BBOX Black Box Corp.

Black Box Corporation (NASDAQ:BBOX) today reported results for the fourth quarter of Fiscal 2010 ended March 31, 2010.

For the fourth quarter of Fiscal 2010, diluted earnings per share were 43¢ on net income of $7.5 million or 3.1% of revenues compared to diluted earnings per share of 48¢ on net income of $8.4 million or 3.5% of revenues for the same quarter last year. On a sequential quarter comparison basis, third quarter of Fiscal 2010 diluted earnings per share were 63¢ on net income of $11.0 million or 4.3% of revenues. Excluding reconciling items, operating earnings per share (which is a non-GAAP term and is defined below) for the fourth quarter of Fiscal 2010 were 78¢ on operating net income (which is a non-GAAP term and is defined below) of $13.8 million or 5.7% of revenues compared to operating earnings per share of 92¢ on operating net income of $16.2 million or 6.7% of revenues for the same quarter last year. See below for additional information regarding the comparability of Fiscal 2010 and Fiscal 2009 operating earnings per share. Management believes that presenting operating earnings per share and operating net income is useful to investors because it provides a more meaningful comparison of the ongoing operations of the Company.

For the fourth quarter of Fiscal 2010, the Company’s pre-tax reconciling items were $9.6 million with an after-tax impact on net income and EPS of $6.3 million and 35¢, respectively. During the fourth quarter of Fiscal 2009, the Company’s pre-tax reconciling items were $11.6 million with an after-tax impact on net income and EPS of $7.8 million and 44¢, respectively. See below for further discussion regarding Management’s use of non-GAAP accounting measurements and a detailed presentation of the Company’s pre-tax reconciling items for the periods presented above. Included in our fourth quarter and Fiscal 2010 results is the impact of a decrease in our annual effective tax rate from our previous estimate of 37.5% to the actual effective tax rate of 36.5%, resulting in an effective tax rate of 33.5% for the fourth quarter of Fiscal 2010. This tax rate reduction is primarily the result of the reduction in valuation allowances against certain net operating losses. The effective tax rate reduction increased fourth quarter and Fiscal 2010 operating earnings per share by 4¢.

Fourth quarter of Fiscal 2010 total revenues were $241 million equivalent to $241 million for the same quarter last year. On a sequential quarter comparison basis, third quarter of Fiscal 2010 total revenues were $253 million.

Fourth quarter of Fiscal 2010 cash provided by operating activities was $20 million or 264% of net income, compared to $20 million or 237% of net income for the same quarter last year. Fourth quarter of Fiscal 2010 free cash flow (which is a non-GAAP term and is defined below) was $18 million compared to $19 million for the same quarter last year. On a sequential quarter comparison basis, third quarter of Fiscal 2010 cash provided by operating activities was $12 million or 105% of net income and free cash flow was $11 million. Black Box utilized its fourth quarter of Fiscal 2010 free cash flow primarily to fund debt reduction of $17 million and to pay dividends of $1 million. Management believes that free cash flow, defined by the Company as cash provided by operating activities less net capital expenditures, plus proceeds from stock option exercises, plus or minus foreign currency translation adjustments, is an important measurement of liquidity as it represents the total cash available to the Company.

Fiscal 2010 diluted earnings per share were $1.97 on net income of $34.5 million or 3.6% of revenues compared to diluted earnings per share of $2.59 on net income of $45.3 million or 4.5% of revenues for the same period last year. Excluding reconciling items, operating earnings per share for Fiscal 2010 were $2.99 on operating net income of $52.4 million or 5.5% of revenues compared to operating earnings per share of $3.39 on operating net income of $59.5 million or 5.9% of revenues for the same period last year.

During Fiscal 2010, the Company’s pre-tax reconciling items were $28.2 million with an after-tax impact on net income and EPS of $17.9 million and $1.02, respectively. During Fiscal 2009, the Company’s pre-tax reconciling items were $21.6 million with an after-tax impact on net income and EPS of $14.1 million and 80¢, respectively.

Fiscal 2010 total revenues were $961 million, a decrease of $39 million or 4% from $1.0 billion for the same period last year.

