Black Box Corporation
BLACK BOX CORP (Form: 10-Q, Received: 11/10/2010 16:04:54)
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
     
þ   QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended October 2, 2010
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.  þ  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).  o  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  þ   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  þ  No
As of November 5, 2010, there were 17,692,190 shares of common stock, par value $.001 (the “common stock”), outstanding.
     
 

 


 

BLACK BOX CORPORATION
FOR THE QUARTER ENDED OCTOBER 2, 2010
INDEX
             
        Page
PART I. FINANCIAL INFORMATION        
 
           
  Financial Statements (Unaudited).        
 
           
   
Consolidated Balance Sheets – October 2, 2010 and March 31, 2010.
    3  
 
           
   
Consolidated Statements of Income – Three (3) and six (6) months ended October 2, 2010
and September 26, 2009.
    4  
 
           
   
Consolidated Statements of Cash Flows – Six (6) months ended October 2, 2010 and
September 26, 2009.
    5  
 
           
   
Notes to the Consolidated Financial Statements.
    6  
 
           
  Management’s Discussion and Analysis of Financial Condition and Results of Operations.     18  
 
           
  Quantitative and Qualitative Disclosures about Market Risk.     29  
 
           
  Controls and Procedures.     30  
 
           
PART II. OTHER INFORMATION        
 
           
  Exhibits.     31  
 
           
SIGNATURE     32  
 
           
EXHIBIT INDEX     33  

2


 

PART I – FINANCIAL INFORMATION
Item 1. Financial Statements.
BLACK BOX CORPORATION
CONSOLIDATED BALANCE SHEETS
                 
    October 2, 2010        
In thousands, except par value
  (Unaudited)     March 31, 2010*  
 
 
Assets
               
Cash and cash equivalents
    $   20,220       $   20,885  
Accounts receivable, net of allowance for doubtful accounts of $7,503 and $9,505
    156,215       141,211  
Inventories, net
    53,536       51,507  
Costs/estimated earnings in excess of billings on uncompleted contracts
    103,350       86,086  
Prepaid and other current assets
    32,719       28,090  
 
           
Total current assets
    366,040       327,779  
 
               
Property, plant and equipment, net
    22,396       23,568  
Goodwill
    644,416       641,965  
Intangibles
               
Customer relationships, net
    88,438       93,619  
Other intangibles, net
    29,403       30,374  
Other assets
    7,111       8,059  
 
           
Total assets
    $   1,157,804       $   1,125,364  
 
           
 
               
Liabilities
               
Accounts payable
    $   71,397       $   66,934  
Accrued compensation and benefits
    28,371       33,260  
Deferred revenue
    35,207       34,876  
Billings in excess of costs/estimated earnings on uncompleted contracts
    19,966       14,839  
Income taxes
    14,818       9,487  
Other liabilities
    36,128       41,798  
 
           
Total current liabilities
    205,887       201,194  
 
               
Long-term debt
    207,135       210,873  
Other liabilities
    19,047       23,303  
 
           
Total liabilities
    $   432,069       $   435,370  
 
               
Stockholders’ equity
               
Preferred stock authorized 5,000, par value $1.00, none issued
    $   --       $   --  
Common stock authorized 100,000, par value $.001, 17,610 and 17,548 shares outstanding
    25       25  
Additional paid-in capital
    457,535       451,778  
Retained earnings
    575,896       551,315  
Accumulated other comprehensive income
    15,856       9,971  
Treasury stock, at cost 7,643 and 7,626 shares
    (323,577 )     (323,095 )
 
           
Total stockholders’ equity
    $   725,735       $   689,994  
 
           
 
               
Total liabilities and stockholders’ equity
    $   1,157,804       $   1,125,364  
 
           
 
               
 
* Derived from audited financial statements
See Notes to the Consolidated Financial Statements

3


 

BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
                                 
    Three (3) months ended     Six (6) months ended  
  October 2 and September 26,     October 2 and September 26,  
In thousands, except per share amounts
  2010     2009     2010     2009  
 
 
                               
Revenues
                               
Hotline products
    $   46,415       $   45,511       $   92,464       $   87,793  
On-Site services
    226,509       186,402       444,056       379,332  
         
Total
    272,924       231,913       536,520       467,125  
 
                               
Cost of sales
                               
Hotline products
    25,018       23,666       49,836       45,861  
On-Site services
    157,786       125,973       306,950       256,577  
         
Total
    182,804       149,639       356,786       302,438  
 
                               
Gross profit
    90,120       82,274       179,734       164,687  
 
                               
Selling, general & administrative expenses
    63,534       64,515       127,154       128,398  
Intangibles amortization
    3,058       2,150       6,160       6,195  
         
 
                               
Operating income
    23,528       15,609       46,420       30,094  
 
                               
Interest expense (income), net
    1,742       2,596       3,432       4,740  
Other expenses (income), net
    (66 )     (85 )     (65 )     (227 )
         
 
                               
Income before provision for income taxes
    21,852       13,098       43,053       25,581  
 
                               
Provision for income taxes
    8,302       4,912       16,359       9,593  
         
 
                               
Net income
    $   13,550       $   8,186       $   26,694       $   15,988  
         
 
                               
Earnings per common share
                               
Basic
    $   0.77       $   0.47       $   1.52       $   0.91  
         
Diluted
    $   0.77       $   0.47       $   1.51       $   0.91  
         
 
                               
Weighted-average common shares outstanding
                               
Basic
    17,607       17,548       17,574       17,544  
         
Diluted
    17,694       17,548       17,646       17,544  
         
 
                               
Dividends per share
    $   0.06       $   0.06       $   0.12       $   0.12  
 
See Notes to the Consolidated Financial Statements

4


 

