Black Box Corporation
BLACK BOX CORP (Form: 10-Q, Received: 02/06/2013 08:06:26)
Table of Contents                                             


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
R
 
QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended December 29, 2012
OR
o
 
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from                      to                     
Commission File Number: 0-18706
Black Box Corporation
(Exact name of registrant as specified in its charter)
Delaware
 
95-3086563
(State or other jurisdiction of incorporation or organization)
 
(I.R.S. Employer Identification No.)
 
 
 
1000 Park Drive, Lawrence, Pennsylvania
 
15055
(Address of principal executive offices)
 
(Zip Code)
Registrant’s telephone number, including area code: 724-746-5500
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.  R  Yes  o  No
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (§232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).  R  Yes  o  No
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):
Large accelerated filer  o
Accelerated filer  R
Non-accelerated filer  o
(Do not check if a smaller reporting company)
Smaller reporting company  o
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).  o  Yes  R  No
As of February 1, 2013 , there were 16,299,759 shares of common stock, par value $.001 (the "common stock"), outstanding.

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BLACK BOX CORPORATION
FOR THE QUARTER ENDED DECEMBER 29, 2012
INDEX

 
 
Page
 
 
 
 
 
 
 
 
 
 
 
 
 
Consolidated Statements of Operations.
 
 
 
 
Consolidated Statements of Comprehensive Income (loss).
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 
 



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Table of Contents                                             


PART I – FINANCIAL INFORMATION

Item 1. Financial Statements.

BLACK BOX CORPORATION
CONSOLIDATED BALANCE SHEETS

 
(Unaudited)

 
In thousands, except par value
December 29, 2012

March 31, 2012

Assets
 
 
Cash and cash equivalents
$
29,469

$
22,444

Accounts receivable, net of allowance for doubtful accounts of $6,302 and $6,273
158,568

163,888

Inventories, net
56,265

56,956

Costs/estimated earnings in excess of billings on uncompleted contracts
110,365

87,634

Other assets
23,248

22,678

Total current assets
377,915

353,600

Property, plant and equipment, net
27,101

27,109

Goodwill, net
346,546

346,438

Intangibles, net
113,982

126,541

Other assets
28,141

34,335

Total assets
$
893,685

$
888,023

Liabilities
 
 
Accounts payable
$
74,672

$
71,095

Accrued compensation and benefits
23,858

31,151

Deferred revenue
34,364

35,601

Billings in excess of costs/estimated earnings on uncompleted contracts
18,202

14,315

Income taxes
4,087

2,574

Other liabilities
38,420

32,697

Total current liabilities
193,603

187,433

Long-term debt
191,803

179,621

Other liabilities
23,859

26,585

Total liabilities
$
409,265

$
393,639

Stockholders’ equity
 
 
Preferred stock authorized 5,000, par value $1.00, none issued
$

$

Common stock authorized 100,000, par value $.001, 16,300 and 17,480 shares outstanding, 25,898 and 25,730 issued
26

26

Additional paid-in capital
484,842

478,726

Retained earnings
364,843

347,242

Accumulated other comprehensive income
6,603

7,262

Treasury stock, at cost 9,598 and 8,250 shares
(371,894
)
(338,872
)
Total stockholders’ equity
$
484,420

$
494,384

Total liabilities and stockholders’ equity
$
893,685

$
888,023

 
 
 

See Notes to the Consolidated Financial Statements

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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)

 
Three-months ended
Nine-months ended
 
December 29 and 31
December 29 and 31
In thousands, except per share amounts
2012

2011

2012

2011

Revenues
 
 
 
 
Products
$
46,854

$
51,379

$
137,492

$
149,427

On-Site services
205,235

224,560

622,595

682,109

Total
252,089

275,939

760,087

831,536

Cost of sales *
 
 
 
 
Products
26,735

29,088

77,012

83,015

On-Site services
143,622

158,538

442,015

484,761

Total
170,357

187,626

519,027

567,776

Gross profit
81,732

88,313

241,060

263,760

Selling, general & administrative expenses
60,542

62,644

187,088

192,544

Goodwill impairment loss

317,797


317,797

Intangibles amortization
3,478

3,249

10,416

9,484

Operating income (loss)
17,712

(295,377
)
43,556

(256,065
)
Interest expense (income), net
1,133

1,856

4,956

3,690

Other expenses (income), net
2,839

311

3,788

876

Income (loss) before provision (benefit) for income taxes
13,740

(297,544
)
34,812

(260,631
)
Provision (benefit) for income taxes
5,222

(14,101
)
13,229

(1,655
)
Net income (loss)
$
8,518

$
(283,443
)
$
21,583

$
(258,976
)
Earnings (loss) per common share
 
 
 
 
Basic
$
0.52

$
(16.12
)
$
1.29

$
(14.54
)
Diluted
$
0.52

$
(16.12
)
$
1.28

$
(14.54
)
Weighted-average common shares outstanding
 
 
 
 
Basic
16,412

17,581

16,783

17,806

Diluted
16,525

17,581

16,863

17,806

Dividends per share
$
0.08

$
0.07

$
0.24

$
0.21

* Exclusive of depreciation and intangibles amortization.
See Notes to the Consolidated Financial Statements

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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME (LOSS)
(Unaudited)

 
Three-months ended
Nine-months ended
 
December 29 and 31
December 29 and 31
In thousands, except per share amounts
2012

2011

2012

2011

Net income (loss)
$
8,518

$
(283,443
)
$
21,583

$
(258,976
)
Other comprehensive income (loss)
 
 
 
 
Foreign currency translation adjustment
1,004

(2,207
)
(464
)
(9,930
)
Pension
 
 
 
 
Actuarial gain (loss), net of taxes of ($4), $3, ($230) and $7
(6
)
5

(370
)
12

Amounts reclassified into results of operations, net of taxes of $43, $48, $128 and $123
69

78

205

200

Derivative instruments
 
 
 
 
Net change in fair value of cash flow hedges, net of taxes of ($87), ($143), ($224) and ($36)
(140
)
(230
)
(361
)
(57
)
Amounts reclassified into results of operations, net of taxes of $61, ($63), $205 and $69
98

(102
)
331

110

Other comprehensive income (loss)
$
1,025

$
(2,456
)
$
(659
)
$
(9,665
)
Comprehensive income (loss)
$
9,543

$
(285,899
)
$
20,924

$
(268,641
)
 
 
 
 
 

See Notes to the Consolidated Financial Statements




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BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
 
Nine-months ended
 
December 29 and 31
In thousands
2012

2011

Operating Activities
 
 
Net income (loss)
$
21,583

$
(258,976
)
Adjustments to reconcile net income (loss) to net cash provided by (used for) operating activities
 
 
Intangibles amortization and depreciation
14,427

13,581

Loss (gain) on sale of property
(126
)
(166
)
Deferred taxes
2,837

(22,597
)
Stock compensation expense
6,397

7,505

Change in fair value of interest-rate swaps
878

(801
)
Goodwill impairment loss

317,797

Joint venture investment loss
2,670


Changes in operating assets and liabilities (net of acquisitions)
 
 
Accounts receivable, net
5,364

(11,173
)
Inventories, net
683

(9,848
)
Costs/estimated earnings in excess of billings on uncompleted contracts
(22,715
)
1,535

All other assets
1,357

2,404

Billings in excess of costs/estimated earnings on uncompleted contracts
3,873

(749
)
All other liabilities
(6,502
)
5,362

Net cash provided by (used for) operating activities
$
30,726

$
43,874

Investing Activities
 
 
Capital expenditures
(4,085
)
(4,973
)
Capital disposals
214

187

Acquisition of businesses (payments)/recoveries
17

(13,954
)
Prior merger-related (payments)/recoveries
(2,378
)
(1,174
)
Net cash provided by (used for) investing activities
$
(6,232
)
$
(19,914
)
Financing Activities
 
 
Proceeds (repayments) from long-term debt
$
11,903

$
(7,666
)
Proceeds (repayments) from short-term debt
5,404


Deferred financing costs
(20
)

Purchase of treasury stock
(33,022
)
(15,292
)
Payment of dividends
(3,902
)
(3,574
)
Increase (decrease) in cash overdrafts
1,926


Net cash provided by (used for) financing activities
(17,711
)
(26,532
)
Foreign currency exchange impact on cash
$
242

$
(3,181
)
Increase/(decrease) in cash and cash equivalents
$
7,025

$
(5,753
)
Cash and cash equivalents at beginning of period
$
22,444

$
31,212

Cash and cash equivalents at end of period
$
29,469

$
25,459

Supplemental cash flow
 
 
Cash paid for interest
$
3,678

$
5,126

Cash paid for income taxes
9,010

16,831

Non-cash financing activities
 
 
Dividends payable
1,304

1,224

Capital leases
16

23

See Notes to the Consolidated Financial Statements

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BLACK BOX CORPORATION
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)

Note 1: Business and Basis of Presentation

Business
Black Box Corporation ("Black Box" or the "Company") is a leading communications system integrator dedicated to designing, sourcing, implementing and maintaining today's complex communications solutions. The Company's primary service offering is voice communications solutions ("Voice Communications"); the Company also offers premise cabling and other data-related services solutions ("Data Infrastructure") and technology product solutions (“Technology Products”). The Company provides 24/7/365 technical support for all of its solutions, which encompass all major voice and data product manufacturers as well as an extensive range of technology products that it sells through its catalog and Internet Web site and its Voice Communications and Data Infrastructure (collectively referred to as "On-Site services") offices. As of December 31, 2012 , the Company had more than 3,000 professional technical experts in approximately 200 offices serving more than 175,000 clients in approximately 150 countries throughout the world. Founded in 1976, Black Box, a Delaware corporation, operates subsidiaries on five continents and is headquartered near Pittsburgh in Lawrence, Pennsylvania.

Basis of Presentation
The accompanying unaudited interim consolidated financial statements of Black Box have been prepared in accordance with accounting principles generally accepted in the United States ("GAAP") and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by GAAP for complete financial statements. The Company believes that these consolidated financial statements reflect all normal, recurring adjustments needed to present fairly the Company’s results for the interim periods presented. The results as of and for interim periods may not be indicative of the results of operations for any other interim period or for the full year. These financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission ("SEC") for the fiscal year ended March 31, 2012 (the "Form 10-K").