Fiscal 2010 cash provided by operating activities was $62 million or 180% of net income compared to $72 million or 158% of net income for the same period last year. Free cash flow was $59 million compared to $68 million for the same period last year. Black Box utilized its Fiscal 2010 free cash flow primarily to fund debt reduction of $36 million, fund acquisition activity of $19 million and to pay dividends of $4 million.

The Company’s six-month order backlog was $203 million at March 31, 2010 compared to $194 million for the same quarter last year. On a sequential quarter-end comparison basis, the Company’s six-month order backlog was $191 million at December 26, 2009.

For Fiscal 2011, the Company is targeting reported revenues of approximately $990 million to $1.01 billion and corresponding operating earnings per share in the range of $2.90 to $3.10. Included in these projections is approximately 2% to 4% of organic revenue growth and an effective tax rate of 38.0%. For the first quarter of Fiscal 2011, the Company is targeting reported revenues of approximately $240 million to $245 million and corresponding operating earnings per share in the range of 70¢ to 75¢.

All of the above exclude acquisition-related expense and the impact of changes in the fair market value of the Company’s interest-rate swaps, and all of the above are before any new mergers and acquisition activity that has not been announced.

Commenting on Fiscal 2010 results and the first quarter of Fiscal 2011 outlook, Terry Blakemore, President and Chief Executive Officer said, “I am very pleased with our performance for the fourth quarter and Fiscal 2010. In spite of a challenging economy and changes in our industry, the Black Box team delivered solid financial results and continued to provide the highest level of technical service and support to our clients worldwide.”

“The combination of a disciplined management approach and strong client relationships has strategically positioned Black Box for an expected increase in business activity in Fiscal 2011. Our guidance for the new fiscal year includes organic growth based on an improving economic backdrop and investments in our business. We will also continue to pursue strategic acquisitions in order to expand our capabilities and increase our market share.”

The Company will conduct a conference call beginning at 5:00 p.m. Eastern Daylight Time today, May 13, 2010. Terry Blakemore, President and Chief Executive Officer, will host the call. To participate in the call, please dial 612-332-1025 approximately 15 minutes prior to the starting time and ask to be connected to the Black Box Earnings Call. A replay of the conference call will be available for one week after the teleconference by dialing 320-365-3844 and using access code 155720. A live, listen-only audio webcast of the call will be available through a link on the Investor Relations page of the Company's Web site at http://www.blackbox.com. A webcast replay of the call will also be archived on Black Box's Web site for a limited period of time following the conference call.

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 more than 175,000 clients in 141 countries with 194 offices throughout the world. To learn more, visit the Black Box Web site at http://www.blackbox.com.

Black Box®, the Double Diamond logo and DVH® are registered trademarks of BB Technologies, Inc.

Any forward-looking statements contained in this release are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and speak only as of the date of this release. You can identify these forward-looking statements by the fact they use words such as "should," "anticipate," "estimate," "approximate," "expect," "target," "may," "will," "project," "intend," "plan," "believe" and other words of similar meaning and expression in connection with any discussion of future operating or financial performance. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Forward-looking statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. Although it is not possible to predict or identify all risk factors, they may include levels of business activity and operating expenses, expenses relating to corporate compliance requirements, cash flows, global economic and business conditions, successful integration of acquisitions, the timing and costs of restructuring programs, successful marketing of DVH (Data, Voice, Hotline) services, successful implementation of the Company’s M&A program, including identifying appropriate targets, consummating transactions and successfully integrating the businesses, successful implementation of our government contracting programs, competition, changes in foreign, political and economic conditions, fluctuating foreign currencies compared to the U.S. dollar, rapid changes in technologies, client preferences, the Company’s arrangements with suppliers of voice equipment and technology and various other matters, many of which are beyond the Company's control. Additional risk factors are included in the Company’s Annual Report on Form 10-K for the fiscal year ended March 31, 2009 and in the Company’s Quarterly Report on Form 10-Q for the fiscal quarter ended December 26, 2009. 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 CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF INCOME

