EX-99.1 2 l22578aexv99w1.htm EX-99.1 EX-99.1
 

Exhibit 99.1
(BLACK BOX NETWORK SERVICES LOGO)
Michael McAndrew, Chief Financial Officer
Black Box Corporation
(724) 873-6788
(724) 873-6799 (fax)
Email: investors@blackbox.com
FOR IMMEDIATE RELEASE
BLACK BOX CORPORATION REPORTS SECOND QUARTER AND YEAR-TO-DATE FISCAL 2007 RESULTS
- Reports record quarterly revenues of $271 million and record quarterly operating EPS of 91¢ -
PITTSBURGH, PENNSYLVANIA, October 31, 2006 — 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
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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.
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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.”
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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
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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.
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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  
             
 
                               
 
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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  
 
       
 
               
 
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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  
     
 
                               
 
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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
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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
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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:
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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 123(R)”) 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.
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Page 13
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 assets 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  
         
Adjusted 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.
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Page 14
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%  
       
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Page 15
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%  
       
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Page 16
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 %
 
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Page 17
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  
 
1000 Park Drive, Lawrence, PA 15055-1018 * (724) 746-5500 * Fax (724) 746-0746