Black Box Corporation (NASDAQ:BBOX) today reported for second
quarter Fiscal 2007 ended September 30, 2006 diluted earnings per
share of 74� on net income of $13.1 million or 4.8% of revenues
compared to diluted earnings per share of 74� on net income of
$12.8 million or 6.9% of revenues for the same quarter last year.
On a sequential quarter comparison basis, first quarter Fiscal 2007
diluted earnings per share were 43� on net income of $7.8 million
or 3.4% of revenues. Excluding reconciling items, operating
earnings per share (which is a non-GAAP term and is defined below)
for second quarter Fiscal 2007 were 91� on operating net income
(which is a non-GAAP term and is defined below) of $16.1 million or
5.9% of revenues compared to operating earnings per share of 78� on
operating net income of $13.6 million or 7.4% of revenues for the
same quarter last year. Management believes that presenting
operating earnings per share and operating net income excluding
reconciling items is useful to investors because it provides a more
meaningful comparison of the ongoing operations of the Company.
During second quarter Fiscal 2007, the Company�s reconciling items
included pre-tax charges of $1.9 million for amortization of
intangible assets on acquisitions, $1.6 million for stock-based
compensation expense, and $1.2 million for asset write-up
depreciation expense on acquisitions. The impact of these
reconciling items after tax on net income and EPS is $3.0 million
and 17�, respectively. During second quarter Fiscal 2006, as
previously disclosed, the Company�s reconciling items included
pre-tax charges of $1.1 million for amortization of intangible
assets on acquisitions and $0.2 million for asset write-up
depreciation expense on acquisitions. The impact of these
reconciling items after tax on net income and EPS is $0.8 million
and 5�, respectively. See below for further discussion regarding
management�s use of non-GAAP accounting measurements. Second
quarter Fiscal 2007 total revenues were $271 million, an increase
of $86 million or 47% from $185 million for the same quarter last
year. On a sequential quarter comparison basis, second quarter
Fiscal 2007 total revenues increased $41 million or 18% from first
quarter Fiscal 2007 total revenues of $230 million. During second
quarter Fiscal 2007, the Company repurchased 441,000 shares of
common stock for approximately $18 million. Since the inception of
the program in April 1999, the Company has repurchased 7.4 million
shares of common stock for approximately $315 million of
consideration. The funding of this program has been provided
primarily through the Company�s free cash flow generation. Second
quarter Fiscal 2007 cash provided by operating activities was $9
million or 70% of net income, compared to $12 million or 91% of net
income for the same quarter last year. Second quarter Fiscal 2007
free cash flow (which is a non-GAAP term and is defined below) was
$12 million compared to $18 million for the same quarter last year.
On a sequential quarter comparison basis, first quarter Fiscal 2007
cash provided by operating activities was $13 million or 161% of
net income and free cash flow was $14 million. Black Box utilized
its second quarter Fiscal 2007 free cash flow to repurchase $11
million of its common stock and pay dividends of $1 million.
Management believes that free cash flow, defined by the Company as
cash provided by operating activities less net capital
expenditures, plus proceeds from stock option exercises, plus or
minus foreign currency translation adjustments, is an important
measurement of liquidity as it represents the total cash available
to the Company. For the six month period ending September 30, 2006,
diluted earnings per share were $1.18 on net income of $20.9
million or 4.2% of revenues compared to diluted earnings per share
of $1.17 on net income of $20.2 million or 5.5% of revenues for the
same period last year. Excluding reconciling items, operating
earnings per share for the six month period ending September 30,
2006 were $1.50 on operating net income of $26.6 million or 5.3% of
revenues compared to operating earnings per share of $1.53 on
operating net income of $26.3 million or 7.2% of revenues for the
same period last year. For the six month period ending September
30, 2006, the Company�s reconciling items included pre-tax charges
of $3.3 million for amortization of intangible assets on
acquisitions, $3.2 million for stock-based compensation expense,
$1.2 million for asset write-up depreciation expense on
acquisitions, and $1.1 million for restructuring charges /
severance costs. The impact of these reconciling items after tax on
net income and EPS is $5.7 million and 32�, respectively. During
the six month period ended October 1, 2005, as previously
disclosed, the Company�s reconciling items included pre-tax charges
of $5.3 million for restructuring charges / severance costs, $2.2
million for amortization of intangible assets on acquisitions, and
$1.9 million for asset write-up depreciation expense on
acquisitions. The impact of these reconciling items after tax on
net income and EPS is $6.2 million and 36�, respectively. See below
for further discussion regarding management�s use of non-GAAP
accounting measurements. For the six month period ending September
30, 2006, total revenues were $502 million, an increase of $138
million or 38% from $364 million for the same period last year.
Cash provided by operating activities for the six month period was
$22 million or 104% of net income compared to $22 million or 111%
of net income for the same period last year. Free cash flow was $26
million compared to $29 million for the same period last year.
Black Box utilized its six month period free cash flow to fund
mergers and acquisitions of $13 million, repurchase $11 million of
its common stock, and pay dividends of $2 million. The Company�s
6-month order backlog was $165 million at September 30, 2006
compared to $104 million for the same quarter ended last year. On a
sequential quarter end comparison basis, the Company�s 6-month
order backlog was $168 million at July 1, 2006. �We are pleased to
report consecutive quarters of record revenues and now record
operating earnings per share,� stated Fred C. Young, Chief
Executive Officer of Black Box Corporation. �These two significant
milestones were accomplished through the combined efforts of our
4,600 Worldwide Black Box Team Members. With revenues now
annualizing at $1 billion, we will look to build upon our first
half success moving forward.� The Company is sponsoring an Investor
Day in two separate sessions. The event will be held in New York
City, NY on Tuesday, November 14, 2006 and Boston, MA on Wednesday,
November 15, 2006. Both days events are expected to begin at
approximately 10:00 a.m. Eastern Standard Time and conclude at
approximately 2:00 p.m. The program, which is open to the general
public, will be hosted by Fred C. Young, Chief Executive Officer,
and Michael McAndrew, Chief Financial Officer. Interested
participants can register through investors@blackbox.com or by
contacting investor relations at 724-873-6788. The Company will
conduct a conference call beginning at 5:00 p.m. Eastern Standard
Time today, October 31, 2006. Fred C. Young, Chief Executive
Officer, will host the call. To participate in the call, please
dial 612-332-1025 approximately 15 minutes prior to the starting
time and ask to be connected to the Black Box Earnings Call. A
replay of the conference call will be available for one week after
the teleconference by dialing 320-365-3844 and using access code
844113. Black Box is the world�s largest technical services company
dedicated to designing, building, and maintaining today�s
complicated data and voice infrastructure systems. Black Box
services 175,000 clients in 141 countries with 170 offices
throughout the world. To learn more, visit the Black Box website at
www.blackbox.com. Black Box and the Double Diamond logo are
registered trademarks and DVH is a trademark of BB Technologies,
Inc. Any forward-looking statements contained in this release are
made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. You can identify these
forward-looking statements by the fact they use words such as
"should," "anticipate," "estimate," "approximate," "expect,"
"target," "may," "will," "project," "intend," "plan," "believe,"
and other words of similar meaning and expression in connection
with any discussion of future operating or financial performance.
One can also identify forward-looking statements by the fact that
they do not relate strictly to historical or current facts.