    Three-months ended

March 31,

Fiscal Year ended

March 31,

In thousands, except per share amounts   2010   2009   2010   2009 Revenues     Hotline products $ 45,491 $ 45,785 $ 180,296 $ 209,793 On-Site services   195,392     195,547   781,097     789,755 Total 240,883 241,332 961,393 999,548   Cost of sales Hotline products 23,369 24,282 93,636 108,561 On-Site services   133,649     131,987   532,376     533,807 Total 157,018 156,269 626,012 642,368   Gross profit 83,865 85,063 335,381 357,180   Selling, general & administrative expenses 64,540 68,105 257,136 266,387 Intangibles amortization   5,899     3,803   15,202     10,790   Operating income 13,426 13,155 63,043 80,003   Interest expense (income), net 2,290 2,174 8,882 10,279 Other expenses (income), net   21     18   (166)     561   Income before provision for income taxes 11,115 10,963 54,327 69,163   Provision for income taxes   3,619     2,613   19,824     23,854   Net income $ 7,496   $ 8,350 $ 34,503   $ 45,309   Earnings per common share Basic $ 0.43   $ 0.48 $ 1.97   $ 2.59 Diluted $ 0.43   $ 0.48 $ 1.97   $ 2.59   Weighted average common shares outstanding Basic   17,548     17,533   17,546     17,527 Diluted   17,583     17,533   17,546     17,527   Dividends per share   $ 0.06   $ 0.06   $ 0.24   $ 0.24  

BLACK BOX CORPORATIONCONDENSED CONSOLIDATED BALANCE SHEETS

    In thousands, except par value   March 31, 2010   March 31, 2009 Assets Cash and cash equivalents $ 20,885 $ 23,720 Accounts receivable, net 141,211 163,975 Inventories, net 51,507 55,898 Costs/estimated earnings in excess of billings on uncompleted contracts 86,086 66,066 Prepaid and other current assets   28,090   30,809 Total current assets 327,779 340,468   Property, plant and equipment, net 23,568 28,419 Goodwill 641,965 621,948 Intangibles Customer relationships, net 93,619 105,111 Other intangibles, net 30,374 37,684 Other assets   8,059   2,858 Total assets $ 1,125,364 $ 1,136,488   Liabilities Accounts payable $ 66,934 $ 79,021 Accrued compensation and benefits 33,260 30,446 Deferred revenue 34,876 35,520 Billings in excess of costs/estimated earnings on uncompleted contracts 14,839 18,217 Income taxes 9,487 5,164 Other liabilities   41,798   41,891 Total current liabilities 201,194 210,259   Long-term debt 210,873 249,260 Other liabilities   23,303   29,670 Total liabilities $ 435,370 $ 489,189   Stockholders' equity Common stock $ 25 $ 25 Additional paid-in capital 451,778 445,774 Retained earnings 551,315 521,023 Accumulated other comprehensive income 9,971 3,572 Treasury stock   (323,095)   (323,095) Total stockholders' equity $ 689,994 $ 647,299   Total liabilities and stockholders' equity $ 1,125,364 $ 1,136,488  

BLACK BOX CORPORATIONCONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS

    Three-months ended

March 31,

Fiscal Year ended

March 31,

In thousands   2010   2009   2010   2009 Operating Activities     Net income $ 7,496 $ 8,350 $ 34,503 $ 45,309 Adjustments to reconcile net income to net cash provided by (used for) operating activities Intangibles amortization and depreciation 7,826 6,289 22,923 20,722 Loss (gain) on sale of property 3 19 13 (65) Deferred taxes (1,320) 4,602 (123) 4,512 Tax impact from stock options 5 58 771 1,193 Stock compensation expense 1,753 805 6,775 3,042 Change in fair value of interest-rate swap 61 (533) (65) (974) Changes in operating assets and liabilities (net of acquisitions) Accounts receivable, net 10,212 11,795 21,780 26,279 Inventories, net 2,092 6,270 5,709 11,455 All other current assets excluding deferred tax asset 7,795 (307) (8,791) (11,933) Liabilities exclusive of long-term debt   (16,108)     (17,545)   (21,547)     (27,974) Net cash provided by (used for) operating activities $ 19,815 $ 19,803 $ 61,948 $ 71,566   Investing Activities Capital expenditures $ (727) $ (325) $ (2,300) $ (2,178) Capital disposals 24 120 156 288 Acquisition of businesses (payments)/recoveries 1 (20,650) (10,686) (117,184) Prior merger-related (payments)/recoveries   (553)     (159)   (8,291)     (421) Net cash provided by (used for) investing activities $ (1,255) $ (21,014) $ (21,121) $ (119,495)   Financing Activities Proceeds from borrowings $ 38,445 $ 70,905 $ 169,335 $ 308,567 Repayment of borrowings (63,090) (67,091) (208,388) (257,470) Proceeds from the exercise of stock options -- -- -- 545 Deferred financing costs -- -- -- (125) Payment of dividends   (1,053)     (1,052)   (4,210)     (4,206) Net cash provided by (used for) financing activities $ (25,698) $ 2,762 $ (43,263) $ 47,311   Foreign currency exchange impact on cash $ (1,033)   $ (388) $ (399)   $ (2,314)   Increase / (decrease) in cash and cash equivalents $ (8,171) $ 1,163 $ (2,835) $ (2,932) Cash and cash equivalents at beginning of period   29,056     22,557   23,720     26,652 Cash and cash equivalents at end of period $ 20,885   $ 23,720 $ 20,885   $ 23,720  