The Company’s fiscal year ends on March 31. The fiscal quarters consist of 13  weeks and end on the Saturday generally nearest each calendar quarter end, adjusted to provide relatively equivalent business days for each fiscal quarter. The actual ending dates for the periods presented in these Notes to the Consolidated Financial Statements as of December 31, 2012 and 2011 were December 29, 2012 and December 31, 2011 . References herein to "Fiscal Year" or "Fiscal" mean the Company’s fiscal year ended March 31 for the year referenced. All references to dollar amounts herein are presented in thousands, except per share amounts, unless otherwise noted.

The consolidated financial statements include the accounts of the parent company and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation. Certain items in the consolidated financial statements of prior years have been reclassified to conform to the current year's presentation.

The preparation of financial statements in conformity with GAAP requires Company management ("Management") to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Significant estimates in these financial statements include project progress towards completion to estimated budget, allowances for doubtful accounts receivable, sales returns, net realizable value of inventories, loss contingencies, warranty reserves, intangible assets and goodwill. Actual results could differ from those estimates. Management believes the estimates made are reasonable.


Note 2: Significant Accounting Policies

Significant Accounting Policies
The significant accounting policies used in the preparation of the Company’s consolidated financial statements are disclosed in Note 2 of the Notes to the Consolidated Financial Statements within the Form 10-K. No additional significant accounting policies have been adopted during Fiscal 2013 .

Recent Accounting Pronouncements
There have been no accounting pronouncements adopted during Fiscal 2013 that have had a material impact on the Company's consolidated financial statements. There have been no new accounting pronouncements issued but not yet adopted that are expected to have a material impact on the Company's consolidated financial statements.

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Note 3: Inventories

The Company’s Inventories consist of the following:
 
December 31, 2012

March 31, 2012

Raw materials
$
1,315

$
1,260

Finished goods
74,000

74,596

Inventory, gross
75,315

75,856

Excess and obsolete inventory reserves
(19,050
)
(18,900
)
Inventories, net
$
56,265

$
56,956



Note 4: Goodwill

The following table summarizes Goodwill at the Company’s reportable segments:
 
North America

Europe

All Other

Total

Goodwill (gross) at March 31, 2012
$
592,608

$
69,383

$
2,244

$
664,235

Accumulated impairment losses at March 31, 2012
(277,364
)
(40,433
)

(317,797
)
Goodwill (net) at March 31, 2012
$
315,244

$
28,950

$
2,244

$
346,438

 
 
 
 
 
Foreign currency translation adjustment
(4
)
99

10

105

Current period acquisitions (see Note 9)


3

3

 
 
 
 
 
Goodwill (gross) at December 31, 2012
$
592,604

$
69,482

$
2,257

$
664,343

Accumulated impairment losses at December 31, 2012
(277,364
)
(40,433
)

(317,797
)
Goodwill (net) at December 31, 2012
$
315,240

$
29,049

$
2,257

$
346,546


The Company conducted its annual goodwill impairment assessment during the third quarter of Fiscal 2013 using data as of September 29, 2012. The first step of the goodwill impairment assessment, used to identify potential impairment, resulted in a significant surplus of fair value over carrying amount for each of our reporting units, thus the reporting units are considered not impaired and the second step of the impairment test is not necessary.

At December 31, 2012 , the Company's stock market capitalization was comparable with net book value. Each of the Company's reporting units continues to operate profitably and generate cash flow from operations, and the Company expects that each will continue to do so in Fiscal 2013 and beyond. The Company also believes that a reasonable potential buyer would offer a control premium for the business that would adequately cover any difference between the recent stock trading prices and the book value.




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Note 5: Intangible Assets

The following table summarizes the gross carrying amount, accumulated amortization and net carrying amount by intangible asset class:
 
December 31, 2012
March 31, 2012
 
Gross Carrying Amount

Accum. Amort.

Net Carrying Amount

Gross Carrying Amount

Accum. Amort.

Net Carrying Amount

Definite-lived
 
 
 
 
 
 
Non-compete agreements
$
12,231

$
10,765

$
1,466

$
12,228

$
10,194

$
2,034

Customer relationships
137,267

55,179

82,088

140,669

47,226

93,443

Acquired backlog
20,838

18,149

2,689

20,838

17,513

3,325

Total
$
170,336

$
84,093

$
86,243

$
173,735

$
74,933

$
98,802

Indefinite-lived
 
 
 
 
 
 
Trademarks
35,992

8,253

27,739

35,992

8,253

27,739

Total
$
206,328

$
92,346

$
113,982

$
209,727

$
83,186

$
126,541


The Company’s indefinite-lived intangible assets consist solely of the Company’s trademark portfolio. The Company’s definite-lived intangible assets are comprised of employee non-compete agreements, customer relationships and backlog obtained through business acquisitions.

The following table summarizes the changes to the net carrying amounts by Intangible asset class:
 
Trademarks

Non-Competes and Backlog

Customer relationships

Total

March 31, 2012
$
27,739

$
5,359

$
93,443

$
126,541

Intangibles amortization

(1,201
)
(9,215
)
(10,416
)
Foreign currency translation adjustment

(3
)

(3
)
Other 1


(2,140
)
(2,140
)
December 31, 2012
$
27,739

$
4,155

$
82,088

$
113,982

1 Primarily represents the write-off of the net book value of intangible assets due to the probable divestiture of our non-controlling interest in Genesis Networks Integration Services, LLC, a joint venture company which was formed in conjunction with Genesis Networks Enterprises, LLC.

Intangibles amortization was $3,478 and $3,249 for the three-months ended December 31, 2012 and 2011 , respectively, and $10,416 and $9,484 for the nine -months ended December 31, 2012 and 2011 , respectively.

The following table details the estimated intangibles amortization expense for the remainder of Fiscal 2013 , each of the succeeding four fiscal years and the periods thereafter. These estimates are based on the carrying amounts of Intangible assets as of December 31, 2012 that are provisional measurements of fair value and are subject to change pending the outcome of purchase accounting related to certain acquisitions:
Fiscal
 
2013
$
3,313

2014
12,026

2015
10,542

2016
10,337

2017
9,425

Thereafter
40,600

Total
$
86,243





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Note 6: Indebtedness

Short-Term Debt
The Company finances certain vendor-specific inventory under an unsecured revolving arrangement through a third party which provides extended payment terms beyond those offered by the vendor at no incremental cost to the Company. The outstanding balance for this unsecured revolving arrangement was $5,404 as of December 31, 2012 and is recorded as a current liability in Other Liabilities within the Company's Consolidated Balance Sheets.

Long-Term Debt

The Company’s Long-term debt consists of the following:
 
December 31, 2012

March 31, 2012

Revolving credit agreement
$
191,745

$
179,470

Other
158

514

Total debt
$
191,903

$
179,984

Less: current portion (included in Other liabilities)
(100
)
(363
)
Long-term debt
$
191,803

$
179,621


On March 23, 2012, the Company entered into a Credit Agreement (the "Credit Agreement") with Citizens Bank of Pennsylvania, as administrative agent, and certain other lender parties. The Credit Agreement expires on March 23, 2017. Borrowings under the Credit Agreement are permitted up to a maximum amount of $400,000 , which includes up to $25,000 of swing-line loans and $25,000 of letters of credit. The Credit Agreement may be increased by the Company up to an additional $100,000 with the approval of the lenders and may be unilaterally and permanently reduced by the Company to not less than the then outstanding amount of all borrowings. Interest on outstanding indebtedness under the Credit Agreement accrues, at the Company’s option, at a rate based on either: (a) the greater of (i) the prime rate per annum of the agent then in effect and (ii)  0.50% plus the rate per annum announced by the Federal Reserve Bank of New York as being the weighted-average of the rates on overnight Federal funds transactions arranged by Federal funds brokers on the previous trading day, in each case plus 0% to 0.75% (determined by a leverage ratio based on the Company’s consolidated Earnings Before Interest, Taxes, Depreciation and Amortization ("EBITDA")) or (b) a rate per annum equal to the LIBOR rate plus 0.875% to 1.750% (determined by a leverage ratio based on the Company’s consolidated EBITDA). The Credit Agreement requires the Company to maintain compliance with certain non-financial and financial covenants such as leverage and fixed-charge coverage ratios. As of December 31, 2012 , the Company was in compliance with all covenants under the Credit Agreement.

The maximum amount of debt outstanding under the Credit Agreement, the weighted-average balance outstanding under the Credit Agreement and the weighted-average interest rate on all outstanding debt for the three-months ended December 31, 2012 was $220,470 , $207,910 and 1.6% , respectively, compared to $214,045 , $203,457 and 1.1% , respectively, for the three-months ended December 31, 2011 . The maximum amount of debt outstanding under the Credit Agreement, the weighted-average balance outstanding under the Credit Agreement and the weighted-average interest rate on all outstanding debt for the nine -months ended December 31, 2012 was $220,470 , $201,631 and 1.5% , respectively, compared to $216,180 , $195,604 and 1.1% , respectively, for the nine -months ended December 31, 2011 .

As of December 31, 2012 , the Company had $4,050 outstanding in letters of credit and $204,205 in unused commitments under the Credit Agreement.


Note 7: Derivative Instruments and Hedging Activities

The Company is exposed to certain market risks, including the effect of changes in foreign currency exchange rates and interest rates. The Company uses derivative instruments to manage financial exposures that occur in the normal course of business. It does not hold or issue derivatives for speculative trading purposes. The Company is exposed to non-performance risk from the counterparties in its derivative instruments. This risk would be limited to any unrealized gains on current positions. To help mitigate this risk, the Company transacts only with counterparties that are rated as investment grade or higher and all counterparties are monitored on a continuous basis. The fair value of the Company’s derivatives reflects this credit risk.


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Foreign currency contracts
The Company enters into foreign currency contracts to hedge exposure to variability in expected fluctuations in foreign currencies. All of the foreign currency contracts have been designated and qualify as cash flow hedges. The effective portion of any changes in the fair value of the derivative instruments is recorded in Accumulated Other Comprehensive Income ("AOCI") until the hedged forecasted transaction occurs or the recognized currency transaction affects earnings. Once the forecasted transaction occurs or the recognized currency transaction affects earnings, the effective portion of any related gains or losses on the cash flow hedge is reclassified from AOCI to the Company’s Consolidated Statements of Operations.