Forward-looking statements are inherently subject to a variety of
risks and uncertainties that could cause actual results to differ
materially from those projected. Although it is not possible to
predict or identify all risk factors, they may include levels of
business activity and operating expenses, expenses relating to
corporate compliance requirements, cash flows, global economic
conditions, successful integration of acquisitions, including the
Norstan, NextiraOne, and Nu-Vision Technologies businesses, the
timing and costs of restructuring programs, successful marketing of
DVH (Data, Voice, Hotline) services, and successful implementation
of our M&A program, including identifying appropriate targets,
consummating transactions, and successfully integrating the
businesses. Additional risk factors are included in the Company�s
Annual Report on Form 10-K. We can give no assurance that any goal,
plan, or target set forth in forward-looking statements can be
achieved and readers are cautioned not to place undue reliance on
such statements, which speak only as of the date made. We undertake
no obligation to release publicly any revisions to forward-looking
statements as a result of future events or developments. BLACK BOX
CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME (In
thousands, except per share amounts) � Three months ended Six
months ended � September 30,2006 � October 1,2005 � September
30,2006 � October 1,2005 Revenues: Hotline products $ 55,063� $
54,056� $ 107,288� $ 107,508� On-Site services � 216,262� � �
130,994� � 394,432� � � 256,824� Total 271,325� 185,050� 501,720�
364,332� � Cost of sales: Hotline products 27,847� 26,829� 53,308�
52,703� On-Site services � 144,442� � � 84,339� � 263,532� � �
166,807� Total � 172,289� � � 111,168� � 316,840� � � 219,510� �
Gross profit 99,036� 73,882� 184,880� 144,822� � Selling, general
& administrative expenses 72,784� 50,647� 141,357� 101,567�
Restructuring and other charges --� --� --� 5,290� Intangibles
amortization � 1,931� � � 1,328� � 3,437� � � 2,886� � Operating
income 24,321� 21,907� 40,086� 35,079� � Interest expense (income),
net 4,126� 2,330� 7,766� 4,289� Other expenses (income), net � 72�
� � 40� � 187� � � (35) � Income before provision for income taxes
20,123� 19,537� 32,133� 30,825� � Provision for income taxes �
7,044� � � 6,740� � 11,247� � � 10,634� � Net income $ 13,079� � $
12,797� $ 20,886� � $ 20,191� � Earnings per common share: Basic $
0.75� � $ 0.75� $ 1.20� � $ 1.19� Diluted $ 0.74� � $ 0.74� $ 1.18�
� $ 1.17� � Weighted average common shares outstanding Basic �
17,513� � � 17,022� � 17,415� � � 16,933� Diluted � 17,743� � �
17,374� � 17,766� � � 17,208� BLACK BOX CORPORATIONCONDENSED
CONSOLIDATED BALANCE SHEETS(In thousands) � September 30, March 31,
� � 2006 � � 2006 Assets Cash and cash equivalents $ 15,758� $
11,207� Accounts receivable, net 185,333� 116,713� Inventories, net
71,877� 53,926� Costs and estimated earnings in excess of billings
on uncompleted contracts 56,553� 23,803� Deferred tax asset 9,489�
8,973� Prepaid and Other current assets � 27,606� � 16,502� Total
current assets 366,616� 231,124� � Property, plant and equipment,
net 41,595� 35,124� Goodwill, net 586,273� 468,724� Intangibles:
Customer relationships, net 53,996� 24,657� Other Intangibles, net
34,799� 30,783� Deferred tax asset 2,654� 4,231� Other assets �
4,343� � 5,091� Total assets $ 1,090,276� $ 799,734� � Liabilities
Accounts payable $ 87,127� $ 44,943� Accrued compensation and
benefits 20,656� 13,954� Deferred revenue 51,120� 22,211�
Restructuring reserve 14,246� 3,292� Billings in excess of costs
and estimated earnings on uncompleted contracts 20,571� 8,648�
Current maturities of long-term debt 608� 1,049� Other liabilities
� 59,253� � 33,771� Total current liabilities 253,581� 127,868� �
Long-term debt 251,945� 122,673� Other liabilities � 27,708� �
8,293� Total liabilities 533,234� 258,834� � Stockholders' Equity
Common stock 25� 25� Additional paid-in capital 373,045� 362,810�
Treasury stock, at cost (314,411) (296,824) Accumulated other
comprehensive income 17,746� 13,036� Retained earnings � 480,637� �
461,853� Total stockholders' equity � 557,042� � 540,900� � Total
liabilities and stockholders' equity $ 1,090,276� $ 799,734� BLACK
BOX CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS(In
thousands) � Three months ended � Six months ended � September
30,2006 � October 1,2005 � September 30,2006 � October 1,2005
Operating Activities Net income $ 13,079� $ 12,797� $ 20,886� $
20,191� � Adjustments to reconcile net income to net cash provided
by (used for) operating activities: � Intangibles amortization and
depreciation 5,647� 3,589� 9,453� 7,380� Deferred taxes (82) 440�
1,166� (2,053) Stock compensation expense 1,572� --� 3,192� --� Tax
benefit from exercised stock options (774) (1,940) (432) (1,971)
Changes in operating assets and liabilities: Accounts receivable,
net (14,736) (13,698) (3,518) (8,913) Inventories, net (3,668) 672�
(4,734) 5,704� All other current assets excluding deferred tax
asset 2,283� 8,222� (516) 1,586� Liabilities exclusive of long-term
debt � 5,795� � � 1,589� � � (3,774) � � 550� Net cash provided by
(used for) operating activities $ 9,116� � $ 11,671� � $ 21,723� �
$ 22,474� � Investing Activities Capital expenditures $ (589) $
(1,108) $ (2,112) $ (1,600) Capital disposals 373� 188� 403� 1,001�
Acquisition of businesses (payments)/�recoveries 1,759� (13,362)
(127,402) (26,854) Prior merger-related (payments)/�recoveries �
(39) � � (209) � � (1,389) � � (165) Net cash provided by (used
for) investing activities $ 1,504� � $ (14,491) � $ (130,500) � $
(27,618) � Financing Activities Proceeds from borrowings $ 63,997�
$ 49,699� $ 258,519� $ 105,948� Repayment of borrowings (57,467)
(52,058) (131,236) (105,235) Repayment on discounted lease rentals
(3) (244) (24) (667) Proceeds from exercise of options 3,081�
7,316� 6,611� 7,452� Payment of dividends (1,061) (1,010) (2,116)
(2,021) Purchase of treasury stock � (17,587) � � (10) � � (17,587)
� � (10) Net cash provided by (used for) financing activities $
(9,040) $ 3,693� $ 114,167� $ 5,467� � Foreign currency exchange
impact on cash $ (182) � $ 44� � $ (839) � $ 10� � Increase /
(decrease) in cash and cash equivalents $ 1,398� $ 917� $ 4,551� $
333� � Cash and cash equivalents at beginning of period $ 14,360� �
$ 11,008� � $ 11,207� � $ 11,592� � Cash and cash equivalents at
end of period $ 15,758� � $ 11,925� � $ 15,758� � $ 11,925�
Non-GAAP Financial Measurements The Company provides non-GAAP
(�adjusted financial measurements�) such as free cash flow,
operating net income, and operating earnings per share (EPS) as a
supplement to United States Generally Accepted Accounting
Principles (�GAAP�) regarding the Company's operational
performance. These adjusted financial measurements exclude the
impact of certain items and, therefore, have not been calculated in
accordance with GAAP. Pursuant to the requirements of Regulation G,
the Company has provided Management explanations regarding their
use and the usefulness of adjusted financial measurements,
definitions of the adjusted financial measurements, and
reconciliations to the most directly comparable GAAP financial
measures which are provided below. Management uses adjusted
financial measurements (a) to evaluate the Company's historical and
prospective financial performance as well as its performance
relative to its competitors, (b) to set internal sales targets and
associated operating budgets, (c) to allocate resources, (d) to
measure operational profitability, and (e) as an important factor
in determining variable compensation for Management and its team
members. Moreover, the Company has historically reported these
adjusted financial measurements as a means of providing consistent
and comparable information with past reports of financial results.