Non-GAAP Financial Measures

As a supplement to United States Generally Accepted Accounting Principles (“GAAP”), the Company provides non-GAAP financial measures such as free cash flow, cash provided by operating activities excluding restructuring payments (see below for reference), operating net income, operating earnings per share (“EPS”), Earnings Before Interest, Taxes, Depreciation and Amortization (“EBITDA”), Adjusted EBITDA, adjusted operating income and same-office revenue comparisons to illustrate the Company's operational performance. These non-GAAP financial measures exclude the impact of certain items and, therefore, have not been calculated in accordance with GAAP. Pursuant to the requirements of Regulation G, the Company has provided Management explanations regarding their use and the usefulness of non-GAAP financial measures, definitions of the non-GAAP financial measures and reconciliations to the most directly comparable GAAP financial measures, which are provided below.

The Company’s Management (“Management”) uses non-GAAP financial measures (a) to evaluate the Company's historical and prospective financial performance as well as its performance relative to its competitors, (b) to set internal sales targets and associated operating budgets, (c) to allocate resources, (d) to measure operational profitability and (e) as an important factor in determining variable compensation for Management and its team members. Moreover, the Company has historically reported these non-GAAP financial measures as a means of providing consistent and comparable information with past reports of financial results.

While Management believes these non-GAAP financial measures provide useful supplemental information to investors, there are limitations associated with the use of non-GAAP financial measures. The limitations include (i) the non-GAAP financial measures are not prepared in accordance with GAAP, are not reported by all of the Company's competitors and may not be directly comparable to similarly-titled measures of the Company's competitors due to potential differences in the exact method of calculation, (ii) the non-GAAP financial measures exclude certain non-cash amortization of intangible assets on acquisitions, however, they do not specifically exclude the added benefits of these costs, such as revenue and contributing operating margin, (iii) 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, (iv) the non-GAAP financial measures exclude the non-cash change in fair value of the Company’s interest-rate swaps which will continue to impact the Company’s earnings until the interest-rate swaps are settled, (v) the non-GAAP financial measures exclude costs for employee severance and facility consolidations (“employee severance and facility consolidations costs”) incurred during the periods reported 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 that will impact future operating results, (vi) the non-GAAP financial measures exclude historical stock option granting practices investigation and related matters costs, including costs associated with the related Securities and Exchange Commission (“SEC”) investigation, shareholder derivative lawsuit, tax matters and insurance/indemnification matters, (vii) the non-GAAP financial measures exclude costs of settlement or resolution arising from current legal matters associated with the ongoing operations of the Company (“current legal matters costs”) and (viii) there is no assurance the excluded items in the non-GAAP financial measures will not occur in the future. The Company compensates for these limitations by using these non-GAAP financial measures as supplements to GAAP financial measures and by reviewing the reconciliations of the non-GAAP financial measures to their most comparable GAAP financial measures.

Non-GAAP financial measures are not in accordance with, or an alternative for, GAAP. The Company's non-GAAP financial measures are not meant to be considered in isolation or as a substitute for comparable GAAP financial measurements, and should be read only in conjunction with the Company's consolidated financial statements prepared in accordance with GAAP.

Free cash flow

Free cash flow is defined by the Company as cash provided by operating activities less net capital expenditures, plus or minus foreign currency translation adjustments, plus proceeds from stock option exercises. Management’s reasons for exclusion of each item are explained in further detail below.

