privately-held company based out of Spokane, WA. B&C has an active customer base which
includes commercial, financial, healthcare and various government agency accounts.
Fiscal 2007
During the fourth quarter of Fiscal 2007, the Company acquired ADS Telecom, Inc. (ADS), a
privately-held company based out of Orlando, FL. ADS has an active customer base which includes
commercial, financial, healthcare and various government agency accounts.
During the third quarter of Fiscal 2007, the Company acquired Nortech Telecommunications, Inc.
(NTI), a privately-held company based out of Chicago, IL. NTI has an active customer base which
includes commercial, education and various government agency accounts.
4
During the first quarter of Fiscal 2007, the Company acquired the privately-held USA Commercial and
Government and Canadian operations of NextiraOne, LLC (NextiraOne). NextiraOne services
commercial and various government agency clients. Black Box and NextiraOne have completed the
integration process, including the re-branding of the NextiraOne business as Black Box Network
Services.
Also during the first quarter of Fiscal 2007, the Company acquired Nu-Vision Technologies, Inc. and
Nu-Vision Technologies, LLC (collectively referred to as NUVT), privately-held companies, which
provide planning, installation, monitoring and maintenance services for voice and data network
systems. NUVT has an active customer base, which includes commercial, education and various
government agency accounts.
Fiscal 2006
During the third quarter of Fiscal 2006, the Company purchased 100% of the issued and outstanding
equity interests in Communication is World InterActive Networking, Inc. (C=WIN) and Converged
Solutions Group, LLC (CSG). Both C=WIN and CSG primarily provide planning, installation and
maintenance services for voice and data network systems in 15 states.
During the second quarter of Fiscal 2006, the Company acquired substantially all of the assets and
certain liabilities of Universal Solutions of North America, L.L.C. and related entities
(Universal). Universal primarily provides planning, installation, monitoring and maintenance
services for voice and data network systems in 14 states.
During the first quarter of Fiscal 2006, the Company acquired Telecommunication Systems Management,
Inc. (TSM), GTC Technology Group, Inc. and Technology Supply, Inc. (collectively referred to as
GTC) and Business Communications, Inc., Bainbridge Communication, Inc., BCI of Tampa, LLC and
Networx, L.L.C. (collectively referred to as BCI). These companies provide full-service voice
communication solutions and services in the Florida and Virginia markets.
The results of operations for all acquisitions noted above are included within the Companys
Consolidated Statements of Income beginning on their respective acquisition dates.
These acquired companies, which are focused on servicing the North America Voice Services market,
have influenced the composition of the Companys service types as profiled below:
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Percent of Consolidated Revenues |
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FY07 |
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FY06 |
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FY05 |
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Data Services |
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19% |
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18% |
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27% |
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38% |
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Voice Services |
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58% |
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60% |
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43% |
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20% |
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Hotline Services |
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23% |
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22% |
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30% |
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42% |
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Black Box Total |
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100% |
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100% |
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100% |
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100% |
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Clients. Black Box clients range from small organizations to many of the worlds largest
corporations and institutions. Black Box clients participate in many diverse industries, including
manufacturing, business services, retail, finance, education and government. Revenues from the
Companys clients are segmented as 45% from large companies, 20% from medium-sized companies and
35% from small companies.
Marketing. Black Boxs products and services are marketed primarily through direct sales driven by
its nearly 300 team members exclusively devoted to these efforts. This sales force is further
supported by the Companys direct marketing efforts in printed publications and on-line via the
Companys Web site. Black Box was the first company to engage exclusively in the sale of a broad
range of networking products through direct marketing techniques. Black Box targets its catalogs,
e-mail campaigns, advertisements and other marketing activities directly to its client-users who
make systems design and purchasing decisions. Black Boxs high quality marketing materials and its
Web site promote the Companys products and services by providing in-depth descriptions that
include product features and benefits, photographs, diagrams, applications, technical
specifications and other helpful information. The Companys printed catalogs have earned numerous
awards. During Fiscal 2008, the Black Box Catalog won Multichannel Merchant magazines top award,
Catalog of the Year. In addition, Black Box catalogs have taken top honors in the Computer
Equipment and Software category for the last 12 years running.
Technical Services. Black Box believes that its technical services are the foundation of its
success enabling the Company to provide services ranging from quick-turn Hotline Services
consultation to site surveys, design and engineering, project management, single-site and
multi-site installations, remote monitoring, certification and maintenance of voice, data and
integrated communication solutions.
5
Worldwide Headquarters. The Companys worldwide headquarters and certain U.S. operations are
located in Lawrence, Pennsylvania (a suburb 20 miles south of Pittsburgh). This Company-owned
352,000 square foot facility is on an 84-acre site.
Products. Black Box believes that its ability to offer broad, innovative product solutions across
multiple technologies, supported by its 24/7/365 technical services capability, has been an
important competitive factor. Black Box currently offers more than 118,000 products through its
catalogs, On-Site Services offices and Internet Web site. New products are regularly introduced.
Manufacturers and Suppliers. Black Box utilizes a network of original equipment manufacturers
(OEMs) and suppliers throughout the world. Each supplier is monitored for quality, delivery
performance and cost through a well-established certification program. This network has
manufacturing and engineering capabilities to customize products for specialized applications.
Black Box operates its own manufacturing and assembly operation at its Lawrence, Pennsylvania
location. The Company chooses to manufacture certain products in-house when outside OEMs are not
economical. Sourcing decisions of in-house versus third-party suppliers are based upon a balance
of quality, performance, delivery and cost.
Information Systems. The Company has committed significant resources to the development of
information systems that are used to manage all aspects of its business. The Companys systems
support and integrate technical support, client services, inventory management, purchasing,
distribution activities, accounting and project cost management. The Company continues to develop
and
implement exclusive worldwide web applications. These applications allow clients to view order
status and product availability, view up-to-date information on their projects that are being
managed on a world-wide basis and provide a project management and forecasting tool for the
Companys offices. A technical knowledge-based application is also used to access problem
resolution information to help solve client issues more quickly. Information systems are focused
on delivering high-quality business applications that are geared to improve internal efficiencies
as well as client interactions.
The Companys new product introductions, multiple language requirements and design enhancements
require efficient modification of product presentations for its various catalogs. Black Box also
supports a publishing system that provides the flexibility and speed for both text and graphic
layout. This enables the timely, efficient and cost effective creation of marketing materials.
Backlog. The worldwide backlog of unfilled orders believed to be firm (i.e., to be completed
within six months) was approximately $159 million at March 31, 2008 compared to $159 million and
$96 million at March 31, 2007 and 2006, respectively.
Team Members. As of March 31, 2008, the Company had 4,313 team members worldwide compared to 4,581
and 3,295 as of March 31, 2007 and 2006, respectively. Of the 4,313 current team members, 532 are
subject to collective bargaining agreements. The Company believes that its relationship with its
team members is good.
Financial Information. Financial information regarding the Company, including segment data, is set
forth in Item 8 of this Annual Report on Form 10-K for the fiscal year ended March 31, 2008 (this
Form 10-K) and is incorporated herein by reference.
International Revenues. Revenues from countries outside North America were $179 million, or 18% of
total revenues, for Fiscal 2008 compared to $166 million, or 16% of total revenues, and $157
million, or 22% of total revenues, for Fiscal 2007 and Fiscal 2006, respectively.
Other Information. The Company maintains an investor relations page on its Internet Web site at
http://www.blackbox.com. The Companys annual, quarterly and current reports and amendments to
such reports filed with or furnished to the Securities and Exchange Commission (SEC) are made
available, as soon as reasonably practical after such filing, and may be viewed or downloaded free
of charge in the About Us section of the Web site. The Companys Standards of Business Conduct,
Code of Ethics and the charter of each committee of the Companys Board of Directors (the Board)
are also available on its Web site, and may be viewed or downloaded free of charge in the About
Us section of the Web site.
Item 1A. Risk Factors.
The following are some of the potential risk factors that could cause our actual results to differ
materially from those projected in any forward-looking statements. You should carefully consider
these factors, as well as the other information contained in this document, when evaluating your
investment in our securities. The below list of important factors is not all-inclusive or
necessarily in order of importance.
6
We have significant matters resulting from our stock option investigation and related
matters. As previously disclosed, on November 13, 2006, we received a letter of informal
inquiry from the Enforcement Division of the SEC relating to our stock option practices from
January 1, 1997 to present. Our Audit Committee (the Audit Committee) of the Board, with the
assistance of outside legal counsel, conducted an independent review of our historical stock option
granting practices and related accounting for stock option grants. On May 24, 2007, the SEC issued
a formal order of investigation in connection with this matter, and, on May 29, 2007, we received a
document subpoena from the SEC acting pursuant to such order. We have cooperated with the SEC in
this matter and intend to continue to do so. See the Explanatory Note preceding Part I, Item 1
of our Annual Report on Form 10-K for the fiscal year ended March 31, 2007 for more information
regarding this and related matters.
On September 20, 2006, we received formal notice from the Internal Revenue Service (IRS)
regarding its intent to begin an audit of our tax years 2004 and 2005. On August 3, 2007, we
received formal notice from the IRS regarding its intent to begin an audit of our 2006 tax year.
In connection with these normal recurring audits, the IRS has requested certain documentation with
respect to stock options for our 2004, 2005 and 2006 tax years. We have produced various documents
requested by the IRS and are currently in the process of responding to additional documentation
requests. In connection with our Audit Committees review of our historical stock option granting
practices, we determined that a number of officers may have exercised options for which the
application of Section 162(m) (Section 162(m)) of the Internal Revenue Code of 1986, as amended
(the Code), may apply. It is possible that these options will be treated as having been granted
at less than fair market value for federal income tax purposes because we incorrectly applied the
measurement date as defined in Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25). If such options are deemed to have been granted at less than fair
market value, pursuant to Section 162(m), any compensation to officers, including proceeds from
options exercised in any given tax year, in excess of $1,000 will be disallowed as a deduction for
tax purposes. We estimate that the potential tax-effected liability for any such disallowed
Section 162(m) deduction would approximate $3,587, which was recorded as an expense during prior
periods and is currently recorded as a current liability within Income taxes within our
Consolidated Balance Sheets. We may also incur interest and penalties if we were to incur any such
tax liability, which could be material.
In addition, in November, 2006, two stockholder derivative lawsuits were filed against us, as a
nominal defendant, and several of our 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 our 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 Code, produced and disseminated false
financial statements and SEC filings to our 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 our common stock while in the possession of
material inside information. The complaints seek damages on our behalf 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-TMH, and plaintiffs
filed an amended consolidated shareholder derivative complaint on August 31, 2007. The parties
have stipulated that responses by the defendants, including us, are due on or before September 15,
2008, and the court has entered an order to that effect.
The stock option investigations and related litigation have imposed, and are likely to continue to
impose, significant costs on us, both monetarily and in requiring attention by our management team.
While we are unable to estimate the costs that we may incur in the future, these are likely to
include:
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professional fees in connection with the conduct of the investigations, the restatement of
our financial statements and the defense of the litigation; |
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potential damages, fines, penalties or settlement costs; and |
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payments to, or on behalf of, our current and former officers and directors subject to the
investigation or named in the litigation pursuant to our indemnification obligations (in
certain circumstances advance indemnification payments are recoverable if it is determined
under applicable law that the officer or director in question was not entitled to be
indemnified by us, but there is no assurance that we will be able to recover such payments). |
As of March 31, 2008, the total amount of such fees is approximately $6,021, of which $4,065 has
been paid by the insurance company. The insurance policy limit under which such payments have been
made is $5,000. We expensed $1,221 and $542 during Fiscal 2008 and Fiscal 2007, respectively. The
amount of expenses that we could incur in the future with respect to these matters that are not
covered by insurance could be material.
7
Adverse developments in the legal proceedings or the investigation arising out of our historical
stock option granting practices or any other matter raised as a result thereof could have an
adverse impact on our business and our common stock price, including increased stock volatility.
We face intense competition. We operate in a highly competitive industry. Our competitors
may be able to deliver products and services at better prices or more quickly due to factors beyond
our control. New competitors may also arise in the future, which threaten our ability to sustain
or grow our market share. We cannot guarantee that we can continue to compete effectively in the
future and still be able to sustain our historical levels of profit margin.
Our financial results are dependent on our economic environments. We, our customers or our
vendors may experience economic hardships due to inflation or recession, changes in laws and
regulations, business disruptions due to natural disasters, acts of terrorism or war or other
factors that are beyond our control and that could negatively impact our financial condition or our
ability to meet our future financial goals.
We are dependent upon the successful integration of acquired businesses. We have completed
several acquisitions in recent years. Our future financial results are dependent on the successful
integration of those acquisitions within the projected timeframes and cost parameters. We also
face pressure to adequately conduct our ongoing operations while working toward the integration of
these businesses. We cannot guarantee that we will successfully integrate our acquisitions as
projected or without disruption to other areas of our business which could have a negative impact
on our financial results.
We are subject to the risks of international operations. We operate in countries outside
of the United States. Our operations or our financial condition may be negatively affected by
events surrounding our international operations such as changes in laws and regulations, political
or economic instability, currency fluctuations, supply chain disruptions, acts of terrorism,
natural disasters or other political, economic or environmental factors. We cannot rely on the
past results of our international operations as an indicator of future results or assure you that
we will not be adversely affected by those factors inherent with international operations.
We are dependent upon the retention of our key personnel. The success of our business
depends on our ability to attract and retain quality employees, executives and directors. We offer
comprehensive salary and benefit packages including long-term incentives as a means of attracting
and retaining personnel. We face pressure to maintain our profit margins and remain competitive in
our industry while we compete for personnel in our local markets with a variety of different
businesses that may be able to offer more
attractive incentives due to their individual financial situations. We cannot guarantee that we
will continue to attract and retain personnel with our current incentives and at costs that are
consistent with our projected profit margins. In addition, the success of our compensation program
has relied heavily on the use of stock options which provided both a compensation and retention
element due to vesting. If we are not able to replicate the compensation and retention benefits
historically provided by our stock options, we will need to rely more heavily on other forms of
compensation, primarily cash compensation, to adequately compensate employees, executives and
directors.
We are dependent upon the demand for products and services. We and our competitors in the
industry are dependent on the demand for the products and services that we deliver. Changes in
technology or other unforeseen developments within our industry could result in decreased demand
for our products and services. We cannot guarantee that historical levels of demand will continue
or increase in the future.
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.
We are dependent upon future mergers and acquisitions for a portion of our growth. A key
component of our growth strategy is through strategic mergers and acquisitions. We may not
continue to be successful in our search for potential acquisition candidates that are acceptable
for our business model, or we may not be successful in our attempts to acquire new businesses that
we have identified as attractive acquisition candidates. We cannot guarantee that we will meet our
projected growth targets in the future if we are unsuccessful in our efforts to acquire additional
businesses.
A significant part of our business involves public sector customers which provides unique
risks. Our revenues from sales to the public sector, including sales to federal, state
and local governments and governmental agencies, has grown in recent years. These sales are made
through various direct contracts, through reseller agreements with government contractors and
through open market sales. Government contracting is a highly-regulated area. Failure to comply
with the technical requirements of regulations or contracts could subject us to fines, penalties,
suspension or debarment from doing business with such customers, which could have a material
adverse effect on our business.
8
Our revenue is dependent upon repeat
customer business and generally is not subject to
long-term contracts. Our revenue is primarily generated through individual sales of
products and services and the nature of our business provides us with very little guaranteed or
contractual revenue beyond a relatively short time horizon. We depend on repeat customer business
as well as our ability to develop new customer business to sustain and grow our revenue. Although
our focus on delivering high-quality sales and service has proven to be successful in the past, we
cannot guarantee that we will be able to grow or even sustain our current level of revenue in the
future.
We can provide no assurance that we will
continue to have adequate liquidity. Although
we generate positive cash flow and have access to a significant amount of additional credit, we
cannot be sure that our current liquidity situation will be adequate in future periods. We cannot
guarantee that we will be able to maintain our positive cash flow position or to obtain additional
credit or raise additional capital which may restrict our ability to operate or to pursue new
business opportunities in the future.
Our stock price fluctuates. Our stock price is affected by a number of factors,
including quarterly variations in our financial results. As a result, our stock price is subject
to volatility.
Item 1B. Unresolved Staff Comments.
None.
Item 2. Properties.
The Companys worldwide headquarters and certain U.S. operations are located in Lawrence,
Pennsylvania (located 20 miles south of Pittsburgh) in a 352,000 square foot owned facility on 84
acres.
The Company owns or leases additional offices or facilities throughout the world, none of which
are material in nature to Black Box.
The Company believes that its properties are adequate for its present and foreseeable needs.
Item 3. Legal Proceedings.
Regulatory Matters
As previously disclosed, on November 13, 2006, the Company received a letter of informal inquiry
from the Enforcement Division of the SEC relating to the Companys stock option practices from
January 1, 1997 to present. On May 24, 2007, the SEC issued a formal order of investigation in
connection with this matter, and, on May 29, 2007, the Company received a document subpoena from
the SEC acting pursuant to such order. The Company has cooperated with the SEC in this matter and
intends to continue to do so.
As previously disclosed, the Audit Committee, with the assistance of outside legal counsel,
conducted an independent review of the Companys historical stock option granting practices and
related accounting for stock option grants. See the Explanatory Note preceding Part I, Item 1 of
the Companys Annual Report on Form 10-K for the fiscal year ended March 31, 2007 for more
information regarding the Audit Committees review and related matters. The Audit Committee has
concluded its review and has presented to the Board recommendations concerning procedural
enhancements, which the Board has adopted.
On September 20, 2006, the Company received formal notice from the IRS regarding its intent to
begin an audit of the Companys tax years 2004 and 2005. On August 3, 2007, the Company received
formal notice from the IRS regarding its intent to begin an audit of the Companys 2006 tax year.
In connection with these normal recurring audits, the IRS has requested certain documentation with
respect to stock options for the Companys 2004, 2005 and 2006 tax years. The Company has produced
various documents requested by the IRS and is currently in the process of responding to additional
documentation requests. In connection with the Audit Committees review of the Companys
historical stock option granting practices, the Company determined that a number of officers may
have exercised options for which the application of Section 162(m) of the Code may apply. It is
possible that these options will be treated as having been granted at less than fair market value
for federal income tax purposes because the Company incorrectly applied the measurement date as
defined in APB 25. If such options are deemed to have been granted at less than fair market value,
pursuant to Section 162(m), any compensation to officers, including proceeds from options exercised
in any given tax year, in excess of $1,000 will be disallowed as a deduction for tax purposes. The
Company estimates that the potential tax-effected liability for any such disallowed Section 162(m)
deduction would approximate $3,587, which was recorded as an expense during prior periods and is
currently recorded as a current liability within Income taxes within the Companys Consolidated
Balance Sheets. The Company may also incur interest and penalties if it were to incur any such tax
liability, which could be material.
9
As previously disclosed, the Company received a subpoena, dated December 8, 2004, from the United
States General Services Administration (GSA), Office of Inspector General. The subpoena requires
production of documents and information. The Company understands that the materials are being
sought in connection with an investigation regarding potential violations of the terms of a GSA
Multiple Award Schedule contract. On October 2, 2007, the Company was contacted by the United
States Department of Justice which informed the Company that it was reviewing allegations by the
GSA that certain of the Companys pricing practices under the GSA contract violated the Civil False
Claims Act. The Company has executed an agreement with the United States tolling the statute of
limitations on any action by the United States through July 31, 2008 in order for the parties to
discuss the merits of these allegations prior to the possible commencement of any litigation by the
United States.
At the conclusion of these regulatory matters, the Company could be subject to additional taxes,
fines or penalties or other costs which could be material.
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 Code, 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-TMH, 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 September 15, 2008, and the court has
entered an order to that effect. 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.
Item 4. Submission of Matters to a Vote of Security Holders.
No matter was submitted during the three month period ended March 31, 2008 to a vote of security
holders, through the solicitation of proxies or otherwise.
Executive Officers of the Registrant
The executive officers of the Company and their respective ages and positions are as follows:
|
|
|
|
|
|
|
Name |
|
Age |
|
Position with the Company |
|
|
|
|
|
|
|
|
R. Terry Blakemore
|
|
|
51 |
|
|
President and Chief Executive Officer |
|
|
|
|
|
|
|
Michael McAndrew
|
|
|
48 |
|
|
Vice President, Chief Financial Officer,
Treasurer, Secretary and Principal
Accounting Officer |
|
|
|
|
|
|
|
Francis W. Wertheimber
|
|
|
55 |
|
|
Senior Vice President Pacific Rim/Far East |
|
10
The following is a biographical summary of the experience of the executive officers of the Company:
R. TERRY BLAKEMORE, 51, was named President and Chief Executive Officer and was selected as a
member of the Board on October 13, 2007. He had served in the capacity of Interim President and
Chief Executive Officer of the Company since May 21, 2007. Previously, on May 15, 2007, the Board
had named Mr. Blakemore a Senior Vice President of the Company. Prior to becoming a Senior Vice
President, Mr. Blakemore served as a manager of business development and, prior thereto, as a
manager of the Companys Voice Services business unit. Mr. Blakemore has been with the Company
since 1999.
MICHAEL MCANDREW, 48, was promoted to Vice President and Chief Financial Officer on December 13,
2002. He became Secretary and Treasurer on January 31, 2003. He was Manager of Corporate
Planning and Analysis prior to December 13, 2002. Mr. McAndrew has been with the Company for 18
years.
FRANCIS W. WERTHEIMBER, 55, was promoted to Senior Vice President Pacific Rim/Far East in May
2004. He was promoted to Vice President Pacific Rim/Far East on May 9, 1997. He was Managing
Director of Black Box Japan prior to May 9, 1997. Mr. Wertheimber has been with Black Box for 15
years.
Directors of the Registrant
The following sets forth certain information concerning the members of the Board:
WILLIAM F. ANDREWS, 76, was elected as a director on May 18, 1992. Mr. Andrews currently is
Chairman of Corrections Corporation of America (private prisons), Chairman of Katy Industries, Inc.
(diversified manufacturing company) and Chairman of SVP Holdings Limited (Singer sewing machines).
He has been a principal with Kohlberg & Co., a private investment company, since 1995. He is also
a director of Corrections Corporation, Katy Industries, OCharleys, Inc. and Trex Company, Inc.,
all publicly-held companies.
R. TERRY BLAKEMORE, 51, was named President and Chief Executive Officer and was selected as a
member of the Board on October 13, 2007. He had served in the capacity of Interim President and
Chief Executive Officer of the Company since May 21, 2007. Previously, on May 15, 2007, the Board
had named Mr. Blakemore a Senior Vice President of the Company. Prior to becoming a Senior Vice
President, Mr. Blakemore served as a manager of business development and, prior thereto, as a
manager of the Companys Voice Services business unit. Mr. Blakemore has been with the Company
since 1999.
RICHARD L. CROUCH, 61, was elected as a director on August 10, 2004. Mr. Crouch was a General
Partner with the firm of PricewaterhouseCoopers LLP from 1979 to 2004, having served as an Audit
Partner principally assigned to public companies. He served in various capacities for the firm,
including service as a regional accounting, auditing and SEC services consultant. He retired from
the firm in 2004.
THOMAS W. GOLONSKI, 65, was selected to be a director on February 11, 2003 and was elected by our
stockholders on August 12, 2003. Mr. Golonski served as Chairman, President and Chief Executive
Officer of National City Bank of Pennsylvania and Executive Vice President of National City
Corporation from 1996 to 2005. He retired from National City in 2005. He is a director of several
economic development organizations and active in other charitable and financial organizations.
THOMAS G. GREIG, 60, was elected as a director on August 10, 1999 and appointed as non-executive
Chairman of the Board in May 2004. Mr. Greig has been a Managing Director of Liberty Capital
Partners, a private equity partnership, since 1998. He is also a director of publicly-held Rudolph
Technologies, Inc., a number of privately-held companies and a public, not-for-profit foundation.
EDWARD A. NICHOLSON, PH.D., 68, was elected as a director on August 10, 2004. Dr. Nicholson served
as President of Robert Morris University from 1989 to 2005 and is presently a Professor of
Management at Robert Morris. He has served a number of
businesses and government agencies as a consultant in the areas of long-range planning,
organization design and labor relations. He is also a director of Brentwood Bank, publicly-held
Shopsmith Inc. and several regional economic, charitable and cultural organizations.
11
PART II
Item 5. Market for Registrants Common Equity,
Related Stockholder Matters and Issuer Purchases of
Equity Securities.
Common Stock Information:
The common stock is traded on NASDAQ under the symbol BBOX and has been assigned to the NASDAQ
Global Select tier. As of March 31, 2008, 25,142,500 shares of the common stock were issued, of
which 7,626,195 shares were held in treasury.
The following table sets forth the quarterly high and low sale prices of the common stock as
reported by the NASDAQ Global Select Market during each of the Companys fiscal quarters indicated
below.
|
|
|
|
|
|
|
|
|
|
|
|
|
High |
|
|
Low |
|
|
|
Fiscal 2008 |
|
|
|
|
|
|
|
|
|
1st Quarter |
|
$ |
42.78 |
|
|
$ |
34.53 |
|
|
2nd Quarter |
|
|
44.58 |
|
|
|
38.79 |
|
|
3rd Quarter |
|
|
46.40 |
|
|
|
35.28 |
|
|
4th Quarter |
|
|
37.16 |
|
|
|
26.62 |
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 |
|
|
|
|
|
|
|
|
|
1st Quarter |
|
$ |
54.09 |
|
|
$ |
35.69 |
|
|
2nd Quarter |
|
|
43.32 |
|
|
|
36.51 |
|
|
3rd Quarter |
|
|
46.60 |
|
|
|
38.01 |
|
|
4th Quarter |
|
|
42.65 |
|
|
|
34.64 |
|
|
|
On May 23, 2008, the last reported sale price of the common stock was $28.01 per share.
Dividend Policy:
Cash dividends of $0.06 per share of common stock were declared during each quarter during Fiscal
2008 and Fiscal 2007. Dividends declared during Fiscal 2008 were paid on July 13, 2007, October
12, 2007, January 11, 2008 and April 14, 2008. Dividends declared during Fiscal 2007 were paid on
July 14, 2006, October 13, 2006, January 15, 2007 and April 16, 2007. 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 Companys Third Amended and
Restated Credit Agreement dated as of January 30, 2008 (the New Credit Agreement), the Company is
permitted to make any distribution or dividend or repurchase its common stock as long as no Event
of Default or Potential Default (each as defined in the New Credit Agreement) occurs or is
continuing.
Stockholders:
As of March 31, 2008, there were 2,218 holders of record of the common stock.
Equity Plan Compensation Information:
See the information set forth under the caption Equity Plan Compensation Information in the Proxy
Statement which is incorporated by reference into Item 12 of Part III of this Form 10-K.
Issuance of Unregistered Securities:
There were no issuances of unregistered securities during the three month period ended March 31,
2008.
12
Issuer Purchases of Equity Securities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total Number of |
|
|
Maximum Number |
|
|
|
|
|
|
|
|
|
|
|
|
Shares Purchased |
|
|
of Shares that May |
|
|
|
|
|
|
|
|
|
|
|
|
as Part of Publicly |
|
|
Yet Be Purchased |
|
|
|
|
Total Number of |
|
|
Average Price |
|
|
Announced Plans |
|
|
Under the Plans |
|
|
Period |
|
Shares Purchased |
|
|
Paid per Share |
|
|
or Programs |
|
|
or Programs |
|
|
|
December 30, 2007
to January 27, 2008 |
|
|
|
|
|
$ |
|
|
|
|
|
|
|
|
1,063,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
January 28, 2008
to February 24, 2008 |
|
|
190,000 |
|
|
|
31.89 |
|
|
|
190,000 |
|
|
|
873,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
February 25, 2008
to March 31, 2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
873,805 |
|
|
|
|
|
|
|
Total |
|
|
190,000 |
|
|
$ |
31.89 |
|
|
|
190,000 |
|
|
|
873,805 |
|
|
|
As of December 30, 2007, 1,063,805 shares were available under repurchase programs approved by the
Board and announced on November 20, 2003, August 12, 2004 and November 7, 2006.