As of December 31, 2012 , the Company had open contracts in Australian and Canadian dollars, Danish krone, Euros, Mexican pesos, New Zealand dollars, Norwegian kroner, British pounds sterling, Swedish krona, Swiss francs and Japanese yen which have been designated as cash flow hedges. These contracts had a notional amount of $42,383 and will expire within eleven months. There was no hedge ineffectiveness during Fiscal 2013 or Fiscal 2012 .

Interest-rate Swaps
On June 15, 2009 , the Company entered into a three -year floating-to-fixed interest-rate swap, with an effective date of July 27, 2009 , that was based on a three -month LIBOR rate versus a 2.28% fixed rate and had a notional value of $100,000 (which reduced to $50,000 on July 27, 2011 and terminated on July 27, 2012). On May 19, 2011 , the Company entered into a one -year floating-to-fixed interest-rate swap, with an effective date of July 26, 2011 , that was based on a three -month LIBOR rate versus a 0.58% fixed rate and had a notional value of $75,000 and terminated on July 26, 2012. On November 15, 2011 , the Company entered into a three -year floating-to-fixed interest-rate swap, with an effective start date of July 26, 2012 , that is based on a three -month LIBOR rate versus a 1.25%  fixed rate and has a notional value of $125,000 . Each interest-rate swap discussed above does not qualify for hedge accounting and all such interest-rate swaps are collectively hereinafter referred to as the "interest-rate swaps."

The following tables summarize the carrying amounts of derivative asset/liability and the impact on the Company's Consolidated Statements of Operations:
 
 
Asset Derivatives
Liability Derivatives
 
Classification
December 31,
2012

March 31,
2012

December 31,
2012

March 31,
2012

Derivatives designated as hedging instruments
 

 

 

 

Foreign currency contracts
Other liabilities (current)




$
167

$
1,272

Foreign currency contracts
Other assets (current)
$
900

$
323

 
 
Derivatives not designated as hedging instruments
 

 

 

 

Interest-rate swaps
Other liabilities (non-current)
 
 
$
2,651

$
1,773

 
 
Three-months ended
Nine-months ended
 
 
December 31
December 31
 
Classification
2012

2011

2012

2011

Derivatives designated as hedging instruments
 

 

 
 
Gain (loss) recognized in other comprehensive income (effective portion), net of taxes
Other comprehensive income
$
(140
)
$
(230
)
$
(361
)
$
(57
)
Amounts reclassified from AOCI into results of operations (effective portion), net of taxes
Selling, general &
administrative expenses
$
98

$
(102
)
$
331

$
110

Derivatives not designated as hedging instruments
 
 
 
 
Gain (loss) recognized in results of operations
Interest expense (income), net
$
317

$
(715
)
$
(878
)
$
801





11

Table of Contents                                             


Note 8: Fair Value Disclosures

Recurring fair value measurements
The following table presents information about the Company’s assets and liabilities measured at fair value on a recurring basis as of December 31, 2012 , and indicates the fair value hierarchy of the valuation techniques utilized by the Company to determine such fair value:
 
Assets at Fair Value as of
 
December 31, 2012
 
Level 1

Level 2

Level 3

Total

Foreign currency contracts
$

$
900

$

$
900

 
Liabilities at Fair Value as of
 
December 31, 2012
 
Level 1

Level 2

Level 3

Total

Foreign currency contracts
$

$
167

$

$
167

Interest-rate swaps

2,651


2,651

Total
$

$
2,818

$

$
2,818


Non-recurring fair value measurements
The Company's assets and liabilities that are measured at fair value on a non-recurring basis include non-financial assets and liabilities initially measured at fair value in a business combination and Goodwill.


Note 9: Acquisitions

Fiscal 2013
There were no acquisitions during the nine -month period ended December 31, 2012 .

Fiscal 2012
During the fourth quarter of Fiscal 2012, the Company acquired InnerWireless, Inc. ("InnerWireless"), a privately-held company headquartered in Richardson, TX. InnerWireless is the first Black Box acquisition in the rapidly-growing in-building wireless market and services clients in many industry from healthcare to Fortune 500 enterprises.

During the second quarter of Fiscal 2012, the Company acquired PS Technologies, LLC ("PS Tech"), a privately-held company headquartered in Dayton, OH. PS Tech is the first Black Box acquisition in the rapidly-growing enterprise video communications market and services clients in the healthcare and government verticals.

The acquisition of InnerWireless and PS Tech, both individually and in the aggregate, did not have a material impact on the Company's consolidated financial statements.


Note 10: Income Taxes

The Company's provision for income taxes for the three-months ended December 31, 2012 was $5,222 , an effective tax rate of 38.0% on income before provision for income taxes of $13,740 compared to a benefit for income taxes for the three-months ended December 31, 2011 of $14,101 , an effective tax rate of 4.7% on loss before provision for income taxes of $297,544 . The Company's provision for income taxes for the nine -months ended December 31, 2012 was $13,229 , an effective tax rate of 38.0% on income before provision for income taxes of $34,812 compared to a benefit for income taxes for the nine -months ended December 31, 2011 of $1,655 , an effective tax rate of 0.6% on loss before provision for income taxes of $260,631 . During the nine -months ended December 31, 2011 , the company's income taxes were impacted by $262,703 of non-deductible goodwill impairment loss resulting from the goodwill impairment during the third quarter of Fiscal 2012 and a reduction in reserves of $1,579 during the second quarter of Fiscal 2012 due to an agreement with the Internal Revenue Service ("IRS") to conclude the previously-disclosed IRS audit for Fiscal 2007 through Fiscal 2010 which is the primary cause for the increase in the effective tax rate from 0.6% for nine -months ended December 31, 2011 to 38.0% for the nine -months ended December 31, 2012 . The effective tax rate for the nine -months ended December 31, 2012 of 38.0% differs from the federal statutory rate primarily due to state income taxes and the

12

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write-off of certain deferred tax assets related to equity awards partially offset by foreign earnings taxed at a lower statutory rates and foreign tax credits on deemed dividends.

The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate adjusted for certain discreet items for the full fiscal year. Cumulative adjustments to the Company's estimate are recorded in the interim period in which a change in the estimated annual effective rate is determined.

During the three-months ended December 31, 2012, the IRS commenced an examination of the Company's U.S. federal income tax return for Fiscal 2011. The IRS has not yet proposed any adjustment to the Company's filing positions in connection with this examination. Upon completion of this examination, it is reasonably possible that the total amount of unrecognized benefits will change. Any adjustment to the unrecognized tax benefits would impact the effective tax rate. The Company cannot make an estimate of the impact on the effective rate for any potential adjustment at this time.

Fiscal 2012 remains open to examination by the IRS and Fiscal 2008 through Fiscal 2012 remain open to examination by certain state and foreign taxing jurisdictions.


Note 11: Stock-based Compensation

In August 2008, the Company’s stockholders approved the 2008 Long-Term Incentive Plan (the "Incentive Plan") which replaces the 1992 Stock Option Plan, as amended, and the 1992 Director Stock Option Plan, as amended. As of December 31, 2012 , the Incentive Plan is authorized to issue stock options, restricted stock units and performance shares, among other types of awards, for up to 3,197,395 shares of common stock, par value $0.001 per share (the "common stock").

The Company recognized stock-based compensation expense of $1,791 and $2,087 for the three-months ended December 31, 2012 and 2011 , respectively, and $6,397 and $7,505 for the nine -months ended December 31, 2012 and 2011 , respectively. The Company recognized total income tax benefit for stock-based compensation arrangements of $658 and $766 for the three-months ended December 31, 2012 and 2011 , respectively, and $2,351 and $2,754 for the nine -months ended December 31, 2012 and 2011 , respectively. Stock-based compensation expense is recorded in Selling, general & administrative expense within the Company’s Consolidated Statements of Operations.

Stock options
Stock option awards are granted with an exercise price equal to the closing market price of the common stock on the date of grant; such stock options generally become exercisable in equal amounts over a three -year period and have a contractual life of ten -years from the grant date. The fair value of stock options is estimated on the grant date using the Black-Scholes option pricing model which includes the following weighted-average assumptions.
 
Nine-months ended
 
December 31
 
2012

2011

Expected life (in years)
7.0

4.8

Risk free interest rate
0.8
%
1.7
%
Annual forfeiture rate
2.0
%
2.1
%
Expected Volatility
44.6
%
45.3
%
Dividend yield
1.0
%
0.7
%


13

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The following table summarizes the Company’s stock option activity:
 
Shares (in 000’s)

Weighted-Average Exercise Price

Weighted-Average Remaining Contractual Life (Years)
Intrinsic Value (000’s)

Outstanding at March 31, 2012
2,827

$
34.95

 
 
Granted
184

22.07

 
 
Exercised


 
 
Forfeited or cancelled
(412
)
35.02

 
 
Outstanding at December 31, 2012
2,599

$
34.02

4.4
$
314

Exercisable at December 31, 2012
2,251

$
35.08

3.7
$


The weighted-average grant-date fair value of options granted during the nine -months ended December 31, 2012 and 2011 was $9.02 and $12.42 , respectively. The intrinsic value of options exercised during the nine -months ended December 31, 2012 and 2011 was $0 and $0 , respectively. The aggregate intrinsic value in the preceding table is based on the closing stock price of the common stock on December 28, 2012 of $24.00 .

The following table summarizes certain information regarding the Company’s non-vested stock options:
 
Shares (in 000’s)

Weighted-Average Grant-Date Fair Value

March 31, 2012
382

$
12.15

Granted
184

9.02

Vested
(188
)
12.16

Forfeited
(30
)
11.11

December 31, 2012
348

$
10.57


As of December 31, 2012 , there was $2,331 of total unrecognized pre-tax stock-based compensation expense related to non-vested stock options which is expected to be recognized over a weighted-average period of 1.8  years.

Restricted stock units
Restricted stock unit awards are subject to a service condition and typically vest in equal amounts over a three -year period from the grant date. The fair value of restricted stock units is determined based on the number of restricted stock units granted and the closing market price of the common stock on the date of grant.