Net capital expenditures

The Company believes net capital expenditures must be taken into account along with cash provided by operating activities to more properly reflect the actual cash available to the Company. Net capital expenditures are typically material and directly impact the availability of the Company’s operating cash. Net capital expenditures are comprised of capital expenditures and capital disposals.

Foreign currency exchange impact on cash

Due to the size of the Company’s international operations, and the ability of the Company to utilize cash generated from foreign operations locally without the need to convert such currencies to U.S. dollars on a regular basis, the Company believes that it is appropriate to adjust its operating cash flows to take into account the positive and/or negative impact of such adjustments as such adjustment provides an appropriate measure of the availability of the Company’s operating cash on a world-wide basis. A limitation of adjusting cash flows to account for the foreign currency impact is that it may not provide an accurate measure of cash available in U.S. dollars.

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.

A reconciliation of cash provided by operating activities to free cash flow is presented below:

    4Q10   3Q10   4Q09   FY10   FY09 Cash provided by operating activities   $ 19,815   $ 11,584   $ 19,803   $ 61,948   $ 71,566 Net capital expenditures (703) (511) (205) (2,144) (1,890) Foreign currency exchange impact on cash   (1,033)     (214)     (388)   (399)     (2,314) Free cash flow before stock option exercises $ 18,079 $ 10,859 $ 19,210 $ 59,405 $ 67,362 Proceeds from stock option exercises   --     --     --   --     545 Free cash flow   $ 18,079   $ 10,859   $ 19,210   $ 59,405   $ 67,907

Cash provided by operating activities excluding restructuring payments

Cash provided by operating activities excluding restructuring payments is defined by the Company as cash provided by operating activities plus restructuring payments. Restructuring payments are the cash payments made during the period for employee severance and facility consolidation costs. The Company believes that restructuring payments should be added to cash provided by operating activities to more accurately reflect the cash flow from operations.

A reconciliation of cash provided by operating activities to cash provided by operating activities excluding restructuring payments is presented below:

    4Q10   3Q10   4Q09   FY10   FY09 Cash provided by operating activities   $ 19,815   $ 11,584   $ 19,803   $ 61,948   $ 71,566 Restructuring payments   1,873     1,354     4,339   9,500     11,941 Cash provided by operating activities excluding restructuring payments   $ 21,688   $ 12,938   $ 24,142   $ 71,448   $ 83,507

Operating net income and operating earnings per share

Management believes that operating net income, defined by the Company as net income plus reconciling items, and operating EPS, defined as operating net income divided by weighted average common shares outstanding (diluted), provide investors additional important information to enable them to assess, in a way Management assesses, the Company’s current and future operations. Reconciling items include amortization of intangible assets on acquisitions, asset write-up depreciation expense on acquisitions, the change in fair value of the interest-rate swaps, employee severance and facility consolidation costs, historical stock option granting practices investigation and related matters costs and current legal matters costs. Management’s reason for exclusion of each item is explained in further detail below.

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.

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.

Change in fair value of the interest-rate swaps

To mitigate the risk of interest-rate fluctuations associated with the Company’s variable rate debt, the Company entered into two separate interest-rate swaps (“interest-rate swaps”) that do not qualify as a cash flow hedge. Thus, the Company records the change in fair value of the interest-rate swaps as an asset/liability within the Company’s Condensed Consolidated Balance Sheets with the offset to Interest expense (income) within the Company’s Condensed Consolidated Statements of Income. Management excludes this non-cash expense and the related tax impact for the purpose of calculating non-GAAP financial measures when it evaluates the continuing operational performance of the Company because these costs generally cannot be changed or influenced by Management.

Employee severance and facility consolidation costs

The Company believes that incurring costs in the current period(s) 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 will result in a long-term positive impact on financial performance in the future. Employee severance and facility consolidation costs are presented in accordance with GAAP in the Company’s Condensed Consolidated Statements of Income. However, due to the amount of additional costs incurred during a single or possibly successive periods, Management believes that exclusion of these costs and their related tax impact provides a more accurate reflection of the Company’s ongoing financial performance.

Historical stock option granting practices investigation and related matters costs

The Company incurs costs in connection with its investigation of historical stock option granting practices, including the related SEC investigation, shareholder derivative lawsuit, tax matters and insurance/indemnification matters. Management excludes these expenses and their related tax impact for the purpose of calculating non-GAAP financial measures when it evaluates the continuing operational performance of the Company because these costs are generally non-recurring and cannot be changed or influenced by Management.