The repurchase programs have no expiration date and no programs were terminated prior to the full
repurchase of the authorized amount.
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 the common stock for the foreseeable future, there can be no assurance as to
the timing or amount of such repurchases. Under the Companys New Credit Agreement, the Company is
permitted to make any distribution or dividend or repurchase its common stock as long as no Event
of Default or Potential Default (each as defined in the New Credit Agreement) occurs or is
continuing, and may not repurchase its common stock if the leverage ratio (after taking into
consideration the payment made to repurchase the common stock) would exceed 2.75 to 1.0 or if the
availability to borrow under the New Credit Facility would be less than $20 million.
13
Item 6. Selected Financial Data.
The following tables set forth certain selected historical financial data for the Company for the
periods indicated below (in thousands, except for per share amounts). This information should be
read in conjunction with the Companys consolidated financial statements, Managements Discussion
and Analysis of Financial Condition and Results of Operations and the Notes to the Consolidated
Financial Statements included elsewhere in this Form 10-K. Data Services and Voice Services may
collectively be referred to as On-Site services. Per share amounts may not total due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
2005 |
|
|
2004 |
|
|
|
Statements of Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotline products |
|
$ |
235,314 |
|
|
$ |
222,903 |
|
|
$ |
213,946 |
|
|
$ |
227,601 |
|
|
$ |
237,872 |
|
|
On-Site services |
|
|
781,428 |
|
|
|
793,407 |
|
|
|
507,389 |
|
|
|
307,475 |
|
|
|
282,540 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,016,742 |
|
|
|
1,016,310 |
|
|
|
721,335 |
|
|
|
535,076 |
|
|
|
520,412 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotline products |
|
|
122,011 |
|
|
|
113,780 |
|
|
|
108,220 |
|
|
|
108,281 |
|
|
|
112,949 |
|
|
On-Site services |
|
|
528,111 |
|
|
|
528,541 |
|
|
|
330,765 |
|
|
|
211,866 |
|
|
|
191,212 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
650,122 |
|
|
|
642,321 |
|
|
|
438,985 |
|
|
|
320,147 |
|
|
|
304,161 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
366,620 |
|
|
|
373,989 |
|
|
|
282,350 |
|
|
|
214,929 |
|
|
|
216,251 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general &
administrative
expenses |
|
|
275,309 |
|
|
|
290,355 |
|
|
|
222,201 |
|
|
|
170,239 |
|
|
|
149,002 |
|
|
Intangibles amortization |
|
|
6,679 |
|
|
|
10,285 |
|
|
|
4,999 |
|
|
|
1,332 |
|
|
|
246 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
84,632 |
|
|
|
73,349 |
|
|
|
55,150 |
|
|
|
43,358 |
|
|
|
67,003 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income), net |
|
|
21,298 |
|
|
|
18,407 |
|
|
|
9,123 |
|
|
|
2,755 |
|
|
|
1,808 |
|
|
Other expenses (income), net |
|
|
(197) |
|
|
|
42 |
|
|
|
36 |
|
|
|
115 |
|
|
|
147 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for
income taxes |
|
|
63,531 |
|
|
|
54,900 |
|
|
|
45,991 |
|
|
|
40,488 |
|
|
|
65,048 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
24,298 |
|
|
|
19,291 |
|
|
|
15,221 |
|
|
|
13,442 |
|
|
|
21,846 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
39,233 |
|
|
$ |
35,609 |
|
|
$ |
30,770 |
|
|
$ |
27,046 |
|
|
$ |
43,202 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per share |
|
$ |
2.23 |
|
|
$ |
2.03 |
|
|
$ |
1.79 |
|
|
$ |
1.55 |
|
|
$ |
2.38 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Diluted earnings per share |
|
$ |
2.22 |
|
|
$ |
2.00 |
|
|
$ |
1.75 |
|
|
$ |
1.52 |
|
|
$ |
2.30 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends declared per common
share |
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
$ |
0.22 |
|
|
$ |
0.20 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance Sheet Data (at end of
period): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Working capital (1) |
|
$ |
134,031 |
|
|
$ |
117,059 |
|
|
$ |
99,669 |
|
|
$ |
108,948 |
|
|
$ |
108,116 |
|
|
Total assets |
|
|
1,073,851 |
|
|
|
1,090,091 |
|
|
|
815,412 |
|
|
|
787,064 |
|
|
|
631,010 |
|
|
Long-term debt |
|
|
195,904 |
|
|
|
238,194 |
|
|
|
122,673 |
|
|
|
147,196 |
|
|
|
35,177 |
|
|
Total debt |
|
|
197,293 |
|
|
|
238,880 |
|
|
|
123,722 |
|
|
|
147,888 |
|
|
|
36,238 |
|
|
Stockholders equity |
|
|
640,274 |
|
|
|
599,696 |
|
|
|
552,991 |
|
|
|
501,288 |
|
|
|
517,297 |
|
|
|
|
|
|
(1) |
|
Working capital is computed as current assets minus current liabilities. |
14
Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.
The discussion and analysis for the fiscal years ended March 31, 2008, 2007 and 2006 as set forth
below in this Item 7 should be read in conjunction with the consolidated financial statements of
Black Box, including the related notes. The Companys fiscal year ends on March 31. 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 except for per share amounts or 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 communication systems. The Companys service
offerings include design, installation, integration, monitoring and maintenance of voice, data and
integrated communication systems. The Companys primary service offering is voice solutions, while
providing premise cabling and other data-related services and products. The Company provides
24/7/365 technical support for all of its solutions which encompasses all major voice and data
manufacturers as well as 118,000 network infrastructure products that it sells through its catalog
and Internet Web site and its On-Site Services offices. With more than 3,000 professional technical
experts and 187 offices (as of March 31, 2008), Black Box serves 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.
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, 2005 through March 31, 2008 that have
had a significant impact on the Companys consolidated financial statements and, more specifically,
North America Voice Services for the periods under review. Fiscal 2006 acquisitions include (i)
Telecommunication Systems Management, Inc. (TSM), (ii) GTC Technology Group, Inc. and Technology
Supply, Inc. (collectively referred to as GTC), (iii) Business Communications, Inc., Bainbridge
Communication, Inc., BCI of Tampa, LLC and Networx, L.L.C. (collectively referred to as BCI),
(iv) Universal Solutions of North America, L.L.C. and related entities (Universal), (v)
Communication is World InterActive Networking, Inc. (C=WIN) and (vi) Converged Solutions Group,
LLC (CSG). Fiscal 2007 acquisitions include (i) USA Commercial and Government and Canadian
operations of NextiraOne, LLC (NextiraOne), (ii) Nu-Vision Technologies, Inc. and Nu-Vision
Technologies, LLC (collectively referred to as NUVT), (iii) Nortech Telecommunications, Inc.
(NTI) and (iv) ADS Telecom, Inc. (ADS). Fiscal 2008 acquisitions include (i) B & C Telephone,
Inc. (B&C) and (ii) BellSouth Communication Systems, LLC d/b/a AT&T Communication Systems
Southeasts (AT&T) NEC TDM voice CPE business line in AT&Ts southeast region (AT&Ts southeast
NEC TDM business). The acquisitions noted above are collectively referred to as the Acquired
Companies. References to the Acquired Companies within our comparison of Fiscal 2008 and Fiscal
2007 are intended to describe the Acquired Companies from April 1, 2006 through March 31, 2008.
References to the Acquired Companies within our comparison of Fiscal 2007 and Fiscal 2006 are
intended to describe the Acquired Companies from April 1, 2005 through March 31, 2007. The results
of operations of the Acquired Companies are included within the Companys Consolidated Statements
of Income beginning on their respective acquisition dates.
In connection with certain acquisitions, the Company incurs expenses that it excludes when
evaluating the continuing operations of the Company. The following table is included to provide a
schedule of the past, current and an estimate of future acquisition-related expenses based on the
acquisition activity through March 31, 2008.
15
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
|
2006 |
|
|
2007 |
|
|
2008 |
|
|
2009 |
|
|
2010 |
|
|
Thereafter |
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory
write-up on
acquisitions |
|
$ |
1,543 |
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
$ |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general &
administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset write-up
depreciation
expense on
acquisitions |
|
|
450 |
|
|
|
2,646 |
|
|
|
2,178 |
|
|
|
1,823 |
|
|
|
144 |
|
|
|
40 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
intangible
assets
on acquisitions |
|
|
3,821 |
|
|
|
10,075 |
|
|
|
6,501 |
|
|
|
7,160 |
|
|
|
7,070 |
|
|
|
57,560 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
5,814 |
|
|
$ |
12,721 |
|
|
$ |
8,679 |
|
|
$ |
8,983 |
|
|
$ |
7,214 |
|
|
$ |
57,600 |
|
|
The following table is included to provide a schedule of an estimate of acquisition-related
expenses for Fiscal 2009 (by quarter) based on the acquisition activity through March 31, 2008.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1Q09 |
|
|
2Q09 |
|
|
3Q09 |
|
|
4Q09 |
|
|
FY09 |
|
|
|
Selling, general &
administrative |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Asset write-up
depreciation
expense on
acquisitions |
|
$ |
432 |
|
|
$ |
467 |
|
|
$ |
453 |
|
|
$ |
471 |
|
|
$ |
1,823 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Amortization of
intangible
assets
on acquisitions |
|
|
1,790 |
|
|
|
1,790 |
|
|
|
1,790 |
|
|
|
1,790 |
|
|
|
7,160 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
2,222 |
|
|
$ |
2,257 |
|
|
$ |
2,243 |
|
|
$ |
2,261 |
|
|
$ |
8,983 |
|
|
During the fourth quarter of Fiscal 2006, the Company incurred a pre-tax charge of $7,065 related
to an adjustment of earnings over multiple years, from Fiscal 2003 through Fiscal 2006, from the
Companys Italian Operations (Italian Operations Adjustment). Of the total charge, $3,588 was
recorded in Cost of sales and $3,477 was recorded in Selling, general & administrative expense.
The Italian Operations Adjustment resulted from intentional misconduct by certain local operational
and financial managers of the Companys Italian Operations acting in collusion with one another for
the purpose of overstating local financial results. All involved team members have been terminated
and the Company is pursuing all available legal remedies against these individuals. The misconduct
was brought to the Company managements attention by a team member of the Italian Operations
pursuant to the Companys Open Door Policy. Company management responded by immediately
suspending the management team of the Italian Operations and conducting a full investigation of the
matter. The Company believes that all accounting irregularities have been identified, that all
corrective action has been taken and that the Italian Operations Adjustment captures all necessary
corrections.
The Companys management concluded, with the concurrence of the Audit Committee, that the impact of
the Italian Operations Adjustment was not material to the Companys consolidated financial
statements for any interim or annual period from Fiscal 2003 through Fiscal 2006. In reaching this
conclusion, the Company reviewed and analyzed the SECs Staff Accounting Bulletin No. 99,
Materiality, in order to determine that the impact was not material on a quantitative or
qualitative basis to any one period. As a result, the Company recorded a cumulative adjustment in
the fourth quarter of Fiscal 2006.
16
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
total |
|
|
|
|
|
|
total |
|
|
|
|
|
|
total |
|
|
|
|
$ |
|
|
revenue |
|
|
$ |
|
|
revenue |
|
|
$ |
|
|
revenue |
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
837,402 |
|
|
|
82.3% |
|
|
$ |
850,088 |
|
|
|
83.7% |
|
|
$ |
564,700 |
|
|
|
78.3% |
|
|
Europe |
|
|
138,927 |
|
|
|
13.7% |
|
|
|
129,278 |
|
|
|
12.7% |
|
|
|
120,051 |
|
|
|
16.6% |
|
|
All Other |
|
|
40,413 |
|
|
|
4.0% |
|
|
|
36,944 |
|
|
|
3.6% |
|
|
|
36,584 |
|
|
|
5.1% |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,016,742 |
|
|
|
100% |
|
|
$ |
1,016,310 |
|
|
|
100% |
|
|
$ |
721,335 |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
$ |
57,964 |
|
|
|
|
|
|
$ |
49,481 |
|
|
|
|
|
|
$ |
42,505 |
|
|
|
|
|
|
% of North America revenues |
|
|
6.9% |
|
|
|
|
|
|
|
5.8% |
|
|
|
|
|
|
|
7.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
$ |
19,278 |
|
|
|
|
|
|
$ |
16,442 |
|
|
|
|
|
|
$ |
5,518 |
|
|
|
|
|
|
% of Europe revenues |
|
|
13.9% |
|
|
|
|
|
|
|
12.7% |
|
|
|
|
|
|
|
4.6% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
$ |
7,390 |
|
|
|
|
|
|
$ |
7,426 |
|
|
|
|
|
|
$ |
7,127 |
|
|
|
|
|
|
% of All Other revenues |
|
|
18.3% |
|
|
|
|
|
|
|
20.1% |
|
|
|
|
|
|
|
19.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
84,632 |
|
|
|
8.3% |
|
|
$ |
73,349 |
|
|
|
7.2% |
|
|
$ |
55,150 |
|
|
|
7.6% |
|
|
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.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
% of |
|
|
|
|
|
|
|
|
total |
|
|
|
|
|
|
total |
|
|
|
|
|
|
total |
|
|
|
|
$ |
|
|
revenue |
|
|
$ |
|
|
revenue |
|
|
$ |
|
|
revenue |
|
|
|
|
|
|
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Services |
|
$ |
194,454 |
|
|
|
19.1% |
|
|
$ |
182,129 |
|
|
|
17.9% |
|
|
$ |
196,585 |
|
|
|
27.2% |
|
|
Voice Services |
|
|
586,974 |
|
|
|
57.7% |
|
|
|
611,278 |
|
|
|
60.2% |
|
|
|
310,804 |
|
|
|
43.1% |
|
|
Hotline Services |
|
|
235,314 |
|
|
|
23.2% |
|
|
|
222,903 |
|
|
|
21.9% |
|
|
|
213,946 |
|
|
|
29.7% |
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
1,016,742 |
|
|
|
100% |
|
|
$ |
1,016,310 |
|
|
|
100% |
|
|
$ |
721,335 |
|
|
|
100% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Data Services |
|
$ |
57,747 |
|
|
|
|
|
|
$ |
55,598 |
|
|
|
|
|
|
$ |
57,068 |
|
|
|
|
|
|
% of Data Services revenues |
|
|
29.7% |
|
|
|
|
|
|
|
30.5% |
|
|
|
|
|
|
|
29.0% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voice Services |
|
$ |
195,570 |
|
|
|
|
|
|
$ |
209,268 |
|
|
|
|
|
|
$ |
119,556 |
|
|
|
|
|
|
% of Voice Services revenues |
|
|
33.3% |
|
|
|
|
|
|
|
34.2% |
|
|
|
|
|
|
|
38.5% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotline Services |
|
$ |
113,303 |
|
|
|
|
|
|
$ |
109,123 |
|
|
|
|
|
|
$ |
105,726 |
|
|
|
|
|
|
% of Hotline Services revenues |
|
|
48.1% |
|
|
|
|
|
|
|
49.0% |
|
|
|
|
|
|
|
49.4% |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
366,620 |
|
|
|
36.1% |
|
|
$ |
373,989 |
|
|
|
36.8% |
|
|
$ |
282,350 |
|
|
|
39.1% |
|
|
The Companys distribution agreement with Avaya, Inc. terminated on September 8, 2007. The Company
evaluated the financial impact of this event including business strategies to minimize such impact.
The Company determined that this event did not have a material impact on its Fiscal 2008 operating
results.
17
Fiscal 2008 Compared To Fiscal 2007
Total Revenues
Total revenues for Fiscal 2008 were $1,016,742, nearly equivalent to total revenues for Fiscal 2007
of $1,016,310. The Acquired Companies contributed incremental revenue of $270,683 and $304,669 for
Fiscal 2008 and Fiscal 2007, respectively. Excluding the effects of the acquisitions and the
positive exchange rate impact of $15,413 in Fiscal 2008 relative to the U.S. dollar, total revenues
would have increased 3% from $711,641 to $730,646 for the reasons discussed below.
Revenues by Geography
North America
Revenues in North America for Fiscal 2008 were $837,402, a decrease of 1% compared to revenues for
Fiscal 2007 of $850,088. The Acquired Companies contributed incremental revenue of $270,683 and
$304,669 for Fiscal 2008 and Fiscal 2007, respectively. The decrease in Acquired Companies
contributed revenue is primarily due to expected post-merger client attrition from the NextiraOne
acquisition. Excluding the effects of the acquisitions and the positive exchange rate impact of
$2,593 in Fiscal 2008 relative to the U.S. dollar, North American revenues would have increased 3%
from $545,419 to $564,126. The Company believes this increase is due to the success in the
Companys Data, Voice and Hotline (DVH) cross-selling initiatives.
Europe
Revenues in Europe for Fiscal 2008 were $138,927, an increase of 7% compared to revenues for Fiscal
2007 of $129,278. Excluding the positive exchange rate impact of $11,286 in Fiscal 2008 relative
to the U.S. dollar, Europe revenues would have decreased 1% from $129,278 to $127,641. The Company
believes the decrease is due to softer demand for its Hotline Services during the year offset in
part by the success in the Companys DVH cross-selling initiatives.
All Other
Revenues for All Other for Fiscal 2008 were $40,413, an increase of 9% compared to revenues for
Fiscal 2007 of $36,944. Excluding the positive exchange rate impact of $1,534 in Fiscal 2008
relative to the U.S. dollar, All Other revenues would have increased 5% from $36,892 to $38,644.
Revenue by Service Type
Data Services
Revenues from Data Services for Fiscal 2008 were $194,454, an increase of 7% compared to revenues
for Fiscal 2007 of $182,129. Excluding the positive exchange rate impact of $5,727 in Fiscal 2008
relative to the U.S. dollar for its International Data Services, Data Service revenues would have
increased 4% from $182,129 to $188,727. The Company believes the increase in Data Services
revenues is due to the success of the Companys DVH cross-selling initiatives coupled with stable
end-user markets.
Voice Services
Revenues from Voice Services for Fiscal 2008 were $586,974, a decrease of 4% compared to revenues
for Fiscal 2007 of $611,278. The Acquired Companies contributed incremental revenue of $270,683
and $304,669 for Fiscal 2008 and Fiscal 2007, respectively. The decrease in Acquired Companies
contributed revenue is primarily due to expected post-merger client attrition from the NextiraOne
acquisition. Excluding the effects of the acquisitions, Voice Services revenues would have
increased 3% from $306,609 to $316,291. The Company believes that the increase in Voice Services
revenues is primarily due to the success of the Companys DVH cross-selling initiatives coupled
with stable end-user markets. 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 Fiscal 2008 were $235,314, an increase of 6% compared to
revenues for Fiscal 2007 of $222,903. Excluding the positive exchange rate impact of $9,686 in
Fiscal 2008 relative to the U.S. dollar for its International Hotline Services, Hotline Service
revenues would have increased 1% from $222,903 to $225,628. The Company believes this increase in
Hotline Services revenues is primarily due to the success of the Companys DVH cross-selling
initiatives and increases in web-based sales coupled with stable end-user markets.
18
Gross profit
Gross profit dollars for Fiscal 2008 were $366,620, a decrease of 2% compared to gross profit
dollars for Fiscal 2007 of $373,989. Gross profit as a percent of revenues for Fiscal 2008 was
36.1%, a decrease of 0.7% compared to gross profit as a percentage of
revenues for Fiscal 2007 of 36.8%. The Company believes the percent decrease was due primarily to
the impact of lower gross profit in Voice Services driven by the acquisition of NextiraOne, several
strategic investments in Voice Services and the impact of lower gross profit in Hotline Services
driven by increased product costs and product mix.
Gross profit dollars for Data Services for Fiscal 2008 were $57,747, or 29.7% of revenues, compared
to gross profit dollars for Fiscal 2007 of $55,598, or 30.5% of revenues. Gross profit dollars for
Voice Services for Fiscal 2008 were $195,570, or 33.3% of revenues, compared to gross profit
dollars for Fiscal 2007 of $209,268, or 34.2% of revenues. Gross profit dollars for Hotline
Services for Fiscal 2008 were $113,303, or 48.1% of revenues, compared to gross profit dollars for
Fiscal 2007 of $109,123, or 49.0% of revenues.
Selling, general & administrative expenses
Selling, general & administrative expenses for Fiscal 2008 were $275,309, a decrease of $15,046
compared to Selling, general & administrative expenses for Fiscal 2007 of $290,355. Selling,
general & administrative expenses as a percent of revenue for Fiscal 2008 were 27.1% compared to
28.6% for Fiscal 2007. 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 and a decrease in stock-based compensation expense of $6,091 partially offset by
increases in restructuring/integration costs of $6,457 and $1,524 of historical stock option
granting practices investigation costs and expenses as a result of measures taken by the Company to
address the application of Section 409A of the Code (Section 409A). See Section 409A Remedial
Measures and other potential Section 409A Payments below.
Intangibles amortization
Intangibles amortization for Fiscal 2008 was $6,679, a decrease of $3,606 compared to Intangible
amortization for Fiscal 2007 of $10,285. The decrease was primarily attributable to the
amortization run-out for certain intangible assets partially offset by the finalization of purchase
accounting and the addition of intangible assets from acquisitions completed subsequent to the
fourth quarter of Fiscal 2007.
Operating income
Operating income for Fiscal 2008 was $84,632, or 8.3% of revenues, an increase of $11,283 compared
to Operating income for Fiscal 2007 of $73,349, or 7.2% of revenues.
Interest expense, net
Net interest expense for Fiscal 2008 was $21,298, an increase of $2,891 compared to net interest
expense for Fiscal 2007 of $18,407. The Companys interest-rate swap contributed losses due to the
change in fair value of $4,576 and $1,734 for Fiscal 2008 and Fiscal 2007, respectively. Excluding
the effect of the interest-rate swap, net interest expense would have increased $49 from $16,673 to
$16,722. The weighted average outstanding debt and weighted average interest-rate remained
relatively consistent at $242,418 and 6.2%, respectively, for Fiscal 2008 compared to $253,159 and
6.2%, respectively, for Fiscal 2007.
Provision for income taxes
The tax provision for Fiscal 2008 was $24,298, an effective tax rate of 38.2%. This compares to
the tax provision for Fiscal 2007 of $19,291, an effective tax rate of 35.1%. The tax rate for
Fiscal 2008 was higher than Fiscal 2007 due to the expected write-off of deferred tax assets
related to book stock-based compensation expense, changes in the overall mix of taxable income
among worldwide offices, additional tax liabilities recorded for uncertain income tax positions as
required under FIN 48 (as defined below) and the loss of the extraterritorial income deduction for
federal income tax purposes. 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 Fiscal 2008 was $39,233, or 3.9% of revenues, compared
to Net income for Fiscal 2007 of $35,609, or 3.5% of revenues.
19
Fiscal 2007 Compared To Fiscal 2006
Total Revenues
Total revenues for Fiscal 2007 were $1,016,310, an increase of 41% compared to total revenues for
Fiscal 2006 of $721,335. The Acquired Companies contributed incremental revenue of $367,211 and
$52,427 for Fiscal 2007 and Fiscal 2006, respectively. Excluding the effects of the acquisitions
and the positive exchange rate impact of $7,956 in Fiscal 2007 relative to the U.S. dollar, total
revenues would have decreased 4% from $668,908 to $641,143 for the reasons discussed below.
Revenues by Geography
North America
Revenues in North America for Fiscal 2007 were $850,088, an increase of 51% compared to revenues
for Fiscal 2006 of $564,700. The Acquired Companies contributed incremental revenue of $367,211
and $52,427 for Fiscal 2007 and Fiscal 2006, respectively. Excluding the effects of the
acquisitions and the positive exchange rate impact of $1,009 in Fiscal 2007 relative to the U.S.
dollar, North American revenues would have decreased 6% from $512,273 to $481,868. The Company
believes the decrease is due to the completion of several nonrecurring projects, offset in part by
success in the Companys DVH cross-selling initiatives.
Europe
Revenues in Europe for Fiscal 2007 were $129,278, an increase of 8% compared to revenues for Fiscal
2006 of $120,051. Excluding the positive exchange rate impact of $7,078 in Fiscal 2007 relative to
the U.S. dollar, Europe revenues would have increased 2% from $120,051 to $122,200. The Company
believes the increase is due to the success in the Companys DVH cross-selling initiatives.
All Other
Revenues for All Other for Fiscal 2007 were $36,944, an increase of 1% compared to revenues for
Fiscal 2006 of $36,584. Excluding the negative exchange rate impact of $131 in Fiscal 2007
relative to the U.S. dollar, All Other revenues would have increased 1% from $36,584 to $37,075.
Revenue by Service Type
Data Services
Revenues from Data Services for Fiscal 2007 were $182,129, a decrease of 7% compared to revenues
for Fiscal 2006 of $196,585. Excluding the positive exchange rate impact of $3,351 in Fiscal 2007
relative to the U.S. dollar for its International Data Services, Data Service revenues would have
decreased 9% from $196,585 to $178,778. The Company believes the decrease in Data Services
revenues was due to the completion of several nonrecurring projects.
Voice Services
Revenues from Voice Services for Fiscal 2007 were $611,278, an increase of 97% compared to revenues
for Fiscal 2006 of $310,804. The Acquired Companies contributed incremental revenue of $367,211
and $52,427 for Fiscal 2007 and Fiscal 2006, respectively. Excluding the effects of the
acquisitions, Voice Services revenues would have decreased 6% from $258,377 to $244,067. The
Company believes that this decrease in Voice Services revenues is primarily due to the completion
of several nonrecurring projects and planned post-merger client attrition from the acquisition of
Norstan, Inc. in the fourth quarter of Fiscal 2005. 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 Fiscal 2007 were $222,903, an increase of 4% compared to
revenues for Fiscal 2006 of $213,946. Excluding the positive exchange rate impact of $4,587 in
Fiscal 2007 relative to the U.S. dollar for its International Hotline Services, Hotline Service
revenues would have increased 2% from $213,946 to $218,316. The Company believes this increase is
primarily due to the success in the Companys DVH cross-selling initiatives.
20
Gross profit
Gross profit dollars for Fiscal 2007 were $373,989, an increase of 32% compared to gross profit
dollars for Fiscal 2006 of $282,350. The Company believes the increase in gross profit dollars
was primarily due to the acquisition of the Acquired Companies. Gross profit as a percent of
revenues for Fiscal 2007 was 36.8%, a decrease of 2.3% compared to gross profit as a percentage of
revenues for Fiscal 2006 of 39.1%. The Company believes the percent decrease was due primarily to
the impact of lower gross profit in Voice Services driven by the acquisition of NextiraOne,
partially offset by certain non-cash or non-operating expenses incurred by the Company during
Fiscal 2006, including $1,543 of inventory write-ups due to acquisitions and $3,588 for the Italian
Operations Adjustment (discussed above) for which there were no comparable expenses for Fiscal
2007.
Gross profit dollars for Data Services for Fiscal 2007 were $55,598, or 30.5% of revenues, compared
to gross profit dollars for Fiscal 2006 of $57,068, or 29.0% of revenues. Gross profit dollars for
Voice Services for Fiscal 2007 were $209,268, or 34.2% of revenues, compared to gross profit
dollars for Fiscal 2006 of $119,556, or 38.5% of revenues. Gross profit dollars for Hotline
Services for Fiscal 2007 were $109,123, or 49.0% of revenues, compared to gross profit dollars for
Fiscal 2006 of $105,726, or 49.4% of revenues.
Selling, general & administrative expenses
Selling, general & administrative expenses for Fiscal 2007 were $290,355, an increase of $68,154
compared to Selling, general & administrative expenses for Fiscal 2006 of $222,201. The increase
in Selling, general & administrative expense dollars over the prior year was due primarily to the
Acquired Companies. Selling, general & administrative expense as a percent of revenue for Fiscal
2007 was 28.6% compared to 30.8% for Fiscal 2006. During Fiscal 2006, the Company incurred $3,477
for the Italian Operations
Adjustment (discussed above) for which there was no comparable expense during Fiscal 2007. The
remainder of the decrease in Selling, general & administrative expense as a percent of revenue was
primarily due to lower Selling, general & administrative expense as a percent of revenues related
to the Acquired Companies and decreases in restructuring/integration costs and non-cash stock-based
compensation expense of $3,076 and $1,737, respectively, partially offset by an increase to
non-cash/non-operating depreciation expense on asset write-ups due to acquisitions of $2,196.