BLACK BOX CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
                 
    Six (6) months ended  
    October 2 and September 26,
In thousands
  2010     2009  
 
 
               
Operating Activities
               
Net income
    $   26,694       $   15,988  
Adjustments to reconcile net income to net cash provided by (used for) operating activities
               
Intangibles amortization and depreciation
    9,296       10,112  
Loss (gain) on sale of property
    (17)       25  
Deferred taxes
    1,244       637  
Tax impact from equity awards
    29       702  
Stock compensation expense
    5,506       3,279  
Change in fair value of interest-rate swaps
    (846)       177  
Changes in operating assets and liabilities (net of acquisitions):
               
Accounts receivable, net
    (14,103)       23,064  
Inventories, net
    (1,757)       3,624  
All other current assets excluding deferred tax asset
    (21,252)       (10,715)  
Liabilities exclusive of long-term debt
    3,345       (16,344)  
 
       
Net cash provided by (used for) operating activities
    $   8,139       $   30,549  
 
               
Investing Activities
               
Capital expenditures
    $   (1,885)       $   (1,033)  
Capital disposals
    45       103  
Acquisition of businesses (payments)/recoveries
    --       --  
Prior merger-related (payments)/recoveries
    (1,683)       (1,305)  
 
       
Net cash provided by (used for) investing activities
    $   (3,523)       $   (2,235)  
 
               
Financing Activities
               
Proceeds from borrowings
    $   103,930       $   74,855  
Repayment of borrowings
    (107,887)       (101,848)  
Purchase of treasury stock
    (482)       --  
Proceeds from the exercise of stock options
    280       --  
Payment of dividends
    (2,109)       (2,104)  
 
       
Net cash provided by (used for) financing activities
    $   (6,268)       $   (29,097)  
 
               
Foreign currency exchange impact on cash
    $   987       $   848  
 
       
 
               
Increase / (decrease) in cash and cash equivalents
    $   (665)       $   65  
Cash and cash equivalents at beginning of period
    $   20,885       $   23,720  
 
       
Cash and cash equivalents at end of period
    $   20,220       $   23,785  
 
       
 
               
Supplemental Cash Flow:
               
Cash paid for interest
    $   4,346       $   5,067  
Cash paid for income taxes
    9,917       6,555  
Non-cash financing activities:
               
Dividends payable
    1,057       1,053  
Capital leases
    121       4  
 
See Notes to the Consolidated Financial Statements

5


 

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 dedicated network infrastructure services provider. Black Box offers one-source network infrastructure services for communications systems. The Company’s services offerings include design, installation, integration, monitoring and maintenance of voice, data and integrated communications systems. The Company’s primary services offering is voice solutions (“Voice Services”); the Company also offers premise cabling and other data-related services (“Data Services”) and 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 118,000 network infrastructure products (“Hotline products”) that it sells through its catalog and Internet Web site (such catalog and Internet Web site business, together with technical support for such business, being referred to as “Hotline Services”) and its Voice Services and Data Services (collectively referred to as “On-Site services”) offices. As of October 2, 2010, the Company had more than 3,000 professional technical experts in 194 offices serving more than 175,000 clients in 141 countries throughout the world. Founded in 1976, Black Box, a Delaware corporation, operates subsidiaries on five continents and is headquartered near Pittsburgh in Lawrence, Pennsylvania.
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, 2010 (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 September 30, 2010 and 2009 were October 2, 2010 and September 26, 2009. 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 Company, which is the parent company, and its subsidiaries. All significant intercompany accounts and transactions have been eliminated in consolidation.
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. The Company assessed events subsequent to September 30, 2010 for potential recognition and disclosure in the consolidated financial statements. No events have occurred that would require adjustment to or disclosure in the consolidated financial statements.

6


 

Note 2: Significant Accounting Policies / Recent Accounting Pronouncements
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 2011.
Recent Accounting Pronouncements
There have been no accounting pronouncements adopted during the three (3) and six (6) months ended September 30, 2010 that had a material impact on the Company’s consolidated financial statements. There have been no new accounting pronouncements issued during the three (3) and six (6) months ended September 30, 2010 but not yet adopted that are expected to have a material impact on the Company’s consolidated financial statements. See the Company’s consolidated financial statements in the Form 10-K for a discussion of other new accounting pronouncements issued but not yet adopted.
Note 3: Inventories
The Company’s inventories consist of the following:
                 
    September 30, 2010     March 31, 2010  
 
Raw materials
    $   1,470       $   1,545  
Finished goods
    72,115       69,952  
 
       
Subtotal
    $   73,585       $   71,497  
Excess and obsolete inventory reserves
    (20,049)       (19,990)  
 
       
Inventory, net
    $   53,536       $   51,507  
 
Note 4: Goodwill
The following table summarizes changes to Goodwill at the Company’s reportable segments for the periods presented:
                                 
    North                    
    America     Europe     All Other     Total  
 
Balance as of March 31, 2010
    $   571,867       $   67,913       $   2,185       $   641,965  
Currency translation
    --       2,602       43       2,645  
Prior period acquisitions (see Note 9)
    (194)       --       --       (194)  
 
               
Balance as of September 30, 2010
    $   571,673       $   70,515       $   2,228       $   644,416  
 
At and since September 26, 2009 (the date of the Company’s most recent annual goodwill impairment assessment), the Company’s stock market capitalization has been lower than its net book value. However, each of the Company’s reporting units continues to operate profitably and generate significant cash flow from operations, and the Company expects that each will continue to do so throughout the remainder of Fiscal 2011 and beyond. In addition, the Company believes that a reasonable potential buyer would offer a control premium for the business that would adequately cover the difference between the recent stock trading prices and the net book value.