The following table summarizes the Company’s restricted stock unit activity:
 
Shares (in 000’s)

Weighted-Average Grant-Date Fair Value

March 31, 2012
280

$
31.23

Granted
228

22.92

Vested
(13
)
29.20

Forfeited
(167
)
29.25

December 31, 2012
328

$
26.55


The total fair value of shares that vested during the nine -months ended December 31, 2012 and 2011 was $3,674 and $3,921 , respectively.

As of December 31, 2012 , there was $5,626 of total unrecognized pre-tax stock-based compensation expense related to non-vested restricted stock units which is expected to be recognized over a weighted-average period of 2.0 years.


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Performance share awards
Performance share awards are subject to one of the performance goals - the Company's Relative Total Shareholder Return ("TSR") Ranking or cumulative Adjusted EBITDA - over a three -year period. The Company’s Relative TSR Ranking metric is based on the three-year cumulative return to shareholders from the change in stock price and dividends paid between the starting and ending dates. The fair value of performance share awards (subject to cumulative Adjusted EBITDA) is determined based on the number of performance shares granted and the closing market price of the common stock on the date of grant. The fair value of performance share awards (subject to the Company’s Relative TSR Ranking) is estimated on the grant date using the Monte-Carlo simulation valuation method which includes the following weighted-average assumptions.
 
Nine-months ended
 
December 31
 
2012

2011

Risk free interest rate
0.4
%
0.9
%
Expected Volatility
41.3
%
50.8
%
Dividend yield
1.0
%
0.7
%

The following table summarizes the Company’s performance share award activity:
 
Shares (in 000’s)

Weighted-Average Grant-Date Fair Value

March 31, 2012
183

$
33.77

Granted
111

22.35

Vested


Forfeited
(19
)
30.36

December 31, 2012
275

$
29.39


The total fair value of shares that vested during the nine -months ended December 31, 2012 and 2011 was $0 and $1,679 , respectively.

As of December 31, 2012 , there was $2,616 of total unrecognized pre-tax stock-based compensation expense related to non-vested performance share awards which is expected to be recognized over a weighted-average period of 1.8 years.


Note 12: Earnings (loss) Per Share

The following table details the computation of basic and diluted earnings (loss) per common share from continuing operations for the periods presented (share numbers in thousands):
 
Three-months ended
Nine-months ended
 
December 31
December 31
 
2012

2011

2012

2011

Net income (loss)
$
8,518

$
(283,443
)
$
21,583

$
(258,976
)
Weighted-average common shares outstanding (basic)
16,412

17,581

16,783

17,806

Effect of dilutive securities from equity awards
113


80


Weighted-average common shares outstanding (diluted)
16,525

17,581

16,863

17,806

Basic earnings (loss) per common share
$
0.52

$
(16.12
)
$
1.29

$
(14.54
)
Dilutive earnings (loss) per common share
$
0.52

$
(16.12
)
$
1.28

$
(14.54
)
 
 
 
 
 

The Weighted-average common shares outstanding (diluted) computation is not impacted during any period where the exercise price of a stock option is greater than the average market price. There were 2,651,888 and 2,957,843 non-dilutive equity awards outstanding for the three-months ended December 31, 2012 and 2011 , respectively, and 2,713,461 and 3,055,342 non-dilutive equity awards outstanding for the nine -months ended December 31, 2012 and 2011 , respectively, that are not included in the corresponding period Weighted-average common shares outstanding (diluted) computation.
    

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Note 13: Stockholder's Equity

Accumulated Other Comprehensive Income
The components of AOCI consisted of the following for the periods presented:
 
December 31, 2012

March 31, 2012

Foreign currency translation adjustment
$
16,582

$
17,046

Derivative instruments, net of tax
(183
)
(153
)
Defined benefit pension, net of tax
(9,796
)
(9,631
)
Accumulated other comprehensive income
$
6,603

$
7,262


Dividends
The following table presents information about the Company's dividend program:
Period
Record Date
Payment Date
Rate

Aggregate Value

3Q13
December 28, 2012
January 11, 2013
$
0.08

$
1,304

2Q13
September 28, 2012
October 12, 2012
$
0.08

$
1,323

1Q13
June 29, 2012
July 13, 2012
$
0.08

$
1,355

3Q12
December 30, 2011
January 12, 2012
$
0.07

$
1,224

2Q12
September 30, 2011
October 13, 2011
$
0.07

$
1,238

1Q12
July 1, 2011
July 14, 2011
$
0.07

$
1,262


While the Company expects to continue to declare quarterly dividends, the payment of future dividends is at the discretion of the Company's Board of Directors (the "Board") and the timing and amount of any future dividends will depend upon earnings, cash requirements and the financial condition of the Company. Under the Credit Agreement, the Company is permitted to make any distribution or dividend as long as no Event of Default or Potential Default shall have occurred and is continuing or shall occur as a result thereof. In addition, no distribution or dividend is permitted under the Credit Agreement if such event would violate a consolidated leverage ratio other than regular quarterly dividends not exceeding $15,000 per year.

Common Stock Repurchases
The following table presents information about the Company's common stock repurchases:
 
Three-months ended
Nine-months ended
 
December 31
December 31
 
2012

2011

2012

2011

Common stock purchased
235,700

200,000

1,348,258

606,978

Aggregate purchase price
$
5,658

$
5,479

$
33,023

$
15,292

Average purchase price
$
24.01

$
27.40

$
24.49

$
25.19


During the first quarter of Fiscal 2013, the Company made tax payments of $983 and withheld 44,697 shares of common stock, which were designated as treasury shares, at an average price per share of $21.98 , related to share withholding to satisfy employee income taxes due as a result of the vesting in May 2012 of certain restricted stock units. During the first quarter of Fiscal 2012, the Company made tax payments of $1,521 and withheld 45,778 shares of common stock, which were designated as treasury shares, at an average price per share of $33.22 , related to share withholding to satisfy employee income taxes due as a result of the vesting in May 2011 of certain restricted stock units and performance shares.

Since the inception of the repurchase program in April 1999 through December 31, 2012 , the Company has repurchased 9,491,040 shares of common stock for an aggregate purchase price of $368,909 , or an average purchase price per share of $38.87 . These shares do not include the treasury shares withheld for tax payments resulting from the vesting of certain restricted stock units and performance shares. As of December 31, 2012 , 1,008,960 shares were available under repurchase programs approved by the Board which includes 1,000,000 shares approved for repurchase by the Board on each of May 4, 2012 and October 2, 2012. Additional repurchases of common stock may occur from time to time depending upon factors such as the Company’s cash flows and general market conditions. There can be no assurance as to the timing or amount of such repurchases. Under the Credit Agreement, the Company is permitted to repurchase its common stock as long as no Event of Default or Potential Default shall have occurred and

16

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is continuing or shall occur as a result thereof. In addition, no repurchase of common stock is permitted under the Credit Agreement if such event would violate a consolidated leverage ratio.

 
Note 14: Segment Reporting

Management reviews financial information for the consolidated Company accompanied by disaggregated information on revenues, operating income (loss) and assets by geographic region for the purpose of making operational decisions and assessing financial performance. Additionally, Management is presented with and reviews revenues and gross profit by service type. The accounting policies of the individual operating segments are the same as those of the Company.

The following table presents financial information about the Company’s reportable segments by geographic region:
 
Three-months ended
Nine-months ended
 
December 31
December 31
 
2012

2011

2012

2011

North America
 
 
 
 
Revenues
$
215,650

$
239,056

$
658,452

$
723,850

Operating income (loss) 1
14,900

(259,494
)
36,271

(227,192
)
Depreciation expense
1,134

1,171

3,537

3,712

Intangibles amortization
3,472

3,238

10,398

9,450

Assets (as of December 31)
842,559

836,001

842,559

836,001

Europe
 
 
 
 
Revenues
$
26,488

$
27,179

$
72,495

$
80,016

Operating income (loss) 2
1,848

(37,298
)
4,009

(32,181
)
Depreciation expense
115

93

327

282

Intangibles amortization
6

9

18

29

Assets (as of December 31)
83,167

77,750

83,167

77,750

All Other
 
 
 
 
Revenues
$
9,951

$
9,704

$
29,140

$
27,670

Operating income (loss)
964

1,415

3,276

3,308

Depreciation expense
50

34

147

103

Intangibles amortization

2


5

Assets (as of December 31)
27,367

27,888

27,367

27,888

1 Includes a loss of $2,670 during the third quarter of Fiscal 2013 due to the probable divestiture of our non-controlling interest in Genesis Networks Integration Services, LLC ("GNIS"), a joint venture company which was formed in conjunction with Genesis Networks Enterprises, LLC and a goodwill impairment loss of $277,132 recorded during the third quarter of Fiscal 2012. The GNIS divestiture was not material to the Company's consolidated financial statements and will not have a material impact on future operations.

2 Includes goodwill impairment loss of $40,665 recorded during the third quarter of Fiscal 2012.

The sum of the segment revenues, operating income, depreciation and intangibles amortization equals the consolidated revenues, operating income, depreciation and intangibles amortization. The following table reconciles segment assets to total consolidated assets as of December 31, 2012 and 2011 :
 
December 31
 
2012

2011

Segment assets for North America, Europe and All Other
$
953,093

$
941,639

Corporate eliminations
(59,408
)
(52,463
)
Total consolidated assets
$
893,685

$
889,176


17

Table of Contents                                             


The following table presents financial information about the Company by service type:
 
Three-months ended
Nine-months ended
 
December 31
December 31
 
2012

2011

2012

2011

Data Infrastructure
 
 
 
 
Revenues
$
62,664

$
58,326

$
186,185

$
186,998

Gross profit
16,556

14,550

48,432

46,110

Voice Communications
 
 
 
 
Revenues
$
142,571

$
166,234

$
436,410

$
495,111

Gross profit
45,057

51,472

132,148

151,238

Technology Products
 
 
 
 
Revenues
$
46,854

$
51,379

$
137,492

$
149,427

Gross profit
20,119

22,291

60,480

66,412


The sum of service type revenues and gross profit equals consolidated revenues and gross profit.


Note 15: Commitments and Contingencies

The Company is involved in, or has pending, various legal proceedings, claims, suits and complaints arising out of the normal course of business. Based on the facts currently available to the Company, Management believes these matters are adequately provided for, covered by insurance, without merit or not probable that an unfavorable material outcome will result.