Intangibles amortization
Intangibles amortization for Fiscal 2007 was $10,285, an increase of $5,286 compared to Intangible
amortization for Fiscal 2006 of $4,999. The increase was primarily attributable to the
amortization of intangible assets acquired through the purchase of the Acquired Companies.
Operating income
Operating income for Fiscal 2007 was $73,349, or 7.2% of revenues, an increase of $18,199 compared
to Operating income for Fiscal 2006 of $55,150, or 7.6% of revenues.
Interest expense, net
Net interest expense for Fiscal 2007 was $18,407, an increase of $9,284 compared to net interest
expense for Fiscal 2006 of $9,123. The Companys interest-rate swap, consummated during Fiscal
2007, contributed a loss due to the change in fair value of $1,734 during Fiscal 2007 and had no
impact on Fiscal 2006 results. Excluding the effect of the interest-rate swap, net interest expense
would have increased $7,550 from $9,123 to $16,673. The increase in interest expense is due to an
increase in the weighted average outstanding debt and weighted average interest-rate from
approximately $155,898 and 5.1% for Fiscal 2006, respectively, to approximately $253,129 and 6.2%
for Fiscal 2007, respectively. The increase in debt relates primarily to the acquisitions of
NextiraOne and NUVT during the first quarter of Fiscal 2007.
Provision for income taxes
The tax provision for Fiscal 2007 was $19,291, an effective tax rate of 35.1%. This compares to
the tax provision for Fiscal 2006 of $15,221, an effective tax rate of 33.1%. The tax rate for
Fiscal 2007 was higher than Fiscal 2006 due to the impact of book stock option expense and the
associated tax asset and changes in the overall mix of taxable income among worldwide offices.
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 Fiscal 2007 was $35,609, or 3.5% of revenues, compared
to Net income for Fiscal 2006 of $30,770, or 4.3% of revenues.
21
Liquidity and Capital Resources
Cash Flows from Operating Activities
Net cash provided by operating activities for Fiscal 2008 was $81,121. Significant factors
contributing to the source of cash were: Net income of $39,233 inclusive of non-cash charges of
$17,737 and $3,217 for Intangibles amortization and depreciation
expense and Stock compensation expense,
respectively, as well as $4,576 for Change in fair value of interest-rate swap, and decreases in
Deferred taxes of $11,693, Inventories, net of $7,829, Prepaid and other current assets of $9,369,
Accounts receivable, net of allowance for doubtful accounts of $4,852, and Costs/estimated earnings
in excess of billings on uncompleted contracts of $2,959. Significant factors contributing to a
use of cash were: decreases in accrued expenses and restructuring reserves of $10,973 and $6,860,
respectively, and a decrease in Accounts payable of $5,363. Changes in the above accounts are
based on an average Fiscal 2008 exchange rate.
Net cash provided by operating activities for Fiscal 2007 was $36,636. Significant factors
contributing to the source of cash were: Net income of $35,609 inclusive of non-cash charges of
$22,610, $9,308 and $1,734 for Intangibles amortization and depreciation expense, Stock
compensation expense and Change in fair value of interest-rate swap, respectively; a decrease in
other current assets of $6,126; a decrease in accounts receivable of $19,202 inclusive of a
non-cash contract adjustment of $18,400; and an increase in Billings in excess of costs/estimated
earnings on uncompleted contracts of $3,304. Significant factors contributing to a use of cash
were: an increase in Costs/estimated earnings in excess of billings on uncompleted contracts and
Inventories, net of $13,323 and $3,595, respectively; a decrease in the short and long-term
restructuring reserve of $17,913; a decrease of deferred revenue of $19,369, inclusive of a
non-cash contract adjustment of $18,400; and an offset of $5,269 related to accrued acquisition
costs, which have not been recognized as Investing Activities at Fiscal 2007 year-end. Changes in
the above accounts are based on an average Fiscal 2007 exchange rate.
Net cash provided by operating activities for Fiscal 2006 was $51,797. Significant factors
contributing to a source of cash were: Net income of $30,770, inclusive of non-cash charges of
$13,930 and $11,045 for Intangibles amortization and depreciation expense and Stock compensation
expense, respectively; decreases in Accounts receivable, net and Costs/estimated earnings in excess
of billings on uncompleted contracts of $9,369 and $3,573, respectively; and a decrease in
Inventories, net consistent with efforts to increase
inventory turns. Significant factors contributing to a use of cash were: a decrease in the short
and long-term restructuring reserve of $5,948; a decrease of Deferred revenue and Billings in
excess of costs/estimated earnings on uncompleted contracts of $3,267; and an offset of $5,825
related to accrued acquisition costs, which have not been recognized as Investing Activities at
Fiscal 2006 year-end. Changes in the above accounts are based on an average Fiscal 2006 exchange
rate.
As of March 31, 2008, 2007, and 2006, the Company had Cash and cash equivalents of $26,652, $17,157
and $11,207, respectively, working capital of $134,031, $117,059 and $99,669, respectively, and a
current ratio of 1.63, 1.52 and 1.76, 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 Fiscal 2008 was $20,281. Significant factors
contributing to a use of cash were: $3,241 for Capital expenditures, $13,713 to acquire B&C and
AT&Ts southeast NEC TDM business and $3,432 for holdbacks and contingent fee payments related to
prior period acquisitions. See Note 9 of the Notes to the Consolidated Financial Statements for
additional details regarding these acquisitions.
Net cash used by investing activities during Fiscal 2007 was $134,909. Significant factors
contributing to a use of cash were: $5,886 for Capital expenditures and $127,716 to acquire
NextiraOne, NUVT, NTI and ADS. See Note 9 of the Notes to the Consolidated Financial Statements
for additional details regarding these acquisitions.
Net cash used by investing activities during Fiscal 2006 was $43,730. Significant factors
contributing to a use of cash were: $4,115 for Capital expenditures and $40,682 to acquire TSM,
GTC, BCI, Universal, C=WIN and CSG. See Note 9 of the Notes to the Consolidated Financial
Statements for additional details regarding these acquisitions.
Financing Activities
Net cash used by financing activities during Fiscal 2008 was $48,160. Significant factors
contributing to the cash outflow were $43,280 of net payments on long-term debt, $6,062 for the
repurchase of common stock and $4,225 for the payment of dividends. Significant factors
contributing to the cash inflow were $5,878 of proceeds from the exercise of stock options.
22
Net cash provided by financing activities during Fiscal 2007 was $104,703. Significant factors
contributing to the cash inflow were $114,175 of net borrowings on long-term debt and $14,970 of
proceeds from the exercise of stock options. Significant uses of cash were $20,209 for the
repurchase of common stock and $4,203 for the payment of dividends.
Net cash used in financing activities during Fiscal 2006 was $7,978. Significant factors
contributing to the cash outflow were $26,107 in long-term debt payments and $4,094 for the payment
of dividends. Significant factors contributing to the cash inflow was $23,320 from the exercise of
stock options.
Total Debt
Revolving Credit Agreement - On March 28, 2006, the Company entered into the Second Amendment to
the Second Amended and Restated Credit Agreement dated January 24, 2005, as amended February 17,
2005 (collectively, the Credit Agreement) with Citizens Bank of Pennsylvania, as agent, and a
group of lenders. The Credit Agreement was scheduled to expire on March 28, 2011. Borrowings under
the Credit Agreement were permitted up to a maximum amount of $310,000, which included up to
$15,000 of swing-line loans and $25,000 of letters of credit. The Credit Agreement could have been
increased by the Company up to an additional $90,000 with the approval of the lenders and could
have been 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 accrued,
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 0.75% to 1.25% (determined by a leverage ratio based on the Companys Earnings
Before Interest Taxes Depreciation and Amortization (EBITDA)). The Credit Agreement required the
Company to maintain compliance with certain non-financial and financial covenants such as minimum
net worth, leverage and fixed charge coverage ratios.
On January 30, 2008, the Company entered into the New Credit Agreement. The New Credit Agreement,
which replaces the Credit Agreement, expires on January 30, 2013. Borrowings under the New 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 New 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 New 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 New 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 March 31, 2008, the Company was in compliance with all financial covenants under the New
Credit Agreement.
As of March 31, 2008, the Company had total debt outstanding of $197,293. Total debt was comprised
of $194,470 outstanding under the New Credit Agreement, $2,261 of obligations under capital leases
and $562 of various other third-party, non-employee loans. The maximum amount of debt outstanding
under the New Credit Agreement, the weighted average balance outstanding under the New Credit
Agreement and the weighted average interest-rate on all outstanding debt for Fiscal 2008 was
$270,825, $242,418 and 6.2%, respectively, compared to $284,470, $253,129 and 6.2% and $173,535,
$155,898 and 5.1%, for Fiscal 2007 and Fiscal 2006, respectively.
For Fiscal 2008, the Company decreased net borrowings under the New Credit Agreement / Credit
Agreement by $42,245. For Fiscal 2007, the Company increased net borrowings under the Credit
Agreement by $115,412, the proceeds of which were used to fund the acquisitions of NextiraOne,
NUVT, NTI and ADS and to repurchase common stock.
Dividends
Fiscal 2008 - During each quarter in Fiscal 2008, the Board declared cash dividends of $0.06 ($0.24
for Fiscal 2008) per share on all outstanding shares of the common stock at the close of business
on June 29, 2007, September 28, 2007, December 28, 2007 and March 31, 2008. The dividends totaled
$4,224 (including $1,050 for the fourth quarter of Fiscal 2008) and were paid on July 13, 2007,
October 12, 2007, January 11, 2008 and April 14, 2008.
Fiscal 2007 - During each quarter in Fiscal 2007, the Board declared cash dividends of $0.06 ($0.24
for Fiscal 2007) per share on all outstanding shares of the common stock at the close of business
on June 30, 2006, September 29, 2006, December 29, 2006 and March 30, 2007. The dividends totaled
$4,200 (including $1,052 for the fourth quarter of Fiscal 2007) and were paid on July 14, 2006,
October 13, 2006, January 15, 2007 and April 16, 2007.
23
Fiscal 2006 - During each quarter in Fiscal 2006, the Board declared cash dividends of $0.06 ($0.24
for Fiscal 2006) per share on all outstanding shares of the common stock at the close of business
on June 30, 2005, September 30, 2005, December 30, 2005 and March 31, 2006. The dividends totaled
$4,137 (including $1,055 for the fourth quarter of Fiscal 2006) and were paid on July 15, 2005,
October 14, 2005, January 13, 2006 and April 14, 2006.
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 New
Credit Agreement, the Company is permitted to make any distribution or dividend or repurchase its
common stock as long as no Event of Default or Potential Default (each as defined in the New Credit
Agreement) occurs or is continuing.
Repurchase of Common Stock
Fiscal 2008 - During Fiscal 2008, the Company repurchased 190,084 shares of common stock for an
aggregate purchase price of $6,062, or an average purchase price per share of $31.89.
Fiscal 2007 - During Fiscal 2007, the Company repurchased 500,712 shares of common stock for an
aggregate purchase price of $20,209, or an average purchase price per share of $40.36.
Fiscal 2006 - During Fiscal 2006, the Company repurchased 565 shares of common stock for an
aggregate purchase price of $27, or an average purchase price per share of $47.45.
Since the inception of the repurchase program in April 1999 through March 31, 2008, the Company has
repurchased 7,626,195 shares for an aggregate purchase price of $323,095, or an average purchase
price per share of $42.37. As of March 31, 2008, 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 Companys New Credit
Agreement, the Company is permitted to make any distribution or dividend or repurchase its common
stock as long as no Event of Default or Potential Default (each as defined in the New Credit
Agreement) occurs or is continuing, and may not repurchase its common stock if the leverage ratio
(after taking into consideration the payment made to repurchase such common stock) would exceed
2.75 to 1.0 or if the availability to borrow under the New Credit Facility would be less than $20
million.
Potential Tax Payments
In connection with the independent review by the Audit Committee of the Companys historical stock
option granting practices (See the Explanatory Note preceding Part I, Item 1 of the Companys
Annual Report on Form 10-K for the fiscal year ended March 31, 2007 for more information regarding
the Audit Committees review and related matters), the Company determined that a number of officers
may have exercised options for which the application of Section 162(m) of the Code may apply. It
is possible that these options will be treated as having been granted at less than fair market
value for federal income tax purposes because the Company incorrectly applied the measurement date
as defined in APB 25. If such options are deemed to have been granted at less than fair market
value, pursuant to Section 162(m), any compensation to officers, including proceeds from options
exercised in any given tax year, in excess of $1,000 will be disallowed as a deduction for tax
purposes. The Company estimates that the potential tax-effected liability for any such disallowed
Section 162(m) deduction would approximate $3,587, which was recorded as an expense during prior
periods and is currently recorded as a current liability within Income taxes within the Companys
Consolidated Balance Sheets. The Company may also incur interest and penalties if it were to incur
any such tax liability, which could be material.
Section 409A Remedial Measures and Other Potential Section 409A Payments
Following the completion of the Audit Committees independent review of the Companys historical
stock option granting practices, the Company determined that certain stock option grants which were
originally issued with exercise prices that were below fair market value for income tax purposes,
which vested or may vest after December 31, 2004 and which remained outstanding (i.e., unexercised)
as of December 31, 2005, were subject to adverse income taxation under Section 409A. For purposes
of this Form 10-K, these below-fair market value stock option grants are referred to as Affected
Stock Option Grants. Under Section 409A, individuals who hold Affected Stock Option Grants may be
subject to a 20% federal income tax and an interest penalty tax in addition to the regular income
tax liability plus interest on the value of these stock option grants at the time of vesting (not
exercise).
24
During the third quarter of Fiscal 2008, the Company conducted a tender offer to current
non-officer employees subject to taxation in the United States who held Affected Stock Option
Grants that afforded those employees the opportunity to avoid unfavorable tax consequences under
Section 409A. The provisions of the tender offer amended each Affected Stock Option Grant to
increase the original exercise price to the lower of: (i) the fair market value of the common stock
on the corrected measurement date (as determined for tax purposes) or (ii) the fair market value of
the common stock on the trading day immediately following the expiration of the tender offer
(December 19, 2007), provided that the new exercise price was in no event lower than the original
exercise price of the stock option grant. Additionally, and as part of the tender offer, the
Company offered current non-officer employees the right to receive a cash payment equal to the
increase, if any, in the exercise price of any Affected Stock Option Grant.
In instances where the original exercise price of a stock option grant was less than the new
exercise price (as determined above), the Company increased the original exercise price to the new
exercise price (an Amended Stock Option Grant) and paid a cash bonus to the employee. The total
cash bonus due to employees was $456 which was paid during January 2008. The Company accounted for
the impact of the Amended Stock Option Grant as a stock option modification under Statement of
Financial Accounting Standards (SFAS) No. 123 (revised 2004), Share-Based Payment (SFAS
123(R)). As a result of the modification and the partial cash settlement, the Company recognized
$250 of additional stock-based compensation expense due to the increase in the fair market value of
these stock option grants that is recorded in Selling, general & administrative expense within the
Companys Consolidated Statements of Income.
In instances where the current exercise price of a stock option grant was greater than the new
exercise price, the original stock option grant was canceled and immediately replaced with a new
stock option grant under the 1992 Stock Option Plan, as amended (the Employee Plan) that has the
same terms as the canceled stock option grant, including the same exercise price per share and no
loss of vesting or change to the expiration date of the stock option grant term, but with a new
grant date (a Cancellation and New Stock Option Grant). Each Cancellation and New Stock Option
Grant qualifies as a cancellation of an award accompanied by the concurrent grant of a replacement
award, as defined in SFAS 123(R), which is accounted for as a modification. Under SFAS 123(R),
incremental compensation cost is measured as the excess, if any, of the fair market value of the
modified award over the fair market value of the original award immediately before its terms are
modified. With respect to the Cancellation and New Stock Option Grants, there were no changes to
any of the terms of the original Affected Stock Option Grants. Thus, the Company recorded $0 of
non-cash stock-based compensation expense for these grants.
During the fourth quarter of Fiscal 2008, the Board approved a separate offer (the Separate
Offer) for R. Terry Blakemore, a director and the current President and Chief Executive Officer
(CEO) of the Company, that was intended to remedy the tax consequences under Section 409A
attributable to Affected Stock Option Grants to purchase 60,000 shares of common stock held by Mr.
Blakemore. These Affected Stock Option Grants were awarded prior to Mr. Blakemore becoming an
Executive Officer of the Company. The provisions of the Separate Offer were identical to the
tender offer for current non-officer employees described above. The fair market value of the
common stock on the trading day immediately following the expiration of the Separate Offer was
lower than the original exercise price of these Affected Stock Option Grants and, as a result, the
original Affected Stock Option Grants were canceled and immediately replaced with new stock option
grants under the Employee Plan that had the same terms as the canceled stock option grants (the
Separate Offer Cancellation and New Stock Option Grants). Consistent with our accounting
treatment for the Cancellation and New Stock Option Grants noted above, the Company accounted for
the Separate Offer Cancellation and New Stock Option Grants as modifications under SFAS 123(R).
With respect to the Separate Offer Cancellation and New Stock Option Grants, there were no changes
to any of the terms of Mr. Blakemores original Affected Stock Option Grants. Thus, the Company
recorded $0 of non-cash stock-based compensation expense for these grants.
With respect to certain employees who exercised Affected Stock Options Grants during calendar year
2007, the Company made a bonus payment (Calendar 2007 bonus payment) to such employees in
calendar year 2008 in an aggregate amount of $313. The Calendar 2007 bonus payment includes
amounts to compensate the employee for the additional Section 409A taxes that they will be required
to pay as well as an amount to gross-up such amount for the additional income and payroll taxes
owed on such payments. The Calendar 2007 bonus payment is recorded in Selling, general &
administrative expense within the Companys Consolidated Statements of Income.
With respect to certain employees who exercised Affected Stock Options Grants during calendar year
2006, the Company intends to submit a cash payment (Calendar 2006 cash payment) directly to the
IRS in an aggregate amount of $726. The Calendar 2006 cash payment includes any applicable Section
409A additional taxes as well as an amount to gross up such amount for the additional income and
payroll taxes owed on such payments. The Calendar 2006 cash payment is recorded in Selling,
general & administrative expense within the Companys Consolidated Statements of Income and in
Accrued compensation and benefits within the Companys Consolidated Balance Sheets as of and for
the period ending March 31, 2008.
25
Expenses Incurred by the Company
The Company has incurred significant expenses, in excess of its insurance deductible of $500, in
Fiscal 2007 and Fiscal 2008, and expects to continue to incur additional expenses during Fiscal
2009, in relation to (i) the Audit Committees review 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 previously-disclosed 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 March 31, 2008, the total amount of such fees is
approximately $6,021, of which $4,065 has been paid by the insurance company. The insurance policy
limit under which such payments have been made is $5,000. The Company expensed $1,221 and $542 in
Fiscal 2008 and Fiscal 2007, respectively. The amount of expenses that the Company could incur in
the future with respect to these matters that are not covered by insurance could be material.
Contractual Obligations
The Company has various contractual obligations and commitments to make future payments including
debt agreements, operating and capital lease obligations and discounted lease rental commitments.
The following table summarizes significant contractual obligations and commitments of the Company
as of March 31, 2008. Except as set forth in the following table, the Company does not have any
material long-term purchase obligations or other long-term liabilities that are reflected on its
balance sheet as of March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Payments Due by Period |
|
|
|
Less than 1 |
|
|
|
|
|
|
|
|
|
|
More than |
|
|
|
|
|
|
|
year |
|
|
1-3 years |
|
|
3-5 years |
|
|
5 years |
|
|
Total |
|
|
|
Long-term debt obligations |
|
$ |
|
|
|
$ |
|
|
|
$ |
194,470 |
|
|
$ |
|
|
|
$ |
194,470 |
|
|
Interest expense on long-term debt |
|
|
8,971 |
|
|
|
17,943 |
|
|
|
16,443 |
|
|
|
|
|
|
|
43,357 |
|
|
Capital lease obligations |
|
|
872 |
|
|
|
1,148 |
|
|
|
241 |
|
|
|
|
|
|
|
2,261 |
|
|
Operating lease obligations |
|
|
24,020 |
|
|
|
26,354 |
|
|
|
9,652 |
|
|
|
2,860 |
|
|
|
62,886 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total contractual obligations |
|
$ |
33,863 |
|
|
$ |
45,445 |
|
|
$ |
220,806 |
|
|
$ |
2,860 |
|
|
$ |
302,974 |
|
|
The estimated interest expense payments on long-term debt reflected in the table above are based on
both the amount outstanding under the credit facility and the weighted average interest-rate in
effect as of March 31, 2008.
As of March 31, 2008, the Company had commercial commitments of $5,234, which are generally due
within the next twelve months.
Off-Balance Sheet Arrangements
The Company has no off-balance sheet arrangements that have or are reasonably likely to have a
current or future effect on its financial condition, changes in its financial condition, revenues
or expenses, results of operations, liquidity, capital expenditures or capital resources, other
than those disclosed above, that are material to investors.
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.
Legal Proceedings
Please also see the matters discussed in Part I, Item 3, Legal Proceedings, of this Form 10-K,
which information is incorporated herein by reference.
Critical Accounting Policies
The Companys consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States, which require the Company to make estimates and
assumptions that may affect the reported financial condition and results of operations should
actual results differ. The Company bases its estimates and assumptions on the best available
information and believes them to be reasonable for the circumstances. The Companys significant
accounting policies are described in Note 2 of the Notes to the Consolidated Financial Statements.
The Company believes that of its significant accounting policies, the following may involve a
higher degree of judgment and complexity.
Allowance for doubtful accounts receivable
The Company records an allowance for doubtful accounts receivable as an offset to accounts
receivable in order to present a net balance the Company believes will be collected. This
allowance is based on both recent trends of certain accounts receivable (specific reserve)
estimated to be a greater credit risk as well as general trends of the entire accounts receivable
pool (general reserve). The Company computes a specific reserve by identifying specifically
at-risk accounts receivable and applying historic reserve factors to the outstanding balance. The
Company computes a general reserve by reviewing the accounts receivable aging and applying reserve
factors based upon the age of the account receivable. If the estimate of uncollectible accounts
receivable should prove inaccurate at some future date, the results of operations for the period
could be materially affected by any necessary correction to the allowance for doubtful accounts.
26
Inventories
The Companys inventory is valued at the lower of cost or market value and has been reduced by an
allowance for excess and obsolete inventories. The Company records an estimate for slow moving and
obsolete inventory (inventory reserve) based upon product knowledge, physical inventory
observation, future demand, market conditions and an aging analysis of the inventory on hand. If
actual market conditions are less favorable than those projected by management at some future date,
the results of operations for the period could be materially affected by any necessary correction
to the inventory reserve.
Deferred Income Taxes
The Company records deferred income tax assets and liabilities in its Consolidated Balance Sheets
related to events that impact the Companys financial statements and tax returns in different
periods. Deferred tax asset and liability balances are computed by identifying differences between
the book basis and tax basis of assets and liabilities (temporary differences) which are
multiplied by the current tax rate. A valuation allowance is provided on deferred tax assets if it
is determined that it is more likely than not that the asset will not be realized. If the
Companys estimate of the realizable deferred tax assets should prove inaccurate at some future
date, the results of operations for the period could be materially affected by any necessary
correction to the deferred tax asset allowance.
Long-Lived Assets other than Goodwill
The Company reviews long-lived assets, including property, plant, equipment and indefinite/definite
lived intangibles for impairment whenever events or changes in circumstances indicate that the
carrying amount of an asset may not be recoverable. If the sum of the estimated future cash flows
(undiscounted) expected to result from the use and eventual disposition of an asset is less than
the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment
loss is based on the fair value of the asset. No impairments of long-lived assets have been
identified during any of the periods presented.
Goodwill
The Companys Goodwill is subject to, at a minimum, an annual impairment assessment of its carrying
value. Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds
its estimated fair value. Estimated fair values of the reporting units are estimated using an
earnings model and a discounted cash flow valuation model. The discounted cash flow model
incorporates the Companys estimates of future cash flows, allocations of certain assets and cash
flows among reporting units, future growth rates and managements judgment regarding the applicable
discount rates used to discount those estimated cash flows. If the Companys estimates and
assumptions used in the discounted cash flow valuation model should prove inaccurate at some future
date, the results of operations for the period could be materially affected by an impairment of
goodwill. No impairment of goodwill has been identified during any of the periods presented.
Loss Contingencies
The Company incurs contingencies as a normal part of its business operations, such as future
warranty obligations and potential liabilities relating to legal or regulatory matters. The
Company accrues for contingent obligations when a loss is probable and the amount can be reasonably
estimated.
Restructuring Costs
The Company accrues the cost of restructuring activities in accordance with the appropriate
accounting guidance depending upon the facts and circumstances surrounding the situation. The
Company exercises its judgment in estimating the total costs of each of these activities. As these
activities are implemented, the actual costs may differ from the estimated costs due to changes in
the facts and circumstances that were not foreseen at the time of the initial cost accrual.
Revenue Recognition
Within the Companys Hotline Services service type, revenues are recognized when title to products
sold passes to the customer, which generally occurs upon shipment from the Companys location.
Within the Companys Data Services and Voice Services service types, revenues are recognized from
maintenance service contracts, moves, adds and changes and network integration services when the
services are provided. Service contracts are generally pre-billed, recorded in Deferred revenue
within the Companys Consolidated Balance Sheets and are generally recognized over the service
period on a straight-line basis. Revenues from the sale and installation of products and systems
are recognized using the percentage-of-completion method based upon the proportion of actual costs
incurred to estimated total costs. At the time a loss on a contract becomes known, the entire
amount of the estimated loss is recognized immediately in the financial statements. The Company
has historically made reasonably accurate estimates of the extent of progress towards completion,
contract revenues and contract costs on its long-term contracts. However, due to uncertainties
inherent in the estimation process, actual results could differ materially from those estimates.
27
Impact of Recently Issued Accounting Pronouncements
Stock-Based Compensation
In December, 2004, the Financial Accounting Standards Board (the FASB) issued SFAS 123(R) and, on
April 1, 2006, the Company adopted the provisions of SFAS 123(R). Prior to the adoption of SFAS
123(R), the Company accounted for share-based awards to employees and directors using the intrinsic
value method in accordance with APB 25 as allowed under SFAS No. 123, Accounting for Stock-Based
Compensation. Under the intrinsic value method, no stock-based compensation expense related to
stock options was required to be recognized if the exercise price of the Companys stock options
granted to employees and directors was equal to or greater than the fair market value of the
underlying stock on the measurement date. The Company adopted the provisions of SFAS 123(R) using
the modified prospective transition method which requires compensation cost to be recognized for
all share-based payments granted after the date of adoption and for all unvested awards existing on
the date of adoption. In accordance with the modified prospective transition method, the Companys
consolidated financial statements for prior periods were not retroactively adjusted to reflect, and
do not include, the impact of SFAS 123(R). However, the modified prospective transition method
does require the Company to provide pro-forma disclosure of specific income statement line items
for periods prior to the adoption of SFAS 123(R) as if the fair-value-based method had been applied
to all awards. See Note 13 of the Notes to the Consolidated Financial Statements.
Tax Effects of Share-Based Payment Awards
On November 10, 2005, the FASB issued Staff Position No. SFAS 123(R)-3, Transition Election
Related to Accounting for Tax Effects of Share-Based Payment Awards (SFAS 123(R)-3). The
alternative transition method includes simplified methods to establish the beginning balance of the
additional paid-in capital pool (APIC pool) related to the tax effects of employee share-based
compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements
of Cash Flows of the tax effects of employee share-based compensation awards that are outstanding
upon adoption of SFAS 123(R). The Company elected this transition method for calculating tax
effects of share-based payment awards.