7


 

Note 5: Intangible Assets
The following table summarizes the gross carrying amount, accumulated amortization and net carrying amount by intangible asset class for the periods presented:
                                                 
    September 30, 2010     March 31, 2010  
    Gross             Net     Gross             Net  
    Carrying     Accum.     Carrying     Carrying     Accum.     Carrying  
    Amount     Amort.     Amount     Amount     Amort.     Amount  
 
Definite-lived
                                               
Non-compete agreements
     $ 10,464        $ 8,800        $ 1,664        $ 10,391        $ 8,193        $ 2,198  
Customer relationships
    118,209       29,771       88,438       118,209       24,590       93,619  
Acquired backlog
    17,349       17,349       --       17,349       16,912       437  
         
Total
     $ 146,022        $ 55,920        $ 90,102        $ 145,949        $ 49,695        $ 96,254  
 
                                               
Indefinite-lived
                                               
Trademarks
    35,992       8,253       27,739       35,992       8,253       27,739  
         
 
                                               
Total
     $ 182,014        $ 64,173        $ 117,841        $ 181,941        $ 57,948        $ 123,993  
 
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 carrying amounts of intangible assets for the periods presented:
                                 
            Non-Competes     Customer        
    Trademarks     and Backlog     Relationships     Total  
 
Balance at March 31, 2010
     $ 27,739        $ 2,635        $ 93,619        $ 123,993  
Amortization expense
    --       (979 )     (5,181 )     (6,160 )
Currency translation
    --       8       --       8  
 
                       
Balance at September 30, 2010
     $ 27,739        $ 1,664        $ 88,438        $ 117,841  
 
Intangibles amortization was $3,058 and $2,150 for the three (3) months ended September 30, 2010 and 2009, respectively, and $6,160 and $6,195 for the six (6) months ended September 30, 2010 and 2009, respectively. The Company acquired definite-lived intangibles from the completion of several acquisitions during Fiscal 2010.
The following table details the estimated intangibles amortization expense for the remainder of Fiscal 2011, each of the succeeding four fiscal years and the periods thereafter. These estimates are based on the carrying amounts of intangible assets as of September 30, 2010 that are provisional measurements of fair value and are subject to change pending the outcome of purchase accounting related to certain acquisitions:
         
Fiscal
       
 
2011
$   5,639  
2012
    11,013  
2013
    10,034  
2014
    8,852  
2015
    7,713  
Thereafter
    46,851  
 
       
Total
$   90,102  
 

8


 

Note 6: Indebtedness
The Company’s long-term debt consists of the following:
                 
    September 30, 2010     March 31, 2010  
 
Revolving credit agreement
     $ 206,415        $ 209,860  
Capital lease obligations
    1,583       1,967  
Other
    --       7  
 
           
Total debt
     $ 207,998        $ 211,834  
Less: current portion (included in Other liabilities)
    (863 )     (961 )
 
           
Long-term debt
     $ 207,135        $ 210,873  
 
Revolving Credit Agreement
On January 30, 2008, the Company entered into a Third Amended and Restated Credit Agreement dated as of January 30, 2008 (the “Credit Agreement”) with Citizens Bank of Pennsylvania, as agent, and a group of lenders. The Credit Agreement expires on January 30, 2013. Borrowings under the Credit Agreement are permitted up to a maximum amount of $350,000, which includes up to $20,000 of swing-line loans and $25,000 of letters of credit. The 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 or (b) a rate per annum equal to the LIBOR rate plus 0.50% to 1.125% (determined by a leverage ratio based on the Company’s consolidated Earnings Before Interest Taxes Depreciation and Amortization (“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 September 30, 2010, the Company was in compliance with all financial 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 (3) months ended September 30, 2010 was $237,255, $225,510 and 1.3%, respectively, compared to $251,095, $243,393 and 1.4%, respectively, for the three (3) months ended September 30, 2009. 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 six (6) months ended September 30, 2010 was $237,255, $222,595 and 1.3%, respectively, compared to $261,750, $249,113 and 1.5%, respectively, for the six (6) months ended September 30, 2009.
Capital lease obligations
The capital lease obligations are primarily for equipment. The lease agreements have remaining terms ranging from less than one year to five years with interest rates ranging from 4.5% to 12.3%.
Other
Other debt is comprised of other third-party, non-employee loans.
Unused available borrowings
As of September 30, 2010, the Company had $4,636 outstanding in letters of credit and $138,949 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.

9


 

Foreign Currency Contracts:
The Company enters into foreign currency contracts to hedge exposure to variability in expected fluctuations in foreign currencies. Foreign currency assets and liabilities are translated into U.S. dollars at the rate of exchange existing at the year-end date. Adjustments resulting from these translations are recorded in Accumulated Other Comprehensive Income (“AOCI”) within the Company’s Consolidated Balance Sheets and will be included in income upon sale or liquidation of the foreign investment. As of September 30, 2010, the Company had open contracts in Australian and Canadian dollars, Danish krone, Euros, Mexican pesos, 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 $81,379 and will expire within ten (10) months. There was no hedge ineffectiveness for the three (3) and six (6) months ended September 30, 2010 and 2009, respectively.
Interest-rate Swaps:
On July 26, 2006, the Company entered into a five-year floating-to-fixed interest-rate swap that is based on a 3-month LIBOR rate versus a 5.44% fixed rate, has a notional value of $100,000 (which reduced to $50,000 as of June 26, 2009) and does not qualify for hedge accounting. On June 15, 2009, the Company entered into a three-year floating-to-fixed interest-rate swap that is based on a 3-month LIBOR rate versus a 2.28% fixed rate, has a notional value of $100,000 reducing to $50,000 after two years and does not qualify for hedge accounting. Each interest-rate swap discussed above is collectively hereinafter referred to as the “interest-rate swaps.”
The following tables detail the effect of derivative instruments on the Company’s Consolidated Balance Sheets and Consolidated Statements of Income for the periods presented:
                                     