There has been no other significant or unusual activity during Fiscal 2013 .


Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations("MD&A").

The discussion and analysis for the three and nine -months ended December 31, 2012 and 2011 as set forth below in this Part I, Item 2 should be read in conjunction with the response to Part 1, Item 1 of this report and the consolidated financial statements of Black Box Corporation ("Black Box," the "Company," "we" or "our"), including the related notes, and "Management’s Discussion and Analysis of Financial Condition and Results of Operations" included in the Company’s most recent Annual Report on Form 10-K as filed with the Securities and Exchange Commission ("SEC") for the fiscal year ended March 31, 2012 (the "Form 10-K"). The Company’s fiscal year ends on March 31. The fiscal quarters consist of 13  weeks and generally end on the Saturday nearest each calendar quarter end, adjusted to provide relatively equivalent business days for each fiscal quarter. The actual ending dates for the periods presented as of December 31, 2012 and 2011 were December 29, 2012 and December 31, 2011 , respectively. References to "Fiscal Year" or "Fiscal" mean the Company’s fiscal year ended March 31 for the year referenced. All dollar amounts are presented in thousands except for per share amounts or unless otherwise noted.

The Company
Black Box is a leading communications system integrator dedicated to designing, sourcing, implementing and maintaining today's complex communications solutions. The Company's primary service offering is voice communications solutions ("Voice Communications"); the Company also offers premise cabling and other data-related services ("Data Infrastructure") and technology product solutions (“Technology Products”). The Company provides 24/7/365 technical support for all of its solutions, which encompass all major voice and data product manufacturers as well as an extensive range of technology products that it sells through its catalog and Internet Web site and its Voice Communications and Data Infrastructure (collectively referred to as "On-Site services") offices. As of December 31, 2012 , the Company had more than 3,000 professional technical experts in approximately 200 offices serving more than 175,000 clients in approximately 150 countries throughout the world. Founded in 1976, Black Box, a Delaware corporation, operates subsidiaries on 5 continents and is headquartered near Pittsburgh in Lawrence, Pennsylvania.


18

Table of Contents                                             


With respect to Voice Communications, the Company's revenues are primarily generated from the sale and/or installation of new voice communications systems, the support of voice communications systems and moves, adds and changes ("MAC work") as clients' employees change locations or as clients move or remodel their physical space. The Company's diverse portfolio of product offerings allows it to service the needs of its clients independently of the manufacturer that they choose, which it believes is a unique competitive advantage. For the sale of new voice communications systems, most significant orders are subject to competitive bidding processes and, generally, competition can be significant for such new orders. The Company is continually bidding on new projects to replace projects that are completed. New voice communications systems orders often generate an agreement to support the voice communications system, which generally ranges from 1-3 years for commercial clients and 3-5 years for government clients. Historically, such an agreement would result in a fixed fee model over a period of time; however, some of our clients are migrating toward a variable fee model based on time and materials over a period of time. While this shift decreases our contractually obligated revenues and corresponding profits, the Company believes the variable model will generate profitable revenues. Sales of new voice communications systems and, to a lesser extent, MAC work, are dependent upon general economic growth and the Company's clients' capital spending. On the other hand, revenues from maintenance contracts generally are not dependent on the economy as clients seek to extend the life of their existing equipment and delay capital spending on new voice communications systems. The Company also has government contracts that generate significant revenues and are not as dependent on the overall economic environment as commercial clients. Maintenance and MAC work revenues are also dependent upon the Company's history and relationship with its clients and its long track record of providing high-quality service.
Similarly, the Company’s revenues for Data Infrastructure are generated from the installation or upgrade of data networks and MAC work. The installation of new data networks is largely dependent upon commercial employment and building occupancy rates. Installed data networks, however, may need to be upgraded in order to provide for larger, faster networks to accommodate the growing use of network technology. Additionally, Data Infrastructure projects can include MAC work, similar to Voice Communications, which is dependent on economic factors that are the same as those factors discussed above in relation to the Voice Communications business.

There is and has been a trend toward convergence of voice and data networks, in each of which the Company has technical expertise which the Company believes is a competitive advantage. Both the Voice Communications and Data Infrastructure businesses generate backlog which is defined by the Company as orders and contracts considered to be firm. At December 31, 2012 , the Company’s total backlog which relates primarily to Voice Communications and Data Infrastructure was $355,855 of which $252,021 is expected to be completed within the next twelve months.

The Company generates Technology Products revenues from the sale of technology products through its catalog, Internet Web site and the Company’s On-Site services offices. The sale of these products is a highly fragmented and competitive business. The Company has been in this business for over 36  years and has developed a reputation for providing high quality products, free 24/7/365 technical support, comprehensive warranties and rapid order fulfillment. With an average order size of less than one thousand dollars, the Company’s Technology Products is less impacted by capital spending and more so by general information technology spending. The Company’s Technology Products business provides additional distribution and support capabilities along with access to Black Box branded products to both the Voice Communications and Data Infrastructure businesses which provide cost benefits.

The Company services a variety of clients within most major industries, with the highest concentration in government, business services, manufacturing, banking, retail, healthcare and technology. Factors that impact those verticals, therefore, could have an impact on the Company. While the Company generates most of its revenues in North America, the Company also generates revenues from around the world, primarily Europe, such that factors that impact European markets could impact the Company.

Company management ("Management") strives to develop extensive and long-term relationships with high-quality clients as Management believes that satisfied clients will demand quality services and product offerings even in economic downturns.

Management is presented with and reviews revenues and operating income (loss) by geographical segment. In addition, revenues and gross profit information by service type are provided herein for purposes of further analysis.

The Company targets strategic acquisitions which it believes will deepen its capabilities and expand market opportunity. The Company has completed two (2) strategic acquisitions from April 1, 2011 through December 31, 2012 that have had an impact on the Company’s consolidated financial statements and, more specifically, North America Voice Communications and North America Data Infrastructure for the periods under review. There were no acquisitions during Fiscal 2013. During Fiscal 2012, the Company acquired InnerWireless, Inc. ("InnerWireless") which is its first acquisition in the rapidly-growing in-building wireless market and PS Technologies, LLC ("PS Tech") which is its first acquisition in the rapidly-growing enterprise video communications market. The acquisitions noted above are collectively referred to as the "Acquired Companies." The results of operations of the

19

Table of Contents                                             


Acquired Companies are included within the Company’s Consolidated Statements of Operations beginning on their respective acquisition dates.

The Company incurs certain expenses such as the amortization of intangible assets on acquisitions, restructuring expense, goodwill impairment loss and the change in fair value of the interest-rate swaps that it excludes when evaluating the continuing operations of the Company. The following table summarizes those expenses and the impact on Operating income (loss) and Income (loss) before provision (benefit) for income taxes for the periods presented:
 
Three-months ended
Nine-months ended
 
December 31
December 31
 
2012

2011

2012

2011

Amortization of intangible assets on acquisitions
$
3,472

$
3,238

$
10,398

$
9,450

Restructuring expense
1,442


5,473


Goodwill impairment loss

317,797


317,797

Joint venture investment loss
2,670


2,670


Impact on Operating income (loss)
$
(7,584
)
$
(321,035
)
$
(18,541
)
$
(327,247
)
Change in fair value of interest-rate swaps
(317
)
715

878

(801
)
Impact on Income (loss) before provision (benefit) for income taxes
$
(7,267
)
$
(321,750
)
$
(19,419
)
$
(326,446
)

The following table provides information on Revenues and Operating income (loss) by reportable geographic segment ( North America , Europe and All Other ). The table below should be read in conjunction with the following discussions.
 
Three-months ended
Nine-months ended
 
December 31
December 31
 
2012
2011
2012
2011
 
$

% of total revenue

$

% of total revenue

$

% of total revenue

$

% of total revenue

Revenues
 
 
 
 
 
 
 
 
North America
$
215,650

85.6
%
$
239,056

86.7
 %
$
658,452

86.7
%
$
723,850

87.1
 %
Europe
26,488

10.5
%
27,179

9.8
 %
72,495

9.5
%
80,016

9.6
 %
All Other
9,951

3.9
%
9,704

3.5
 %
29,140

3.8
%
27,670

3.3
 %
Total
$
252,089

100
%
$
275,939

100
 %
$
760,087

100.0
%
$
831,536

100.0
 %
Operating income (loss)
 
 
 
 
 
 
 
 
North America 1
$
14,900

 
$
(259,494
)
 
$
36,271

 
$
(227,192
)
 
% of North America revenues
6.9
%
 
(108.5
)%
 
5.5
%
 
(31.4
)%
 
Europe 2
$
1,848

 
$
(37,298
)
 
$
4,009

 
$
(32,181
)
 
% of Europe revenues
7.0
%
 
(137.2
)%
 
5.5
%
 
(40.2
)%
 
All Other
$
964

 
$
1,415

 
$
3,276

 
$
3,308

 
% of All Other revenues
9.7
%
 
14.6
 %
 
11.2
%
 
12.0
 %
 
Total
$
17,712

7.0
%
$
(295,377
)
(107.0
)%
$
43,556

5.7
%
$
(256,065
)
(30.8
)%

1 Includes a loss of $2,670 during the third quarter of Fiscal 2013 due to the probable divestiture of our non-controlling interest in Genesis Networks Integration Services, LLC, a joint venture company which was formed in conjunction with Genesis Networks Enterprises, LLC and a goodwill impairment loss of $277,132 recorded during the third quarter of Fiscal 2012.

2 Includes goodwill impairment loss of $40,665 recorded during the third quarter of Fiscal 2012.


20

Table of Contents                                             


The following table provides information on Revenues and Gross profit by service type ( Data Infrastructure , Voice Communications and Technology Products ). The table below should be read in conjunction with the following discussions.
 