Uncertainty in Income Taxes
In July, 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48). FIN 48 requires that realization of an uncertain income tax position must be
more likely than not (i.e., greater than 50% likelihood of receiving a benefit) before it can be
recognized in the financial statements. Further, FIN 48 prescribes the benefit to be recorded in
the financial statements as the amount most likely to be realized assuming a review by tax
authorities having all relevant information and applying current conventions. FIN 48 also
clarifies the financial statement classification of tax-related penalties and interest and sets
forth new disclosures regarding unrecognized tax benefits. The Company adopted FIN 48 on April 1,
2007. The adoption of FIN 48 resulted in a decrease to beginning retained earnings of $5,110
representing the cumulative effect adjustment. See Note 2 and Note 12 of the Notes to the
Consolidated Financial Statements.
Fair Value Measurements
In September, 2006, the FASB issued 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. SFAS 157 is effective
for the Company beginning on April 1, 2008. 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, and FSP SFAS 157-2, Effective Date of FASB Statement No. 157, which defers the
effective date of SFAS 157 for one year for certain nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis. The Company is evaluating the impact of the adoption of SFAS 157
on its consolidated financial statements.
Defined Benefit Pension and Other Postretirement Plans
On April 30, 2006, the Company acquired NextiraOne, which is a sponsor of a non-contributory
defined benefit plan (the CWA Plan) for the Communication Workers of America Local 1109 (CWA
1109). Benefits from the CWA Plan are based upon years of service and rates negotiated by the
Company and CWA 1109. Pension costs are funded to satisfy minimum requirements prescribed by the
Employee Retirement Income Security Act of 1974.
In September, 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans (SFAS 158) that would amend SFAS No. 87, Employers
Accounting for Pensions, SFAS No. 88, Employers Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits, SFAS No. 106, Employers Accounting
for Postretirement Benefits Other Than Pensions and SFAS No. 132 (Revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits. This standard requires, among other
things, companies to recognize on the balance sheet the funded or unfunded status of pension and
other postretirement benefit plans and to recognize the change in funded status in the period the
change occurs through comprehensive income. The Company adopted SFAS 158 as of March 31, 2007.
28
Fiscal 2007 financial impact: The adoption of SFAS 158 had no impact on the Companys Consolidated
Statements of Income on the date of adoption. However, the Company did record, as of March 31,
2007, a liability of $3,452 representing the unfunded portion of the CWA Plan included in Other
liabilities within the Companys Consolidated Balance Sheets and an unrecognized gain of $2,717
($1,670 net of tax) included in Accumulated other comprehensive income (AOCI) within the
Companys Consolidated Balance Sheets.
Fiscal 2008 financial impact: As of March 31, 2008, the unfunded portion of the CWA Plan was
$5,909 and is included in Other liabilities within the Companys Consolidated Balance Sheets. The
Company recorded an unrecognized loss of $3,488 ($2,135 net of tax) included in AOCI within the
Companys Consolidated Balance Sheets and Comprehensive income due primarily to a decrease in value
for the CWA Plan assets. The Company made contributions of $1,000 to the CWA Plan during Fiscal
2008.
Fair Value Option for Financial Assets and Financial Liabilities
In February, 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115 (SFAS 159). SFAS 159
permits an entity to elect to measure eligible items at fair value (fair value option) including
many financial instruments. The provisions of SFAS 159 are effective for the Company as of April
1, 2008. If the fair value option is elected, the Company would report unrealized gains and losses
on items for which the fair value option has been elected in earnings at each subsequent reporting
date. Upfront costs and fees related to items for which the fair value option is elected shall be
recognized in earnings as incurred and not deferred. The fair value option may be applied for a
single eligible item without electing it for other identical items, with certain exceptions, and
must be applied to the entire eligible item and not to a portion of the eligible item. The Company
did not elect the fair value option on April 1, 2008.
Definition of Settlement in FIN 48
In May, 2007, the FASB issued staff position No. FIN 48-1, Definition of Settlement in FASB
Interpretation No. 48 (FSP FIN 48-1) which amended FIN 48 to provide guidance about how an
enterprise should determine whether a tax position is effectively settled for the purpose of
recognizing previously unrecognized tax benefits. Under FSP FIN 48-1, a tax position could be
effectively settled on completion of an examination by a taxing authority. The Company adopted FSP
FIN 48-1 in conjunction with adoption of FIN 48 as of April 1, 2007. The adoption of FSP FIN 48-1
did not have a material impact on the Companys consolidated financial statements.
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. SFAS 141(R) is effective
for the Company as of April 1, 2009. The Company is evaluating the impact of the adoption of SFAS
141(R) on its consolidated financial statements.
Noncontrolling 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
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160
clarifies that a noncontrolling 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 noncontrolling interest. The provisions of SFAS 160 are
effective for the Company as of April 1, 2009. The Company believes the adoption of SFAS 160 will
not have a material impact on the Companys consolidated financial statements.
Derivative Disclosures
In March, 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161). SFAS No. 161 is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entitys financial position, financial performance and cash flows.
SFAS 161 is effective for the Company beginning on April 1, 2009. The Company is evaluating the
impact of the adoption of SFAS 161 on its consolidated financial statements.
29
Cautionary Forward Looking Statements
When included in this Form 10-K or in documents incorporated herein by reference, the words
expects, intends, anticipates, believes, estimates and analogous expressions are intended
to identify forward-looking statements. Such statements are inherently subject to a variety of
risks and uncertainties that could cause actual results to differ materially from those projected.
Such risks and uncertainties 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, 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-K. 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.
Item 7A. 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 March
31, 2008, the Company had total long-term obligations of $194,470 under the New Credit Agreement.
Of the outstanding debt, $100,000 was in variable rate debt that was effectively converted to a
fixed rate through an interest-rate swap agreement during Fiscal 2007 and $94,470 was in variable
rate obligations. As of March 31, 2008, 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 year by $932 ($576 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 an interest-rate swap which has been used to effectively
convert a portion of the Companys variable rate debt to fixed rate. The interest-rate swap 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.
30
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 forward contracts to reduce the foreign currency
exposure related to certain intercompany transactions, primarily trade receivables and loans. All
of the foreign currency forward 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
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 March 31, 2008, the Company had open foreign exchange contracts in Australian and Canadian
dollars, Danish krone, Euros, Mexican pesos, Norwegian kroner, Pounds sterling, Swedish krona,
Swiss francs and Japanese yen. The open contracts have contract rates ranging from 1.1181 to
1.1612 Australian dollar, 0.9989 to 1.0175 Canadian dollar, 4.7970 to 5.0120 Danish krone, 0.6311
to 0.7407 Euro, 11.0853 to 11.1098 Mexican peso, 5.3190 to 5.6718 Norwegian kroner, 0.4899 to
0.5126 Pounds sterling, 6.0760 to 6.5508 Swedish krona, 1.0178 to 1.1930 Swiss franc and 105.47 to
110.10 Japanese yen, all per U.S. dollar. The total open contracts had a notional amount of
approximately $64,166, have a fair value of $67,345 and will expire within twelve months.
31
Item 8. Financial Statements and Supplementary Data.
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS
32
Report of Independent Registered Public Accounting Firm
Board of Directors and Stockholders
Black Box Corporation
Lawrence, Pennsylvania
We have audited the accompanying consolidated balance sheets of Black Box Corporation as of March
31, 2008 and 2007 and the related consolidated statements of income, stockholders equity, and cash
flows for each of the three years in the period ended March 31, 2008. In connection with our
audits of the financial statements, we have also audited Schedule II Valuation and Qualifying
Accounts. These financial statements and schedule are the responsibility of the Companys
management. Our responsibility is to express an opinion on these financial statements and schedule
based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements and schedule are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements and schedule, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall presentation of the
financial statements and schedule. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all
material respects, the financial position of Black Box Corporation as of March 31, 2008 and 2007
and the results of its operations and its cash flows for each of the three years in the period
ended March 31, 2008, in conformity with accounting principles generally accepted in the United
States of America.
Also, in our opinion, the financial statement schedule, when considered in relation to the basic
consolidated financial statements taken as a whole, presents fairly, in all material respects, the
information set forth therein.
As disclosed in the consolidated financial statements, effective April 1, 2006, the Company adopted
the fair value method of accounting provisions of Statement of Financial Accounting Standard No.
123 (revised 2004), Share Based Payment. In addition, effective April 1, 2007, the Company
changed its method of accounting for uncertain tax positions to conform to FASB Interpretation No.
48, Accounting for Uncertainty in Income Taxes.
We also have audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), Black Box Corporations internal control over financial reporting as of
March 31, 2008, based on criteria established in Internal Control Integrated Framework issued by
the Committee of Sponsoring Organizations of the Treadway Commission (COSO) and our report dated
May 27, 2008 expressed an unqualified opinion thereon.
/s/ BDO Seidman, LLP
Chicago, Illinois
May 27, 2008
33
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
In thousands, except per share amounts |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotline products |
|
$ |
235,314 |
|
|
$ |
222,903 |
|
|
$ |
213,946 |
|
|
On-Site services |
|
|
781,428 |
|
|
|
793,407 |
|
|
|
507,389 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
1,016,742 |
|
|
|
1,016,310 |
|
|
|
721,335 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotline products |
|
|
122,011 |
|
|
|
113,780 |
|
|
|
108,220 |
|
|
On-Site services |
|
|
528,111 |
|
|
|
528,541 |
|
|
|
330,765 |
|
|
|
|
|
|
|
|
|
|
Total |
|
|
650,122 |
|
|
|
642,321 |
|
|
|
438,985 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
366,620 |
|
|
|
373,989 |
|
|
|
282,350 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general & administrative expenses |
|
|
275,309 |
|
|
|
290,355 |
|
|
|
222,201 |
|
|
Intangibles amortization |
|
|
6,679 |
|
|
|
10,285 |
|
|
|
4,999 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
84,632 |
|
|
|
73,349 |
|
|
|
55,150 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income), net |
|
|
21,298 |
|
|
|
18,407 |
|
|
|
9,123 |
|
|
Other expenses (income), net |
|
|
(197) |
|
|
|
42 |
|
|
|
36 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for income taxes |
|
|
63,531 |
|
|
|
54,900 |
|
|
|
45,991 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
24,298 |
|
|
|
19,291 |
|
|
|
15,221 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
39,233 |
|
|
$ |
35,609 |
|
|
$ |
30,770 |
|
|
|
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
2.23 |
|
|
$ |
2.03 |
|
|
$ |
1.79 |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
$ |
2.22 |
|
|
$ |
2.00 |
|
|
$ |
1.75 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding |
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
|
17,605 |
|
|
|
17,512 |
|
|
|
17,164 |
|
|
|
|
|
|
|
|
|
|
Diluted |
|
|
17,653 |
|
|
|
17,808 |
|
|
|
17,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends per share |
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
$ |
0.24 |
|
|
|
See Notes to the Consolidated Financial Statements
34
BLACK BOX CORPORATION
CONSOLIDATED BALANCE SHEETS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
In thousands, except par value |
|
2008 |
|
|
2007 |
|
|
|
|
|
|
Assets |
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents |
|
$ |
26,652 |
|
|
$ |
17,157 |
|
|
|
Accounts receivable, net of allowance for doubtful accounts of $12,612
and $14,253 |
|
|
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 |
|
|
586,856 |
|
|
|
568,647 |
|
|
|
Intangibles: |
|
|
|
|
|
|
|
|
|
|
Customer relationships, net |
|
|
67,331 |
|
|
|
68,016 |
|
|
|
Other intangibles, net |
|
|
32,524 |
|
|
|
33,258 |
|
|
|
Other assets |
|
|
7,700 |
|
|
|
37,364 |
|
|
|
|
|
|
|
|
|
|
|
Total assets |
|
$ |
1,073,851 |
|
|
$ |
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 |
|
|
|
|
|
|
|
|
|
|
Preferred stock authorized 5,000, par value $1.00, none issued |
|
|
|
|
|
|
|
|
|
|
Common stock authorized 100,000, par value $.001, 17,516 and 17,527
shares issued
and outstanding |
|
|
25 |
|
|
|
25 |
|
|
|
Additional paid-in capital |
|
|
443,380 |
|
|
|
441,283 |
|
|
|
Retained earnings |
|
|
479,921 |
|
|
|
450,022 |
|
|
|
Accumulated other comprehensive income |
|
|
40,043 |
|
|
|
25,399 |
|
|
|
Treasury stock, at cost 7,626 and 7,436 shares |
|
|
(323,095) |
|
|
|
(317,033) |
|
|
|
|
|
|
|
|
|
|
|
Total stockholders equity |
|
|
640,274 |
|
|
|
599,696 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total liabilities and stockholders equity |
|
$ |
1,073,851 |
|
|
$ |
1,090,091 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
See Notes to the Consolidated Financial Statements
35
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CHANGES IN
STOCKHOLDERS EQUITY AND COMPREHENSIVE INCOME
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Common Stock |
|
|
|
|
|
|
|
|
|
|
Accumulated Other |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive Income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Additional |
|
|
|
|
|
|
Currency |
|
|
|
|
|
|
Defined |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
($.001 |
|
|
Paid-in |
|
|
Treasury |
|
|
Trans- |
|
|
Derivative |
|
|
Benefit |
|
|
Retained |
|
|
|
|
|
In thousands |
|
Shares |
|
|
par) |
|
|
Capital |
|
|
Stock |
|
|
lation |
|
|
Instruments |
|
|
Pension |
|
|
Earnings |
|
|
Total |
|
|
|
|
Balance at March 31, 2005 |
|
|
23,775 |
|
|
|
$ 24 |
|
|
|
$383,529 |
|
|
|
$ (296,797) |
|
|
|
$ 22,405 |
|
|
|
$ 147 |
|
|
|
$ |
|
|
|
$ 391,980 |
|
|
|
$ 501,288 |
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
30,770 |
|
|
|
30,770 |
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,511) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(10,511) |
|
|
Net change in fair
value of cash flow hedging
instruments |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,142 |
|
|
|
|
|
|
|
|
|
|
|
1,142 |
|
|
Amounts reclassified into results of operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(147) |
|
|
|
|
|
|
|
|
|
|
|
(147) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
21,254 |
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
11,045 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,045 |
|
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,137) |
|
|
|
(4,137) |
|
|
Repurchases of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(27) |
|
|
Exercise of options, net of tax |
|
|
753 |
|
|
|
1 |
|
|
|
23,320 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
23,321 |
|
|
Tax impact from stock options |
|
|
|
|
|
|
|
|
|
|
247 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
247 |
|
|
|
|
|
|
Balance at March 31, 2006 |
|
|
24,528 |
|
|
|
$ 25 |
|
|
|
$ 418,141 |
|
|
|
$ (296,824) |
|
|
|
$ 11,894 |
|
|
|
$ 1,142 |
|
|
|
$ |
|
|
|
$ 418,613 |
|
|
|
$ 552,991 |
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
35,609 |
|
|
|
35,609 |
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,458 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
11,458 |
|
|
Net change in fair value of cash flow hedging
instruments (net of tax) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(111) |
|
|
|
|
|
|
|
|
|
|
|
(111) |
|
|
Amounts reclassified into results of operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(654) |
|
|
|
|
|
|
|
|
|
|
|
(654) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
46,302 |
|
|
Adjustment to initially apply SFAS No. 158 (net
of tax) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
1,670 |
|
|
|
|
|
|
|
1,670 |
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
9,308 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
9,308 |
|
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,200) |
|
|
|
(4,200) |
|
|
Repurchases of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,209) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(20,209) |
|
|
Exercise of options, net of tax |
|
|
435 |
|
|
|
|
|
|
|
14,970 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
14,970 |
|
|
Tax impact from stock options |
|
|
|
|
|
|
|
|
|
|
(1,136) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(1,136) |
|
|
|
|
|
|
Balance at March 31, 2007 |
|
|
24,963 |
|
|
|
$ 25 |
|
|
|
$ 441,283 |
|
|
|
$ (317,033) |
|
|
|
$ 23,352 |
|
|
|
$ 377 |
|
|
|
$ 1,670 |
|
|
|
$ 450,022 |
|
|
|
$ 599,696 |
|
|
Cumulative effect related to adoption of FIN 48 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(5,110) |
|
|
|
(5,110) |
|
|
Comprehensive income (loss): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
39,233 |
|
|
|
39,233 |
|
|
Foreign currency translation adjustment |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,231 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
17,231 |
|
|
Pension: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Unrealized gain (loss) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(2,135) |
|
|
|
|
|
|
|
(2,135) |
|
|
Amounts reclassified into results of
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(9) |
|
|
|
|
|
|
|
(9) |
|
|
Derivative Instruments: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net change in fair value of cash flow
hedging
instruments (net of tax) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(262) |
|
|
|
|
|
|
|
|
|
|
|
(262) |
|
|
Amounts reclassified into results of
operations |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(181) |
|
|
|
|
|
|
|
|
|
|
|
(181) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Comprehensive income: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
53,877 |
|
|
Stock compensation expense |
|
|
|
|
|
|
|
|
|
|
3,217 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
3,217 |
|
|
Dividends declared |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(4,224) |
|
|
|
(4,224) |
|
|
Repurchases of common stock |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,062) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,062) |
|
|
Exercise of options, net of tax |
|
|
179 |
|
|
|
|
|
|
|
5,878 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
5,878 |
|
|
Tax impact from stock options |
|
|
|
|
|
|
|
|
|
|
(6,792) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(6,792) |
|
|
Other |
|
|
|
|
|
|
|
|
|
|
(206) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
(206) |
|
|
|
|
|
|
Balance at March 31, 2008 |
|
|
25,142 |
|
|
|
$ 25 |
|
|
|
$ 443,380 |
|
|
|
$ (323,095) |
|
|
|
$ 40,583 |
|
|
|
$ (66) |
|
|
|
$ (474) |
|
|
|
$ 479,921 |
|
|
|
$ 640,274 |
|
|
|
See Notes to the Consolidated Financial Statements
36
BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31, |
|
|
|
In thousands |
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
Operating Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
39,233 |
|
|
$ |
35,609 |
|
|
$ |
30,770 |
|
|
|
Adjustments to reconcile net income to net cash provided
by
(used for) operating activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Intangibles amortization and depreciation |
|
|
17,737 |
|
|
|
22,610 |
|
|
|
13,930 |
|
|
|
Loss on sale of property |
|
|
462 |
|
|
|
|
|
|
|
|
|
|
|
Deferred taxes |
|
|
4,901 |
|
|
|
(1,266) |
|
|
|
(1,222) |
|
|
|
Tax impact from stock options |
|
|
6,792 |
|
|
|
1,136 |
|
|
|
(247) |
|
|
|
Stock compensation expense |
|
|
3,217 |
|
|
|
9,308 |
|
|
|
11,045 |
|
|
|
Change in fair value of interest-rate swap |
|
|
4,576 |
|
|
|
1,734 |
|
|
|
|
|
|
|
Changes in operating assets and liabilities (net of
acquisitions): |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Accounts receivable, net |
|
|
4,852 |
|
|
|
19,202 |
|
|
|
9,369 |
|
|
|
Inventories, net |
|
|
7,829 |
|
|
|
(3,595) |
|
|
|
5,000 |
|
|
|
All other current assets excluding deferred tax asset |
|
|
12,328 |
|
|
|
3,349 |
|
|
|
2,799 |
|
|
|
Liabilities exclusive of long-term debt |
|
|
(20,806) |
|
|
|
(51,451) |
|
|
|
(19,647) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) operating activities |
|
$ |
81,121 |
|
|
$ |
36,636 |
|
|
$ |
51,797 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Investing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital expenditures |
|
$ |
(3,241) |
|
|
$ |
(5,886) |
|
|
$ |
(4,115) |
|
|
|
Capital disposals |
|
|
105 |
|
|
|
1,017 |
|
|
|
1,445 |
|
|
|
Acquisition of businesses (payments)/recoveries |
|
|
(13,713) |
|
|
|
(127,716) |
|
|
|
(40,682) |
|
|
|
Prior merger-related (payments)/recoveries |
|
|
(3,432) |
|
|
|
(2,324) |
|
|
|
(378) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) investing activities |
|
$ |
(20,281) |
|
|
$ |
(134,909) |
|
|
$ |
(43,730) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Financing Activities |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Proceeds from borrowings |
|
$ |
196,750 |
|
|
$ |
354,254 |
|
|
$ |
192,882 |
|
|
|
Repayment of borrowings |
|
|
(240,030) |
|
|
|
(240,079) |
|
|
|
(218,989) |
|
|
|
Deferred financing costs |
|
|
(471) |
|
|
|
|
|
|
|
(180) |
|
|
|
Repayment on discounted lease rentals |
|
|
|
|
|
|
(30) |
|
|
|
(890) |
|
|
|
Proceeds from exercise of options |
|
|
5,878 |
|
|
|
14,970 |
|
|
|
23,320 |
|
|
|
Payment of dividends |
|
|
(4,225) |
|
|
|
(4,203) |
|
|
|
(4,094) |
|
|
|
Purchase of Treasury stock |
|
|
(6,062) |
|
|
|
(20,209) |
|
|
|
(27) |
|
|
|
|
|
|
|
|
|
|
|
|
Net cash provided by (used for) financing activities |
|
$ |
(48,160) |
|
|
$ |
104,703 |
|
|
$ |
(7,978) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency exchange impact on cash |
|
$ |
(3,185) |
|
|
$ |
(480) |
|
|
$ |
(474) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Increase / (decrease) in cash and cash equivalents |
|
$ |
9,495 |
|
|
$ |
5,950 |
|
|
$ |
(385) |
|
|
|
Cash and cash equivalents at beginning of period |
|
$ |
17,157 |
|
|
$ |
11,207 |
|
|
$ |
11,592 |
|
|
|
|
|
|
|
|
|
|
|
|
Cash and cash equivalents at end of period |
|
$ |
26,652 |
|
|
$ |
17,157 |
|
|
$ |
11,207 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Supplemental Cash Flow: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cash paid for interest |
|
$ |
17,141 |
|
|
$ |
15,333 |
|
|
$ |
8,336 |
|
|
|
Cash paid for income taxes |
|
|
11,041 |
|
|
|
16,877 |
|
|
|
17,223 |
|
|
|
Non-cash financing activities: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividends payable |
|
|
1,050 |
|
|
|
1,052 |
|
|
|
1,055 |
|
|
|
Capital leases |
|
|
863 |
|
|
|
915 |
|
|
|
1,214 |
|
|
|
|
|
See Notes to the Consolidated Financial Statements
37
BLACK BOX CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Note 1: Business and Basis of Presentation
Black Box Corporation (Black Box, we, the Company or our) is the worlds largest dedicated
network infrastructure services provider. Black Box offers one-source network infrastructure
services for communication systems. The Companys service offerings include design, installation,
integration, monitoring and maintenance of voice, data and integrated communication systems. The
Companys primary service offering is voice solutions, while providing premise cabling and other
data-related services and products. The Company provides 24/7/365 technical support for all of its
solutions which encompasses all major voice and data 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. With more than 3,000 professional
technical experts and 187 offices (as of March 31, 2008), Black Box serves 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.
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 parent company and its
subsidiaries. All significant intercompany accounts and transactions have been eliminated in
consolidation. Certain items in the consolidated financial statements of prior years have been
reclassified to conform to the current years presentation.
The preparation of financial statements in conformity with accounting principles generally accepted
in the United States of America requires 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. Actual results could differ from those estimates.
Note 2: Significant Accounting Policies
Cash and Cash Equivalents
The Company considers all highly liquid investments purchased with an original maturity of three
months or less to be cash equivalents. Cash and cash equivalents are stated at cost, which
approximates fair value.
Allowance for doubtful accounts receivable
An allowance for doubtful accounts is recorded as an offset to accounts receivable in order to
present a net balance the Company believes will be collected. This allowance is based on both
recent trends of certain accounts receivable (specific reserve) estimated to be a greater credit
risk as well as general trends of the entire accounts receivable pool (general reserve). The
Company computes a specific reserve by identifying specifically at-risk accounts receivable and
applying historic reserve factors to the outstanding balance. The Company computes a general
reserve by reviewing the accounts receivable aging and applying reserve factors based upon the age
of the account receivable. Additions to the allowance for doubtful accounts are charged to
Selling, general & administrative expense within the Companys Consolidated Statement of Income,
and deductions from the allowance are recorded when specific accounts receivable are written off as
uncollectible.
Inventories
Inventories are valued at the lower of cost or market. The Company uses the first-in, first-out
average cost method to value the majority of its inventory. However, several locations within the
Company use other valuation methods, including first-in, first-out (FIFO) and actual current
costs. The Company records an estimate for slow moving and obsolete inventory (inventory
reserve) based upon product knowledge, physical inventory observation, future demand, market
conditions and an aging analysis of the inventory on hand. Upon a subsequent sale or disposal of
the impaired inventory, the corresponding reserve is relieved to ensure the cost basis of the
inventory reflects any reductions.
Property, Plant and Equipment
Property, plant and equipment are stated at cost, net of accumulated depreciation. Maintenance,
repairs and minor renewals are charged to operations as incurred. Major renewals and betterments,
which substantially extend the useful life of the property, are capitalized at cost. Upon sale or
other disposition of assets, the costs and related accumulated depreciation are removed from the
accounts and the resulting gain or loss, if any, is reflected in income.
38
Depreciation is computed using the straight-line method based on the estimated useful lives of 30
to 40 years for buildings and improvements and 3 to 5 years for machinery and equipment. Leasehold
improvements are depreciated over their lease terms, or useful lives, if shorter. The Company
reviews property, plant and equipment for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If the sum of the estimated
future cash flows
(undiscounted) expected to result from the use and eventual disposition of an asset is less than
the carrying amount of the asset, an impairment loss is recognized. Measurement of an impairment
loss is based on the fair value of the asset. No impairment of property, plant and equipment has
been identified during any of the periods presented.
Goodwill
Goodwill is the excess of purchase price over the value of net assets acquired in acquisitions.
Goodwill is subject to, at a minimum, an annual impairment assessment of its carrying value.
Goodwill impairment is deemed to exist if the net book value of a reporting unit exceeds its
estimated fair value. Estimated fair values of the reporting units are estimated using an earnings
model and a discounted cash flow valuation model. The discounted cash flow model incorporates the
Companys estimates of future cash flows, allocations of certain assets and cash flows among
reporting units, future growth rates and managements judgment regarding the applicable discount
rates used to discount those estimated cash flows. No impairment of goodwill has been identified
during any of the periods presented.
Intangible Assets
Definite-lived intangible assets are amortized on a straight-line basis over their estimated useful
lives of 3 to 5 years for non-compete agreements, one year for backlog and 8 to 20 years for
customer relationships. Indefinite-lived intangible assets not subject to amortization consist
solely of the Companys trademark portfolio also obtained through acquisitions. The Company
reviews intangible assets for impairment whenever events or changes in circumstances indicate that
the carrying amount of an asset may not be recoverable. If the sum of the estimated future cash
flows (undiscounted) expected to result from the use and eventual disposition of an asset is less
than the carrying amount of the asset, an impairment loss is recognized. Measurement of an
impairment loss is based on the fair value of the asset. No impairments of intangible assets have
been identified during any of the periods presented.
Derivative Instruments and Hedging Activities
Foreign Currency Forward Contract
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 forward contracts to reduce the foreign currency
exposure related to certain intercompany transactions, primarily trade receivables and loans. All
of the foreign currency forward 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.
Interest-rate Swap
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. The Companys interest-rate swap does not meet the requirements for hedge
accounting and is marked to market through Interest expense (income) within the Companys
Consolidated Statement of Income.
Foreign Currency Translation
The financial statements of the Companys foreign subsidiaries, except those subsidiaries in Brazil
and Mexico, are recorded in the local currency, which is the functional currency. Foreign currency
assets and liabilities are translated into U.S. dollars at the rate of exchange existing at the
year-end date. Revenues and expenses are translated at the average monthly exchange rates.
Adjustments resulting from these translations are recorded in AOCI within the Companys
Consolidated Balance Sheets and will be included in income upon sale or liquidation of the foreign
investment. Gains and losses from foreign currency transactions, denominated in a currency other
than the functional currency, are recorded in Other expenses (income) within the Companys
Consolidated Statements of Income. The U.S. dollar is the functional currency for those
subsidiaries located in Brazil and Mexico.