While Management believes these adjusted financial measurements
provide useful supplemental information to investors, there are
limitations associated with the use of adjusted financial
measurements. The limitations include (i) the non-GAAP financial
measures are not prepared in accordance with GAAP, are not reported
by all of the Company's competitors, and may not be directly
comparable to similarly titled measures of the Company's
competitors due to potential differences in the exact method of
calculation, (ii) the non-GAAP financial measures exclude certain
non-cash amortization of intangible assets on acquisitions,
however, do not specifically exclude the added benefits of these
costs, such as revenue and contributing operating margin, (iii) the
non-GAAP financial measures exclude restructuring and severance
related costs incurred during the periods reported that will impact
future operating results, (iv) the non-GAAP financial measures
exclude non-cash stock-based compensation charges, which is similar
to cash compensation paid to employees and is an integral part of
achieving our operating results, (v) the non-GAAP financial
measures exclude non-cash asset write-up depreciation expense on
acquisitions related to acquisitions made during recent years which
is derived from the book value to fair market value write-up on
acquired assets, and (vi) there is no assurance the excluded items
in the non-GAAP financial measures will not occur in the future.
The Company compensates for these limitations by using these
non-GAAP financial measures as supplements to GAAP financial
measures and by reviewing the reconciliations of the non-GAAP
financial measures to their most comparable GAAP financial
measures. Adjusted financial measurements are not in accordance
with, or an alternative for, GAAP. The Company's adjusted financial
measurements are not meant to be considered in isolation or as a
substitute for comparable GAAP financial measurements, and should
be read only in conjunction with the Company's consolidated
financial statements prepared in accordance with GAAP. Free Cash
Flow Free cash flow is defined by the Company as cash provided by
operating activities less net capital expenditures, plus proceeds
from stock option exercises, plus or minus foreign currency
translation adjustments. Management�s reasons for exclusion of each
item are explained in further detail below. Net capital
expenditures The Company believes net capital expenditures must be
included with cash provided by operating activities to more
properly reflect the actual cash available to the Company. Net
capital expenditures are typically material and directly impact the
availability of the Company�s operating cash. Net capital
expenditures are comprised of capital expenditures and capital
disposals. Proceeds from stock option exercises The Company
believes that proceeds from stock option exercises should be added
to cash provided by operating activities to more accurately reflect
the actual cash available to the Company. The Company has
demonstrated a recurring inflow of cash related to its stock-based
compensation plans and since this cash is immediately available to
the Company, it directly impacts the availability of the Company�s
operating cash. The amount of proceeds from stock option exercises
is dependent upon a number of variables, including the number and
exercise price of outstanding options and the trading price of the
Company's common stock. In addition, the timing of stock option
exercises is under the control of the individual option holder and
is not in the control of the Company. As a result, there can be no
assurance as to the timing or amount of any proceeds from stock
option exercises. Foreign currency translation adjustment Due to
the size of the Company�s international operations, and the ability
of the Company to utilize cash generated from foreign operations
locally without the need to convert such currencies to US dollars
on a regular basis, the Company believes that it is appropriate to
adjust its operating cash flows to take into account the positive
and / or negative impact of such charges as such adjustment
provides an appropriate measure of the availability of the
Company�s operating cash on a world-wide basis. A limitation of
adjusting cash flows to account for the foreign currency impact is
that it may not provide an accurate measure of cash available in US
dollars. A reconciliation of cash provided by operating activities
to free cash flow is presented below: � 2Q07 1Q07 2Q06 2QYTD07
2QYTD06 Cash provided by operating activities $ 9,116� $ 12,607� $
11,671� $ 21,723� $ 22,474� Capital expenditures (589) (1,523)
(1,108) (2,112) (1,600) Capital disposals 373� 30� 188� 403� 1,001�
Proceeds from stock option exercises 3,081� 3,530� 7,316� 6,611�
7,452� Foreign currency exchange impact on cash � (182) � (657) �
44� � (839) � 10� Free cash flow $ 11,799� $ 13,987� $ 18,111� $
25,786� $ 29,337� Operating net income and operating earnings per
share (EPS) Management believes that operating net income, defined
as net income less reconciling items including restructuring
charges / severance costs, amortization of intangible assets on
acquisitions, stock-based compensation expense, and asset write-up
depreciation expense on acquisitions and operating EPS, defined as
operating net income divided by weighted average common shares
outstanding (diluted), provides investors additional important
information to enable them to assess, in a way Management assesses,
the Company�s current and future operations. Management�s reason
for exclusion of each item is explained in further detail below:
Restructuring charges / severance costs The Company believes that
incurring costs in the current period(s) as part of a formal
restructuring plan or as a result of economies of scale from
acquisitions will result in a long-term positive impact on
financial performance in the future. Restructuring charges and
non-restructuring severance costs are presented in accordance with
GAAP in our Condensed Statements of Income. However, due to the
material amount of additional costs incurred during a single or
possibly two successive periods, Management believes that exclusion
of these costs and their related tax impact provides a more
accurate reflection of the Company�s ongoing financial performance.
Amortization of intangible assets on acquisitions The Company
incurs non-cash amortization expense from intangible assets related
to various acquisitions it has made in recent years. Management
excludes these expenses and their related tax impact for the
purpose of calculating non-GAAP financial measures when it
evaluates the continuing operational performance of the Company
because these costs are fixed at the time of an acquisition, are
then amortized over a period of several years after the
acquisition, and generally cannot be changed or influenced by
Management after the acquisition. Stock-based compensation expense
The Company adopted Statement of Financial Accounting Standards
(�SFAS�) No.�123 (revised 2004), �Share-Based Payment� (�SFAS
123R�) as of April 1, 2006, the first day of the Company�s Fiscal
2007, using the modified prospective transition method. This
transition method requires non-cash compensation expense 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. Stock-based compensation expense is now an integral part
of ongoing operations since it is considered similar to other types
of compensation to employees. However, Management believes that the
application of the modified prospective transition method may
result in misleading period-over-period comparisons during the
transition year of Fiscal 2007 and is providing an adjusted
disclosure, which excludes stock-based compensation and its related
tax impact in the current period. Asset write-up depreciation
expense on acquisitions The Company incurs non-cash asset write-up
depreciation expense on acquisitions related to acquisitions made
during recent years. Specifically, this non-cash expenditure is
derived from the book value to fair market value write-up on
acquired assets. Asset write-ups are depreciated over their
remaining useful life which generally falls between one to five
years. Management excludes these expenses and their related tax
impact for the purpose of calculating non-GAAP financial measures
when it evaluates the continuing operational performance of the
Company because these costs are fixed from acquisition to the end
of the asset's useful life, and generally cannot be changed or
influenced by Management after the acquisition. A reconciliation of
net income to operating net income is presented below: � 2Q07 �
2Q06 � 2QYTD07 � 2QYTD06 Net income $ 13,079� $ 12,797� $ 20,886� $
20,191� % of revenues 4.8% 6.9% 4.2% 5.5% Reconciling items, after
tax � 3,027� � � 834� � � 5,736� � � 6,154� Operating Net Income $
16,106� $ 13,631� $ 26,622� $ 26,345� % of revenues � 5.9% � � 7.4%
� � 5.3% � � 7.2% A reconciliation of diluted earnings per common
share (EPS) to operating EPS is presented below: � 2Q07 � 2Q06 �
2QYTD07 � 2QYTD06 Diluted EPS $ 0.74� $ 0.74� $ 1.18� $ 1.17� EPS
impact of reconciling items � 0.17� � � 0.05� � � 0.32� � � 0.36�
Operating EPS $ 0.91� � $ 0.78(1) � $ 1.50� � $ 1.53� (1) Operating
EPS for 2Q06 does not sum due to rounding. Supplemental
Information: The following supplemental information including
geographical segment results, service type results, same office
comparisons, and significant balance sheet ratios and other
information is being provided for comparisons of reported results
for second quarter Fiscal 2007 and 2006, first quarter Fiscal 2007,
and / or second quarter Fiscal 2007 and 2006 year-to-date. All
dollar amounts are in thousands unless noted otherwise.