        Asset Derivatives     Liability Derivatives  
        Fair Value     Fair Value     Fair Value     Fair Value  
        at     at     at     at  
        September 30,     March 31,     September 30,     March 31,  
    Classification   2010     2010     2010     2010  
 
Derivatives
designated as
hedging instruments
                                   
Foreign currency contracts
  Other liabilities (short-term)     $ --       $ --       $ 1,031       $ 3,130  
Foreign currency contracts
  Prepaid and other current assets     $ 3,578       $ 514       $ --       $ --  
 
                                   
Derivatives not
designated as
hedging instruments
                                   
Interest-rate swaps
  Other liabilities (short-term)     $ --       $ --       $ 4,425       $ 5,271  
 
                                     
        Three (3) months ended
September 30,
    Six (6) months ended
September 30,
 
    Classification   2010     2009     2010     2009  
 
Derivatives designated as hedging
instruments
                                   
Gain (loss) recognized in
Comprehensive income on
(effective portion) – net of taxes
  Other comprehensive income     $ (107 )     $ (433 )     $ (452 )     $ (578 )
(Gain) loss reclassified from AOCI
into income (effective portion) – net
of taxes
  Selling, general &
administrative expenses
    $ 190       $ 119       $ 318       $ 190  
 

10


 

                                     
        Three (3) months ended     Six (6) months ended  
        September 30,     September 30,  
    Classification   2010     2009     2010     2009  
 
Derivatives not designated as
hedging instruments
                                   
Gain (loss) recognized in income
  Interest expense (income), net     $ 314       $ (380 )     $ 846       $ (177 )
 
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 September 30, 2010, 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 September 30, 2010  
    Level 1     Level 2     Level 3     Total  
Foreign currency contracts
    $ --       $ 3,578       $ --       $ 3,578  
                                 
    Liabilities at Fair Value as of September 30, 2010  
    Level 1     Level 2     Level 3     Total  
Foreign currency contracts
    $ --       $ 1,031       $ --       $ 1,031  
Interest-rate swaps
    --       4,425       --       4,425  
 
                       
Total
    $ --       $ 5,456       $ --       $ 5,456  
 
Note 9: Acquisitions
Fiscal 2011 acquisitions:
There have been no acquisitions during the six (6) months ended September 30, 2010.
Fiscal 2010 acquisitions:
During the third quarter of Fiscal 2010, the Company acquired Quanta Systems, LLC (“Quanta”), a privately-held company headquartered in Gaithersburg, MD. Quanta has an active customer base which includes various United States Department of Defense and government agency accounts.
Also, during the third quarter of Fiscal 2010, the Company acquired CBS Technologies Corp. (“CBS”), a privately-held company headquartered in Islandia, NY. CBS has an active customer base which includes commercial, education and various government agency accounts.
The acquisitions of Quanta and CBS, both individually and in the aggregate, did not have a material impact on the Company’s consolidated financial statements.
The fair values of assets acquired and liabilities assumed for Quanta are provisional and are based on the information that was available as of the acquisition date to estimate the fair value of assets acquired and liabilities assumed. The Company believes that the information available provides a reasonable basis for estimating the fair values of assets acquired and liabilities assumed but additional information not yet available is necessary to finalize those fair values. Thus, the provisional measurements of fair value are subject to change. The Company expects to finalize the valuation and complete the purchase price allocation as soon as practicable but no later than one-year from the acquisition date.
The results of operations of Quanta and CBS are included within the Company’s Consolidated Statements of Income beginning on their respective acquisition dates.
Note 10: Income Taxes
The Company recorded income tax expense of $8,302, an effective tax rate of 38.0%, and $4,912, an effective tax rate of 37.5%, for the three (3) months ended September 30, 2010 and 2009, respectively, and $16,359, an effective tax rate of 38.0%, and $9,593, an effective tax rate of 37.5%, for the six (6) months ended September 30, 2010 and 2009, respectively. The effective rate for the six (6) months ended September 30, 2010 of 38.0% differs from the federal statutory rate primarily due to state income taxes, partially offset by uncertain income tax positions (including interest and penalties) and foreign earnings taxed at a lower statutory rate.

11


 

The Company provides for income taxes at the end of each interim period based on the estimated effective tax rate 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.
Fiscal 2007 through Fiscal 2009 remain open to examination by the IRS. Fiscal 2004 through Fiscal 2009 remain open to examination by 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 September 30, 2010, the Incentive Plan is authorized to issue stock options, restricted stock units and performance shares, among other types of awards, for up to 2,395,477 shares of common stock, par value $.001 (the “common stock”).
The Company recognized stock-based compensation expense of $2,504 ($1,553 net of tax), or $0.09 per diluted share, and $1,636 ($1,022 net of tax), or $0.06 per diluted share, for the three (3) months ended September 30, 2010 and 2009, respectively, and $5,506 ($3,414 net of tax), or $0.19 per diluted share, and $3,279 ($2,049 net of tax), or $0.12 per diluted share, for the six (6) months ended September 30, 2010 and 2009, respectively. Stock-based compensation expense is recorded in Selling, general & administrative expense within the Company’s Consolidated Statements of Income.
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 (10) 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.
                 