39
Revenue
Within the Companys Hotline Services service type, revenues are recognized when title to products
sold passes to the customer, which generally occurs upon shipment from the Companys location.
Within the Companys Data Services and Voice Services service types, revenues are recognized from
maintenance service contracts, moves, adds and changes and network integration services when the
services are provided. Service contracts are generally pre-billed, recorded in Deferred revenue
within the Companys Consolidated Balance Sheets and are generally recognized over the service
period on a straight-line basis. Revenues from the sale and installation of products and systems
are recognized using the percentage-of-completion method based upon the proportion of actual costs
incurred to estimated total costs. At the time a loss on a contract becomes known, the entire
amount of the estimated loss is recognized immediately in the financial statements. The Company
has historically made reasonably accurate estimates of the extent of progress towards completion,
contract revenues and contract costs on
its long-term contracts. However, due to uncertainties inherent in the estimation process, actual
results could differ materially from those estimates.
Sales returns - At the time of sale, an estimate for sales returns is recorded based on historical
experience.
Warranties
- Estimated future warranty costs related to certain products are charged to operations
in the period the related revenue is recognized based on historical experience.
Shipping and handling fees
and costs - All fees billed to clients for shipping and handling are
classified as a component of Net Revenues. All costs associated with shipping and handling are
classified as a component of Cost of sales.
Sales tax and other tax presentation - Sales taxes and other taxes are collected from customers on
behalf of governmental authorities at the time of sale. These taxes are accounted for on a net
basis and are not included in net sales and operating revenues or cost of sales.
Stock-Based Compensation
On April 1, 2006, the Company adopted Statement of Financial Accounting Standards (SFAS) No. 123
(revised 2004), Share-Based Payment (SFAS 123(R)) using the modified prospective transition
method. SFAS 123(R) requires the measurement and recognition of compensation expense for all
stock-based awards to employees and directors based on estimated fair values. The estimated fair
value is recognized in the Companys financial statements on a straight-line basis over the vesting
period of the award. Upon adoption of SFAS 123(R), the Company began using the Black-Scholes
option pricing model as the method of valuation for the Companys stock options. The model
requires the use of various assumptions which are summarized as follows:
Expected volatility: The Company estimates the volatility of its common stock, par value $.001 per
share (the common stock), at the date of grant based on the historical volatility of its common
stock.
Dividend yield: The Company estimates the dividend yield assumption based on the Companys
historical and projected dividend payouts.
Risk-free interest-rate: The Company derives its risk-free interest-rate on the observed
interest-rates appropriate for the term of the Companys employee stock options.
Annual forfeiture rate and expected holding period: The Company estimates the annual forfeiture
rate and expected holding period based on historical experience.
Amortization period: The Company recognizes the fair value of awards into expense over the
requisite service periods associated with the award.
Marketing and Advertising Expenses
Catalogs and other direct marketing pieces are capitalized and amortized over their expected period
of future benefit ranging from 1 to 2 years, which is recorded in Prepaid and other current assets
within the Companys Consolidated Balance Sheets. All other advertising costs are expensed as
incurred.
Advertising expense was $9,320, $9,120 and $9,414 for Fiscal 2008, Fiscal 2007 and Fiscal 2006,
respectively, and is recorded in Selling, general & administrative expenses within the Companys
Consolidated Statements of Income.
40
Income Taxes
The Company accounts for income taxes using an asset and liability approach, which requires the
recognition of deferred income tax assets and liabilities for the expected future tax consequences
of events that have been recognized in the Companys financial statements or tax returns. Deferred
income tax assets and liabilities are determined based on the temporary differences between the
financial statement and tax bases of assets and liabilities using enacted tax rates. A valuation
allowance is provided on deferred tax assets if it is determined that it is more likely than not
that the asset will not be realized.
The Company requires that the realization of an uncertain income tax position must be more likely
than not (i.e., greater than 50% likelihood of receiving a benefit) before it can be recognized in
the financial statements. The benefit to be recorded in the financial statements is the amount
most likely to be realized assuming a review by tax authorities having all relevant information and
applying current conventions. The Company includes interest and penalties related to uncertain tax
positions within the Provision for income taxes within the Companys Consolidated Statements of
Income.
Earnings per common Share
Basic earnings per common share (basic EPS) is computed by dividing income available to common
stockholders by the weighted-average number of common shares outstanding during the period.
Diluted earnings per common share (diluted EPS) is computed similarly to that of basic EPS,
except that the weighted-average number of common shares outstanding during the period is adjusted
to include the number of additional common shares that would have been outstanding if the dilutive
potential common shares had been issued.
Fair Value of Financial Instruments
The carrying amount of certain of the Companys financial instruments, including Accounts
receivable, Accounts payable and Long-term debt, approximates fair value due to the relatively
short maturity of such instruments. The carrying amounts of the Companys derivative financial
instruments are recorded at fair value in accordance with SFAS No. 133, Accounting for Derivative
Instruments and Hedging Activities (SFAS 133).
Recent Accounting Pronouncements
Stock-Based Compensation
In December, 2004, the Financial Accounting Standards Board (the FASB) issued SFAS 123(R) and, on
April 1, 2006, the Company adopted the provisions of SFAS 123(R). Prior to the adoption of SFAS
123(R), the Company accounted for share-based awards to employees and directors using the intrinsic
value method in accordance with Accounting Principles Board Opinion No. 25, Accounting for Stock
Issued to Employees (APB 25) as allowed under SFAS No. 123, Accounting for Stock-Based
Compensation. Under the intrinsic value method, no stock-based compensation expense related to
stock options was required to be recognized if the exercise price of the Companys stock options
granted to employees and directors was equal to or greater than the fair market value of the
underlying stock on the measurement date. The Company adopted the provisions of SFAS 123(R) using
the modified prospective transition method which requires compensation cost to be recognized for
all share-based payments granted after the date of adoption and for all unvested awards existing on
the date of adoption. In accordance with the modified prospective transition method, the Companys
consolidated financial statements for prior periods were not retroactively adjusted to reflect, and
do not include, the impact of SFAS 123(R). However, the modified prospective transition method
does require the Company to provide pro-forma disclosure of specific income statement line items
for periods prior to the adoption of SFAS 123(R) as if the fair-value-based method had been applied
to all awards. See Note 13.
Tax Effects of Share-Based Payment Awards
On November 10, 2005, the FASB issued Staff Position No. SFAS 123(R)-3, Transition Election
Related to Accounting for Tax Effects of Share-Based Payment Awards (SFAS 123(R)-3). The
alternative transition method includes simplified methods to establish the beginning balance of the
additional paid-in capital pool (APIC pool) related to the tax effects of employee share-based
compensation, and to determine the subsequent impact on the APIC pool and Consolidated Statements
of Cash Flows of the tax effects of employee share-based compensation awards that are outstanding
upon adoption of SFAS 123(R). The company has elected this transition method for calculating tax
effects of share-based payment awards.
Uncertainty in Income Taxes
In July, 2006, the FASB issued FASB Interpretation No. 48, Accounting for Uncertainty in Income
Taxes (FIN 48). FIN 48 requires that realization of an uncertain income tax position must be
more likely than not (i.e., greater than 50% likelihood of receiving a benefit) before it can be
recognized in the financial statements. Further, FIN 48 prescribes the benefit to be recorded in
the financial statements as the amount most likely to be realized assuming a review by tax
authorities having all relevant information and applying current conventions. FIN 48 also
clarifies the financial statement classification of tax-related penalties and interest and sets
forth new disclosures regarding unrecognized tax benefits. The Company adopted FIN 48 on April 1,
2007. The adoption of FIN 48 resulted in a decrease to beginning retained earnings of $5,110
representing the cumulative effect adjustment. See Significant Accounting Policies within this
Note 2 and Note 12 for further reference.
41
Fair Value Measurements
In September, 2006, the FASB issued 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. SFAS 157 is effective
for the Company beginning on April 1, 2008. 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, and FSP SFAS 157-2, Effective Date of FASB Statement No. 157, which defers the
effective date of SFAS 157 for one year for certain nonfinancial assets and nonfinancial
liabilities, except those that are recognized or disclosed at fair value in the financial
statements on a recurring basis. The Company is evaluating the impact of the adoption of SFAS 157
on its consolidated financial statements.
Defined Benefit Pension and Other Postretirement Plans
On April 30, 2006, the Company acquired the USA Commercial and Government and Canadian operations
of NextiraOne, LLC (NextiraOne), which is a sponsor of a non-contributory defined benefit plan
(the CWA Plan) for the Communication Workers of America Local 1109 (CWA 1109). Benefits from
the CWA Plan are based upon years of service and rates negotiated by the Company and CWA 1109.
Pension costs are funded to satisfy minimum requirements prescribed by the Employee Retirement
Income Security Act of 1974.
In September, 2006, the FASB issued SFAS No. 158, Employers Accounting for Defined Benefit
Pension and Other Postretirement Plans (SFAS 158) that would amend SFAS No. 87, Employers
Accounting for Pensions, SFAS No. 88, Employers Accounting for Settlements and Curtailments of
Defined Benefit Pension Plans and for Termination Benefits, SFAS No. 106, Employers Accounting
for Postretirement Benefits Other Than Pensions and SFAS No. 132 (Revised 2003), Employers
Disclosures about Pensions and Other Postretirement Benefits. This standard requires, among other
things, companies to recognize on the balance sheet the funded or unfunded status of pension and
other postretirement benefit plans and to recognize the change in
funded status in the period the change occurs through comprehensive income. The Company adopted
SFAS 158 as of March 31, 2007.
Fiscal 2007 financial impact: The adoption of SFAS 158 had no impact on the Companys Consolidated
Statements of Income on the date of adoption. However, the Company did record, as of March 31,
2007, a liability of $3,452 representing the unfunded portion of the CWA Plan included in Other
liabilities within the Companys Consolidated Balance Sheets and an unrecognized gain of $2,717
($1,670 net of tax) included in AOCI within the Companys Consolidated Balance Sheets.
Fiscal 2008 financial impact: As of March 31, 2008, the unfunded portion of the CWA Plan was
$5,909 and is included in Other liabilities within the Companys Consolidated Balance Sheets. The
Company recorded an unrecognized loss of $3,488 ($2,135 net of tax) included in AOCI within the
Companys Consolidated Balance Sheets and Comprehensive income due primarily to a decrease in value
for the CWA Plan assets. The Company made contributions of $1,000 during Fiscal 2008.
Fair Value Option for Financial Assets and Financial Liabilities
In February, 2007, the FASB issued SFAS No. 159, The Fair Value Option for Financial Assets and
Financial LiabilitiesIncluding an Amendment of FASB Statement No. 115 (SFAS 159). SFAS 159
permits an entity to elect to measure eligible items at fair value (fair value option) including
many financial instruments. The provisions of SFAS 159 are effective for the Company as of April
1, 2008. If the fair value option is elected, the Company would report unrealized gains and losses
on items for which the fair value option has been elected in earnings at each subsequent reporting
date. Upfront costs and fees related to items for which the fair value option is elected shall be
recognized in earnings as incurred and not deferred. The fair value option may be applied for a
single eligible item without electing it for other identical items, with certain exceptions, and
must be applied to the entire eligible item and not to a portion of the eligible item. The Company
did not elect the fair value option on April 1, 2008.
Definition of Settlement in FIN 48
In May, 2007, the FASB issued staff position No. FIN 48-1, Definition of Settlement in FASB
Interpretation No. 48 (FSP FIN 48-1) which amended FIN 48 to provide guidance about how an
enterprise should determine whether a tax position is effectively settled for the purpose of
recognizing previously unrecognized tax benefits. Under FSP FIN 48-1, a tax position could be
effectively settled on completion of an examination by a taxing authority. The Company adopted FSP
FIN 48-1 in conjunction with adoption of FIN 48 as of April 1, 2007. The adoption of FSP FIN 48-1
did not have a material impact on the Companys consolidated financial statements.
42
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. SFAS 141(R) is effective for the Company as of April
1, 2009. The Company is evaluating the impact of the adoption of SFAS 141(R) on its consolidated
financial statements.
Noncontrolling 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
noncontrolling interest in a subsidiary and for the deconsolidation of a subsidiary. SFAS 160
clarifies that a noncontrolling 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 noncontrolling interest. The provisions of SFAS 160 are
effective for the Company as of April 1, 2009. The Company believes the adoption of SFAS 160 will
not have a material impact on the Companys consolidated financial statements.
Derivative Disclosures
In March, 2008, the FASB issued SFAS No. 161, Disclosures about Derivative Instruments and Hedging
Activities (SFAS 161). SFAS No. 161 is intended to improve financial reporting about derivative
instruments and hedging activities by requiring enhanced disclosures to enable investors to better
understand their effects on an entitys financial position, financial performance and cash flows.
SFAS 161 is effective for the Company beginning on April 1, 2009. The Company is evaluating the
impact of the adoption of SFAS 161 on its consolidated financial statements.
Note 3: Inventories
The Companys inventories consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
Raw materials |
|
$ |
1,736 |
|
|
$ |
1,774 |
|
|
Finished goods |
|
|
86,174 |
|
|
|
93,794 |
|
|
|
|
|
|
|
|
Subtotal |
|
|
87,910 |
|
|
|
95,568 |
|
|
Excess and obsolete inventory reserves |
|
|
(20,373) |
|
|
|
(22,761) |
|
|
|
|
|
|
|
|
Inventory, net |
|
$ |
67,537 |
|
|
$ |
72,807 |
|
|
|
Note 4: Property, Plant and Equipment
The Companys property, plant and equipment consist of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
Land |
|
$ |
2,396 |
|
|
$ |
2,369 |
|
|
Building and improvements |
|
|
28,105 |
|
|
|
27,537 |
|
|
Machinery |
|
|
71,876 |
|
|
|
69,525 |
|
|
|
|
|
|
|
|
Subtotal |
|
|
102,377 |
|
|
|
99,431 |
|
|
Accumulated depreciation |
|
|
(69,555) |
|
|
|
(60,380) |
|
|
|
|
|
|
|
|
Property, plant and equipment, net |
|
$ |
32,822 |
|
|
$ |
39,051 |
|
|
|
Depreciation expense was $11,058, $12,325 and $8,931 for Fiscal 2008, Fiscal 2007 and Fiscal 2006,
respectively.
43
Note 5: Goodwill
The following table summarizes changes to goodwill at the Companys reporting units during Fiscal
2008 and Fiscal 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
North America |
|
|
Europe |
|
|
All Other |
|
|
Total |
|
|
|
|
Balance as of March 31, 2006 |
|
$ |
400,998 |
|
|
$ |
65,684 |
|
|
$ |
2,042 |
|
|
$ |
468,724 |
|
|
Currency translation |
|
|
10 |
|
|
|
7,381 |
|
|
|
78 |
|
|
|
7,469 |
|
|
Current period acquisitions (Note 9) |
|
|
95,911 |
|
|
|
|
|
|
|
|
|
|
|
95,911 |
|
|
Prior period acquisitions |
|
|
(3,544) |
|
|
|
|
|
|
|
|
|
|
|
(3,544) |
|
|
Other |
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
87 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2007 |
|
$ |
493,462 |
|
|
$ |
73,065 |
|
|
$ |
2,120 |
|
|
$ |
568,647 |
|
|
Currency translation |
|
|
(10) |
|
|
|
8,957 |
|
|
|
147 |
|
|
|
9,094 |
|
|
Current period acquisitions (Note 9) |
|
|
6,995 |
|
|
|
|
|
|
|
|
|
|
|
6,995 |
|
|
Prior period acquisitions |
|
|
2,070 |
|
|
|
|
|
|
|
50 |
|
|
|
2,120 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of March 31, 2008 |
|
$ |
502,517 |
|
|
$ |
82,022 |
|
|
$ |
2,317 |
|
|
$ |
586,856 |
|
|
|
Note 6: Intangible Assets
The following table summarizes the gross carrying amount, accumulated amortization and net carrying
amount by intangible asset class:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2008 |
|
2007 |
|
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
Gross |
|
|
|
|
|
|
Net |
|
|
|
|
Carrying |
|
|
Accum. |
|
|
Carrying |
|
|
Carrying |
|
|
Accum. |
|
|
Carrying |
|
|
|
|
Amount |
|
|
Amort. |
|
|
Amount |
|
|
Amount |
|
|
Amort. |
|
|
Amount |
|
|
|
|
Definite-lived |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-compete agreements |
|
$ |
9,776 |
|
|
$ |
4,991 |
|
|
$ |
4,785 |
|
|
$ |
7,963 |
|
|
$ |
3,414 |
|
|
$ |
4,549 |
|
|
Customer relationships |
|
|
75,526 |
|
|
|
8,195 |
|
|
|
67,331 |
|
|
|
71,989 |
|
|
|
3,973 |
|
|
|
68,016 |
|
|
Acquired backlog |
|
|
10,862 |
|
|
|
10,862 |
|
|
|
|
|
|
|
10,783 |
|
|
|
9,813 |
|
|
|
970 |
|
|
|
|
|
|
|
|
Total |
|
$ |
96,164 |
|
|
$ |
24,048 |
|
|
$ |
72,116 |
|
|
$ |
90,735 |
|
|
$ |
17,200 |
|
|
$ |
73,535 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Indefinite-lived |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Trademarks |
|
|
35,992 |
|
|
|
8,253 |
|
|
|
27,739 |
|
|
|
35,992 |
|
|
|
8,253 |
|
|
|
27,739 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
$ |
132,156 |
|
|
$ |
32,301 |
|
|
$ |
99,855 |
|
|
$ |
126,727 |
|
|
$ |
25,453 |
|
|
$ |
101,274 |
|
|
|
The Companys indefinite-lived intangible assets consist solely of the Companys trademark
portfolio obtained through business acquisitions. The Companys definite-lived intangible assets
are comprised of employee non-compete contracts, backlog and customer relationships also obtained
through business acquisitions.
The following table summarizes the changes to carrying amounts of intangible assets during the
period:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Non-Competes |
|
|
Customer |
|
|
|
|
|
|
|
Trademarks |
|
|
and Backlog |
|
|
Relationships |
|
|
Total |
|
|
|
|
Balance at March 31, 2006 |
|
$ |
27,739 |
|
|
$ |
3,044 |
|
|
$ |
24,657 |
|
|
$ |
55,440 |
|
|
Amortization expense |
|
|
|
|
|
|
(7,309) |
|
|
|
(2,976) |
|
|
|
(10,285) |
|
|
Currency translation |
|
|
|
|
|
|
52 |
|
|
|
|
|
|
|
52 |
|
|
Current period acquisitions (Note 9) |
|
|
|
|
|
|
8,977 |
|
|
|
39,931 |
|
|
|
48,908 |
|
|
Prior period acquisitions |
|
|
|
|
|
|
755 |
|
|
|
6,404 |
|
|
|
7,159 |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007 |
|
$ |
27,739 |
|
|
$ |
5,519 |
|
|
$ |
68,016 |
|
|
$ |
101,274 |
|
|
Amortization expense |
|
|
|
|
|
|
(2,457) |
|
|
|
(4,222) |
|
|
|
(6,679) |
|
|
Currency translation |
|
|
|
|
|
|
42 |
|
|
|
|
|
|
|
42 |
|
|
Current period acquisitions (Note 9) |
|
|
|
|
|
|
795 |
|
|
|
6,588 |
|
|
|
7,383 |
|
|
Prior period acquisitions |
|
|
|
|
|
|
886 |
|
|
|
(3,051) |
|
|
|
(2,165) |
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008 |
|
$ |
27,739 |
|
|
$ |
4,785 |
|
|
$ |
67,331 |
|
|
$ |
99,855 |
|
|
|
44
Intangible asset amortization expense was $6,679, $10,285 and $4,999 for Fiscal 2008, Fiscal 2007
and Fiscal 2006, respectively. The Company acquired definite-lived intangibles from the completion
of several acquisitions during Fiscal 2008 and Fiscal 2007 (see Note 9). Intangibles amortization
for Fiscal 2008 acquisitions is 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.
The following table details the estimated intangible amortization expense for the next five years.
These estimates are based on the carrying amounts of intangible assets as of March 31, 2008 that
are subject to change pending the outcome of purchase accounting related to certain acquisitions:
|
|
|
|
|
|
|
Fiscal |
|
|
|
|
|
|
|
2009 |
$ |
|
7,283 |
|
|
2010 |
|
|
7,150 |
|
|
2011 |
|
|
6,577 |
|
|
2012 |
|
|
6,268 |
|
|
2013 |
|
|
5,705 |
|
|
Thereafter |
|
|
39,133 |
|
|
|
|
|
|
Total |
$ |
|
72,116 |
|
|
|
Note 7: Indebtedness
The Companys long-term debt consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
|
|
Revolving credit agreement |
|
$ |
194,470 |
|
|
$ |
236,715 |
|
|
Capital lease obligations |
|
|
2,261 |
|
|
|
2,123 |
|
|
Other |
|
|
562 |
|
|
|
42 |
|
|
|
|
|
|
|
|
Total debt |
|
$ |
197,293 |
|
|
$ |
238,880 |
|
|
Less: current portion (included in Other liabilities) |
|
|
(1,389) |
|
|
|
(686) |
|
|
|
|
|
|
|
|
Long-term debt |
|
$ |
195,904 |
|
|
$ |
238,194 |
|
|
|
Revolving Credit Agreement - On March 28, 2006, the Company entered into a Second Amendment to the
Second Amended and Restated Credit Agreement dated January 24, 2005, as amended February 17, 2005
(collectively, the Credit Agreement) with Citizens Bank of Pennsylvania, as agent, and a group of
lenders. The Credit Agreement was scheduled to expire on March 28, 2011. Borrowings under the
Credit Agreement were permitted up to a maximum amount of $310,000, which included up to $15,000 of
swing-line loans and $25,000 of letters of credit. The Credit Agreement could have been increased
by the Company up to an additional $90,000 with the approval of the lenders and could have been
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 accrued, 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 0.75% to 1.25% (determined by a leverage ratio based on the Companys Earnings
Before Interest Taxes Depreciation and Amortization (EBITDA)). The Credit Agreement required the
Company to maintain compliance with certain non-financial and financial covenants such as minimum
net worth, leverage and fixed charge coverage ratios.
The Company entered into a Third Amended and Restated Credit Agreement dated as of January 30, 2008
(the New Credit Agreement) with Citizens Bank of Pennsylvania, as agent, and a group of lenders.
The New Credit Agreement, which replaces the Credit Agreement, expires on January 30, 2013.
Borrowings under the New 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 New 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 New 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 New 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 March 31, 2008, the Company was in compliance with all financial covenants
under the New Credit Agreement.
45
The maximum amount of debt outstanding under the New Credit Agreement, the weighted average balance
outstanding under the New Credit Agreement and the weighted average interest-rate on all
outstanding debt for Fiscal 2008 was $270,825, $242,418 and 6.2%, respectively, compared to
$284,470, $253,129 and 6.2% and $173,535, $155,898 and 5.1%, for Fiscal 2007 and Fiscal 2006,
respectively.
For Fiscal 2008, the Company decreased net borrowings under the New Credit Agreement / Credit
Agreement by $42,245. For Fiscal 2007, the Company increased net borrowings under the Credit
Agreement by $115,412, the proceeds of which were used to fund the acquisitions of NextiraOne,
Nu-Vision Technologies, Inc. and Nu-Vision Technologies, LLC (collectively referred to as NUVT),
Nortech Telecommunications, Inc. (NTI) and ADS Telecom, Inc. (ADS) and to repurchase common
stock.
Capital
lease obligations - The capital lease obligations are primarily for equipment. The lease
agreements have remaining terms ranging from less than one year to five years with interest-rates
ranging from 3.2% to 11.7%.
Other - Other debt is comprised of other third-party, non-employee loans. The loans have remaining
terms of less than one to three years with interest-rates ranging from 0.0% to 6.0%.
Unused available borrowings - As of March 31, 2008, the Company had $5,234 outstanding in letters
of credit and $150,296 available under the New Credit Agreement.
At March 31, 2008, scheduled maturities or required payments of long-term debt for each of the five
succeeding fiscal years were as follows:
|
|
|
|
|
|
|
Fiscal |
|
|
|
|
|
|
|
2009 |
$ |
|
1,389 |
|
|
2010 |
|
|
731 |
|
|
2011 |
|
|
462 |
|
|
2012 |
|
|
241 |
|
|
2013 |
|
|
194,470 |
|
|
|
|
|
|
Total |
$ |
|
197,293 |
|
|
|
Note 8: Derivative Instruments and Hedging Activities
Foreign Currency Forward Contracts:
The Company enters into foreign currency forward contracts to hedge exposure to variability in
expected fluctuations in foreign currencies. As of March 31, 2008, the Company had open contracts
in Australian and Canadian dollars, Danish krone, Euros, Mexican pesos, Norwegian kroner, Pounds
sterling, Swedish krona, Swiss francs and Japanese yen which have been designated as cash flow
hedges. These contracts had a notional amount of approximately $64,166 and a fair value of $67,345
and mature within the next twelve months.
As of March 31, 2008 and 2007, the Company recorded an unrecognized loss of $108 ($66 net of tax)
and an unrecognized gain of $619 ($377 net of tax), respectively, in AOCI within the Companys
Consolidated Balance Sheets related to all open foreign currency forward contracts on those
respective dates. Unrecognized gains and losses are expected to be credited to earnings over the
life of the maturing contracts as the hedged forecasted transaction occurs and it is expected that
those gains and losses will be offset by currency gains and losses on the items being hedged.
During Fiscal 2008, Fiscal 2007 and Fiscal 2006, the Company recognized gains of $299 ($181 net of
tax), $869 ($654 net of tax) and $865, respectively, on matured contracts. There was no hedge
ineffectiveness during Fiscal 2008, 2007 or 2006.
Interest-rate Swap:
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 interest-rate swap (interest-rate swap)
which has been used to effectively convert a portion of the Companys variable rate debt to fixed
rate. The interest-rate swap has a notional value of $100,000 reducing to $50,000 after three
years and does not qualify for hedge accounting. The Company recognizes gains/losses related to
the change in fair value of the interest-rate swap which is included in Interest expense (income)
within the Companys Consolidated Statements of Income. During Fiscal 2008 and Fiscal 2007, the
Company recognized losses of $4,576 and $1,734, respectively, related to the change in fair value
of the interest-rate swap. As of March 31, 2008 and 2007, the Company recorded a liability of
$6,311 and $1,734, respectively, related to the cumulative change in fair value of the interest-rate swap, on those respective dates, which is
a long-term liability recorded in Other liabilities within the Companys Consolidated Balance Sheets.
46
Note 9: Acquisitions
Fiscal 2008
During the fourth quarter of Fiscal 2008, the Company acquired BellSouth Communication Systems, LLC
d/b/a AT&T Communication Systems Southeasts (AT&T) NEC TDM voice CPE business line in AT&Ts
southeast region (AT&Ts southeast NEC TDM business). In connection with the acquisition of
AT&Ts southeast NEC TDM business, the Company has made a preliminary allocation to goodwill and
definite-lived intangible assets, respectively. These definite-lived intangible assets recorded
represent the estimated fair market value of acquired customer relationships which the Company
estimates are to be amortized over a period of eight years.
During the third quarter of Fiscal 2008, the Company acquired B & C Telephone, Inc. (B&C), a
privately-held company based out of Spokane, Washington. B&C has an active customer base which
includes commercial, financial, healthcare and various government agency accounts. In connection
with the B&C acquisition, the Company has made a preliminary allocation to goodwill and
definite-lived intangible assets, respectively. These definite-lived intangible assets recorded
represent the estimated fair market value of acquired customer relationships and non-compete
agreements which the Company estimates are to be amortized over a period of five to 20 years.
The acquisitions of B&C and AT&Ts southeast NEC TDM business, both individually and in the
aggregate, did not have a material impact on the Companys consolidated financial statements.
As disclosed above, the allocations of the purchase price for B&C and AT&Ts southeast NEC TDM
business are 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.