Geographical Segment Results: Management is presented with and
reviews revenues, operating income, and adjusted operating income
by geographical segment. Adjusted operating income is defined as
operating income less reconciling items, including restructuring
charges / severance costs, amortization of intangible assets on
acquisitions, stock-based compensation expense, and asset write-up
depreciation expense on acquisitions. See above for additional
details provided by Management regarding adjusted financial
information. Revenues, operating income, and adjusted operating
income for North America, Europe, and All Other are presented
below: � 2Q07 � 1Q07 � 2Q06 � 2QYTD07 � 2QYTD06 Revenues: North
America $ 231,297� $ 192,572� $ 146,754� $ 423,869� $ 283,615�
Europe 30,844� 29,345� 29,199� 60,189� 62,949� All Other � 9,184� �
� 8,478� � � 9,097� � � 17,662� � � 17,768� Total $ 271,325� $
230,395� $ 185,050� $ 501,720� $ 364,332� � Operating income: North
America $ 18,937� $ 11,026� $ 16,537� $ 29,963� $ 28,396� % of
North America revenues 8.2% 5.7% 11.3% 7.1% 10.0% Europe $ 3,489� $
3,143� $ 3,427� $ 6,632� $ 3,060� % of Europe revenues 11.3% 10.7%
11.7% 11.0% 4.9% All Other $ 1,895� $ 1,596� $ 1,943� $ 3,491� $
3,623� % of All Other revenues � 20.6% � � 18.8% � � 21.4% � �
19.8% � � 20.4% Total $ 24,321� $ 15,765� $ 21,907� $ 40,086� $
35,079� % of Total revenues 9.0% 6.8% 11.8% 8.0% 9.6% � Reconciling
items (pretax): North America $ 4,657� $ 4,168� $ 1,274� $ 8,825� $
5,653� Europe --� --� --� --� 3,742� All Other � --� � � --� � �
--� � � --� � � --� Total $ 4,657� $ 4,168� $ 1,274� $ 8,825� $
9,395� � � Adjusted Operating Income: North America $ 23,594� $
15,194� $ 17,811� $ 38,788� $ 34,049� % of North America revenues
10.2% 7.9% 12.1% 9.2% 12.0% Europe $ 3,489� $ 3,143� $ 3,427� $
6,632� $ 6,802� % of Europe revenues 11.3% 10.7% 11.7% 11.0% 10.8%
All Other $ 1,895� $ 1,596� $ 1,943� $ 3,491� $ 3,623� % of All
Other revenues � 20.6% � � 18.8% � � 21.4% � � 19.8% � � 20.4%
Total $ 28,978� $ 19,933� $ 23,181� $ 48,911� $ 44,474� % of Total
revenues � 10.7% � � 8.7% � � 12.5% � � 9.7% � � 12.2% Service Type
Results: Management is presented with and reviews revenues and
gross profit by service type. Revenues and gross profit information
for Data Services, Voice Services, and Hotline Services are
presented below: � 2Q07 � 1Q07 � 2Q06 � 2QYTD07 � 2QYTD06 Revenues:
Data Services $ 46,447� $ 44,531� $ 52,584� $ 90,978� $ 105,485�
Voice Services 169,815� 133,639� 78,410� 303,454� 151,339� Hotline
Services � 55,063� � � 52,225� � � 54,056� � � 107,288� � �
107,508� Total $ 271,325� $ 230,395� $ 185,050� $ 501,720� $
364,332� � Gross profit: Data Services $ 13,907� $ 13,317� $
15,482� $ 27,224� $ 31,006� % of Data Services revenues 29.9% 29.9%
29.4% 29.9% 29.4% Voice Services $ 57,913� $ 45,763� $ 31,173� $
103,676� $ 59,011� % of Voice Services revenues 34.1% 34.2% 39.8%
34.2% 39.0% Hotline Services $ 27,216� $ 26,764� $ 27,227� $
53,980� $ 54,805� % of Hotline Services revenues � 49.4% � � 51.2%
� � 50.4% � � 50.3% � � 51.0% Total $ 99,036� $ 85,844� $ 73,882� $
184,880� $ 144,822� % of Total revenues � 36.5% � � 37.3% � � 39.9%
� � 36.8% � � 39.8% Same-office comparisons: Management is
presented with and reviews revenues on a same-office basis which
excludes the effects of revenues from acquisitions since the
earliest reported period thus allowing the comparison of
same-office revenues from the earliest to current period under
review. While the information provided below is presented on a
consolidated basis, the revenue from acquisitions from second
quarter Fiscal 2006 to second quarter Fiscal 2007 relates to North
America Voice Services. Information on revenues on a same-office
basis compared to the same quarter last year is presented below: �
2Q07 � 2Q06 � % Change� Revenues as reported $ 271,325� $ 185,050�
47% Less revenues from offices added since 2Q06 � (99,775) � �
(5,062) � � Revenues on same-office basis $ 171,550� � $ 179,998� �
(5)% Information on revenues on a same-office basis compared to the
sequential quarter is presented below: � 2Q07 � 1Q07 � % Change�
Revenues as reported $ 271,325� $ 230,395� 18% Less revenues from
offices added since 1Q07 � (88,259) � � (60,174) � � Revenues on
same-office basis $ 183,066� � $ 170,221� � 8% Significant balance
sheet ratios and other information: Information on certain balance
sheet ratios, backlog, and headcount is presented below. Dollar
amounts are in millions. � 2Q07 � 1Q07 � 2Q06 � Accounts
receivable: Gross accounts receivable $ 200.1� $ 188.2� $ 139.5�
Reserve $ / % $ 14.8� / 7.4% $ 15.9� / 8.5% $ 7.7� / 5.5% Net
accounts receivable $ 185.3� $ 172.3� $ 131.8� � Net days sales
outstanding 57 days� 57 days 57 days � Inventory: Gross inventory $
96.8� $ 93.9� $ 66.6� Reserve $ / % $ 24.9� / 25.7% $ 25.7� / 27.4%
$ 13.4� / 20.1% Net inventory $ 71.9� $ 68.2� $ 53.2� � Net
inventory turns 7.6x 7.2x 6.9x � Six-month order backlog $ 165� $
168� $ 104� � Team members � 4,649� � � � 4,752� � � � 3,282� �
Black Box Corporation (NASDAQ:BBOX) today reported for second
quarter Fiscal 2007 ended September 30, 2006 diluted earnings per
share of 74 cents on net income of $13.1 million or 4.8% of
revenues compared to diluted earnings per share of 74 cents on net
income of $12.8 million or 6.9% of revenues for the same quarter
last year. On a sequential quarter comparison basis, first quarter
Fiscal 2007 diluted earnings per share were 43 cents on net income
of $7.8 million or 3.4% of revenues. Excluding reconciling items,
operating earnings per share (which is a non-GAAP term and is
defined below) for second quarter Fiscal 2007 were 91 cents on
operating net income (which is a non-GAAP term and is defined
below) of $16.1 million or 5.9% of revenues compared to operating
earnings per share of 78 cents on operating net income of $13.6
million or 7.4% of revenues for the same quarter last year.