    Six (6) months ended September 30,  
    2010     2009  
 
Expected life (in years)
    4.9       5.0  
Risk free interest rate
    2.3%     2.6%
Annual forfeiture rate
    2.1%     2.2%
Volatility
    41.4%     45.6%
Dividend yield
    0.8%     0.9%
 
The following table summarizes the Company’s stock option activity for the period presented and as of September 30, 2010:
                                    
                    Weighted-        
                    Average        
            Weighted-     Remaining        
            Average     Contractual     Intrinsic  
    Shares     Exercise     Life     Value  
    (in 000’s)     Price     (Years)     (000’s)  
 
Outstanding at March 31, 2010
    3,187       $ 35.66                  
Granted
    234       32.21                  
Exercised
    (10)       28.93                  
Forfeited or expired
    (11)       34.71                  
           
Outstanding at September 30, 2010
    3,400       $ 35.45       5.4       $ 3,532  
Exercisable at September 30, 2010
    2,706       $ 36.67       4.6       $ 2,378  
 
The weighted-average grant-date fair value of options granted during the six (6) months ended September 30, 2010 and 2009 was $11.69 and $12.54, respectively. The total intrinsic value of options exercised during the six (6) months ended September 30, 2010 and 2009 was $32 and $0, respectively, based on the closing stock price of the common stock on October 1, 2010 of $32.20.

12


 

The following table summarizes certain information regarding the Company’s non-vested stock options for the period presented:
                 
            Weighted-  
    Shares     Average Grant-  
    (in 000’s)     Date Fair Value  
 
Non-vested as of March 31, 2010
    866     $ 9.42  
Granted
    234       11.69  
Forfeited
    (4)       8.56  
Vested
    (402)       9.19  
 
       
Non-vested as of September 30, 2010
    694     $ 10.32  
 
As of September 30, 2010, there was $5,268 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 1.5 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 for the period presented:
                 
            Weighted-  
    Shares     Average Grant-  
    (in 000’s)     Date Fair Value  
 
Outstanding at March 31, 2010
    149     $ 28.75  
Granted
    175       30.72  
Vested
    (68)       29.28  
Forfeited
    (4)       29.60  
 
       
Outstanding at September 30, 2010
    252     $ 29.96  
 
The total fair value of shares that vested during the six (6) months ended September 30, 2010 and 2009 was $1,985 and $497, respectively.
As of September 30, 2010, there was $6,155 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 2.2 years.
Performance share awards
Performance share awards are subject to certain performance goals including the Company’s Relative Total Shareholder Return (“TSR”) Ranking and cumulative Adjusted EBITDA over a two or three year period. The Company’s Relative TSR Ranking metric is based on the two or 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 which includes the following weighted-average assumptions.
                 
        Six (6) months ended September 30,  
    2010     2009  
 
Expected Volatility
    52.3%       59.1%  
Risk free interest rate
    1.4%       1.1%  
Dividend yield
    0.8%       0.8%  
 

13


 

The following table summarizes the Company’s performance share award activity for the period presented:
                 
            Weighted-  
    Shares     Average Grant-  
    (in 000’s)     Date Fair Value  
 
Outstanding at March 31, 2010
    100     $ 33.05  
Granted
    79       33.24  
Vested
    --       --  
Forfeited
    --       --  
 
       
Outstanding at September 30, 2010
    179     $ 33.13  
 
No shares vested during the six (6) months ended September 30, 2010.
As of September 30, 2010, there was $3,941 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 1.6 years.
Note 12: Earnings Per Share
The following table details the computation of basic and diluted earnings per common share from continuing operations for the periods presented (share numbers in thousands):
                                 
    Three (3) months ended     Six (6) months ended  
    September 30,     September 30,
    2010     2009     2010     2009  
 
Net income
    $ 13,550       $ 8,186       $ 26,694       $ 15,988  
         
 
                               
Weighted-average common shares outstanding (basic)
    17,607       17,548       17,574       17,544  
Effect of dilutive securities from equity awards
    87       --       72       --  
         
Weighted-average common shares outstanding (diluted)
    17,694       17,548       17,646       17,544  
 
                               
Basic earnings per common share
    $ 0.77       $ 0.47       $ 1.52       $ 0.91  
         
Dilutive earnings per common share
    $ 0.77       $ 0.47       $ 1.51       $ 0.91  
         
                               
 
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 2,677,536 and 3,477,658 non-dilutive equity awards outstanding for the three (3) months ended September 30, 2010 and 2009, respectively, and 2,525,053 and 3,465,354 non-dilutive equity awards outstanding for the six (6) months ended September 30, 2010 and 2009, respectively, that are not included in the corresponding period Weighted-average common shares outstanding (diluted) computation.

14


 

Note 13: Comprehensive income and AOCI
The following table details the computation of comprehensive income for the periods presented:
                                 
    Three (3) months ended     Six (6) months ended  
    September 30,   September 30,
    2010     2009     2010     2009  
 
Net income
    $    13,550       $    8,186       $    26,694       $    15,988  
         
 
                               
Foreign currency translation adjustment
    12,282       3,967       5,936       15,470  
Derivative Instruments (net of tax):
                               
Net change in fair value of cash flow hedging instruments (net of tax)
    (107)       (433)       (452)       (578)  
Amounts reclassified into results of operations
    190       119       318       190  
Pension (net of tax):
                               
Unrealized gain (loss)
    8       (9 )     13       (139 )
Amounts reclassified into results of operations
    35       35       70       70  
         
 
                               
Other comprehensive income (loss)
    $    12,408       $    3,679       $    5,885       $    15,013  
         
 
                               
Comprehensive income (loss)
    $    25,958       $    11,865       $    32,579       $    31,001  
         
 
                               
 
The components of AOCI consisted of the following for the periods presented:
                 
    September 30, 2010     March 31, 2010  
 
Foreign currency translation adjustment
    $    19,234       $    13,298  
Unrealized gains (losses) on derivatives designated and qualified as cash flow hedges
    (454)       (320)  
Unrecognized gain (losses) on defined benefit pension
    (2,924)       (3,007)  
 
       
Accumulated other comprehensive income
    $    15,856       $    9,971  
 

15


 