Fiscal 2007
During the fourth quarter of Fiscal 2007, the Company acquired ADS, a privately-held company based
out of Orlando, FL. ADS has an active customer base which includes commercial, financial,
healthcare and various government agency accounts. In connection with the ADS acquisition, the
Company made allocations to goodwill and definite-lived intangible assets. These definite-lived
intangible assets recorded represent the fair market value of acquired customer relationships and
non-compete agreements and are to be amortized over a period of five to 15 years.
During the third quarter of Fiscal 2007, the Company acquired NTI, a privately-held company based
out of Chicago, IL. In connection with the NTI acquisition, the Company made allocations to
goodwill and definite-lived intangible assets. These definite-lived intangible assets recorded
represent the fair market value of acquired customer relationships and are to be amortized over a
period of 10 years.
The acquisitions of ADS and NTI, both individually and in the aggregate, did not have a material
impact on the Companys consolidated financial statements.
During the first quarter of Fiscal 2007, the Company acquired NextiraOne. The following table
summarizes the value of the NextiraOne assets acquired and liabilities assumed at the date of
acquisition.
47
|
|
|
|
|
|
|
|
|
April 30, 2006 |
|
|
|
|
Current assets, primarily consisting of accounts receivable and inventories |
|
$ |
90,448 |
|
|
Property, plant and equipment |
|
|
9,996 |
|
|
Other non-current assets |
|
|
19,623 |
|
|
Intangible assets |
|
|
24,100 |
|
|
Goodwill |
|
|
73,995 |
|
|
|
|
|
|
|
Total assets acquired |
|
$ |
218,162 |
|
|
|
|
|
|
|
|
Current liabilities, primarily consisting of deferred revenue,
restructuring reserve and accrued expenses |
|
$ |
113,705 |
|
|
Other non-current liabilities, primarily consisting of restructuring reserve |
|
|
23,734 |
|
|
|
|
|
|
|
Total liabilities acquired |
|
$ |
137,439 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Net assets acquired |
|
$ |
80,723 |
|
|
|
The following table details the amounts recorded to each major intangible asset class:
|
|
|
|
|
|
|
|
|
April 30, 2006 |
|
|
|
|
Backlog |
|
$ |
6,700 |
|
|
Customer relationships and contracts |
|
|
17,400 |
|
|
|
|
|
|
|
Total intangible assets* |
|
$ |
24,100 |
|
|
|
* The estimated weighted average amortization period for these definite-lived assets is 12.5 years.
The Company paid a cash total of $80,723 for the outstanding interests in NextiraOne which included
certain amounts allocated to escrow accounts. As of March 31, 2008, the amount remaining in escrow
was $11,935. The amount in escrow has been and will continue to be released to NextiraOnes seller
or to the Company in accordance with the terms of the agreement. The transaction resulted in
$73,995 of goodwill, parts of which were and continue to be deductible for tax purposes (see Note
12 for further reference). The Company paid this premium for NextiraOne in order to further expand
its operational footprint in the voice and data technology markets. In addition, the purchase
increased the Companys solutions offerings, providing for a stronger worldwide technical services
partner for its collective clients.
After consummation of the acquisition, the Company began to integrate NextiraOne products,
employees and facilities with its own. In so doing, the Company incurred $15,760 of costs related
to facility consolidations and $10,766 of severance costs for the separation of approximately 300
employees. In accordance with SFAS No. 141, Business Combinations (SFAS 141), these costs were
properly included in the purchase price allocation for NextiraOne. The majority of the severance
costs were paid in Fiscal 2007 with certain facility costs extending through Fiscal 2014.
Also, during the first quarter of Fiscal 2007, the Company acquired NUVT. In connection with the
NUVT acquisition, the Company allocated $15,058 to goodwill, parts of which were and continue to be
deductible for tax purposes (see Note 12 for further reference) and $18,601 to definite-lived
intangible assets. These definite-lived intangible assets recorded represent the fair market value
of acquired backlog, customer relationships and non-compete agreements and are to be amortized over
a period of one to 20 years.
NextiraOne and NUVT contributed On-Site services revenues of $242,251 and $57,629, respectively,
during Fiscal 2007.
The following unaudited pro-forma summary presents the Companys results of operations as if the
acquisitions of NextiraOne and NUVT had occurred on April 1, 2005 and does not purport to represent
what the Companys results of operations would have been had these acquisitions occurred on such
date or at the beginning of the period indicated, or to project the Companys results of operations
for any future date or period or to be a fair reflection of the assets purchased at the date of
acquisition. As noted above, the acquisitions of ADS and NTI, taken individually, did not have a
material impact on the Companys consolidated financial statements, thus each of those acquisitions
is excluded from the following pro-forma summary. The pro-forma results of operations exclude the
impact of nonrecurring or extraordinary adjustments, together with related income tax effects.
These pro-forma results of operations do not include the effects of cost synergies and one-time
nonrecurring transactions associated with these acquisitions.
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
|
|
2007 |
|
|
2006 |
|
|
|
|
Revenue (Pro-forma) |
|
$ |
1,046,956 |
|
|
$ |
1,230,106 |
|
|
Net income from continuing operations (Pro-forma), net of tax |
|
$ |
33,809 |
|
|
$ |
35,886 |
|
|
Earnings per common share (Pro-forma) |
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
1.93 |
|
|
$ |
2.09 |
|
|
Diluted |
|
$ |
1.90 |
|
|
$ |
2.05 |
|
|
|
48
Fiscal 2006
During the third quarter of Fiscal 2006, the Company purchased 100% of the issued and outstanding
equity interests of Communication is World InterActive Networking, Inc. (C=WIN) and Converged
Solutions Group, LLC (CSG). C=WIN has an active customer base which includes commercial and
various government agency accounts. CSG has an active customer base which includes commercial,
education, health care and various government agency accounts. The C=WIN and CSG acquisitions
primarily provide planning, installation and maintenance services for voice and data network
systems in 15 states. In connection with these acquisitions, the Company allocated $6,167 and
$9,620 to goodwill and definite-lived intangible assets, respectively. These definite-lived
intangible assets recorded represent the fair market value of acquired customer relationships and
non-compete agreements and are to be amortized over a period of four to twenty years.
During the second quarter of Fiscal 2006, the Company acquired substantially all of the assets and
certain liabilities of Universal Solutions of North America, L.L.C. and related entities
(Universal). Universal primarily provides planning, installation and maintenance services for
voice and data network systems in 14 states. In connection with the Universal acquisition, the
Company allocated $9,498 and $8,000 to goodwill and definite-lived intangible assets, respectively.
These definite-lived intangible assets recorded represent the fair market value of acquired
customer relationships and non-compete agreements and are to be amortized over a period of five to
eight years.
During the first quarter of Fiscal 2006, the Company acquired 100% of the issued and outstanding
equity interests of Telecommunication Systems Management, Inc. (TSM), GTC Technology Group, Inc.
and Technology Supply, Inc. (collectively referred to as GTC) and Business Communications, Inc.,
Bainbridge Communication, Inc., BCI of Tampa, LLC and Networx, L.L.C. (collectively referred to as
BCI). These companies primarily provide full-service voice communication solutions and services
in the Florida and Virginia markets. In connection with these acquisitions, the Company allocated
$8,385 and $5,846 to goodwill and definite-lived intangible assets, respectively. These
definite-lived intangible assets recorded represent the fair market value of acquired customer
relationships and non-compete agreements and are to be amortized over a period of five to 20 years.
The acquisitions of C=WIN, CSG, Universal, TSM, GTC and BCI, both individually and in the
aggregate, did not have a material impact on the Companys consolidated financial statements.
The results of operations for all acquisitions noted above are included within the Companys
Consolidated Statements of Income beginning on their respective acquisition dates. The costs of
the acquisitions were funded with internally-generated funds and borrowings under the Credit
Agreement and New Credit Agreement (see Note 7).
Note 10: Restructuring
Fiscal 2008
As a result of the acquisition of NextiraOne during the first quarter of Fiscal 2007, the Company
incurred costs related to facility consolidations, such as idle facility rent obligations and the
write-off of leasehold improvements, and costs related to employee severance 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.
Fiscal 2007
In connection with the acquisition of NextiraOne during the first quarter of Fiscal 2007, the
Company committed to a plan of reorganization of NextiraOnes operations. In so doing, the Company
incurred $15,760 of costs related to facility consolidations and $10,766 of severance costs for the
separation of approximately 300 employees. In accordance with SFAS 141, these costs were properly
included in the purchase price allocation for NextiraOne.
Fiscal 2006
In connection with a restructuring initiated during the fourth quarter of Fiscal 2005, the Company
incurred $5,290 of costs related to staffing level adjustments and real estate consolidation in
Europe and North America.
All restructuring charges noted above have been recorded in Selling, general & administrative
expenses within the Companys Consolidated Statements of Income. Employee severance is generally
payable within twelve months from incurrence with certain facility costs extending through Fiscal
2014.
49
The following table summarizes the changes to the restructuring reserve for the periods presented:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Employee |
|
|
|
|
|
|
|
|
|
|
Severance |
|
|
Facility Closures |
|
|
Total |
|
|
|
|
Balance at March 31, 2006 |
|
$ |
260 |
|
|
$ |
10,438 |
|
|
$ |
10,698 |
|
|
Acquisition adjustments (see Note 9) |
|
|
10,766 |
|
|
|
16,268 |
|
|
|
27,034 |
|
|
Asset write-downs |
|
|
|
|
|
|
(391) |
|
|
|
(391) |
|
|
Cash expenditures |
|
|
(8,020) |
|
|
|
(9,893) |
|
|
|
(17,913) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2007 |
|
$ |
3,006 |
|
|
$ |
16,422 |
|
|
$ |
19,428 |
|
|
Restructuring charge |
|
|
5,628 |
|
|
|
1,220 |
|
|
|
6,848 |
|
|
Asset write-downs |
|
|
|
|
|
|
(411) |
|
|
|
(411) |
|
|
Cash expenditures |
|
|
(6,196) |
|
|
|
(7,077) |
|
|
|
(13,273) |
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008 |
|
$ |
2,438 |
|
|
$ |
10,154 |
|
|
$ |
12,592 |
|
|
|
Of the $12,592 above, $8,000 is classified as a current liability under Other liabilities on the
Companys Consolidated Balance Sheets for the period ended March 31, 2008.
Note 11: Operating Leases
The Company leases offices, facilities, equipment and vehicles throughout the world. While most of
the leases are operating leases that expire over the next 8 years, certain vehicles and equipment
are leased under capital leases that expire over the next 5 years. As leases expire, it can be
expected that, in the normal course of business, certain leases will be renewed or replaced.
Certain lease agreements include renewal options and escalating rents over the lease terms.
Generally, the Company expenses rent on a straight-line basis over the life of the lease which
commences on the date the Company has the right to control the property. The cumulative expense
recognized on a straight-line basis in excess of the cumulative payments is included in Accrued
expenses and Other liabilities within the Companys Consolidated Balance Sheets. Rent expense was
$26,833, $23,381 and $16,059 for Fiscal 2008, Fiscal 2007 and Fiscal 2006, respectively.
The future minimum lease payments under non-cancelable capital and operating leases with initial or
remaining terms of one year or more as of March 31, 2008 are as follows:
|
|
|
|
|
|
|
Fiscal |
|
|
|
|
|
|
|
2009 |
|
$ |
24,892 |
|
|
2010 |
|
|
15,919 |
|
|
2011 |
|
|
11,583 |
|
|
2012 |
|
|
7,584 |
|
|
2013 |
|
|
2,309 |
|
|
Thereafter |
|
|
2,860 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Total minimum lease payments |
|
$ |
65,147 |
|
|
|
In connection with the NextiraOne acquisition during the first quarter of Fiscal 2007, the Company
obtained various contractual obligations in the form of operating leases for facilities and
vehicles of approximately $35,120 at the acquisition date. The remaining balance for those
contractual obligations is included within the total minimum lease payments provided above.
Note 12: Income Taxes
The domestic and foreign components of Income before provision of income taxes are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Domestic |
|
$ |
31,767 |
|
|
$ |
27,523 |
|
|
$ |
29,186 |
|
|
Foreign |
|
|
31,764 |
|
|
|
27,377 |
|
|
|
16,805 |
|
|
|
|
|
|
|
|
|
|
|
|
|
Consolidated |
|
$ |
63,531 |
|
|
$ |
54,900 |
|
|
$ |
45,991 |
|
|
|
50
The provision/(benefit) for income taxes consists of the following:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Current: |
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal |
|
$ |
10,205 |
|
|
$ |
12,598 |
|
|
$ |
11,506 |
|
|
State |
|
|
1,914 |
|
|
|
1,363 |
|
|
|
1,230 |
|
|
Foreign |
|
|
6,585 |
|
|
|
4,384 |
|
|
|
5,038 |
|
|
|
|
|
|
|
|
|
|
Total current |
|
|
18,704 |
|
|
|
18,345 |
|
|
|
17,774 |
|
|
Deferred |
|
|
5,594 |
|
|
|
946 |
|
|
|
(2,553) |
|
|
|
|
|
|
|
|
|
|
Total provision for income taxes |
|
$ |
24,298 |
|
|
$ |
19,291 |
|
|
$ |
15,221 |
|
|
|
Reconciliations between income taxes computed using the federal statutory income tax rate and the
Companys effective tax rate are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Federal statutory tax rate |
|
|
35.0% |
|
|
|
35.0% |
|
|
|
35.0% |
|
|
Foreign taxes, net of foreign tax credits |
|
|
(1.8) |
|
|
|
(1.3) |
|
|
|
|
|
|
Effect of permanent book / tax differences |
|
|
(0.4) |
|
|
|
(0.1) |
|
|
|
2.7 |
|
|
State income taxes, net of federal benefit |
|
|
2.4 |
|
|
|
1.8 |
|
|
|
(0.2) |
|
|
Valuation allowance |
|
|
1.4 |
|
|
|
0.9 |
|
|
|
(3.1) |
|
|
Other, net |
|
|
1.6 |
|
|
|
(1.2) |
|
|
|
(1.3) |
|
|
|
|
|
|
|
|
|
|
Effective tax rate |
|
|
38.2% |
|
|
|
35.1% |
|
|
|
33.1% |
|
|
|
The components of current and long-term deferred tax liabilities/assets are as follows:
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
|
2008 |
|
|
2007 |
|
|
|
|
Deferred Tax Liabilities: |
|
|
|
|
|
|
|
|
|
Tradename and trademarks |
|
$ |
10,140 |
|
|
$ |
10,035 |
|
|
Amortization of intangibles |
|
|
14,107 |
|
|
|
11,244 |
|
|
Unremitted earnings of foreign subsidiaries |
|
|
3,460 |
|
|
|
3,080 |
|
|
Basis of fixed assets |
|
|
|
|
|
|
2 |
|
|
Other |
|
|
82 |
|
|
|
|
|
|
Other prepaid items |
|
|
298 |
|
|
|
341 |
|
|
|
|
|
|
|
|
Gross deferred tax liabilities |
|
|
28,087 |
|
|
|
24,702 |
|
|
|
|
|
|
|
|
|
|
|
|
Deferred Tax Assets: |
|
|
|
|
|
|
|
|
|
Net operating losses |
|
|
11,741 |
|
|
|
17,172 |
|
|
Restructuring reserves |
|
|
6,039 |
|
|
|
13,533 |
|
|
Basis of fixed assets |
|
|
493 |
|
|
|
|
|
|
Outsourced leases |
|
|
230 |
|
|
|
22 |
|
|
Basis of finished goods inventory |
|
|
8,359 |
|
|
|
9,515 |
|
|
Reserve for bad debts |
|
|
4,608 |
|
|
|
5,452 |
|
|
Miscellaneous accrued expenses |
|
|
6,086 |
|
|
|
3,452 |
|
|
Foreign tax credit carry-forwards |
|
|
2,569 |
|
|
|
2,569 |
|
|
Accrued employee costs |
|
|
1,521 |
|
|
|
767 |
|
|
Foreign exchange |
|
|
47 |
|
|
|
438 |
|
|
Unexercised stock options |
|
|
9,723 |
|
|
|
17,285 |
|
|
|
|
|
|
|
|
Gross deferred tax assets |
|
|
51,416 |
|
|
|
70,205 |
|
|
Valuation allowance |
|
|
(2,373) |
|
|
|
(1,460) |
|
|
|
|
|
|
|
|
Net deferred tax assets |
|
|
49,043 |
|
|
|
68,745 |
|
|
|
|
|
|
|
|
|
Net deferred tax assets/(liabilities) |
|
$ |
20,956 |
|
|
$ |
44,043 |
|
|
|
51
At March 31, 2008, the Company had $1,295, $76,744 and $21,914 of federal, state and foreign gross
net operating loss carry-forwards, respectively. As a result of the Companys reorganization in
1992 and concurrent ownership change and the Companys acquisition of Norstan Inc., Section 382 of
the Internal Revenue Code of 1986, as amended (the Code) limits the amount of net operating
losses available to the Company to approximately $3,565 per year. The federal gross net operating
loss carry-forwards expire in Fiscal 2021. The state gross net operating loss carry-forwards expire
at various times through Fiscal 2028 and the foreign gross net operating loss carry-forwards expire
at various times through Fiscal 2018, with the exception of $350 for Austria, $35 for Belgium,
$9,662 for Brazil and $1,745 for France, which have no expirations.
A valuation allowance is provided when it is more likely than not that some portion or all of the
deferred tax assets will not be realized. The Company has recorded a valuation allowance of $2,373
for certain state and foreign net operating loss carry-forwards anticipated to produce no tax
benefit. The valuation allowance was increased in Fiscal 2008 by $913 in order to reflect the
inability to use certain foreign net operating loss carry-forwards.
In connection with the acquisitions of NextiraOne, NUVT, NTI and ADS during Fiscal 2007, the
Company acquired approximately $96,000 of goodwill. The Company believes that $65,549 will be
recognized as a tax deduction over the next 15 years. In addition, the Company recorded
approximately $19,197 of deferred tax assets related to purchase accounting.
In general, except for certain earnings in Japan and earnings associated with inter-company loan
balances, it is the Companys intention to reinvest all undistributed earnings of non-U.S.
subsidiaries for an indefinite period of time. Therefore, except for the exceptions noted above,
no deferred U.S. income taxes have been provided on undistributed earnings of non-U.S.
subsidiaries, which aggregate approximately $14,778 based on exchange rates at March 31, 2008.
However, additional taxes could be necessary if future foreign earnings were loaned to the parent,
if the foreign subsidiaries declare dividends to the U.S. parent or the Company should sell its
stock in the subsidiaries.
As discussed in Note 2, the Company adopted FIN 48 on April 1, 2007. As a result of the adoption of
FIN 48, the Company recorded a $5,110 reduction to the beginning balance of Retained earnings
representing the cumulative effect of a change in accounting principle, an increase to current
liabilities of $3,656 recorded within Income taxes and a decrease to non-current assets of $1,454
recorded within Other assets, each of which is reflected within the Companys Consolidated Balance
Sheets. As of March 31, 2008 and April 1, 2007, the gross liability for income taxes associated
with uncertain tax positions was $7,340 and $6,974, respectively. If the uncertain tax positions
are recognized, they would all favorably affect the Companys effective tax rate. The Company
includes interest and penalties related to uncertain tax positions within the Provision for income
taxes within the Companys Consolidated Statements of Income. As of March 31, 2008 and April 1,
2007, the Company recorded $1,131 and $806, respectively, of interest and penalties related to
uncertain tax positions relating to current liabilities within Income taxes.
A reconciliation of the change in the tax liability for unrecognized tax benefits from April 1,
2007 to March 31, 2008 is as follows:
|
|
|
|
|
|
|
|
|
Balance at April 1, 2007 |
|
$ |
6,974 |
|
|
Additions for tax positions related to the current year |
|
|
90 |
|
|
Additions for tax positions related to prior years |
|
|
362 |
|
|
Reductions for tax positions related to prior years |
|
|
(86) |
|
|
Settlements |
|
|
|
|
|
|
|
|
|
Balance at March 31, 2008 |
|
$ |
7,340 |
|
|
|
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. The IRS has not yet proposed any
adjustment to the Companys filing position in connection with this examination. Upon completion
of this examination, it is reasonably possible that the total amount of recognized and unrecognized
benefits may change. Any adjustment to the unrecognized tax benefits would impact the effective
tax rate. The Company cannot make an estimate of the impact on the effective rate for any
potential adjustment at this time.
Fiscal 2007 remains open to examination by the IRS. Fiscal 2004 through Fiscal 2007 remain open to
examination by state and foreign taxing jurisdictions.
Note 13: Incentive Compensation Plans
Performance Bonus
The Company has variable compensation plans covering certain team members. These plans provide a
bonus contingent on the attainment of certain annual or quarterly performance targets. The Company
recorded expense of $5,689, $4,562 and $5,431 under its variable compensation plans for Fiscal
2008, Fiscal 2007 and Fiscal 2006, respectively.
52
Profit Sharing and Savings Plan (the savings plans)
The Company has multiple profit sharing and savings plans which qualify as deferred salary
arrangements under Section 401(k) of the Code. Participants may elect to contribute a portion of
their eligible compensation, subject to limits imposed by the savings plans, which are partially matched by the Company. The Company recorded expense of $3,290, $3,569
and $3,532 for these plans during Fiscal 2008, Fiscal 2007 and Fiscal 2006, respectively.
Stock-Based Compensation
The Company has two stock option plans, the 1992 Stock Option Plan, as amended (the Employee
Plan), and the 1992 Director Stock Option Plan, as amended (the Director Plan). As of March 31,
2008, the Employee Plan is authorized to issue stock options and stock appreciation rights (SARs)
for up to 9,200,000 shares of common stock. The Employee Plan provides that stock options are to
be granted by a committee appointed by the Board of Directors of the Company (the Board) to
employees of the Company; such stock options generally become exercisable in equal amounts over a
three-year period. As of March 31, 2008, the Director Plan is authorized to issue stock options
and SARs for up to 270,000 shares of common stock. The Director Plan provides that stock options
are to be granted by the Board or a committee appointed by the Board; such options generally become
exercisable in equal amounts over a three-year period. No SARs have been issued under either plan.
The Company recognized stock-based compensation expense of $3,468 ($2,142 net of tax) or $0.12 per
diluted share, $9,308 ($6,050 net of tax) or $0.34 per diluted share and $11,045 ($7,234 net of
tax) or $0.41 per diluted share during Fiscal 2008, Fiscal 2007 and Fiscal 2006, respectively.
Included in stock-based compensation expense for Fiscal 2008 is $250 which resulted from the
previously-disclosed tender offer regarding certain Affected Stock Option Grants (as defined
below), the details of which are described below. Stock-based compensation expense is recorded in
Selling, general & administrative expense within the Companys Consolidated Statements of Income.
The following table summarizes the Companys stock option activity for the periods presented.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
Weighted- |
|
|
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
Average |
|
|
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
Exercise |
|
|
|
|
|
|
|
|
Price (per |
|
|
|
|
|
|
Price (per |
|
|
|
|
|
|
Price (per |
|
|
Shares in thousands |
|
Shares |
|
|
share) |
|
|
Shares |
|
|
share) |
|
|
Shares |
|
|
share) |
|
|
|
|
Outstanding at beginning of period |
|
|
4,621 |
|
|
$ |
38.66 |
|
|
|
5,055 |
|
|
$ |
38.28 |
|
|
|
4,780 |
|
|
$ |
37.14 |
|
|
Granted |
|
|
627 |
|
|
|
40.13 |
|
|
|
70 |
|
|
|
39.12 |
|
|
|
1,256 |
|
|
|
38.51 |
|
|
Exercised |
|
|
(179) |
|
|
|
32.81 |
|
|
|
(435) |
|
|
|
34.42 |
|
|
|
(753) |
|
|
|
30.95 |
|
|
Forfeited or expired |
|
|
(2,485) |
|
|
|
38.17 |
|
|
|
(69) |
|
|
|
38.71 |
|
|
|
(228) |
|
|
|
39.84 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Outstanding at end of period |
|
|
2,584 |
|
|
$ |
40.27 |
|
|
|
4,621 |
|
|
$ |
38.66 |
|
|
|
5,055 |
|
|
$ |
38.28 |
|
|
Exercisable at end of period |
|
|
2,499 |
|
|
$ |
40.39 |
|
|
|
4,131 |
|
|
$ |
39.12 |
|
|
|
4,247 |
|
|
$ |
39.07 |
|
|
Weighted average fair value of
options granted during the period |
|
|
|
|
|
$ |
7.70 |
|
|
|
|
|
|
$ |
17.88 |
|
|
|
|
|
|
$ |
22.79 |
|
|
|
The total intrinsic value of options exercised during Fiscal 2008, Fiscal 2007 and Fiscal 2006 was
$1,395, $3,597 and $10,931, respectively. The weighted average fair value of stock options granted
during Fiscal 2008, Fiscal 2007 and Fiscal 2006 were based on the Black-Scholes option pricing
model using the following weighted average assumptions. The Company granted 627 shares during
Fiscal 2008 which resulted from the previously-disclosed tender offer (described below). See below
for reference to the Companys valuation methodologies for these grants.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Expected life (in years) |
|
|
3.8 |
|
|
|
5.7 |
|
|
|
5.6 |
|
|
Risk free interest-rate |
|
|
4.0% |
|
|
|
4.2% |
|
|
|
4.2% |
|
|
Annual forfeiture rate |
|
|
0.0% |
|
|
|
1.5% |
|
|
|
N/A |
|
|
Volatility |
|
|
29.4% |
|
|
|
45.5% |
|
|
|
49.0% |
|
|
Dividend yield |
|
|
0.6% |
|
|
|
0.6% |
|
|
|
0.6% |
|
|
|
53
The following table summarizes certain information regarding the Companys non-vested shares as of
and for the period ending March 31, 2008 and 2007.
|
|
|
|
|
|
|
|
|
|
|
|
|
Number of |
|
|
Weighted- |
|
|
|
|
Shares (in |
|
|
Average Grant- |
|
|
|
|
000s) |
|
|
Date Fair Value |
|
|
|
|
Non-vested as of March 31, 2006 |
|
|
808 |
|
|
$ |
19.59 |
|
|
Granted |
|
|
65 |
|
|
|
17.82 |
|
|
Forfeited |
|
|
(366) |
|
|
|
19.69 |
|
|
Vested |
|
|
(17) |
|
|
|
20.87 |
|
|
|
|
|
|
|
|
|
Non-vested as of March 31, 2007 |
|
|
490 |
|
|
|
19.29 |
|
|
Granted |
|
|
|
|
|
|
|
|
|
Forfeited |
|
|
(308) |
|
|
|
20.08 |
|
|
Vested |
|
|
(97) |
|
|
|
17.60 |
|
|
|
|
|
|
|
|
|
Non-vested as of March 31, 2008 |
|
|
85 |
|
|
|
18.35 |
|
|
|
Remedial Measures
The Audit Committee of the Board (the Audit Committee) has now completed its previously-disclosed
independent review of the Companys historical stock option granting practices. See the
Explanatory Note preceding Part I, Item 1 of the Companys Annual Report on Form 10-K for the
fiscal year ended March 31, 2007 for more information regarding the Audit Committees review and
related matters. In light of the findings of its review, the Audit Committee recommended to the
Board, and the Board adopted, enhancements to the Companys corporate record-keeping and stock
option granting procedures. In advance of this action by the Audit Committee and the Board, the
Company had implemented additional procedures to its process for approving stock option grants that
are focused on formalized documentation of appropriate approvals and determination of grant terms
to employees.