Management believes that presenting operating earnings per share
and operating net income excluding reconciling items is useful to
investors because it provides a more meaningful comparison of the
ongoing operations of the Company. During second quarter Fiscal
2007, the Company's reconciling items included pre-tax charges of
$1.9 million for amortization of intangible assets on acquisitions,
$1.6 million for stock-based compensation expense, and $1.2 million
for asset write-up depreciation expense on acquisitions. The impact
of these reconciling items after tax on net income and EPS is $3.0
million and 17 cents, respectively. During second quarter Fiscal
2006, as previously disclosed, the Company's reconciling items
included pre-tax charges of $1.1 million for amortization of
intangible assets on acquisitions and $0.2 million for asset
write-up depreciation expense on acquisitions. The impact of these
reconciling items after tax on net income and EPS is $0.8 million
and 5 cents, respectively. See below for further discussion
regarding management's use of non-GAAP accounting measurements.
Second quarter Fiscal 2007 total revenues were $271 million, an
increase of $86 million or 47% from $185 million for the same
quarter last year. On a sequential quarter comparison basis, second
quarter Fiscal 2007 total revenues increased $41 million or 18%
from first quarter Fiscal 2007 total revenues of $230 million.
During second quarter Fiscal 2007, the Company repurchased 441,000
shares of common stock for approximately $18 million. Since the
inception of the program in April 1999, the Company has repurchased
7.4 million shares of common stock for approximately $315 million
of consideration. The funding of this program has been provided
primarily through the Company's free cash flow generation. Second
quarter Fiscal 2007 cash provided by operating activities was $9
million or 70% of net income, compared to $12 million or 91% of net
income for the same quarter last year. Second quarter Fiscal 2007
free cash flow (which is a non-GAAP term and is defined below) was
$12 million compared to $18 million for the same quarter last year.
On a sequential quarter comparison basis, first quarter Fiscal 2007
cash provided by operating activities was $13 million or 161% of
net income and free cash flow was $14 million. Black Box utilized
its second quarter Fiscal 2007 free cash flow to repurchase $11
million of its common stock and pay dividends of $1 million.
Management believes that free cash flow, defined by the Company as
cash provided by operating activities less net capital
expenditures, plus proceeds from stock option exercises, plus or
minus foreign currency translation adjustments, is an important
measurement of liquidity as it represents the total cash available
to the Company. For the six month period ending September 30, 2006,
diluted earnings per share were $1.18 on net income of $20.9
million or 4.2% of revenues compared to diluted earnings per share
of $1.17 on net income of $20.2 million or 5.5% of revenues for the
same period last year. Excluding reconciling items, operating
earnings per share for the six month period ending September 30,
2006 were $1.50 on operating net income of $26.6 million or 5.3% of
revenues compared to operating earnings per share of $1.53 on
operating net income of $26.3 million or 7.2% of revenues for the
same period last year. For the six month period ending September
30, 2006, the Company's reconciling items included pre-tax charges
of $3.3 million for amortization of intangible assets on
acquisitions, $3.2 million for stock-based compensation expense,
$1.2 million for asset write-up depreciation expense on
acquisitions, and $1.1 million for restructuring charges /
severance costs. The impact of these reconciling items after tax on
net income and EPS is $5.7 million and 32 cents, respectively.
During the six month period ended October 1, 2005, as previously
disclosed, the Company's reconciling items included pre-tax charges
of $5.3 million for restructuring charges / severance costs, $2.2
million for amortization of intangible assets on acquisitions, and
$1.9 million for asset write-up depreciation expense on
acquisitions. The impact of these reconciling items after tax on
net income and EPS is $6.2 million and 36 cents, respectively. See
below for further discussion regarding management's use of non-GAAP
accounting measurements. For the six month period ending September
30, 2006, total revenues were $502 million, an increase of $138
million or 38% from $364 million for the same period last year.
Cash provided by operating activities for the six month period was
$22 million or 104% of net income compared to $22 million or 111%
of net income for the same period last year. Free cash flow was $26
million compared to $29 million for the same period last year.
Black Box utilized its six month period free cash flow to fund
mergers and acquisitions of $13 million, repurchase $11 million of
its common stock, and pay dividends of $2 million. The Company's
6-month order backlog was $165 million at September 30, 2006
compared to $104 million for the same quarter ended last year. On a
sequential quarter end comparison basis, the Company's 6-month
order backlog was $168 million at July 1, 2006. "We are pleased to
report consecutive quarters of record revenues and now record
operating earnings per share," stated Fred C. Young, Chief
Executive Officer of Black Box Corporation. "These two significant
milestones were accomplished through the combined efforts of our
4,600 Worldwide Black Box Team Members. With revenues now
annualizing at $1 billion, we will look to build upon our first
half success moving forward." The Company is sponsoring an Investor
Day in two separate sessions. The event will be held in New York
City, NY on Tuesday, November 14, 2006 and Boston, MA on Wednesday,
November 15, 2006. Both days events are expected to begin at
approximately 10:00 a.m. Eastern Standard Time and conclude at
approximately 2:00 p.m. The program, which is open to the general
public, will be hosted by Fred C. Young, Chief Executive Officer,
and Michael McAndrew, Chief Financial Officer. Interested
participants can register through investors@blackbox.com or by
contacting investor relations at 724-873-6788. The Company will
conduct a conference call beginning at 5:00 p.m. Eastern Standard
Time today, October 31, 2006. Fred C. Young, Chief Executive
Officer, will host the call. To participate in the call, please
dial 612-332-1025 approximately 15 minutes prior to the starting
time and ask to be connected to the Black Box Earnings Call. A
replay of the conference call will be available for one week after
the teleconference by dialing 320-365-3844 and using access code
844113. Black Box is the world's largest technical services company
dedicated to designing, building, and maintaining today's
complicated data and voice infrastructure systems. Black Box
services 175,000 clients in 141 countries with 170 offices
throughout the world. To learn more, visit the Black Box website at
www.blackbox.com. Black Box and the Double Diamond logo are
registered trademarks and DVH is a trademark of BB Technologies,
Inc. Any forward-looking statements contained in this release are
made pursuant to the safe harbor provisions of the Private
Securities Litigation Reform Act of 1995. You can identify these
forward-looking statements by the fact they use words such as
"should," "anticipate," "estimate," "approximate," "expect,"
"target," "may," "will," "project," "intend," "plan," "believe,"
and other words of similar meaning and expression in connection
with any discussion of future operating or financial performance.
One can also identify forward-looking statements by the fact that
they do not relate strictly to historical or current facts.