Note 14: Segment Reporting
Management reviews financial information for the consolidated Company accompanied by disaggregated information on revenues, operating income and assets by geographic region for the purpose of making operational decisions and assessing financial performance. Additionally, Management is presented with and reviews revenues and gross profit by service type. The accounting policies of the individual operating segments are the same as those of the Company.
The following table presents financial information about the Company’s reportable segments by geographic region for the periods presented:
                                 
    Three (3) months ended     Six (6) months ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
 
North America
                               
Revenues
    $    240,540       $    199,928       $    471,024       $    404,511  
Operating income
    20,684       11,813       39,851       23,388  
Depreciation
    1,420       1,759       2,890       3,680  
Intangibles amortization
    3,045       2,138       6,138       6,172  
Assets (as of September 30)
    1,054,646       1,034,087       1,054,646       1,034,087  
 
                               
Europe
                               
Revenues
    $    22,798       $    24,172       $    47,740       $    48,058  
Operating income
    1,153       2,555       3,489       4,644  
Depreciation
    93       93       171       177  
Intangibles amortization
    11       11       19       21  
Assets (as of September 30)
    129,308       134,769       129,308       134,769  
 
                               
All Other
                               
Revenues
    $    9,586       $    7,813       $    17,756       $    14,556  
Operating income
    1,691       1,241       3,080       2,062  
Depreciation
    39       32       75       60  
Intangibles amortization
    2       1       3       2  
Assets (as of September 30)
    26,224       23,606       26,224       23,606  
 
The sum of the segment revenues, operating income, depreciation and intangibles amortization equals the consolidated revenues, operating income, depreciation and intangibles amortization. The following reconciles segment assets to total consolidated assets as of September 30, 2010 and 2009:
                 
    As of September 30,  
    2010     2009  
 
Segment assets for North America, Europe and All Other
    $    1,210,178       $    1,192,462  
Corporate eliminations
    (52,374)       (59,795)  
 
       
Total consolidated assets
    $    1,157,804       $    1,132,667  
 

16


 

The following table presents financial information about the Company by service type for the periods presented:
                                 
    Three (3) months ended     Six (6) months ended  
    September 30,     September 30,  
    2010     2009     2010     2009  
 
Data Services
                               
Revenues
    $    53,989       $    43,928       $    107,946       $    95,338  
Gross profit
    14,076       12,142       28,426       26,089  
 
                               
Voice Services
                               
Revenues
    $    172,520       $    142,474       $    336,110       $    283,994  
Gross profit
    54,647       48,287       108,680       96,666  
 
                               
Hotline Services
                               
Revenues
    $    46,415       $    45,511       $    92,464       $    87,793  
Gross profit
    21,397       21,845       42,628       41,932  
 
The sum of service type revenues and gross profit equals consolidated revenues and gross profit.
Note 15: Commitments and Contingencies
Regulatory Matters
As previously disclosed, the Company received a subpoena, dated December 8, 2004, from the United States General Services Administration (“GSA”), Office of Inspector General. The subpoena requires production of documents and information. The Company understands that the materials are being sought in connection with an investigation regarding potential violations of the terms of a GSA Multiple Award Schedule contract. On October 2, 2007, the Company was contacted by the United States Department of Justice which informed the Company that it was reviewing allegations by the GSA that certain of the Company’s pricing practices under a GSA Multiple Award Schedule contract violated the Civil False Claims Act. The Company has executed an agreement with the United States tolling the statute of limitations on any action by the United States through July 1, 2010 in order for the parties to discuss the merits of these allegations prior to the possible commencement of any litigation by the United States. During Fiscal 2010, the Company recorded expense of $2,850 in connection with this investigation. The Company continues to work with the GSA related to this matter. At the conclusion of this matter, the Company could be subject to damages, fines, penalties or other costs, either through settlement or judgment, which could be material.
Litigation Matters
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 outcome will result.
There has been no other significant or unusual activity during Fiscal 2011.

17


 

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations.
The discussion and analysis for the three (3) and six (6) months ended September 30, 2010 and 2009 as set forth below in this 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, 2010 (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 September 30, 2010 and 2009 were October 2, 2010 and September 26, 2009, 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 unless otherwise noted.
The Company
Black Box is a leading dedicated network infrastructure services provider. Black Box offers one-source network infrastructure services for communications systems. The Company’s services offerings include design, installation, integration, monitoring and maintenance of voice, data and integrated communications systems. The Company’s primary services offering is voice solutions (“Voice Services”); the Company also offers premise cabling and other data-related services (“Data Services”) and 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 118,000 network infrastructure products (“Hotline products”) that it sells through its catalog and Internet Web site (such catalog and Internet Web site business, together with technical support for such business, being referred to as “Hotline Services”) and its Voice Services and Data Services (collectively referred to as “On-Site services”) offices. As of September 30, 2010, the Company had more than 3,000 professional technical experts in 194 offices serving more than 175,000 clients in 141 countries throughout the world. Founded in 1976, Black Box, a Delaware corporation, operates subsidiaries on five continents and is headquartered near Pittsburgh in Lawrence, Pennsylvania.
With respect to Voice Services, the Company’s revenues are primarily generated from the sale and/or installation of new voice communication systems, the maintenance of voice communication systems and moves, adds and changes (“MAC work”) as customers’ employees change locations or as customers move or remodel their physical space. The Company’s diverse portfolio of product offerings allows it to service the needs of its customers which it believes is a unique competitive advantage. With respect to the sale of new voice communication 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 communication system orders often generate a maintenance agreement to maintain the voice communication system which generally ranges from 1-3 years for commercial clients and 3-5 years for government clients. Sales of new voice communication systems and, to a lesser extent, MAC work, is dependent upon general economic growth and the Company’s customers’ capital spending. On the other hand, revenues from maintenance contracts generally are not dependent on the economy as customers seek to extend the life of their existing equipment and delay capital spending on new voice communication systems. The Company also has government contracts which generate significant revenues and are not as dependent on the overall economic environment as commercial customers. Maintenance and MAC work revenues also are dependent upon the Company’s history and relationship with its customers and its long track record of providing high-quality service.
Similarly, the Company’s revenues for Data Services 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 Services projects can include MAC work, similar to Voice Services projects, which is dependent on economic factors that are the same as those factors discussed above in relation to the Voice Services business.
There is and has been a trend toward convergence of voice and data networks. Since the Company has technical expertise in both of these areas, the Company believes that this is a competitive advantage. Both the Voice Services and Data Services businesses generate backlog. At September 30, 2010, the Company’s backlog, defined as expected revenue related to executed client purchase orders or contracts that are estimated to be complete within 180 days, was approximately $213,000 and relates primarily to Voice Services and Data Services.