Current legal matters costs

The Company incurs costs arising from current legal matters associated with the ongoing operations of the Company. Management excludes these expenses and their related tax impact for the purpose of calculating non-GAAP financial measures when it evaluates the continuing operational performance of the Company because these costs are generally non-recurring and cannot be changed or influenced by Management.

Fiscal 2010 and Fiscal 2009 comparability

During Fiscal 2009, the Company excluded stock-based compensation expense when evaluating the continuing operations of the Company. Beginning with the first quarter of Fiscal 2010, the Company will not exclude such expenses. For comparability purposes only, the Company has restated reconciling items, operating net income and operating EPS for the fourth quarter of Fiscal 2009 and Fiscal 2009 to reflect this change in presentation.

Information on stock-based compensation expense and its after-tax impact on net income and EPS is presented below:

    4Q10   3Q10   4Q09   FY10   FY09 Stock-based compensation expense   $ 1,753   $ 1,743   $ 805   $ 6,775   $ 3,042 After-tax impact on net income 1,171 1,089 613 4,301 1,993 After-tax impact on net income EPS     0.07     0.06     0.03     0.25     0.11

The following table represents the Company’s pre-tax reconciling items:

    4Q10   3Q10   4Q09   FY10   FY09 Non-cash charges           Amortization of intangible assets on acquisitions $ 5,886 $ 3,099 $ 3,785 $ 15,150 $ 10,671 Asset write-up depreciation expense on acquisitions 348 128 507 476 1,888 Change in fair value of the interest-rate swaps   61     (303)     (533)   (65)     (974) Total non-cash charges $ 6,295 $ 2,924 $ 3,759 $ 15,561 $ 11,585   Cash charges

Employee severance and facility consolidation costs

$ 1,935 $ 860 $ 6,946 $ 4,557 $ 8,643 Historical stock option granting practices investigation and related matters costs 255 318 939 4,829 1,359 Current legal matters costs   1,093     --     --   3,238     -- Total cash charges $ 3,283   $ 1,178   $ 7,885 $ 12,624   $ 10,002   Total pre-tax reconciling items   $ 9,578   $ 4,102   $ 11,644   $ 28,185   $ 21,587

A reconciliation of net income to operating net income is presented below:

    4Q10   3Q10   4Q09   FY10   FY09 Net income   $ 7,496   $ 11,019   $ 8,350   $ 34,503   $ 45,309 % of Revenue 3.1% 4.3% 3.5% 3.6% 4.5% Reconciling items, after tax 1   6,270     2,564     7,827   17,900     14,142 Operating net income $ 13,766 $ 13,583 $ 16,177 $ 52,403 $ 59,451 % of Revenue     5.7%     5.4%     6.7%     5.5%     5.9%

1 The effective tax rate utilized to determine Reconciling items, after tax, for each period, is the effective tax rate utilized to determine Net income for such period.

A reconciliation of diluted EPS to operating EPS is presented below:

    4Q10   3Q10   4Q09   FY10   FY09 Diluted EPS   $ 0.43   $ 0.63   $ 0.48   $ 1.97   $ 2.59 EPS impact of reconciling items   0.35     0.14     0.44   1.02     0.80 Operating EPS   $ 0.78   $ 0.77   $ 0.92   $ 2.99   $ 3.39

EBITDA and Adjusted EBITDA

Management believes that EBITDA, defined as income before provision for income taxes plus interest, depreciation and amortization, is a widely accepted measure of profitability that may be used to measure the Company’s ability to service its debt. Adjusted EBITDA, defined as EBITDA plus stock-based compensation expense, may also be used to measure the Company’s ability to service its debt. Stock-based compensation is an integral part of ongoing operations since it is considered similar to other types of compensation to employees. However, Management believes that varying levels of stock-based compensation expense could result in misleading period-over-period comparisons and is providing an adjusted disclosure which excludes stock-based compensation.