Three-months ended
Nine-months ended
 
December 31
December 31
 
2012
2011
2012
2011
 
$

% of total revenue

$

% of total revenue

$

% of total revenue

$

% of total revenue

Revenues
 
 
 
 
 
 
 
 
Data Infrastructure
$
62,664

24.9
%
$
58,326

21.1
%
$
186,185

24.5
%
$
186,998

22.5
%
Voice Communications
142,571

56.5
%
166,234

60.3
%
436,410

57.4
%
495,111

59.5
%
Technology Products
46,854

18.6
%
51,379

18.6
%
137,492

18.1
%
149,427

18.0
%
Total
$
252,089

100
%
$
275,939

100
%
$
760,087

100.0
%
$
831,536

100.0
%
Gross profit
 
 
 
 
 
 
 
 
Data Infrastructure
$
16,556

 
$
14,550

 
$
48,432

 
$
46,110

 
% of Data Infrastructure revenues
26.4
%
 
24.9
%
 
26.0
%
 
24.7
%
 
Voice Communications
$
45,057

 
$
51,472

 
$
132,148

 
$
151,238

 
% of Voice Communications revenues
31.6
%
 
31.0
%
 
30.3
%
 
30.5
%
 
Technology Products
$
20,119

 
$
22,291

 
$
60,480

 
$
66,412

 
% of Technology Products revenues
42.9
%
 
43.4
%
 
44.0
%
 
44.4
%
 
Total
$
81,732

32.4
%
$
88,313

32.0
%
$
241,060

31.7
%
$
263,760

31.7
%


Three-months ended December 31, 2012 (" 3Q13 ") compared to three-months ended December 31, 2011 (" 3Q12 "):

Total Revenues
Total revenues for 3Q13 were $252,089 , a decrease of 9% compared to total revenues for 3Q12 of $275,939 . The Acquired Companies contributed incremental revenue of $15,291 and $12,379 for 3Q13 and 3Q12 , respectively. Excluding the effects of the acquisitions and the negative exchange rate impact of $132 in 3Q13 relative to the U.S. dollar, total revenues would have decreased 10% from $263,560 in 3Q12 to $236,930 in 3Q13 for the reasons discussed below.


Revenues by Geography

North America
Revenues in North America for 3Q13 were $215,650 , a decrease of 10% compared to revenues for 3Q12 of $239,056 . The Acquired Companies contributed incremental revenue of $15,291 and $12,379 for 3Q13 and 3Q12 , respectively. Excluding the effects of the acquisitions and the positive exchange rate impact of $193 in 3Q13 relative to the U.S. dollar, North American revenues would have decreased 12% from $226,677 in 3Q12 to $200,166 in 3Q13 . The Company believes that this decrease was primarily due to decreased activity for Voice Communications within the government revenue vertical primarily caused by delays in funding as well as project and task order initiation and decreased activity within the business services, retail services and healthcare revenue verticals, for Data Infrastructure within the business services, financial services and retail services revenue verticals and for Technology Products within the government and business services revenue verticals.

Europe
Revenues in Europe for 3Q13 were $26,488 , a decrease of 3% compared to revenues for 3Q12 of $27,179 . Excluding the negative exchange rate impact of $297 in 3Q13 relative to the U.S. dollar, European revenues would have decreased 1% from $27,179 in 3Q12 to $26,785 in 3Q13 . The Company believes this decrease was primarily due to a general decrease in activity for its Technology Products along with relatively comparable activity for Data Infrastructure.


21

Table of Contents                                             


All Other
Revenues for All Other for 3Q13 were $9,951 , an increase of 3% compared to revenues for 3Q12 of $9,704 . Excluding the negative exchange rate impact of $28 in 3Q13 relative to the U.S. dollar, All Other revenues would have increased 3% from $9,704 in 3Q12 to $9,979 in 3Q13 .


Revenue by Service Type

Data Infrastructure
Revenues from Data Infrastructure for 3Q13 were $62,664 , an increase of 7% compared to revenues for 3Q12 of $58,326 . The Acquired Companies contributed incremental revenue of $7,594 and $0 for 3Q13 and 3Q12 , respectively. Excluding the effects of the acquisitions and the positive exchange rate impact of $3 in 3Q13 relative to the U.S. dollar for international Data Infrastructure, Data Infrastructure revenues would have decreased 6% from $58,326 in 3Q12 to $55,067 in 3Q13 . The Company believes that this decrease was primarily due to decreased activity in North America within the business services, financial services and retail services revenue verticals along with relatively comparable activity in Europe.

Voice Communications
Revenues from Voice Communications for 3Q13 were $142,571 , a decrease of 14% compared to revenues for 3Q12 of $166,234 . The Acquired Companies contributed incremental revenue of $7,697 and $12,379 for 3Q13 and 3Q12 , respectively. Excluding the effects of the acquisitions and the positive exchange rate impact of $149 in 3Q13 relative to the U.S. dollar for international Voice Communications, Voice Communications revenues would have decreased 12% from $153,855 in 3Q12 to $134,725 in 3Q13 . The Company believes that this decrease was primarily due to decreased activity within the government revenue vertical primarily caused by delays in funding as well as project and task order initiation and decreased activity within the business services, retail services and healthcare revenue verticals.

Technology Products
Revenues from Technology Products for 3Q13 were $46,854 , a decrease of 9% compared to revenues for 3Q12 of $51,379 . Excluding the negative exchange rate impact of $284 in 3Q13 relative to the U.S. dollar for international Technology Products, Technology Products revenues would have decreased 8% from $51,379 in 3Q12 to $47,138 in 3Q13 . The Company believes this decrease was primarily due to a general decrease in activity in Europe and decreased activity within the government and business services revenue verticals in North America.


Gross profit
Gross profit for 3Q13 was $81,732 , a decrease of 8% compared to gross profit for 3Q12 of $88,313 . Gross profit as a percent of revenues for 3Q13 was 32.4% , an increase of 0.4% compared to Gross profit as a percent of revenues for 3Q12 of 32.0% . The Company believes the decrease in gross profit is primarily due to the decrease in revenues. The Company believes the increase in gross profit as a percent of revenue was due primarily to percentage increases in Voice Communications due to project mix and in Data Infrastructure due to project mix and the completion, in Fiscal 2012, of several lower margin projects partially offset by a percentage decrease in Technology Products as of result of product mix.

Gross profit for Data Infrastructure for 3Q13 was $16,556 , or 26.4% of revenues, compared to gross profit for 3Q12 of $14,550 , or 24.9% of revenues. Gross profit for Voice Communications for 3Q13 was $45,057 , or 31.6% of revenues, compared to gross profit for 3Q12 of $51,472 , or 31.0% of revenues. Gross profit for Technology Products for 3Q13 was $20,119 , or 42.9% of revenues, compared to gross profit for 3Q12 of $22,291 , or 43.4% of revenues. Please see the preceding paragraph for the analysis of gross profit variances by segment.


Selling, general & administrative expenses
Selling, general & administrative expenses for 3Q13 were $60,542 , a decrease of 3% compared to Selling, general & administrative expenses for 3Q12 of $62,644 . Selling, general & administrative expenses as a percent of revenues for 3Q13 were 24.0% , an increase of 1.3% , compared to Selling, general & administrative expenses as a percent of revenues for 3Q12 of 22.7% . The decrease in Selling, general & administrative expenses was primarily due to the impact of the Company's continued effort to provide an efficient cost structure and a decrease in stock-based compensation expense of $296, partially offset by additional operating expenses for the Acquired Companies of $1,881 and restructuring expense of $916. The increase in Selling, general & administrative expenses as a percent of revenue over the prior year was primarily due to decreased revenues and the increase in restructuring expense discussed above partially offset by the cost-savings from restructuring activities and the decrease in stock-based compensation expense discussed above.


22

Table of Contents                                             


Selling, general & administrative expenses generally include expenses for sales and marketing, engineering, product management, centers of excellence and corporate expenses. Many of these expenses do not change significantly with changes in revenue.


Goodwill impairment loss
Goodwill impairment loss for 3Q13 was $0 compared Goodwill impairment loss for 3Q12 of $317,797. During 3Q12 , the Company recorded a non-cash, pre-tax goodwill impairment charge of $317,797 as a result of its annual goodwill assessment conducted as of October 1, 2011. No such charge was recorded during 3Q13 .


Intangibles amortization
Intangibles amortization for 3Q13 was $3,478 , an increase of 7% compared to Intangibles amortization for 3Q12 of $3,249 . The increase was primarily attributable to the addition of intangible assets from acquisitions completed subsequent to the third quarter of Fiscal 2012.


Operating income (loss)
As a result of the foregoing, Operating income for 3Q13 was $17,712 compared to Operating loss for 3Q12 of $295,377 .


Interest expense (income), net
Interest expense for 3Q13 was $1,133 , a decrease of 39% compared to Interest expense for 3Q12 of $1,856 . Interest expense as a percent of revenues for 3Q13 was 0.4% , a decrease of 0.3% compared to Interest expense as a percent of revenues for 3Q12 of 0.7% . The Company’s interest-rate swaps (as defined below) contributed a gain of $317 and a loss of $715 for 3Q13 and 3Q12 , respectively, due to the change in fair value.

Excluding the Company's interest-rate swaps, the increase in Interest expense is primarily due to increases in the weighted-average interest rate from 1.1% for 3Q12 to 1.6% for 3Q13 and in the weighted-average outstanding debt from $203,457 for 3Q12 to $207,910 for 3Q13. The increase in the weighted-average interest rate is due primarily to the Credit Agreement (see below) entered into by the Company on March 23, 2012 that has slightly less favorable terms than did its predecessor.


Other expenses (income), net
Other expense for 3Q13 was $2,839 , an increase of 812% compared to Other expense for 3Q12 of $311 . The increase was primarily due to a loss of $2,670 during the third quarter of Fiscal 2013 due to the probable divestiture of our non-controlling interest in Genesis Networks Integration Services, LLC ("GNIS"), a joint venture company which was formed in conjunction with Genesis Networks Enterprises, LLC. The GNIS divestiture was not material to the Company's consolidated financial statements and will not have a material impact on future operations.


Provision (benefit) for income taxes
The tax provision for 3Q13 was $5,222 , an effective tax rate of 38.0% . This compares to the tax benefit for 3Q12 of $14,101 , an effective tax rate of 4.7% . The tax rate for 3Q13 was higher than 3Q12 primarily due to $262,703 of non-deductible goodwill impairment loss resulting from the goodwill impairment in 3Q12. The Company anticipates that its deferred tax asset is realizable in the foreseeable future.


Net income (loss)
As a result of the foregoing, Net income for 3Q13 was $8,518 compared to Net loss for 3Q12 of $283,443 .