Forward-looking statements are inherently subject to a variety of
risks and uncertainties that could cause actual results to differ
materially from those projected. Although it is not possible to
predict or identify all risk factors, they may include levels of
business activity and operating expenses, expenses relating to
corporate compliance requirements, cash flows, global economic
conditions, successful integration of acquisitions, including the
Norstan, NextiraOne, and Nu-Vision Technologies businesses, the
timing and costs of restructuring programs, successful marketing of
DVH (Data, Voice, Hotline) services, and successful implementation
of our M&A program, including identifying appropriate targets,
consummating transactions, and successfully integrating the
businesses. Additional risk factors are included in the Company's
Annual Report on Form 10-K. We can give no assurance that any goal,
plan, or target set forth in forward-looking statements can be
achieved and readers are cautioned not to place undue reliance on
such statements, which speak only as of the date made. We undertake
no obligation to release publicly any revisions to forward-looking
statements as a result of future events or developments. -0- *T
BLACK BOX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts) Three months ended Six
months ended ------------------------- -------------------------
September 30, October 1, September 30, October 1, 2006 2005 2006
2005
----------------------------------------------------------------------
Revenues: Hotline products $ 55,063 $ 54,056 $ 107,288 $ 107,508
On-Site services 216,262 130,994 394,432 256,824
------------------------- ------------------------- Total 271,325
185,050 501,720 364,332 Cost of sales: Hotline products 27,847
26,829 53,308 52,703 On-Site services 144,442 84,339 263,532
166,807 ------------------------- ------------------------- Total
172,289 111,168 316,840 219,510 -------------------------
------------------------- Gross profit 99,036 73,882 184,880
144,822 Selling, general & administrative expenses 72,784
50,647 141,357 101,567 Restructuring and other charges -- -- --
5,290 Intangibles amortization 1,931 1,328 3,437 2,886
------------------------- ------------------------- Operating
income 24,321 21,907 40,086 35,079 Interest expense (income), net
4,126 2,330 7,766 4,289 Other expenses (income), net 72 40 187 (35)
------------------------- ------------------------- Income before
provision for income taxes 20,123 19,537 32,133 30,825 Provision
for income taxes 7,044 6,740 11,247 10,634
------------------------- ------------------------- Net income $
13,079 $ 12,797 $ 20,886 $ 20,191 =========================
========================= Earnings per common share: Basic $ 0.75 $
0.75 $ 1.20 $ 1.19 =========================
========================= Diluted $ 0.74 $ 0.74 $ 1.18 $ 1.17
========================= ========================= Weighted
average common shares outstanding Basic 17,513 17,022 17,415 16,933
========================= ========================= Diluted 17,743
17,374 17,766 17,208 =========================
========================= *T -0- *T BLACK BOX CORPORATION CONDENSED
CONSOLIDATED BALANCE SHEETS (In thousands) September 30, March 31,
2006 2006
----------------------------------------------------------------------
Assets Cash and cash equivalents $ 15,758 $ 11,207 Accounts
receivable, net 185,333 116,713 Inventories, net 71,877 53,926
Costs and estimated earnings in excess of billings on uncompleted
contracts 56,553 23,803 Deferred tax asset 9,489 8,973 Prepaid and
Other current assets 27,606 16,502 ------------- -------------
Total current assets 366,616 231,124 Property, plant and equipment,
net 41,595 35,124 Goodwill, net 586,273 468,724 Intangibles:
Customer relationships, net 53,996 24,657 Other Intangibles, net
34,799 30,783 Deferred tax asset 2,654 4,231 Other assets 4,343
5,091 ------------- ------------- Total assets $ 1,090,276 $
799,734 ============= ============= Liabilities Accounts payable $
87,127 $ 44,943 Accrued compensation and benefits 20,656 13,954
Deferred revenue 51,120 22,211 Restructuring reserve 14,246 3,292
Billings in excess of costs and estimated earnings on uncompleted
contracts 20,571 8,648 Current maturities of long-term debt 608
1,049 Other liabilities 59,253 33,771 ------------- -------------
Total current liabilities 253,581 127,868 Long-term debt 251,945
122,673 Other liabilities 27,708 8,293 ------------- -------------
Total liabilities 533,234 258,834 Stockholders' Equity Common stock
25 25 Additional paid-in capital 373,045 362,810 Treasury stock, at
cost (314,411) (296,824) Accumulated other comprehensive income
17,746 13,036 Retained earnings 480,637 461,853 -------------
------------- Total stockholders' equity 557,042 540,900
------------- ------------- Total liabilities and stockholders'
equity $ 1,090,276 $ 799,734 ============= ============= *T -0- *T
BLACK BOX CORPORATION CONDENSED CONSOLIDATED STATEMENTS OF CASH
FLOWS (In thousands) Three months ended Six months ended
------------------------------------------------- September 30,
October 1, September 30, October 1, 2006 2005 2006 2005
----------------------------------------------------------------------
Operating Activities Net income $ 13,079 $ 12,797 $ 20,886 $ 20,191
Adjustments to reconcile net income to net cash provided by (used
for) operating activities: Intangibles amortization and
depreciation 5,647 3,589 9,453 7,380 Deferred taxes (82) 440 1,166
(2,053) Stock compensation expense 1,572 -- 3,192 -- Tax benefit
from exercised stock options (774) (1,940) (432) (1,971) Changes in
operating assets and liabilities: Accounts receivable, net (14,736)
(13,698) (3,518) (8,913) Inventories, net (3,668) 672 (4,734) 5,704
All other current assets excluding deferred tax asset 2,283 8,222
(516) 1,586 Liabilities exclusive of long- term debt 5,795 1,589
(3,774) 550 ------------------------------------------------- Net
cash provided by (used for) operating activities $ 9,116 $ 11,671 $
21,723 $ 22,474 -------------------------------------------------
Investing Activities Capital expenditures $ (589) $ (1,108) $
(2,112) $ (1,600) Capital disposals 373 188 403 1,001 Acquisition
of businesses (payments)/ recoveries 1,759 (13,362) (127,402)
(26,854) Prior merger- related (payments)/ recoveries (39) (209)
(1,389) (165) ------------------------------------------------- Net
cash provided by (used for) investing activities $ 1,504 $ (14,491)
$ (130,500) $ (27,618)
------------------------------------------------- Financing
Activities Proceeds from borrowings $ 63,997 $ 49,699 $ 258,519 $
105,948 Repayment of borrowings (57,467) (52,058) (131,236)
(105,235) Repayment on discounted lease rentals (3) (244) (24)
(667) Proceeds from exercise of options 3,081 7,316 6,611 7,452
Payment of dividends (1,061) (1,010) (2,116) (2,021) Purchase of
treasury stock (17,587) (10) (17,587) (10)
------------------------------------------------- Net cash provided
by (used for) financing activities $ (9,040) $ 3,693 $ 114,167 $
5,467 Foreign currency exchange impact on cash $ (182) $ 44 $ (839)
$ 10 ------------------------------------------------- Increase /
(decrease) in cash and cash equivalents $ 1,398 $ 917 $ 4,551 $ 333
Cash and cash equivalents at beginning of period $ 14,360 $ 11,008
$ 11,207 $ 11,592 -------------------------------------------------
Cash and cash equivalents at end of period $ 15,758 $ 11,925 $
15,758 $ 11,925 -------------------------------------------------
*T Non-GAAP Financial Measurements The Company provides non-GAAP
("adjusted financial measurements") such as free cash flow,
operating net income, and operating earnings per share (EPS) as a
supplement to United States Generally Accepted Accounting
Principles ("GAAP") regarding the Company's operational
performance. These adjusted financial measurements exclude the
impact of certain items and, therefore, have not been calculated in
accordance with GAAP. Pursuant to the requirements of Regulation G,
the Company has provided Management explanations regarding their
use and the usefulness of adjusted financial measurements,
definitions of the adjusted financial measurements, and
reconciliations to the most directly comparable GAAP financial
measures which are provided below. Management uses adjusted
financial measurements (a) to evaluate the Company's historical and
prospective financial performance as well as its performance
relative to its competitors, (b) to set internal sales targets and
associated operating budgets, (c) to allocate resources, (d) to
measure operational profitability, and (e) as an important factor
in determining variable compensation for Management and its team
members. Moreover, the Company has historically reported these
adjusted financial measurements as a means of providing consistent
and comparable information with past reports of financial results.