A reconciliation of income before provision for income taxes to EBITDA and Adjusted EBITDA is presented below:

    4Q10   3Q10   4Q09   FY10   FY09 Net income   $ 7,496   $ 11,019   $ 8,350   $ 34,503   $ 45,309 Provision for income taxes 3,619 6,612 2,613 19,824 23,854 Interest 2,290 1,852 2,174 8,882 10,279 Depreciation/Amortization   7,826     4,985     6,289   22,923     20,722 EBITDA $ 21,231 $ 24,468 $ 19,426 $ 86,132 $ 100,164 Stock-based compensation expense   1,753     1,743     805   6,775     3,042 Adjusted EBITDA   $ 22,984   $ 26,211   $ 20,231   $ 92,907   $ 103,206

Supplemental Information

The following supplemental information, including geographical segment results, service type results, same-office revenue comparisons and significant balance sheet ratios and other information is being provided for comparisons of reported results for the fourth quarter of Fiscal 2010 and 2009, third quarter of Fiscal 2010 and/or Fiscal 2010 and Fiscal 2009. All dollar amounts are in thousands unless noted otherwise.

Geographical Segment Results

Management is presented with and reviews revenues, operating income and adjusted operating income by geographical segment. Adjusted operating income is defined by the Company as operating income plus reconciling items. Reconciling items include amortization of intangible assets on acquisitions, asset write-up depreciation expense on acquisitions, employee severance and facility consolidation costs, historical stock option granting practices investigation and related matters costs and current legal matters costs. See above for additional details provided by Management regarding non-GAAP financial measures. Revenues, operating income and adjusted operating income for North America, Europe and All Other are presented below:

    4Q10   3Q10   4Q09   FY10   FY09 Revenues           North America $ 207,598 $ 217,124 $ 207,248 $ 829,233 $ 838,871 Europe 24,254 27,190 25,727 99,502 121,839 All Other   9,031     9,071     8,357   32,658     38,838 Total $ 240,883 $ 253,385 $ 241,332 $ 961,393 $ 999,548   Operating income North America $ 9,345 $ 14,890 $ 9,737 $ 47,623 $ 61,651 % of North America revenues 4.5% 6.9% 4.7% 5.7% 7.3% Europe $ 2,393 $ 3,111 $ 2,397 $ 10,148 $ 12,548 % of Europe revenues 9.9% 11.4% 9.3% 10.2% 10.3% All Other $ 1,688 $ 1,522 $ 1,021 $ 5,272 $ 5,804 % of All Other revenues   18.7%     16.8%     12.2%   16.1%     14.9% Total $ 13,426 $ 19,523 $ 13,155 $ 63,043 $ 80,003 % of Total revenues 5.6% 7.7% 5.5% 6.6% 8.0%   Reconciling items (pretax) 1 North America $ 9,167 $ 4,089 $ 10,852 $ 26,967 $ 20,758 Europe 318 292 1,112 1,210 1,577 All Other   32     24     213   73     226 Total $ 9,517 $ 4,405 $ 12,177 $ 28,250 $ 22,561   Adjusted operating income North America $ 18,512 $ 18,979 $ 20,589 $ 74,590 $ 82,409 % of North America revenues 8.9% 8.7% 9.9% 9.0% 9.8% Europe $ 2,711 $ 3,403 $ 3,509 $ 11,358 $ 14,125 % of Europe revenues 11.2% 12.5% 13.6% 11.4% 11.6% All Other $ 1,720 $ 1,546 $ 1,234 $ 5,345 $ 6,030 % of All Other revenues   19.0%     17.0%     14.8%   16.4%     15.5% Total $ 22,943 $ 23,928 $ 25,332 $ 91,293 $ 102,564 % of Total revenues     9.5%     9.4%     10.5%     9.5%     10.3%

1 During Fiscal 2009, the Company excluded stock-based compensation expense when evaluating the continuing operations of the Company. Beginning with the first quarter of Fiscal 2010, the Company will not exclude such expenses. For comparability purposes only, the Company has restated reconciling items (pretax) and adjusted operating income for the fourth quarter of Fiscal 2009 and Fiscal 2009 to reflect this change in presentation. The Company incurred stock-based compensation expense of $1,753, $805, $1,743, $6,775 and $3,042 during the fourth quarter of Fiscal 2010 and 2009, third quarter of Fiscal 2010 and Fiscal 2010 and Fiscal 2009, respectively.