The Audit Committees review included an evaluation of the role of current and former Company
personnel in identified problems during the period from 1992 to the present (the Review Period),
and the Audit Committees consideration of remedial actions has included and will continue to
include a review of claims that have been or may be asserted against such current or former Company
personnel as well as other remedial actions that may be appropriate under all circumstances. As
previously reported, based on the findings of the Audit Committee as to Fred C. Young, the
Companys former Chief Executive Officer who resigned on May 20, 2007, the Audit Committee
concluded and recommended to the Board, and the Board determined, that Mr. Young could have been
terminated due to Cause for Termination (as defined in his agreement dated May 11, 2004) at the
time Mr. Young resigned as a director and as an officer of the Company on May 20, 2007. In light
of that determination and the terms of the agreements with Mr. Young, all outstanding stock options
held by Mr. Young (1,455,402 shares) terminated as of the date of his resignation, which occurred
during the first quarter of Fiscal 2008. Accordingly, the Company has determined that the
consequences of these events should be considered a first quarter of Fiscal 2008 event for
accounting purposes. These events had the following impacts on the Companys consolidated financial
statements and related notes for Fiscal 2008: (1) a decrease in outstanding stock options of
1,455,402, (2) immaterial impact on the Diluted earnings per common share computation, (3) a
decrease in deferred tax assets of $6,252 with the offsetting entry of $5,514 to Additional paid-in
capital and (4) additional tax expense impact of approximately $738.
The following table summarizes certain information regarding the Companys outstanding stock
options at March 31, 2008:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options Outstanding |
|
|
Options Exercisable |
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted |
|
|
|
|
|
|
|
|
|
|
Shares |
|
|
Average |
|
|
Weighted |
|
|
Average |
|
|
Shares |
|
|
Average |
|
|
Weighted |
|
|
Average |
|
|
|
|
Out- |
|
|
Remaining |
|
|
Average |
|
|
Intrinsic |
|
|
Exer- |
|
|
Remaining |
|
|
Average |
|
|
Intrinsic |
|
|
Range of |
|
standing |
|
|
Contractual |
|
|
Exercise |
|
|
Value |
|
|
cisable |
|
|
Contractual |
|
|
Exercise |
|
|
Value |
|
|
Exercise Prices |
|
(000s) |
|
|
Life (Years) |
|
|
Price |
|
|
(000s) |
|
|
(000s) |
|
|
Life (Years) |
|
|
Price |
|
|
(000s) |
|
|
|
|
$19.95 - $26.60 |
|
|
2 |
|
|
|
0.5 |
|
|
|
$ 21.94 |
|
|
|
$ 21 |
|
|
|
2 |
|
|
|
0.5 |
|
|
|
$ 21.94 |
|
|
|
$ 21 |
|
|
$26.60 - $33.25 |
|
|
46 |
|
|
|
3.9 |
|
|
|
29.85 |
|
|
|
55 |
|
|
|
46 |
|
|
|
3.9 |
|
|
|
29.85 |
|
|
|
55 |
|
|
$33.25 - $39.90 |
|
|
1,220 |
|
|
|
7.3 |
|
|
|
38.02 |
|
|
|
|
|
|
|
1,135 |
|
|
|
7.3 |
|
|
|
38.09 |
|
|
|
|
|
|
$39.90 - $46.55 |
|
|
1,273 |
|
|
|
3.8 |
|
|
|
42.39 |
|
|
|
|
|
|
|
1,273 |
|
|
|
3.8 |
|
|
|
42.39 |
|
|
|
|
|
|
$46.55 - $53.20 |
|
|
24 |
|
|
|
2.3 |
|
|
|
50.69 |
|
|
|
|
|
|
|
24 |
|
|
|
2.3 |
|
|
|
50.69 |
|
|
|
|
|
|
$53.20 - $59.85 |
|
|
17 |
|
|
|
2.1 |
|
|
|
58.15 |
|
|
|
|
|
|
|
17 |
|
|
|
2.1 |
|
|
|
58.15 |
|
|
|
|
|
|
$59.85 - $66.50 |
|
|
2 |
|
|
|
1.8 |
|
|
|
63.22 |
|
|
|
|
|
|
|
2 |
|
|
|
1.8 |
|
|
|
63.22 |
|
|
|
|
|
|
|
|
|
|
|
|
$19.95 - $66.50 |
|
|
2,584 |
|
|
|
5.4 |
|
|
|
$ 40.27 |
|
|
|
$ 76 |
|
|
|
2,499 |
|
|
|
5.3 |
|
|
|
$ 40.39 |
|
|
|
$ 76 |
|
|
|
54
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 March 31, 2008 of $30.75, which would have been received by the option holders had
all option holders exercised their options as of that date. As of March 31, 2008, there was
approximately $581 of total unrecognized pre-tax compensation expense related to non-vested stock
options granted under the plans which is expected to be recognized over a weighted average period
of 1.5 years.
Section 409A Remedial Measures and Other Potential Section 409A Payments
Following the completion of the Audit Committees independent review of the Companys historical
stock option granting practices, the Company determined that certain stock option grants which were
originally issued with exercise prices that were below fair market value for income tax purposes,
which vested or may vest after December 31, 2004 and which remained outstanding (i.e., unexercised)
as of December 31, 2005, were subject to adverse income taxation under Section 409A of the Code
(Section 409A). For purposes of this Annual Report on Form 10-K for the fiscal year ended March
31, 2008, these below-fair market value stock option grants are referred to as Affected Stock
Option Grants. Under Section 409A, individuals who hold Affected Stock Option Grants may be
subject to a 20% federal income tax and an interest penalty tax, in addition to the regular income
tax liability, plus interest on the value of these stock option grants at the time of vesting (not
exercise).
During the third quarter of Fiscal 2008, the Company conducted a tender offer to current
non-officer employees subject to taxation in the United States who held Affected Stock Option
Grants that afforded those employees the opportunity to avoid unfavorable tax consequences under
Section 409A. The provisions of the tender offer amended each Affected Stock Option Grant to
increase the original exercise price to the lower of: (i) the fair market value of the common stock
on the corrected measurement date (as determined for tax purposes) or (ii) the fair market value of
the common stock on the trading day immediately following the expiration of the tender offer
(December 19, 2007), provided that the new exercise price was in no event lower than the original
exercise price of the stock option grant. Additionally, and as part of the tender offer, the
Company offered current non-officer employees the right to receive a cash payment equal to the
increase, if any, in the exercise price of any Affected Stock Option Grant.
In instances where the original exercise price of a stock option grant was less than the new
exercise price (as determined above), the Company increased the original exercise price to the new
exercise price (an Amended Stock Option Grant) and paid a cash bonus to the employee. The total
cash bonus due to employees was $456 which was paid during January, 2008. The Company accounted
for the impact of the Amended Stock Option Grant as a stock option modification under SFAS 123(R).
As a result of the modification and the partial cash settlement, the Company recognized $250 of
additional stock-based compensation expense due to the increase in the fair market value of these
stock option grants that is recorded in Selling, general & administrative expense within the
Companys Consolidated Statements of Income.
In instances where the current exercise price of a stock option grant was greater than the new
exercise price, the original stock option grant was canceled and immediately replaced with a new
stock option grant under the Employee Plan that has the same terms as the canceled stock option
grant, including the same exercise price per share and no loss of vesting or change to the
expiration date of the stock option grant term, but with a new grant date (a Cancellation and New
Stock Option Grant). Each Cancellation and New Stock Option Grant qualifies as a cancellation of
an award accompanied by the concurrent grant of a replacement award, as defined in SFAS 123(R),
which is accounted for as a modification. Under SFAS 123(R), incremental compensation cost is
measured as the excess, if any, of the fair market value of the modified award over the fair market
value of the original award immediately before its terms are modified. With respect to the
Cancellation and New Stock Option Grants, there were no changes to any of the terms of the original
Affected Stock Option Grants. Thus, the Company recorded $0 of non-cash stock-based compensation
expense for these grants.
During the fourth quarter of Fiscal 2008, the Board approved a separate offer (the Separate
Offer) for R. Terry Blakemore, a director and the current President and Chief Executive Officer of
the Company, that was intended to remedy the tax consequences under Section 409A attributable to
Affected Stock Option Grants to purchase 60,000 shares of common stock held by Mr. Blakemore.
These Affected Stock Option Grants were awarded prior to Mr. Blakemore becoming an Executive
Officer of the Company. The provisions of the Separate Offer were identical to the tender offer
for current non-officer employees described above. The fair market value of the common stock on
the trading day immediately following the expiration of the Separate Offer was lower than the
original exercise price of these Affected Stock Option Grants and, as a result, the original
Affected Stock Option Grants were canceled and immediately replaced with new stock option grants
under the Employee Plan that had the same terms as the canceled stock option grants (the Separate
Offer Cancellation and New Stock Option Grants). Consistent with our accounting treatment for the
Cancellation and New Stock Option Grants noted above, the Company accounted for the Separate Offer
Cancellation and New Stock Option Grants as modifications under SFAS 123(R). With respect to the
Separate Offer Cancellation and New Stock Option Grants, there were no changes to any of the terms
of the original Affected Stock Option Grants. Thus, the Company recorded $0 of non-cash
stock-based compensation expense for these grants.
55
With respect to certain employees who exercised Affected Stock Options Grants during calendar year
2007, the Company made a bonus payment (Calendar 2007 bonus payment) to such employees in
calendar year 2008 in an aggregate amount of $313. The Calendar 2007 bonus payment includes
amounts to compensate the employee for the additional Section 409A taxes that they will be required
to pay as well as an amount to gross-up such amount for the additional income and payroll taxes
owed on such payments. The Calendar 2007 bonus payment was paid and is recorded in Selling,
general & administrative expense within the Companys Consolidated Statements of Income.
With respect to certain employees who exercised Affected Stock Options Grants during calendar year
2006, the Company intends to submit a cash payment (Calendar 2006 cash payment) directly to the
IRS in an aggregate amount of $726. The Calendar 2006 cash payment includes any applicable Section
409A additional taxes as well as an amount to gross up such amount for the additional income and
payroll taxes owed on such payments. The Calendar 2006 cash payment is recorded in Selling,
general & administrative expense within the Companys Consolidated Statements of Income and in
Accrued compensation and benefits within the Companys Consolidated Balance Sheets as of and for
the period ending March 31, 2008.
Pro-forma Information
The Company adopted SFAS 123(R) using the modified prospective transition method. The modified
prospective transition method requires the Company to provide pro-forma disclosure of specific
income statement line items for periods prior to the adoption of SFAS 123(R) as if the
fair-value-based method had been applied to all awards. The following table illustrates the
pro-forma effect on Net income (loss) and basic and diluted EPS prior to the adoption of SFAS
123(R). This table only shows pro-forma amounts for Fiscal 2006 since the Company adopted the fair
value recognition provisions of SFAS 123(R) on April 1, 2006 and, therefore, compensation expenses
for share-based payments granted prior to, but not yet vested as of, March 31, 2006, as well as
share-based payments granted subsequent to April 1, 2006, are recognized in the Companys
Consolidated Statements of Income. Per share amounts may not total due to rounding. The pro-forma
effects were based on the Black-Scholes option pricing model using the weighted average assumptions
disclosed above.
|
|
|
|
|
|
|
|
|
Fiscal 2006 |
|
|
|
Net income As reported |
|
$ |
30,770 |
|
|
Plus: Stock-based compensation expense included in reported net income, net of related tax |
|
|
11,045 |
|
|
Less: Stock-based compensation expense determined by the fair value method for all awards,
net of related tax |
|
|
(43,420) |
|
|
|
|
|
|
Net (Loss) Pro-forma |
|
$ |
(1,605) |
|
|
|
|
|
|
|
|
Earnings per common share |
|
|
|
|
|
Basic as reported |
|
$ |
1.79 |
|
|
Basic pro-forma |
|
$ |
(0.09) |
|
|
|
|
|
|
|
|
Diluted as reported |
|
$ |
1.75 |
|
|
Diluted pro-forma |
|
$ |
(0.09) |
|
|
On October 31, 2005, in response to the issuance of SFAS 123(R), the Compensation Committee (the
Compensation Committee) of the Board authorized the acceleration of the vesting of all of the
Companys outstanding out-of-the-money unvested stock options held by current employees, including
officers and directors. Approximately 405,224 options that would otherwise have vested from time
to time over the next three years became immediately exercisable. Such stock options had an
exercise price greater than $39.77, the approximate fair market value of the common stock on
October 31, 2005. The accelerated vesting of these options increased the pro-forma compensation
expense for the three months ended December 31, 2005 by approximately $4,217, net of tax.
Additionally on October 31, 2005, the Company issued options to purchase approximately 989,700
shares of common stock which were granted fully vested, the effect of which increased the pro-forma
compensation expense for Fiscal 2006 by approximately $14,656, net of tax.
56
Note 14: Earnings Per Share
The following table details the computation of basic and diluted earnings per common share from
continuing operations:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Net income, as reported |
|
$ |
39,233 |
|
|
$ |
35,609 |
|
|
$ |
30,770 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (basic) |
|
|
17,605 |
|
|
|
17,512 |
|
|
|
17,164 |
|
Effect of dilutive securities from employee stock options |
|
|
48 |
|
|
|
296 |
|
|
|
380 |
|
|
|
|
|
|
|
|
Weighted average common shares outstanding (diluted) |
|
|
17,653 |
|
|
|
17,808 |
|
|
|
17,544 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic earnings per common share |
|
$ |
2.23 |
|
|
$ |
2.03 |
|
|
$ |
1.79 |
|
Dilutive earnings per common share |
|
$ |
2.22 |
|
|
$ |
2.00 |
|
|
$ |
1.75 |
|
|
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 2,097,558, 1,246,215 and 1,287,219 non-dilutive stock options outstanding during Fiscal 2008,
Fiscal 2007 and Fiscal 2006, respectively, that are not included in the corresponding period
Weighted average common shares outstanding (diluted) computation.
Note 15: Repurchase of Common Stock
Fiscal 2008 - During Fiscal 2008, the Company repurchased 190,084 shares of common stock for an
aggregate purchase price of $6,062, or an average purchase price per share of $31.89.
Fiscal 2007 - During Fiscal 2007, the Company repurchased 500,712 shares of common stock for an
aggregate purchase price of $20,209, or an average purchase price per share of $40.36.
Fiscal 2006 - During Fiscal 2006, the Company repurchased 565 shares of common stock for an
aggregate purchase price of $27, or an average purchase price per share of $47.45.
Since the inception of the repurchase program in April 1999 through March 31, 2008, the Company has
repurchased 7,626,195 shares for an aggregate purchase price of $323,095, or an average purchase
price per share of $42.37. As of March 31, 2008, 873,805 shares were available under repurchase
programs approved by the Board. Additional repurchases of the 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 the common stock for the foreseeable
future, there can be no assurance as to the timing or amount of such repurchases. Under the
Companys New Credit Agreement, the Company is permitted to make any distribution or dividend or
repurchase its common stock as long as no Event of Default or Potential Default (each as defined in
the New Credit Agreement) occurs or is continuing, and may not repurchase its common stock if the
leverage ratio (after taking into consideration the payment made to repurchase the common stock)
would exceed 2.75 to 1.0 or if the availability to borrow under the New Credit Facility would be
less than $20 million.
Note 16: Commitments and Contingencies
Regulatory Matters
As previously disclosed, on November 13, 2006, the Company received a letter of informal inquiry
from the Enforcement Division of the Securities and Exchange Commission (SEC) relating to the
Companys stock option practices from January 1, 1997 to present. On May 24, 2007, the SEC issued
a formal order of investigation in connection with this matter, and, on May 29, 2007, the Company
received a document subpoena from the SEC acting pursuant to such order. The Company has
cooperated with the SEC in this matter and intends to continue to do so.
As previously disclosed, the Audit Committee, with the assistance of outside legal counsel,
conducted an independent review of the Companys historical stock option granting practices and
related accounting for stock option grants. See the Explanatory Note preceding Part I, Item 1 of
the Companys Annual Report on Form 10-K for the fiscal year ended March 31, 2007 for more
information regarding the Audit Committees review and related matters. The Audit Committee has
concluded its review and has presented to the Board recommendations concerning procedural
enhancements, which the Board has adopted.
57
On September 20, 2006, the Company received formal notice from the IRS regarding its intent to
begin an audit of the Companys tax years 2004 and 2005. On August 3, 2007, the Company received
formal notice from the IRS regarding its intent to begin an audit of the Companys 2006 tax year.
In connection with these normal recurring audits, the IRS has requested certain documentation with
respect to stock options for the Companys 2004, 2005 and 2006 tax years. The Company has produced
various documents requested by the IRS and is currently in the process of responding to additional
documentation requests. In connection with the Audit Committees review of the Companys
historical stock option granting practices, the Company determined that a number of officers may
have exercised options for which the application of Section 162(m) (Section 162(m)) of the Code
may apply. It is possible that these options will be treated as having been granted at less than
fair market value for federal income tax purposes because the Company incorrectly applied the
measurement date as defined in APB 25. If such options are deemed to have been granted at less
than fair market value, pursuant to Section 162(m), any compensation to officers, including
proceeds from options exercised in any given tax year, in excess of $1,000 will be disallowed as a
deduction for tax purposes. The Company estimates that the potential tax-effected liability for
any such disallowed Section 162(m) deduction would approximate $3,587, which was recorded as an
expense during prior periods and is currently recorded as a current liability within Income taxes
within the Companys Consolidated Balance Sheets. The Company may also incur interest and
penalties if it were to incur any such tax liability, which could be material.
As previously disclosed, the Company received a subpoena, dated December 8, 2004, from the United
States General Services Administration (GSA), Office of Inspector General. The subpoena requires
production of documents and information. The Company understands that the materials are being
sought in connection with an investigation regarding potential violations of the terms of a GSA
Multiple Award Schedule contract. On October 2, 2007, the Company was contacted by the United
States Department of Justice which informed the Company that it was reviewing allegations by the
GSA that certain of the Companys pricing practices under the GSA contract violated the Civil False
Claims Act. The Company has executed an agreement with the United States tolling the statute of
limitations on any action by the United States through July 31, 2008 in order for the parties to
discuss the merits of these allegations prior to the possible commencement of any litigation by the
United States.
At the conclusion of these regulatory matters, the Company could be subject to additional taxes,
fines or penalties or other costs which could be material.
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 Code, 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-TMH, 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 September 15, 2008, and the court has
entered an order to that effect. 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, in
Fiscal 2007 and Fiscal 2008, and expects to continue to incur additional expenses during Fiscal
2009, in relation to (i) the Audit Committees review 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 previously-disclosed 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 March 31, 2008, the total amount of such fees is
approximately $6,021, of which $4,065 has been paid by the insurance company. The insurance policy
limit under which such payments have been made is $5,000. The Company expensed $1,221 and $542 in
Fiscal 2008 and Fiscal 2007, respectively. The amount of expenses that the Company could incur in
the future with respect to these matters that are not covered by insurance could be material.
58
Product Warranties
Estimated future warranty costs related to certain products are charged to expense during the
period the related revenue is recognized. The product warranty liability reflects the Companys
best estimate of probable obligations under those warranties. As of March 31, 2008 and 2007, the
Company has recorded a warranty reserve of $4,182 and $4,214, respectively.
There has been no other significant or unusual activity during Fiscal 2008 other than the
acquisitions as discussed in Note 9.
Note 17: 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:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
North America |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
837,402 |
|
|
$ |
850,088 |
|
|
$ |
564,700 |
|
Operating income |
|
|
57,964 |
|
|
|
49,481 |
|
|
|
42,505 |
|
Depreciation |
|
|
10,500 |
|
|
|
11,742 |
|
|
|
8,012 |
|
Amortization |
|
|
6,579 |
|
|
|
10,156 |
|
|
|
4,472 |
|
Segment assets (as of March 31) |
|
|
962,729 |
|
|
|
1,007,695 |
|
|
|
761,424 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
138,927 |
|
|
$ |
129,278 |
|
|
$ |
120,051 |
|
Operating income |
|
|
19,278 |
|
|
|
16,442 |
|
|
|
5,518 |
|
Depreciation |
|
|
447 |
|
|
|
498 |
|
|
|
671 |
|
Amortization |
|
|
64 |
|
|
|
91 |
|
|
|
491 |
|
Segment assets (as of March 31) |
|
|
159,661 |
|
|
|
139,531 |
|
|
|
116,717 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
All Other |
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
40,413 |
|
|
$ |
36,944 |
|
|
$ |
36,584 |
|
Operating income |
|
|
7,390 |
|
|
|
7,426 |
|
|
|
7,127 |
|
Depreciation |
|
|
111 |
|
|
|
85 |
|
|
|
248 |
|
Amortization |
|
|
36 |
|
|
|
38 |
|
|
|
36 |
|
Segment assets (as of March 31) |
|
|
21,519 |
|
|
|
17,318 |
|
|
|
16,416 |
|
|
The sum of the segment revenues, operating income, depreciation and amortization equals the
consolidated revenues, operating income, depreciation and amortization. The following reconciles
segment assets to total consolidated assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
Segment assets for North America, Europe and All Other |
|
$ |
1,143,909 |
|
|
$ |
1,164,544 |
|
|
$ |
894,557 |
|
Corporate eliminations |
|
|
(70,058 |
) |
|
|
(74,453 |
) |
|
|
(79,145 |
) |
|
|
|
|
|
|
|
|
|
|
Total consolidated assets |
|
$ |
1,073,851 |
|
|
$ |
1,090,091 |
|
|
$ |
815,412 |
|
|
59
The following table presents financial information about the Company by service type:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
March 31, |
|
|
|
2008 |
|
|
2007 |
|
|
2006 |
|
|
|
|
Data Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
194,454 |
|
|
$ |
182,129 |
|
|
$ |
196,585 |
|
|
Gross Profit |
|
|
57,747 |
|
|
|
55,598 |
|
|
|
57,068 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Voice Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
586,974 |
|
|
$ |
611,278 |
|
|
$ |
310,804 |
|
|
Gross Profit |
|
|
195,570 |
|
|
|
209,268 |
|
|
|
119,556 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotline Services |
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenues |
|
$ |
235,314 |
|
|
$ |
222,903 |
|
|
$ |
213,946 |
|
|
Gross Profit |
|
|
113,303 |
|
|
|
109,123 |
|
|
|
105,726 |
|
|
|
The sum of service type revenues and gross profit equals consolidated revenues and gross profit.
Note 18: Quarterly Data (Unaudited)
The following tables represent summary Quarterly (Unaudited) Consolidated Statements of Income for
Fiscal 2008 and Fiscal 2007. All dollar amounts are in thousands, except per share amounts.
Earnings per share data may not compute due to rounding.
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2008 (Unaudited) |
|
|
|
1Q08 |
|
|
2Q08 |
|
|
3Q08 |
|
|
4Q08 |
|
|
FY08 |
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotline products |
|
$ |
56,139 |
|
|
$ |
59,619 |
|
|
$ |
59,269 |
|
|
$ |
60,287 |
|
|
$ |
235,314 |
|
|
On-Site services |
|
|
196,152 |
|
|
|
201,011 |
|
|
|
199,055 |
|
|
|
185,210 |
|
|
|
781,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
252,291 |
|
|
|
260,630 |
|
|
|
258,324 |
|
|
|
245,497 |
|
|
|
1,016,742 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotline products |
|
|
29,362 |
|
|
|
31,457 |
|
|
|
30,891 |
|
|
|
30,301 |
|
|
|
122,011 |
|
|
On-Site services |
|
|
131,699 |
|
|
|
136,884 |
|
|
|
133,312 |
|
|
|
126,216 |
|
|
|
528,111 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
161,061 |
|
|
|
168,341 |
|
|
|
164,203 |
|
|
|
156,517 |
|
|
|
650,122 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
91,230 |
|
|
|
92,289 |
|
|
|
94,121 |
|
|
|
88,980 |
|
|
|
366,620 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general &
administrative
expenses |
|
|
72,743 |
|
|
|
66,784 |
|
|
|
68,522 |
|
|
|
67,260 |
|
|
|
275,309 |
|
|
Intangibles Amortization |
|
|
2,318 |
|
|
|
1,344 |
|
|
|
1,382 |
|
|
|
1,635 |
|
|
|
6,679 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
16,169 |
|
|
|
24,161 |
|
|
|
24,217 |
|
|
|
20,085 |
|
|
|
84,632 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income), net |
|
|
3,280 |
|
|
|
6,143 |
|
|
|
5,780 |
|
|
|
6,095 |
|
|
|
21,298 |
|
|
Other expenses (income), net |
|
|
(67) |
|
|
|
(73) |
|
|
|
(16) |
|
|
|
(41) |
|
|
|
(197) |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for
income
taxes |
|
|
12,956 |
|
|
|
18,091 |
|
|
|
18,453 |
|
|
|
14,031 |
|
|
|
63,531 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
4,768 |
|
|
|
6,781 |
|
|
|
7,112 |
|
|
|
5,637 |
|
|
|
24,298 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
8,188 |
|
|
$ |
11,310 |
|
|
$ |
11,341 |
|
|
$ |
8,394 |
|
|
$ |
39,233 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.47 |
|
|
$ |
0.64 |
|
|
$ |
0.64 |
|
|
$ |
0.48 |
|
|
$ |
2.23 |
|
|
Diluted |
|
$ |
0.46 |
|
|
$ |
0.64 |
|
|
$ |
0.64 |
|
|
$ |
0.48 |
|
|
$ |
2.22 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
60
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fiscal 2007 (Unaudited) |
|
|
|
1Q07 |
|
|
2Q07 |
|
|
3Q07 |
|
|
4Q07 |
|
|
FY07 |
|
|
|
|
Revenues |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotline products |
|
$ |
52,225 |
|
|
$ |
55,063 |
|
|
$ |
57,770 |
|
|
$ |
57,845 |
|
|
$ |
222,903 |
|
|
On-Site services |
|
|
178,170 |
|
|
|
216,262 |
|
|
|
207,036 |
|
|
|
191,939 |
|
|
|
793,407 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
230,395 |
|
|
|
271,325 |
|
|
|
264,806 |
|
|
|
249,784 |
|
|
|
1,016,310 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of sales |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Hotline products |
|
|
25,461 |
|
|
|
27,847 |
|
|
|
29,887 |
|
|
|
30,585 |
|
|
|
113,780 |
|
|
On-Site services |
|
|
119,090 |
|
|
|
144,442 |
|
|
|
138,234 |
|
|
|
126,775 |
|
|
|
528,541 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Total |
|
|
144,551 |
|
|
|
172,289 |
|
|
|
168,121 |
|
|
|
157,360 |
|
|
|
642,321 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Gross profit |
|
|
85,844 |
|
|
|
99,036 |
|
|
|
96,685 |
|
|
|
92,424 |
|
|
|
373,989 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Selling, general &
administrative
expenses |
|
|
70,202 |
|
|
|
73,599 |
|
|
|
73,940 |
|
|
|
72,614 |
|
|
|
290,355 |
|
|
Intangibles Amortization |
|
|
1,506 |
|
|
|
1,931 |
|
|
|
2,677 |
|
|
|
4,171 |
|
|
|
10,285 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Operating income |
|
|
14,136 |
|
|
|
23,506 |
|
|
|
20,068 |
|
|
|
15,639 |
|
|
|
73,349 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest expense (income), net |
|
|
3,640 |
|
|
|
5,521 |
|
|
|
4,061 |
|
|
|
5,185 |
|
|
|
18,407 |
|
|
Other expenses (income), net |
|
|
115 |
|
|
|
72 |
|
|
|
(122) |
|
|
|
(23) |
|
|
|
42 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Income before provision for
income
taxes |
|
|
10,381 |
|
|
|
17,913 |
|
|
|
16,129 |
|
|
|
10,477 |
|
|
|
54,900 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Provision for income taxes |
|
|
3,568 |
|
|
|
6,238 |
|
|
|
5,636 |
|
|
|
3,849 |
|
|
|
19,291 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Net income |
|
$ |
6,813 |
|
|
$ |
11,675 |
|
|
$ |
10,493 |
|
|
$ |
6,628 |
|
|
$ |
35,609 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Earnings per common share: |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Basic |
|
$ |
0.39 |
|
|
$ |
0.67 |
|
|
$ |
0.60 |
|
|
$ |
0.38 |
|
|
$ |
2.03 |
|
|
Diluted |
|
$ |
0.37 |
|
|
$ |
0.66 |
|
|
$ |
0.59 |
|
|
$ |
0.37 |
|
|
$ |
2.00 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Note 19: Subsequent Events
On April 3, 2008, 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. Annual historical revenues of UCI are approximately $14
million.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure.