While Management believes these adjusted financial measurements
provide useful supplemental information to investors, there are
limitations associated with the use of adjusted financial
measurements. The limitations include (i) the non-GAAP financial
measures are not prepared in accordance with GAAP, are not reported
by all of the Company's competitors, and may not be directly
comparable to similarly titled measures of the Company's
competitors due to potential differences in the exact method of
calculation, (ii) the non-GAAP financial measures exclude certain
non-cash amortization of intangible assets on acquisitions,
however, do not specifically exclude the added benefits of these
costs, such as revenue and contributing operating margin, (iii) the
non-GAAP financial measures exclude restructuring and severance
related costs incurred during the periods reported that will impact
future operating results, (iv) the non-GAAP financial measures
exclude non-cash stock-based compensation charges, which is similar
to cash compensation paid to employees and is an integral part of
achieving our operating results, (v) the non-GAAP financial
measures exclude non-cash asset write-up depreciation expense on
acquisitions related to acquisitions made during recent years which
is derived from the book value to fair market value write-up on
acquired assets, and (vi) there is no assurance the excluded items
in the non-GAAP financial measures will not occur in the future.
The Company compensates for these limitations by using these
non-GAAP financial measures as supplements to GAAP financial
measures and by reviewing the reconciliations of the non-GAAP
financial measures to their most comparable GAAP financial
measures. Adjusted financial measurements are not in accordance
with, or an alternative for, GAAP. The Company's adjusted financial
measurements are not meant to be considered in isolation or as a
substitute for comparable GAAP financial measurements, and should
be read only in conjunction with the Company's consolidated
financial statements prepared in accordance with GAAP. Free Cash
Flow Free cash flow is defined by the Company as cash provided by
operating activities less net capital expenditures, plus proceeds
from stock option exercises, plus or minus foreign currency
translation adjustments. Management's reasons for exclusion of each
item are explained in further detail below. Net capital
expenditures The Company believes net capital expenditures must be
included with cash provided by operating activities to more
properly reflect the actual cash available to the Company. Net
capital expenditures are typically material and directly impact the
availability of the Company's operating cash. Net capital
expenditures are comprised of capital expenditures and capital
disposals. Proceeds from stock option exercises The Company
believes that proceeds from stock option exercises should be added
to cash provided by operating activities to more accurately reflect
the actual cash available to the Company. The Company has
demonstrated a recurring inflow of cash related to its stock-based
compensation plans and since this cash is immediately available to
the Company, it directly impacts the availability of the Company's
operating cash. The amount of proceeds from stock option exercises
is dependent upon a number of variables, including the number and
exercise price of outstanding options and the trading price of the
Company's common stock. In addition, the timing of stock option
exercises is under the control of the individual option holder and
is not in the control of the Company. As a result, there can be no
assurance as to the timing or amount of any proceeds from stock
option exercises. Foreign currency translation adjustment Due to
the size of the Company's international operations, and the ability
of the Company to utilize cash generated from foreign operations
locally without the need to convert such currencies to US dollars
on a regular basis, the Company believes that it is appropriate to
adjust its operating cash flows to take into account the positive
and / or negative impact of such charges as such adjustment
provides an appropriate measure of the availability of the
Company's operating cash on a world-wide basis. A limitation of
adjusting cash flows to account for the foreign currency impact is
that it may not provide an accurate measure of cash available in US
dollars. A reconciliation of cash provided by operating activities
to free cash flow is presented below: -0- *T 2Q07 1Q07 2Q06 2QYTD07
2QYTD06
----------------------------------------------------------------------
Cash provided by operating activities $ 9,116 $12,607 $11,671
$21,723 $22,474 Capital expenditures (589) (1,523) (1,108) (2,112)
(1,600) Capital disposals 373 30 188 403 1,001 Proceeds from stock
option exercises 3,081 3,530 7,316 6,611 7,452 Foreign currency
exchange impact on cash (182) (657) 44 (839) 10
---------------------------------------- Free cash flow $11,799
$13,987 $18,111 $25,786 $29,337
----------------------------------------------------------------------
*T Operating net income and operating earnings per share (EPS)
Management believes that operating net income, defined as net
income less reconciling items including restructuring charges /
severance costs, amortization of intangible assets on acquisitions,
stock-based compensation expense, and asset write-up depreciation
expense on acquisitions and operating EPS, defined as operating net
income divided by weighted average common shares outstanding
(diluted), provides investors additional important information to
enable them to assess, in a way Management assesses, the Company's
current and future operations. Management's reason for exclusion of
each item is explained in further detail below: Restructuring
charges / severance costs The Company believes that incurring costs
in the current period(s) as part of a formal restructuring plan or
as a result of economies of scale from acquisitions will result in
a long-term positive impact on financial performance in the future.
Restructuring charges and non-restructuring severance costs are
presented in accordance with GAAP in our Condensed Statements of
Income. However, due to the material amount of additional costs
incurred during a single or possibly two successive periods,
Management believes that exclusion of these costs and their related
tax impact provides a more accurate reflection of the Company's
ongoing financial performance. Amortization of intangible assets on
acquisitions The Company incurs non-cash amortization expense from
intangible assets related to various acquisitions it has made in
recent years. Management excludes these expenses and their related
tax impact for the purpose of calculating non-GAAP financial
measures when it evaluates the continuing operational performance
of the Company because these costs are fixed at the time of an
acquisition, are then amortized over a period of several years
after the acquisition, and generally cannot be changed or
influenced by Management after the acquisition. Stock-based
compensation expense The Company adopted Statement of Financial
Accounting Standards ("SFAS") No. 123 (revised 2004), "Share-Based
Payment" ("SFAS 123R") as of April 1, 2006, the first day of the
Company's Fiscal 2007, using the modified prospective transition
method. This transition method requires non-cash compensation
expense 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. Stock-based compensation expense is now an
integral part of ongoing operations since it is considered similar
to other types of compensation to employees. However, Management
believes that the application of the modified prospective
transition method may result in misleading period-over-period
comparisons during the transition year of Fiscal 2007 and is
providing an adjusted disclosure, which excludes stock-based
compensation and its related tax impact in the current period.
Asset write-up depreciation expense on acquisitions The Company
incurs non-cash asset write-up depreciation expense on acquisitions
related to acquisitions made during recent years. Specifically,
this non-cash expenditure is derived from the book value to fair
market value write-up on acquired assets. Asset write-ups are
depreciated over their remaining useful life which generally falls
between one to five years. Management excludes these expenses and
their related tax impact for the purpose of calculating non-GAAP
financial measures when it evaluates the continuing operational
performance of the Company because these costs are fixed from
acquisition to the end of the asset's useful life, and generally
cannot be changed or influenced by Management after the
acquisition. A reconciliation of net income to operating net income
is presented below: -0- *T 2Q07 2Q06 2QYTD07 2QYTD06
----------------------------------------------------------------------
Net income $13,079 $12,797 $20,886 $20,191 % of revenues 4.8% 6.9%
4.2% 5.5% Reconciling items, after tax 3,027 834 5,736 6,154
----------------------------------- Operating Net Income $16,106
$13,631 $26,622 $26,345 % of revenues 5.9% 7.4% 5.3% 7.2%
----------------------------------------------------------------------
*T A reconciliation of diluted earnings per common share (EPS) to
operating EPS is presented below: -0- *T 2Q07 2Q06 2QYTD07 2QYTD06
----------------------------------------------------------------------
Diluted EPS $0.74 $ 0.74 $ 1.18 $ 1.17 EPS impact of reconciling
items 0.17 0.05 0.32 0.36 ------------------------------- Operating
EPS $0.91 $0.78(1) $ 1.50 $ 1.53
----------------------------------------------------------------------
*T (1) Operating EPS for 2Q06 does not sum due to rounding.