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The Company generates Hotline Services revenues from the sale of more than 118,000 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 30 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 Hotline Services is less impacted by capital spending and more so on general IT spending. The Company’s Hotline Services business provides additional distribution and support capabilities along with access to Black Box branded products to both the Data Services and Voice Services businesses which provides cost benefits.
The Company services a variety of customers within most major industries, with the highest concentration in government, business services, technology, retail, healthcare and manufacturing. 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 the European market could impact the Company.
Company management (“Management”) strives to develop extensive and long-term relationships with high-quality customers as Management believes that satisfied customers will demand quality services and product offerings even in economic downturns.
Management is presented with and reviews revenues and operating income by geographical segment. In addition, revenues and gross profit information by service type are provided herein for purposes of further analysis.
The Company has completed two (2) acquisitions from April 1, 2009 through September 30, 2010 that have had an impact on the Company’s consolidated financial statements and, more specifically, North America Voice Services for the periods under review. Fiscal 2010 acquisitions were (i) Quanta Systems, LLC (“Quanta”) and (ii) CBS Technologies Corp. (“CBS”). The acquisitions noted above are collectively referred to as the “Acquired Companies.” The results of operations of the Acquired Companies are included within the Company’s Consolidated Statements of Income beginning on their respective acquisition dates.
The Company incurs certain expenses ( i.e., expenses incurred as a result of certain acquisitions) that it excludes when evaluating the continuing operations of the Company. The following table is included to provide a schedule of these current expenses and an estimate of these future expenses for Fiscal 2011 (by quarter) based on information available to the Company as of September 30, 2010:
                                         
    1Q11     2Q11     3Q11     4Q11     Fiscal 2011  
 
Selling, general & administrative expenses
                                       
Asset write-up depreciation expense on acquisitions
    $ --       $ --       $ --       $ --       $ --  
 
                                       
Intangibles amortization
                                       
Amortization of intangible assets on acquisitions
    $ 3,093       $ 3,045       $ 2,808       $ 2,808       $ 11,754  
 
                             
 
                                       
Total
    $ 3,093       $ 3,045       $ 2,808       $ 2,808       $ 11,754  
 
The following table is included to provide a schedule of these expenses during Fiscal 2010 (by quarter):
                                         
    1Q10     2Q10     3Q10     4Q10     Fiscal 2010  
 
Selling, general & administrative expenses
                                       
Asset write-up depreciation expense on acquisitions
    $ --       $ --       $ 128       $ 348       $ 476  
 
                                       
Intangibles amortization
                                       
Amortization of intangible assets on acquisitions
    $ 4,031       $ 2,134       $ 3,099       $ 5,886       $ 15,150  
 
                             
 
                                       
Total
    $ 4,031       $ 2,134       $ 3,227       $ 6,234       $ 15,626  
 

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The following table provides information on Revenues and Operating income by reportable geographic segment (North America, Europe and All Other). The table below should be read in conjunction with the following discussions.
                                                                 
    Three (3) months ended September 30,     Six (6) months ended September 30,
    2010     2009     2010     2009
    $     % of
total
revenue
    $     % of
total
revenue
    $     % of
total
revenue
    $     % of
total
revenue
 
 
Revenues
                                                               
North America
    $ 240,540       88.1%     $ 199,928       86.2%     $ 471,024       87.8%     $ 404,511       86.6%
Europe
    22,798       8.4%     24,172       10.4%     47,740       8.9%     48,058       10.3%
All Other
    9,586       3.5%     7,813       3.4%     17,756       3.3%     14,556       3.1%
         
Total
    $ 272,924       100%     $ 231,913       100%     $ 536,520       100%     $ 467,125       100%
 
                                                               
Operating income
                                                               
North America
    $ 20,684               $ 11,813               $ 39,851               $ 23,388          
% of North America revenues
    8.6%             5.9%             8.5%             5.8%        
 
                                                               
Europe
    $ 1,153               $ 2,555               $ 3,489               $ 4,644          
% of Europe revenues
    5.1%             10.6%             7.3%             9.7%        
 
                                                               
All Other
    $ 1,691               $ 1,241               $ 3,080               $ 2,062          
% of All Other revenues
    17.6%             15.9%             17.3%             14.2%        
 
                                                       
 
                                                               
Total
    $ 23,528       8.6%     $ 15,609       6.7%     $ 46,420       8.7%     $ 30,094       6.4%
 

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The following table provides information on Revenues and Gross profit by service type (Data Services, Voice Services and Hotline Services). The table below should be read in conjunction with the following discussions.
                                                                 
    Three (3) months ended September 30,     Six (6) months ended September 30,  
    2010     2009     2010     2009  
            % of             % of             % of             % of  
            total             total             total             total  
    $     revenue     $     revenue     $     revenue     $     revenue  
 