Service Type Results

Management is presented with and reviews revenues and gross profit for Data Services, Voice Services and Hotline Services which are presented below:

    4Q10   3Q10   4Q09   FY10   FY09 Revenues           Data Services $ 46,855 $ 45,342 $ 49,600 $ 187,535 $ 191,436 Voice Services 148,537 161,031 145,947 593,562 598,319 Hotline Services   45,491     47,012     45,785   180,296     209,793 Total $ 240,883 $ 253,385 $ 241,332 $ 961,393 $ 999,548   Gross profit Data Services $ 12,881 $ 12,078 $ 13,994 $ 51,048 $ 55,407 % of Data Services revenues 27.5% 26.6% 28.2% 27.2% 28.9% Voice Services $ 48,862 $ 52,145 $ 49,566 $ 197,673 $ 200,541 % of Voice Services revenues 32.9% 32.4% 34.0% 33.3% 33.5% Hotline Services $ 22,122 $ 22,606 $ 21,503 $ 86,660 $ 101,232 % of Hotline Services revenues   48.6%     48.1%     47.0%   48.1%     48.3% Total $ 83,865 $ 86,829 $ 85,063 $ 335,381 $ 357,180 % of Total revenues     34.8%     34.3%     35.2%     34.9%     35.7%

Same-office revenue comparisons

Management is presented with and reviews revenues on a same-office basis which excludes the effects of revenues from acquisitions. While the information provided below is presented on a consolidated basis, the revenue from offices added below relates to the North American Data Services and North American Voice Services. Reported same-office comparisons for the Company’s North America, Data Services and Voice Services segments can be determined by excluding the revenues from offices added since 4/1/08 or 9/27/09 as shown below.

Information on quarterly revenues on a same-office basis compared to the same period last year is presented below:

    4Q10   4Q09   % Change Reported revenues   $ 240,883   $ 241,332   0% Less revenue from Data Services offices added since 4/1/08 (1Q09) (15,744) (14,977) Less revenue from Voice Services offices added since 4/1/08 (1Q09)   (26,572)   (16,353) Reported revenues on same-office basis $ 198,567 $ 210,002 (5%) Foreign currency impact   (3,400)   -- Revenues on same-office basis (excluding foreign currency impact)   $ 195,167   $ 210,002   (7%)

Information on year-to-date revenues on a same-office basis compared to the same period last year is presented below:

    FY10   FY09   % Change Reported revenues   $ 961,393   $ 999,548   (4%) Less revenue from Data Services offices added since 4/1/08 (1Q09) (55,474) (27,603) Less revenue from Voice Services offices added since 4/1/08 (1Q09)   (106,233)   (48,259) Reported revenues on same-office basis $ 799,686 $ 923,686 (13%) Foreign currency impact   930   -- Revenues on same-office basis (excluding foreign currency impact)   $ 800,616   $ 923,686   (13%)

Information on revenues on a same-office basis compared to the sequential quarter is presented below:

    4Q10   3Q10   % Change Reported revenues   $ 240,883   $ 253,385   (5%) Less revenue from Data Services offices added since 9/27/09 (3Q10) -- -- Less revenue from Voice Services offices added since 9/27/09 (3Q10)   (7,158)   (4,403) Reported revenues on same-office basis $ 233,725 $ 248,982 (6%) Foreign currency impact   1,256   -- Revenues on same-office basis (excluding foreign currency impact)   $ 234,981   $ 248,982   (6%)

Significant Balance Sheet ratios and Other Information

Information on certain balance sheet ratios, backlog and headcount is presented below. Dollar amounts are in millions.

  4Q10   3Q10   4Q09 Accounts receivable           Gross accounts receivable $ 150.7 $ 162.4 $ 173.9 Reserve $ / %   9.5 6.3%   10.0 6.2%   9.9 5.7% Net accounts receivable $ 141.2 $ 152.4 $ 164.0   Net days sales outstanding 51 days 52 days 53 days   Inventory Gross inventory $ 71.5 $ 74.3 $ 76.2 Reserve $ / %   20.0 28.0%   20.5 27.6%   20.3 26.6% Net inventory $ 51.5 $ 53.8 $ 55.9   Net inventory turns 8.8x 9.3x 8.5x   Six-month order backlog $ 203 $ 191 $ 194   Team members   4,348         4,384         4,542