Supplemental Information: The following supplemental information
including geographical segment results, service type results, same
office comparisons, and significant balance sheet ratios and other
information is being provided for comparisons of reported results
for second quarter Fiscal 2007 and 2006, first quarter Fiscal 2007,
and / or second quarter Fiscal 2007 and 2006 year-to-date. All
dollar amounts are in thousands unless noted otherwise.
Geographical Segment Results: Management is presented with and
reviews revenues, operating income, and adjusted operating income
by geographical segment. Adjusted operating income is defined as
operating income less reconciling items, including restructuring
charges / severance costs, amortization of intangible assets on
acquisitions, stock-based compensation expense, and asset write-up
depreciation expense on acquisitions. See above for additional
details provided by Management regarding adjusted financial
information. Revenues, operating income, and adjusted operating
income for North America, Europe, and All Other are presented
below: -0- *T 2Q07 1Q07 2Q06 2QYTD07 2QYTD06
----------------------------------------------------------------------
Revenues: North America $231,297 $192,572 $146,754 $423,869
$283,615 Europe 30,844 29,345 29,199 60,189 62,949 All Other 9,184
8,478 9,097 17,662 17,768
------------------------------------------------- Total $271,325
$230,395 $185,050 $501,720 $364,332 Operating income: North America
$ 18,937 $ 11,026 $ 16,537 $ 29,963 $ 28,396 % of North America
revenues 8.2% 5.7% 11.3% 7.1% 10.0% Europe $ 3,489 $ 3,143 $ 3,427
$ 6,632 $ 3,060 % of Europe revenues 11.3% 10.7% 11.7% 11.0% 4.9%
All Other $ 1,895 $ 1,596 $ 1,943 $ 3,491 $ 3,623 % of All Other
revenues 20.6% 18.8% 21.4% 19.8% 20.4%
------------------------------------------------- Total $ 24,321 $
15,765 $ 21,907 $ 40,086 $ 35,079 % of Total revenues 9.0% 6.8%
11.8% 8.0% 9.6% Reconciling items (pretax): North America $ 4,657 $
4,168 $ 1,274 $ 8,825 $ 5,653 Europe -- -- -- -- 3,742 All Other --
-- -- -- -- ------------------------------------------------- Total
$ 4,657 $ 4,168 $ 1,274 $ 8,825 $ 9,395 Adjusted Operating Income:
North America $ 23,594 $ 15,194 $ 17,811 $ 38,788 $ 34,049 % of
North America revenues 10.2% 7.9% 12.1% 9.2% 12.0% Europe $ 3,489 $
3,143 $ 3,427 $ 6,632 $ 6,802 % of Europe revenues 11.3% 10.7%
11.7% 11.0% 10.8% All Other $ 1,895 $ 1,596 $ 1,943 $ 3,491 $ 3,623
% of All Other revenues 20.6% 18.8% 21.4% 19.8% 20.4%
------------------------------------------------- Total $ 28,978 $
19,933 $ 23,181 $ 48,911 $ 44,474 % of Total revenues 10.7% 8.7%
12.5% 9.7% 12.2%
----------------------------------------------------------------------
*T Service Type Results: Management is presented with and reviews
revenues and gross profit by service type. Revenues and gross
profit information for Data Services, Voice Services, and Hotline
Services are presented below: -0- *T 2Q07 1Q07 2Q06 2QYTD07 2QYTD06
----------------------------------------------------------------------
Revenues: Data Services $ 46,447 $ 44,531 $ 52,584 $ 90,978
$105,485 Voice Services 169,815 133,639 78,410 303,454 151,339
Hotline Services 55,063 52,225 54,056 107,288 107,508
------------------------------------------------- Total $271,325
$230,395 $185,050 $501,720 $364,332 Gross profit: Data Services $
13,907 $ 13,317 $ 15,482 $ 27,224 $ 31,006 % of Data Services
revenues 29.9% 29.9% 29.4% 29.9% 29.4% Voice Services $ 57,913 $
45,763 $ 31,173 $103,676 $ 59,011 % of Voice Services revenues
34.1% 34.2% 39.8% 34.2% 39.0% Hotline Services $ 27,216 $ 26,764 $
27,227 $ 53,980 $ 54,805 % of Hotline Services revenues 49.4% 51.2%
50.4% 50.3% 51.0% -------------------------------------------------
Total $ 99,036 $ 85,844 $ 73,882 $184,880 $144,822 % of Total
revenues 36.5% 37.3% 39.9% 36.8% 39.8%
----------------------------------------------------------------------
*T Same-office comparisons: Management is presented with and
reviews revenues on a same-office basis which excludes the effects
of revenues from acquisitions since the earliest reported period
thus allowing the comparison of same-office revenues from the
earliest to current period under review. While the information
provided below is presented on a consolidated basis, the revenue
from acquisitions from second quarter Fiscal 2006 to second quarter
Fiscal 2007 relates to North America Voice Services. Information on
revenues on a same-office basis compared to the same quarter last
year is presented below: -0- *T 2Q07 2Q06 % Change
----------------------------------------------------------------------
Revenues as reported $271,325 $185,050 47% Less revenues from
offices added since 2Q06 (99,775) (5,062)
----------------------------- Revenues on same-office basis
$171,550 $179,998 (5)%
----------------------------------------------------------------------
*T Information on revenues on a same-office basis compared to the
sequential quarter is presented below: -0- *T 2Q07 1Q07 % Change
----------------------------------------------------------------------
Revenues as reported $271,325 $230,395 18% Less revenues from
offices added since 1Q07 (88,259) (60,174)
----------------------------- Revenues on same-office basis
$183,066 $170,221 8%
----------------------------------------------------------------------
*T Significant balance sheet ratios and other information:
Information on certain balance sheet ratios, backlog, and headcount
is presented below. Dollar amounts are in millions. -0- *T 2Q07
1Q07 2Q06
----------------------------------------------------------------------
Accounts receivable: Gross accounts receivable $200.1 $188.2 $139.5
Reserve $ / % $ 14.8 / 7.4% $ 15.9 / 8.5% $ 7.7 / 5.5%
-------------- -------------- -------------- Net accounts
receivable $185.3 $172.3 $131.8 Net days sales outstanding 57 days
57 days 57 days Inventory: Gross inventory $ 96.8 $ 93.9 $ 66.6
Reserve $ / % $ 24.9 / 25.7% $ 25.7 / 27.4% $ 13.4 / 20.1%
-------------- -------------- -------------- Net inventory $ 71.9 $
68.2 $ 53.2 Net inventory turns 7.6x 7.2x 6.9x Six-month order
backlog $165 $168 $104 Team members 4,649 4,752 3,282
----------------------------------------------------------------------
*T
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