None.
Item 9A.
Controls and Procedures.
Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
Company management (Management), including the Companys CEO and Chief Financial Officer (CFO),
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 March 31, 2008. Based upon this assessment, Management
has concluded that the Companys disclosure controls and procedures were effective as of March 31,
2008 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.
61
Managements Report on Internal Control Over Financial Reporting
Management, including the Companys CEO and CFO, is responsible for establishing and maintaining
adequate internal control over financial reporting (as defined in Rule 13a-15(f) and 15d-15(f)
under the Exchange Act) for the Company. Management assessed the effectiveness of the Companys
internal control over financial reporting as of March 31, 2008 based on the framework described in
Internal Control Integrated Framework, issued by the Committee of Sponsoring Organizations
(COSO) of the Treadway Commission. Based on this assessment, Management has concluded that the
Companys internal control over financial reporting was effective, as of March 31, 2008, to provide
reasonable assurance regarding the reliability of financial reporting and the preparation of
financial statements for external reporting purposes in accordance with U.S. generally accepted
accounting principles. Management of the Company reviewed the results of their assessment with the
Audit Committee.
BDO Seidman, LLP, the Companys independent registered public accounting firm, has issued an
attestation report on the Companys internal control over financial reporting, which is included in
this Form 10-K.
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.
62
Report of Independent Registered Public Accounting Firm on
Internal Control over Financial Reporting
Board of Directors
Black Box Corporation
Lawrence, Pennsylvania
We have audited Black Box Corporations internal control over financial reporting as of March 31,
2008, based on criteria established in Internal Control-Integrated Framework issued by the
Committee of Sponsoring Organizations of the Treadway Commission (the COSO criteria). The Companys
management is responsible for maintaining effective internal control over financial reporting and
for its assessment of the effectiveness of internal control over financial reporting, included in
the accompanying Item 9A, Managements Report on Internal Control Over Financial Reporting. Our
responsibility is to express an opinion on the Companys internal control over financial reporting
based on our audit.
We conducted our audit in accordance with the standards of the Public Company Accounting Oversight
Board (United States). Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether effective internal control over financial reporting was
maintained in all material respects. Our audit included obtaining an understanding of internal
control over financial reporting, assessing the risk that a material weakness exists, and testing
and evaluating the design and operating effectiveness of internal control based on the assessed
risk. Our audit also included performing such other procedures as we considered necessary in the
circumstances. We believe that our audit provides a reasonable basis for our opinion.
A companys internal control over financial reporting is a process designed to provide reasonable
assurance regarding the reliability of financial reporting and the preparation of financial
statements for external purposes in accordance with generally accepted accounting principles. A
companys internal control over financial reporting includes those policies and procedures that (1)
pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the
transactions and dispositions of the assets of the company; (2) provide reasonable assurance that
transactions are recorded as necessary to permit preparation of financial statements in accordance
with generally accepted accounting principles, and that receipts and expenditures of the company
are being made only in accordance with authorizations of management and directors of the company;
and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized
acquisition, use, or disposition of the companys assets that could have a material effect on the
financial statements.
Because of its inherent limitations, internal control over financial reporting may not prevent or
detect misstatements. Also, 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 or procedures may deteriorate.
In our opinion, the Company maintained, in all material respects, effective internal control over
financial reporting as of March 31, 2008, based on the COSO criteria.
We have also audited, in accordance with the standards of the Public Company Accounting Oversight
Board (United States), the consolidated balance sheets of Black Box Corporation as of March 31,
2008 and 2007, and the related consolidated statements of income, stockholders equity, and cash
flows for each of the three years in the period ended March 31, 2008 and our report dated May 27,
2008 expressed an unqualified opinion thereon.
/s/ BDO Seidman, LLP
Chicago, Illinois
May 27, 2008
63
Item 9B.
Other Information.
None.
64
PART III
Item 10. Directors, Executive Officers and Corporate Governance.
Certain of the information required by this item is incorporated herein by reference to the
information set forth under Part I of this Form 10-K under the caption Business Other
Information in Item 1 and under the caption Executive Officers of the Registrant.
The other information required by this item is incorporated herein by reference to the information
set forth under the captions Annual Meeting Matters, Board of Directors and Certain Board
Committees and Litigation Involving Directors and Officers in the Proxy Statement to be filed
pursuant to Regulation 14A of the Exchange Act.
Item 11. Executive Compensation.
The information required by this item is incorporated herein by reference to the information under
the captions Compensation of Directors and Executive Compensation and Other Information in the
Proxy Statement.
Item 12. Security Ownership of Certain Beneficial Owners And Management And Related Stockholder
Matters.
The information required by this item is incorporated herein by reference to the information set
forth under the captions Equity Plan Compensation Information, Security Ownership of Certain
Beneficial Owners and Security Ownership of Management in the Proxy Statement.
Item 13. Certain Relationships and Related Transactions, and Director Independence.
The information required by this item is incorporated herein by reference to the information set
forth under the captions Annual Meeting Matters, Board of Directors and Certain Board
Committees and Policies and Procedures Related to the Approval
of Transactions with Related Persons in the Proxy Statement.
Item 14.
Principal Accounting Fees and Services.
The information required by this item is incorporated herein by reference to the information set
forth under the caption Independent Public Accountants in the Proxy Statement.
65
PART IV
Item 15. Exhibits and Financial Statement Schedules.
Financial statements, financial statement schedules and exhibits not listed below have been omitted
where the required information is included in the consolidated financial statements or notes
thereto, or is not applicable or required.
(a) |
|
Documents filed as part of this report |
|
(1) |
|
Financial Statements no financial statements have been filed in this Form 10-K other than
those in Item 8 |
|
(2) |
|
Financial Statement Schedule |
|
|
|
Schedule II Valuation and Qualifying Accounts |
|
(3) |
|
Exhibits |
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
2.1
|
|
Agreement and Plan of Merger, dated as of December 20, 2004, by and among the Company, SF
Acquisition Co. and Norstan, Inc. (1) |
|
|
|
2.2
|
|
Tender and Voting Agreement, dated as of December 20, 2004, by and among the Company, SF
Acquisition Co. and Norstan, Inc. (1) |
|
|
|
2.3
|
|
Stock Option Agreement, dated as of December 20, 2004, by and among the Company, SF
Acquisition Co. and Norstan, Inc. (1) |
|
|
|
2.4
|
|
Interest Purchase Agreement by and between Platinum Equity, LLC and the Company dated as of
April 10, 2006 (2) |
|
|
|
2.5
|
|
Amendment to the Interest Purchase Agreement by and between Platinum Equity, LLC and the
Company dated as of April 30, 2006 (3) |
|
|
|
3(i)
|
|
Second Restated Certificate of Incorporation of the Company, as amended (4) |
|
|
|
3(ii)
|
|
Amended and Restated By-laws of the Company, as amended (5) |
|
|
|
10.1
|
|
Second Amended and Restated Credit Agreement, dated as of January 24, 2005, by and among
Black Box Corporation of Pennsylvania and SF Acquisition Co., as Borrowers, the Company, the
Guarantors parties thereto, the Lenders parties thereto and Citizens Bank of Pennsylvania
(6) |
|
|
|
10.2
|
|
Guaranty and Suretyship Agreement, dated as of January 24, 2005, by and among the Company,
the Lenders and Citizens Bank of Pennsylvania (7) |
|
|
|
10.3
|
|
Guaranty and Suretyship Agreement, dated as of January 24, 2005, by and among the Guarantors,
the Lenders and Citizens Bank of Pennsylvania (7) |
|
|
|
10.4
|
|
First Amendment to the Second Amended and Restated Credit Agreement, dated as of February 17,
2005, by and among Black Box Corporation of Pennsylvania and Norstan, Inc., as Borrowers, the
Company, the Guarantors parties thereto, the Lenders parties thereto and Citizens Bank of
Pennsylvania (8) |
|
|
|
10.5
|
|
Second Amendment to the Second Amended and Restated Credit Agreement, dated as of March 28,
2006, by and among Black Box Corporation of Pennsylvania and Norstan Inc., as Borrowers, the
Company, the Guarantors parties thereto, the Lenders parties thereto and Citizens Bank of
Pennsylvania (3) |
|
|
|
10.6
|
|
Waiver Letter dated February 28, 2007 by and among Black Box Corporation of Pennsylvania and
Norstan, Inc., as Borrowers, the Company, the Guarantors parties thereto, the Lenders parties
thereto and Citizens Bank of Pennsylvania (9) |
66
|
|
|
|
|
|
10.7
|
|
Waiver Letter dated May 28, 2007 by and among Black Box Corporation of Pennsylvania and
Norstan, Inc., as Borrowers, the Company, the Guarantors parties thereto, the Lenders parties
thereto and Citizens
Bank of Pennsylvania
(9) |
|
|
|
10.8
|
|
Waiver Letter dated June 11, 2007 by and among Black Box Corporation of Pennsylvania and
Norstan, Inc., as Borrowers, the Company, the Guarantors parties thereto, the Lenders parties
thereto and Citizens Bank of
Pennsylvania
(9) |
|
|
|
10.9
|
|
Waiver Letter dated July 25, 2007 by and among Black Box Corporation of Pennsylvania and
Norstan, Inc., as Borrowers, the Company, the Guarantors parties thereto, the Lenders parties
thereto and Citizens Bank of
Pennsylvania
(10) |
|
|
|
10.10
|
|
Third Amended and Restated Credit Agreement, dated as of January 30, 2008, by and among
Black Box Corporation of Pennsylvania and Norstan, Inc., as Borrowers, the Company, the
Guarantors parties thereto, the Lenders parties thereto and Citizens Bank of Pennsylvania
(11) |
|
|
|
10.11
|
|
Guaranty and Suretyship Agreement, dated as of January 30, 2008, by and among the Company,
the Lenders and Citizens Bank of
Pennsylvania
(17) |
|
|
|
10.12
|
|
Guaranty and Suretyship Agreement, dated as of January 30, 2008, by and among the
Guarantors, the Lenders and Citizens Bank of
Pennsylvania
(17) |
|
|
|
10.13
|
|
Agreement between the Company and
Fred C. Young
(5) |
|
|
|
10.14
|
|
Agreement
between the Company and Francis W.
Wertheimber
(12) |
|
|
|
10.15
|
|
Agreement
between the Company and Michael McAndrew (13) |
|
|
|
10.16
|
|
Amended and Restated Agreement between the Company and R. Terry Blakemore (14) |
|
|
|
10.17
|
|
1992 Stock Option Plan, as amended through August 9, 2007 (15) |
|
|
|
10.18
|
|
1992 Director Stock Option Plan, as amended through August 9, 2007 (15) |
|
|
|
10.19
|
|
Form of Black Box Corporation Non-Qualified Stock Option Agreement (pursuant to the 1992
Director Stock Option Plan; form of agreement in effect prior to August 10, 2004)
(12) |
|
|
|
10.20
|
|
Form of Black Box Corporation Non-Qualified Stock Option Agreement (pursuant to the 1992
Director Stock Option Plan; form of agreement in effect as of August 10, 2004) (12) |
|
|
|
10.21
|
|
Form of Black Box Corporation Non-Qualified Stock Option Agreement (pursuant to the 1992
Director Stock Option Plan; form of agreement in effect as of October 31, 2005)
(16) |
|
|
|
10.22
|
|
Form of Black Box Corporation Non-Qualified Stock Option Agreement (pursuant to the 1992
Stock Option Plan) (12) |
|
|
|
10.23
|
|
Form of Black Box Corporation Non-Qualified Stock Option Agreement (pursuant to the 1992
Stock Option Plan; form of agreement in effect as of October 31, 2005) (16) |
|
|
|
10.24
|
|
Description of Executive Officer Incentive Bonus Plan for Fiscal 2008 (9) |
|
|
|
10.25
|
|
Summary of Director Compensation (17) |
|
|
|
21.1
|
|
Subsidiaries of the Registrant (17) |
|
|
|
23.1
|
|
Consent of Independent Registered Accounting Firm (17) |
|
|
|
31.1
|
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities and
Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002
(17) |
|
|
|
31.2
|
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities and
Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002
(17) |
67
|
|
|
|
|
|
32.1
|
|
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule
13a-14(b) of the Securities and 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 (17) |
|
|
|
(1) |
|
Filed as an exhibit to the Current Report on Form 8-K of the Company, file number
0-18706, filed with the SEC on December 23, 2004, and incorporated herein by reference. |
|
(2) |
|
Filed as Exhibit 2.1 to the Current Report on Form 8-K of the Company, file
number 0-18706, filed with the SEC on April 13, 2006, and incorporated herein by reference. |
|
(3) |
|
Filed as an exhibit to the Current Report on Form 8-K of the Company, file number
0-18706, filed with the SEC on May 4, 2006, and incorporated herein by reference. |
|
(4) |
|
Filed as Exhibit 3(i) to the Quarterly Report on Form 10-Q of the Company, file
number 0-18706, filed with the SEC on November 14, 2000, and incorporated herein by reference. |
|
(5) |
|
Filed as an exhibit to the Annual Report on Form 10-K of the Company, file number
0-18706, filed with the SEC on June 14, 2004, and incorporated herein by reference. |
|
(6) |
|
Filed as Exhibit (b)(2) to Amendment No. 4 to the Schedule TO filed by the Company
and SF Acquisition Co. on January 26, 2005, and incorporated herein by reference. |
|
(7) |
|
Filed as an exhibit to the Quarterly Report on Form 10-Q of the Company, file
number 0-18706, filed with the SEC on February 10, 2005, and incorporated herein by reference. |
|
(8) |
|
Filed as Exhibit 10.1 to the Current Report on Form 8-K of the Company, file
number 0-18706, filed with the SEC on February 23, 2005, and incorporated herein by reference. |
|
(9) |
|
Filed as an exhibit to the Quarterly Report on Form 10-Q of the Company, file
number 0-18706, filed with the SEC on July 23, 2007, and incorporated herein by reference. |
|
(10) |
|
Filed as Exhibit 10.9 to the Annual Report on Form 10-K of the Company, file
number 0-18706, filed with the SEC on August 13, 2007, and incorporated herein by reference. |
|
(11) |
|
Filed as Exhibit 10.1 to the Current Report on Form 8-K of the Company, file number
0-18706, filed with the SEC on February 5, 2008, and incorporated herein by reference. |
|
(12) |
|
Filed as an exhibit to the Quarterly Report on Form 10-Q of the Company, file
number 0-18706, filed with the SEC on November 12, 2004, and incorporated herein by reference. |
|
(13) |
|
Filed as an exhibit to the Current Report on Form 8-K of the Company, file number
0-18706, filed with the SEC on May 22, 2007, and incorporated herein by reference. |
|
(14) |
|
Filed as Exhibit 10.1 to the Current Report on Form 8-K of the Company, file
number 0-18706, filed with the SEC on October 18, 2007, and incorporated herein by reference. |
|
(15) |
|
Filed as an exhibit to the Quarterly Report on Form 10-Q of the Company, file
number 0-18706, filed with the SEC on August 16, 2007, and incorporated herein by reference. |
|
(16) |
|
Filed as an exhibit to the Quarterly Report on Form 10-Q of the Company, file
number 0-18706, filed with the SEC on November 10, 2005, and incorporated herein by
reference. |
|
(17) |
|
Filed herewith. |
68
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto
duly authorized.
BLACK BOX CORPORATION
Dated: May 30, 2008
|
|
|
|
|
|
|
|
|
/s/ Michael McAndrew
|
|
|
Michael McAndrew, Vice President, Chief |
|
|
Financial Officer, Treasurer,
Secretary and Principal Accounting
Officer |
|
|
Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed
below by the following persons on behalf of the registrant and in the capacities and on the dates
indicated.
|
|
|
|
|
Signatures |
|
Capacity |
|
Date |
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
May 30, 2008 |
William F. Andrews |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
May 30, 2008 |
Richard L. Crouch |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
May 30, 2008 |
Thomas W. Golonski |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director and Chairman of the Board
|
|
May 30, 2008 |
Thomas G. Greig |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director
|
|
May 30, 2008 |
Edward A. Nicholson |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Director, President and Chief Executive Officer
|
|
May 30, 2008 |
R. Terry Blakemore |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
/s/ MICHAEL MCANDREW
Michael McAndrew
|
|
Vice President, Chief Financial Officer,
Treasurer, Secretary and Principal Accounting
Officer
|
|
May 30, 2008 |
69
SCHEDULE II
BLACK BOX CORPORATION
Valuation and Qualifying Accounts
(Dollars in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance at |
|
|
Additions |
|
|
Additions |
|
|
Reductions |
|
|
Balance |
|
|
|
|
Beginning of |
|
|
Charged to |
|
|
from |
|
|
from |
|
|
at End of |
|
|
Description |
|
Period |
|
|
Expenses |
|
|
Acquisitions |
|
|
Reserves |
|
|
Period |
|
|
|
|
Year Ended March 31,
2008 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserves |
|
$ |
22,761 |
|
|
$ |
3,258 |
|
|
$ |
160 |
|
|
$ |
(5,806 |
) |
|
$ |
20,373 |
|
|
Allowance for
doubtful
accounts/sales
returns |
|
|
14,253 |
|
|
|
7,509 |
|
|
|
90 |
|
|
|
(9,240 |
) |
|
|
12,612 |
|
|
Restructuring reserve |
|
|
19,428 |
|
|
|
6,848 |
|
|
|
|
|
|
|
(13,684 |
) |
|
|
12,592 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
2007 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserves |
|
$ |
14,287 |
|
|
$ |
3,036 |
|
|
$ |
12,735 |
|
|
$ |
(7,297 |
) |
|
$ |
22,761 |
|
|
Allowance for
doubtful
accounts/sales
returns |
|
|
9,517 |
|
|
|
8,710 |
|
|
|
5,423 |
|
|
|
(9,397 |
) |
|
|
14,253 |
|
|
Restructuring reserve |
|
|
10,698 |
|
|
|
|
|
|
|
27,034 |
|
|
|
(18,304 |
) |
|
|
19,428 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year Ended March 31,
2006 |
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Inventory reserves |
|
$ |
12,546 |
|
|
$ |
4,136 |
|
|
$ |
43 |
|
|
$ |
(2,438 |
) |
|
$ |
14,287 |
|
|
Allowance for
doubtful
accounts/sales
returns |
|
|
7,342 |
|
|
|
9,182 |
|
|
|
49 |
|
|
|
(7,056 |
) |
|
|
9,517 |
|
|
Restructuring reserve |
|
|
16,598 |
|
|
|
5,290 |
|
|
|
364 |
|
|
|
(11,554 |
) |
|
|
10,698 |
|
|
|
70
EXHIBIT INDEX
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
2.1
|
|
Agreement and Plan of Merger, dated as of December 20, 2004, by and among the Company, SF
Acquisition Co. and Norstan, Inc. (1) |
|
|
|
2.2
|
|
Tender and Voting Agreement, dated as of December 20, 2004, by and among the Company, SF
Acquisition Co. and Norstan, Inc. (1) |
|
|
|
2.3
|
|
Stock Option Agreement, dated as of December 20, 2004, by and among the Company, SF
Acquisition Co. and Norstan, Inc. (1) |
|
|
|
2.4
|
|
Interest Purchase Agreement by and between Platinum Equity, LLC and the Company dated as of
April 10, 2006 (2) |
|
|
|
2.5
|
|
Amendment to the Interest Purchase Agreement by and between Platinum Equity, LLC and the
Company dated as of April 30, 2006 (3) |
|
|
|
3(i)
|
|
Second Restated Certificate of Incorporation of the Company, as amended (4) |
|
|
|
3(ii)
|
|
Amended and Restated By-laws of the Company, as amended (5) |
|
|
|
10.1
|
|
Second Amended and Restated Credit Agreement, dated as of January 24, 2005, by and among
Black Box Corporation of Pennsylvania and SF Acquisition Co., as Borrowers, the Company, the
Guarantors parties thereto, the Lenders parties thereto and Citizens Bank of Pennsylvania
(6) |
|
|
|
10.2
|
|
Guaranty and Suretyship Agreement, dated as of January 24, 2005, by and among the Company,
the Lenders and Citizens Bank of Pennsylvania (7) |
|
|
|
10.3
|
|
Guaranty and Suretyship Agreement, dated as of January 24, 2005, by and among the Guarantors,
the Lenders and Citizens Bank of Pennsylvania (7) |
|
|
|
10.4
|
|
First Amendment to the Second Amended and Restated Credit Agreement, dated as of February 17,
2005, by and among Black Box Corporation of Pennsylvania and Norstan, Inc., as Borrowers, the
Company, the Guarantors parties thereto, the Lenders parties thereto and Citizens Bank of
Pennsylvania (8) |
|
|
|
10.5
|
|
Second Amendment to the Second Amended and Restated Credit Agreement, dated as of March 28,
2006, by and among Black Box Corporation of Pennsylvania and Norstan Inc., as Borrowers, the
Company, the Guarantors parties thereto, the Lenders parties thereto and Citizens Bank of
Pennsylvania (3) |
|
|
|
10.6
|
|
Waiver Letter dated February 28, 2007 by and among Black Box Corporation of Pennsylvania and
Norstan, Inc., as Borrowers, the Company, the Guarantors parties thereto, the Lenders parties
thereto and Citizens Bank of Pennsylvania (9) |
|
|
|
10.7
|
|
Waiver Letter dated May 28, 2007 by and among Black Box Corporation of Pennsylvania and
Norstan, Inc., as Borrowers, the Company, the Guarantors parties thereto, the Lenders parties
thereto and Citizens Bank of Pennsylvania (9) |
|
|
|
10.8
|
|
Waiver Letter dated June 11, 2007 by and among Black Box Corporation of Pennsylvania and
Norstan, Inc., as Borrowers, the Company, the Guarantors parties thereto, the Lenders parties
thereto and Citizens Bank of Pennsylvania (9) |
|
|
|
10.9
|
|
Waiver Letter dated July 25, 2007 by and among Black Box Corporation of Pennsylvania and
Norstan, Inc., as Borrowers, the Company, the Guarantors parties thereto, the Lenders parties
thereto and Citizens Bank of Pennsylvania (10) |
|
|
|
10.10
|
|
Third Amended and Restated Credit Agreement, dated as of January 30, 2008, by and among
Black Box Corporation of Pennsylvania and Norstan, Inc., as Borrowers, the Company, the
Guarantors parties thereto, the Lenders parties thereto and Citizens Bank of Pennsylvania
(11) |
|
|
|
10.11
|
|
Guaranty and Suretyship Agreement, dated as of January 30, 2008, by and among the Company,
the Lenders and Citizens Bank of Pennsylvania (17) |
71
|
|
|
Exhibit |
|
|
Number |
|
Description |
|
|
|
10.12
|
|
Guaranty and Suretyship Agreement, dated as of January 30, 2008, by and among the
Guarantors, the Lenders and Citizens Bank of Pennsylvania (17) |
|
|
|
10.13
|
|
Agreement between the Company and Fred C. Young (5) |
|
|
|
10.14
|
|
Agreement between the Company and Francis W. Wertheimber (12) |
|
|
|
10.15
|
|
Agreement between the Company and Michael McAndrew (13) |
|
|
|
10.16
|
|
Amended and Restated Agreement between the Company and R. Terry Blakemore (14) |
|
|
|
10.17
|
|
1992 Stock Option Plan, as amended through August 9, 2007 (15) |
|
|
|
10.18
|
|
1992 Director Stock Option Plan, as amended through August 9, 2007 (15) |
|
|
|
10.19
|
|
Form of Black Box Corporation Non-Qualified Stock Option Agreement (pursuant to the 1992
Director Stock Option Plan; form of agreement in effect prior to August 10, 2004)
(12) |
|
|
|
10.20
|
|
Form of Black Box Corporation Non-Qualified Stock Option Agreement (pursuant to the 1992
Director Stock Option Plan; form of agreement in effect as of August 10, 2004) (12) |
|
|
|
10.21
|
|
Form of Black Box Corporation Non-Qualified Stock Option Agreement (pursuant to the 1992
Director Stock Option Plan; form of agreement in effect as of October 31, 2005)
(16) |
|
|
|
10.22
|
|
Form of Black Box Corporation Non-Qualified Stock Option Agreement (pursuant to the 1992
Stock Option Plan) (12) |
|
|
|
10.23
|
|
Form of Black Box Corporation Non-Qualified Stock Option Agreement (pursuant to the 1992
Stock Option Plan; form of agreement in effect as of October 31, 2005) (16) |
|
|
|
10.24
|
|
Description of Executive Officer Incentive Bonus Plan for Fiscal 2008 (9) |
|
|
|
10.25
|
|
Summary of Director Compensation (17) |
|
|
|
21.1
|
|
Subsidiaries of the Registrant (17) |
|
|
|
23.1
|
|
Consent of Independent Registered Accounting Firm (17) |
|
|
|
31.1
|
|
Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities and
Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002
(17) |
|
|
|
31.2
|
|
Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities and
Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002
(17) |
|
|
|
32.1
|
|
Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule
13a-14(b) of the Securities and 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 (17) |
|
|
|
(1) |
|
Filed as an exhibit to the Current Report on Form 8-K of the Company, file number
0-18706, filed with the SEC on December 23, 2004, and incorporated herein by reference. |
|
(2) |
|
Filed as Exhibit 2.1 to the Current Report on Form 8-K of the Company, file
number 0-18706, filed with the SEC on April 13, 2006, and incorporated herein by reference. |
|
(3) |
|
Filed as an exhibit to the Current Report on Form 8-K of the Company, file number
0-18706, filed with the SEC on May 4, 2006, and incorporated herein by reference. |
|
(4) |
|
Filed as Exhibit 3(i) to the Quarterly Report on Form 10-Q of the Company, file
number 0-18706, filed with the SEC on November 14, 2000, and incorporated herein by reference. |
72
|
|
|
(5) |
|
Filed as an exhibit to the Annual Report on Form 10-K of the Company, file number
0-18706, filed with the SEC on June 14, 2004, and incorporated herein by reference. |
|
(6) |
|
Filed as Exhibit (b)(2) to Amendment No. 4 to the Schedule TO filed by the Company
and SF Acquisition Co. on January 26, 2005, and incorporated herein by reference. |
|
(7) |
|
Filed as an exhibit to the Quarterly Report on Form 10-Q of the Company, file
number 0-18706, filed with the SEC on February 10, 2005, and incorporated herein by reference. |
|
(8) |
|
Filed as Exhibit 10.1 to the Current Report on Form 8-K of the Company, file
number 0-18706, filed with the SEC on February 23, 2005, and incorporated herein by reference. |
|
(9) |
|
Filed as an exhibit to the Quarterly Report on Form 10-Q of the Company, file
number 0-18706, filed with the SEC on July 23, 2007, and incorporated herein by reference. |
|
(10) |
|
Filed as Exhibit 10.9 to the Annual Report on Form 10-K of the Company, file
number 0-18706, filed with the SEC on August 13, 2007, and incorporated herein by reference. |
|
(11) |
|
Filed as Exhibit 10.1 to the Current Report on Form 8-K of the Company, file number
0-18706, filed with the SEC on February 5, 2008, and incorporated herein by reference. |
|
(12) |
|
Filed as an exhibit to the Quarterly Report on Form 10-Q of the Company, file
number 0-18706, filed with the SEC on November 12, 2004, and incorporated herein by reference. |
|
(13) |
|
Filed as an exhibit to the Current Report on Form 8-K of the Company, file number
0-18706, filed with the SEC on May 22, 2007, and incorporated herein by reference. |
|
(14) |
|
Filed as Exhibit 10.1 to the Current Report on Form 8-K of the Company, file
number 0-18706, filed with the SEC on October 18, 2007, and incorporated herein by reference. |
|
(15) |
|
Filed as an exhibit to the Quarterly Report on Form 10-Q of the Company, file
number 0-18706, filed with the SEC on August 16, 2007, and incorporated herein by reference. |
|
(16) |
|
Filed as an exhibit to the Quarterly Report on Form 10-Q of the Company, file
number 0-18706, filed with the SEC on November 10, 2005, and incorporated herein by
reference. |
|
(17) |
|
Filed herewith. |
73