23

Table of Contents                                             


Nine-months ended December 31, 2012 (" 3QYTD13 ") compared to nine -months ended December 31, 2011 (" 3QYTD12 "):


Total Revenues
Total revenues for 3QYTD13 were $760,087 , a decrease of 9% compared to total revenues for 3QYTD12 of $831,536 . The Acquired Companies contributed incremental revenue of $45,049 and $20,432 for 3QYTD13 and 3QYTD12 , respectively. Excluding the effects of the acquisitions and the negative exchange rate impact of $4,847 in 3QYTD13 relative to the U.S. dollar, total revenues would have decreased 11% from $811,104 in 3QYTD12 to $719,885 in 3QYTD13 for the reasons discussed below.


Revenues by Geography

North America
Revenues in North America for 3QYTD13 were $658,452 , a decrease of 9% compared to revenues for 3QYTD12 of $723,850 . The Acquired Companies contributed incremental revenue of $45,049 and $20,432 for 3QYTD13 and 3QYTD12 , respectively. Excluding the effects of the acquisitions and the negative exchange rate impact of $167 in 3QYTD13 relative to the U.S. dollar, North American revenues would have decreased 13% from $703,418 in 3QYTD12 to $613,570 in 3QYTD13 . The Company believes that this decrease was primarily due to decreased activity for Voice Communications within the government revenue vertical primarily caused by delays in funding as well as project and task order initiation and decreased activity within the business services, retail services and healthcare revenue verticals, for Data Infrastructure within the business services, financial services, retail services and manufacturing revenue verticals and for Technology Products within the government and business services revenue verticals.

Europe
Revenues in Europe for 3QYTD13 were $72,495 , a decrease of 9% compared to revenues for 3QYTD12 of $80,016 . Excluding the negative exchange rate impact of $4,434 in 3QYTD13 relative to the U.S. dollar, European revenues would have decreased 4% from $80,016 in 3QYTD12 to $76,929 in 3QYTD13 . The Company believes this decrease was primarily due a general decrease in activity for its Technology Products along with relatively comparable activity for Data Infrastructure.

All Other
Revenues for All Other for 3QYTD13 were $29,140 , an increase of 5% compared to revenues for 3QYTD12 of $27,670 . Excluding the negative exchange rate impact of $246 in 3QYTD13 relative to the U.S. dollar, All Other revenues would have increased 6% from $27,670 in 3QYTD12 to $29,386 in 3QYTD13 .


Revenue by Service Type

Data Infrastructure
Revenues from Data Infrastructure for 3QYTD13 were $186,185 , relatively comparable to revenues for 3QYTD12 of $186,998 . The Acquired Companies contributed incremental revenue of $24,172 and $0 for 3QYTD13 and 3QYTD12 , respectively. Excluding the effects of the acquisitions and the negative exchange rate impact of $1,337 in 3QYTD13 relative to the U.S. dollar for international Data Infrastructure, Data Infrastructure revenues would have decreased 13% from $186,998 in 3QYTD12 to $163,350 in 3QYTD13 . The Company believes that this decrease was primarily due to decreased activity in North America within the business services, financial services, retail services and manufacturing revenue verticals along with relatively comparable activity in Europe.

Voice Communications
Revenues from Voice Communications for 3QYTD13 were $436,410 , a decrease of 12% compared to revenues for 3QYTD12 of $495,111 . The Acquired Companies contributed incremental revenue of $20,877 and $20,432 for 3QYTD13 and 3QYTD12 , respectively. Excluding the effects of the acquisitions and the negative exchange rate impact of $114 in 3QYTD13 relative to the U.S. dollar for international Voice Communications, Voice Communications revenues would have decreased 12% from $474,679 in 3QYTD12 to $415,647 in 3QYTD13 . The Company believes that this decrease was primarily due to decreased activity within the government revenue vertical primarily caused by delays in funding as well as project and task order initiation and decreased activity within the business services, retail services and healthcare revenue verticals.


24

Table of Contents                                             


Technology Products
Revenues from Technology Products for 3QYTD13 were $137,492 , a decrease of 8% compared to revenues for 3QYTD12 of $149,427 . Excluding the negative exchange rate impact of $3,396 in 3QYTD13 relative to the U.S. dollar for international Technology Products, Technology Products revenues would have decreased 6% from $149,427 in 3QYTD12 to $140,888 in 3QYTD13 . The Company believes this decrease was primarily due to a general decrease in activity in Europe and decreased activity within the government and business services revenue verticals in North America.


Gross profit
Gross profit for 3QYTD13 was $241,060 , a decrease of 9% compared to gross profit for 3QYTD12 of $263,760 . Gross profit as a percent of revenues for 3QYTD13 and 3QYTD12 was 31.7% . The Company believes the decrease in gross profit is primarily due to the decrease in revenues. Gross profit as a percent of revenue was comparable period over period due to percentage decreases in Voice Communications and Technology Products (primarily in Europe) primarily as a result of competitive pricing pressure for projects offset by a percentage increase in Data Infrastructure primarily due to project mix and the completion, in Fiscal 2012, of several lower margin projects.

Gross profit for Data Infrastructure for 3QYTD13 was $48,432 , or 26.0% of revenues, compared to gross profit for 3QYTD12 of $46,110 , or 24.7% of revenues. Gross profit for Voice Communications for 3QYTD13 was $132,148 , or 30.3% of revenues, compared to gross profit for 3QYTD12 of $151,238 , or 30.5% of revenues. Gross profit for Technology Products for 3QYTD13 was $60,480 , or 44.0% of revenues, compared to gross profit for 3QYTD12 of $66,412 , or 44.4% of revenues. Please see the preceding paragraph for the analysis of gross profit variances by segment.


Selling, general & administrative expenses
Selling, general & administrative expenses for 3QYTD13 were $187,088 , a decrease of 3% compared to Selling, general & administrative expenses for 3QYTD12 of $192,544 . Selling, general & administrative expenses as a percent of revenues for 3QYTD13 were 24.6% , an increase of 1.4% , compared to Selling, general & administrative expenses as a percent of revenues for 3QYTD12 of 23.2% . The decrease in Selling, general & administrative expenses was primarily due to the impact of the Company's continued effort to provide an efficient cost structure and a decrease in stock-based compensation expense of $1,108, partially offset by additional operating expenses for the Acquired Companies of $6,243 and restructuring expense of $4,138. The increase in Selling, general & administrative expenses as a percent of revenue over the prior year was primarily due to decreased Revenues and the increase in restructuring expense discussed above partially offset by the cost-savings from restructuring activities and the decrease in stock-based compensation expense discussed above.

Selling, general & administrative expenses generally include expenses for sales and marketing, engineering, product management, centers of excellence and corporate expenses. Many of these expenses do not change significantly with changes in revenue.


Goodwill impairment loss
Goodwill impairment loss for 3QYTD13 was $0 compared Goodwill impairment loss for 3QYTD12 of $317,797. See "Goodwill impairment loss" above for explanation.


Intangibles amortization
Intangibles amortization for 3QYTD13 was $10,416 , an increase of 10% compared to Intangibles amortization for 3QYTD12 of $9,484 . The increase was primarily attributable to the addition of intangible assets from acquisitions completed subsequent to the third quarter of Fiscal 2012.


Operating income (loss)
As a result of the foregoing, Operating income for 3QYTD13 was $43,556 compared to Operating loss for 3QYTD12 of $256,065 .


Interest expense (income), net
Interest expense for 3QYTD13 was $4,956 , an increase of 34% compared to Interest expense for 3QYTD12 of $3,690 . Interest expense as a percent of revenues for 3QYTD13 was 0.7% , an increase of 0.3% compared to Interest expense as a percent of revenues for 3QYTD12 of 0.4% . The Company’s interest-rate swaps (as defined below) contributed a loss of $878 and a gain of $801 for 3QYTD13 and 3QYTD12 , respectively, due to the change in fair value.


25

Table of Contents                                             


Excluding the Company's interest-rate swaps, the decrease in Interest expense is primarily due to a decrease in fixed settlements on the interest rate swaps caused by a reduction in the weighted-average swap rate partially offset by decreases in the weighted-average interest rate from 1.1% for 3QYTD12 to 1.5% for 3QYTD13 and in the weighted-average outstanding debt from $195,604 for 3QYTD12 to $201,631 for 3QYTD13. The increase in the weighted-average interest rate is due primarily to the Credit Agreement (see below) entered into by the Company on March 23, 2012 that has slightly less favorable terms than did its predecessor.


Other expenses (income), net
Other expense for 3QYTD13 was $3,788 , an increase of 332% compared to Other expense for 3QYTD12 of $876 . The increase was primarily due to a loss of $2,670 during the third quarter of Fiscal 2013 due to the probable divestiture of our non-controlling interest in GNIS, a joint venture company which was formed in conjunction with Genesis Networks Enterprises, LLC.

Provision (benefit) for income taxes
The tax provision for 3QYTD13 was $13,229 , an effective tax rate of 38.0% . This compares to the tax benefit for 3QYTD12 of $1,655 , an effective tax rate of 0.6% . The tax rate for 3QYTD13 was higher than 3QYTD12 primarily due to $262,703 of nondeductible goodwill impairment loss resulting from the goodwill impairment in 3Q12 and a reduction in reserves of 1,579 during 2Q12 related to the settlement of an Internal Revenue Service audit for Fiscal 2007 through Fiscal 2010. The Company anticipates that its deferred tax asset is realizable in the foreseeable future.


Net income (loss)
As a result of the foregoing, Net income for 3QYTD13 was $21,583 compared to Net loss for 3QYTD12 of $258,976 .


Liquidity and Capital Resources

Operating Activities
Net cash provided by operating activities during 3QYTD13 was $30,726 . Significant factors contributing to the source of cash were: net income of $21,583 inclusive of non-cash charges of $14,427 and $6,397 for amortization/depreciation expense and stock compensation expense, respectively, as well as a decrease in trade accounts receivable of $5,364 and an increase in billings in excess of costs of $3,873. Significant factors contributing to the use of cash were: an increase in costs in excess of billings of $22,715 (primarily due to large contracts where contract billing terms do not necessarily coincide with percentage-of-completion revenue recognition). Changes in the above accounts are based on average Fiscal 2013 exchange rates.

Net cash provided by operating activities during 3QYTD12 was $43,874 . Significant factors contributing to the source of cash were: net loss of $258,976 inclusive of non-cash charges of $13,581 , $7,505 and $317,797 for amortization/depreciation expense, stock compensation expense and the goodwill impairment loss, respectively, as well as, an increase in trade accounts payable of $8,187 and accrued taxes and accrued expenses of $4,357 and $3,857, respectively. Significant factors contributing to the use of cash were: non-cash benefit of $22,597 for deferred taxes, as well as increases in inventory and trade accounts receivable of $9,848 and $11,173, respectively, as well as decreases in accrued compensation and other liabilities of $6,531 and $3,301, respectively. Changes in the above accounts are based on average Fiscal 2012 exchange rates.

As of December 31, 2012 and 2011 , the Company had Cash and cash equivalents of $29,469 and $25,459 , respectively, working capital of $184,312 and $169,693 , respectively, and a current ratio of 2.0 and 1.8 , respectively.

The Company believes that its cash provided by operating activities and availability under its credit facility will be sufficient to fund the Company’s working capital requirements, capital expenditures, dividend program, potential stock repurchases, potential future acquisitions or strategic investments and other cash needs for the next twelve months.


Investing Activities
Net cash used for investing activities during 3QYTD13 was $6,232 . Significant factors contributing to the use of cash were: $4,085 for gross capital expenditures and $2,361 for acquisition activity.

Net cash used for investing activities during 3QYTD12 was $19,914 . Significant factors contributing to the use of cash were: $15,128 for acquisitions during the period and $4,786 for gross capital expenditures.


26

Table of Contents                                             


Financing Activities
Net cash used for financing activities during 3QYTD13 was $17,711 . Significant factors contributing to the use of cash were: $33,022 for the purchase of treasury stock (including $983 for the purchase of treasury stock related to the vesting in May 2012 of certain restricted stock units) and $3,902 for the payment of dividends. Significant factors contributing to the source of cash were: $11,903 of net borrowings on long-term debt, $5,404 of net borrowings on short-term debt and $1,926 of cash overdrafts.

Net cash used for financing activities during 3QYTD12 was $26,532 . Significant factors contributing to the use of cash were: $15,292 for the purchase of treasury stock (including $1,521 for the purchase of treasury stock related to the vesting in May 2011 of certain restricted stock units and performance shares), $7,666 of net payments on long-term debt and $3,574 for the payment of dividends.


Total Debt
On March 23, 2012, the Company entered into a Credit Agreement (the "Credit Agreement") with Citizens Bank of Pennsylvania, as administrative agent, and certain other lender parties. The Credit Agreement expires on March 23, 2017. Borrowings under the Credit Agreement are permitted up to a maximum amount of $400,000 , which includes up to $25,000 of swing-line loans and $25,000 of letters of credit. The Credit Agreement may be increased by the Company up to an additional $100,000 with the approval of the lenders and may be unilaterally and permanently reduced by the Company to not less than the then outstanding amount of all borrowings. Interest on outstanding indebtedness under the Credit Agreement accrues, at the Company’s option, at a rate based on either: (a) the greater of (i) the prime rate per annum of the agent then in effect and (ii)  0.50% plus the rate per annum announced by the Federal Reserve Bank of New York as being the weighted-average of the rates on overnight Federal funds transactions arranged by Federal funds brokers on the previous trading day, in each case plus 0% to 0.75% (determined by a leverage ratio based on the Company’s consolidated Earnings Before Interest Taxes Depreciation and Amortization ("EBITDA")) or (b) a rate per annum equal to the LIBOR rate plus 0.875% to 1.750% (determined by a leverage ratio based on the Company’s consolidated EBITDA). The Credit Agreement requires the Company to maintain compliance with certain non-financial and financial covenants such as leverage and fixed-charge coverage ratios. As of December 31, 2012 , the Company was in compliance with all covenants under the Credit Agreement.

As of December 31, 2012 , the Company had total debt outstanding of $191,903 . Total debt was comprised of $191,745 outstanding under the Credit Agreement and $158 of obligations under capital leases and various other third-party, non-employee loans. The maximum amount of debt outstanding under the Credit Agreement, the weighted-average balance outstanding under the Credit Agreement and the weighted-average interest rate on all outstanding debt for the three-months ended December 31, 2012 was $220,470 , $207,910 and 1.6% , respectively, compared to $214,045 , $203,457 and 1.1% , respectively, for the three-months ended December 31, 2011 . The maximum amount of debt outstanding under the Credit Agreement, the weighted-average balance outstanding under the Credit Agreement and the weighted-average interest rate on all outstanding debt for the nine -months ended December 31, 2012 was $220,470 , $201,631 and 1.5% , respectively, compared to $216,180 , $195,604 and 1.1% , respectively, for the nine -months ended December 31, 2011 .

As of December 31, 2012 , the Company had $4,050 outstanding in letters of credit and $204,205 in unused commitments under the Credit Agreement.

 
Dividends
The following table presents information about the Company's dividend program:
Period
Record Date
Payment Date
Rate

Aggregate Value

3Q13
December 28, 2012
January 11, 2013
$
0.08

$
1,304

2Q13
September 28, 2012
October 12, 2012
$
0.08

$
1,323

1Q13
June 29, 2012
July 13, 2012
$
0.08

$
1,355

3Q12
December 30, 2011
January 12, 2012
$
0.07

$
1,224

2Q12
September 30, 2011
October 13, 2011
$
0.07

$
1,238

1Q12
July 1, 2011
July 14, 2011
$
0.07

$
1,262



27

Table of Contents                                             


While the Company expects to continue to declare quarterly dividends, the payment of future dividends is at the discretion of the Company's Board of Directors (the "Board") and the timing and amount of any future dividends will depend upon earnings, cash requirements and the financial condition of the Company. Under the New Credit Agreement, the Company is permitted to make any distribution or dividend as long as no Event of Default or Potential Default shall have occurred and is continuing or shall occur as a result thereof. In addition, no distribution or dividend is permitted under the Credit Agreement if such event would violate a consolidated leverage ratio other than regular quarterly dividends not exceeding $15,000 per year.


Common Stock Repurchases
The following table presents information about the Company's common stock repurchases:
 
Three-months ended
Nine-months ended
 
December 31
December 31
 
2012

2011

2012

2011

Common Stock purchased
235,700

200,000

1,348,258

606,978

Aggregate purchase price
$
5,658

$
5,479

$
33,023

$
15,292

Average purchase price
$
24.01

$
27.40

$
24.49

$
25.19


During the first quarter of Fiscal 2013, the Company made tax payments of $983 and withheld 44,697 shares of common stock, which were designated as treasury shares, at an average price per share of $21.98 , related to share withholding to satisfy employee income taxes due as a result of the vesting in May 2012 of certain restricted stock units. During the first quarter of Fiscal 2012, the Company made tax payments of $1,521 and withheld 45,778 shares of common stock, which were designated as treasury shares, at an average price per share of $33.22 , related to share withholding to satisfy employee income taxes due as a result of the vesting in May 2011 of certain restricted stock units and performance shares.

Since the inception of the repurchase program in April 1999 through December 31, 2012 , the Company has repurchased 9,491,040 shares of common stock for an aggregate purchase price of $368,909 , or an average purchase price per share of $38.87 . These shares do not include the treasury shares withheld for tax payments resulting from the vesting of certain restricted stock units and performance shares. As of December 31, 2012 , 1,008,960 shares were available under repurchase programs approved by the Board which includes 1,000,000 shares approved for repurchase by the Board on each of May 4, 2012 and October 2, 2012. Additional repurchases of common stock may occur from time to time depending upon factors such as the Company’s cash flows and general market conditions. There can be no assurance as to the timing or amount of such repurchases. Under the New Credit Agreement, the Company is permitted to repurchase its common stock as long as no Event of Default or Potential Default shall have occurred and is continuing or shall occur as a result thereof. In addition, no repurchase of common stock is permitted under the New Credit Agreement if such event would violate a consolidated leverage ratio.


Legal Proceedings
See Note 15 of the Notes to the Consolidated Financial Statements of this Quarterly Report on Form 10‑Q (this "Form 10-Q"), which information is incorporated herein by reference.


Inflation
The overall effects of inflation on the Company have been nominal. Although long-term inflation rates are difficult to predict, the Company continues to strive to minimize the effect of inflation through improved productivity and cost reduction programs as well as price adjustments within the constraints of market competition.


Valuation of Goodwill
The Company conducted its annual goodwill impairment assessment during the third quarter of Fiscal 2013 using data as of September 29, 2012. The first step of the goodwill impairment assessment, used to identify potential impairment, resulted in a significant surplus of fair value over carrying amount for each of our reporting units, thus the reporting units are considered not impaired and the second step of the impairment test is not necessary.

At December 31, 2012 , the Company's stock market capitalization was comparable with net book value. Each of the Company's reporting units continues to operate profitably and generate cash flow from operations, and the Company expects that each will

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continue to do so in Fiscal 2013 and beyond. The Company also believes that a reasonable potential buyer would offer a control premium for the business that would adequately cover any difference between the recent stock trading prices and the book value.


Critical Accounting Policies/Impact of Recently Issued Accounting Pronouncements

Critical Accounting Policies
The Company’s critical accounting policies require the most difficult, subjective or complex judgments, often as a result of the need to make estimates about the effect of matters that are inherently uncertain and are the most important to the portrayal of the Company’s consolidated financial statements. The Company’s critical accounting policies are disclosed in Part II, Item 7, "Management’s Discussion and Analysis of Financial Condition and Results of Operations" of the Form 10-K. The significant accounting policies used in the preparation of the Company’s consolidated financial statements are disclosed in Note 2 of the Notes to the Consolidated Financial Statements within the Form 10-K. No additional significant accounting policies have been adopted during Fiscal 2013 .

Impact of Recently Issued Accounting Pronouncements
There have been no accounting pronouncements adopted during Fiscal 2013 that had a material impact on the Company's consolidated financial statements. There have been no new accounting pronouncements issued but not yet adopted that are expected to have a material impact on the Company's consolidated financial statements.


Cautionary Forward Looking Statements
When included in this Form 10-Q or in documents incorporated herein by reference, the words "should," "expects," "intends," "anticipates," "believes," "estimates," "approximates," "targets," "plans" and analog