Revenues
                                                               
Data Services
    $    53,989       19.8 %     $    43,928       18.9 %     $    107,946       20.1 %     $    95,338       20.4 %
Voice Services
    172,520       63.2 %     142,474       61.5 %     336,110       62.7 %     283,994       60.8 %
Hotline Services
    46,415       17.0 %     45,511       19.6 %     92,464       17.2 %     87,793       18.8 %
         
Total
    $    272,924       100 %     $    231,913       100 %     $    536,520       100 %     $    467,125       100 %
 
                                                               
Gross profit
                                                               
Data Services
    $    14,076               $    12,142               $    28,426               $    26,089          
% of Data Services revenues
    26.1 %             27.6 %             26.3 %             27.4 %        
 
                                                               
Voice Services
    $    54,647               $    48,287               $    108,680               $    96,666          
% of Voice Services revenues
    31.7 %             33.9 %             32.3 %             34.0 %        
 
                                                               
Hotline Services
    $    21,397               $    21,845               $    42,628               $    41,932          
% of Hotline Services revenues
    46.1 %             48.0 %             46.1 %             47.8 %        
 
                                                       
 
                                                               
Total
    $    90,120       33.0 %     $    82,274       35.5 %     $    179,734       33.5 %     $    164,687       35.3 %
 
Second quarter of Fiscal 2011 (“2Q11”) compared to second quarter of Fiscal 2010 (“2Q10”):
Total Revenues
Total revenues for 2Q11 were $272,924, an increase of 18% compared to total revenues for 2Q10 of $231,913. The Acquired Companies contributed incremental revenue of $7,254 and $0 for 2Q11 and 2Q10, respectively. Excluding the effects of the acquisitions and the negative exchange rate impact of $637 in 2Q11 relative to the U.S. dollar, total revenues would have increased 15% from $231,913 to $266,307 for the reasons discussed below.
Revenues by Geography
North America
Revenues in North America for 2Q11 were $240,540, an increase of 20% compared to revenues for 2Q10 of $199,928. The Acquired Companies contributed incremental revenue of $7,254 and $0 for 2Q11 and 2Q10, respectively. Excluding the effects of the acquisitions and the positive exchange rate impact of $362 in 2Q11 relative to the U.S. dollar, North American revenues would have increased 17% from $199,928 to $232,924. The Company believes that this increase is primarily due to increased activity for both end-user and indirect sales of its Voice Services within the government (primarily federal and state) and retail revenue verticals, increased activity for both end-user and indirect sales of its Data Services within the business services and technology revenue verticals and a general increase in activity for its Hotline Services.
Europe
Revenues in Europe for 2Q11 were $22,798, a decrease of 6% compared to revenues for 2Q10 of $24,172. Excluding the negative exchange rate impact of $1,527 in 2Q11 relative to the U.S. dollar, Europe revenues would have increased 1% from $24,172 to $24,325. The Company believes this increase is primarily due to a general increase in activity for its Data Services and for a large order for its Hotline Services within the business services revenue vertical. Revenues in Europe continue to be impacted by weak general economic conditions that affected client demand for its Data Services and Hotline Services.

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All Other
Revenues for All Other for 2Q11 were $9,586, an increase of 23% compared to revenues for 2Q10 of $7,813. Excluding the positive exchange rate impact of $528 in 2Q11 relative to the U.S. dollar, All Other revenues would have increased 16% from $7,813 to $9,058.
Revenue by Service Type
Data Services
Revenues from Data Services for 2Q11 were $53,989, an increase of 23% compared to revenues for 2Q10 of $43,928. Excluding the negative exchange rate impact of $143 in 2Q11 relative to the U.S. dollar for its international Data Services, Data Services revenues would have increased 23% from $43,928 to $54,132. The Company believes that this increase is primarily due to increased revenue activity for both end-user and indirect sales in North America within the business services and technology revenue verticals.
Voice Services
Revenues from Voice Services for 2Q11 were $172,520, an increase of 21% compared to revenues for 2Q10 of $142,474. The Acquired Companies contributed incremental revenue of $7,254 and $0 for 2Q11 and 2Q10, respectively. Excluding the effects of the acquisitions, Voice Services revenues would have increased 16% from $142,474 to $165,266. The Company believes that this increase is primarily due to increased activity for both end-user and indirect sales of its Voice Services within the government (primarily federal and state) and retail revenue verticals. There was no exchange rate impact on Voice Services revenues as all of the Company’s Voice Services revenues are denominated in U.S. dollars.
Hotline Services
Revenues from Hotline Services for 2Q11 were $46,415, an increase of 2% compared to revenues for 2Q10 of $45,411. Excluding the negative exchange rate impact of $494 in 2Q11 relative to the U.S. dollar for its international Hotline Services, Hotline Services revenues would have increased 3% from $45,511 to $46,909. The Company believes that this increase is primarily due to general increase in activity in North America and All Other.
Gross profit
Gross profit dollars for 2Q11 were $90,120, an increase of 10% compared to gross profit dollars for 2Q10 of $82,274. Gross profit as a percent of revenues for 2Q11 was 33.0%, a decrease of 2.5% compared to gross profit as a percentage of revenues for 2Q10 of 35.5%. The Company believes the percent decrease was due primarily to an increase in project-related work, which carries a lower margin than MAC work and maintenance work, in its Voice Services, lower margin projects primarily due to continued pricing pressures for its Data Services and client mix for its Hotline Services. The dollar increase is primarily due to the increase in revenues partially offset by the decrease in gross profit as a percentage of revenues.
Gross profit dollars for Data Services for 2Q11 were $14,076, or 26.1% of revenues, compared to gross profit dollars for 2Q10 of $12,142, or 27.6% of revenues. Gross profit dollars for Voice Services for 2Q11 were $54,647, or 31.7% of revenues, compared to gross profit dollars for 2Q10 of $48,287, or 33.9% of revenues. Gross profit dollars for Hotline Services for 2Q11 were $21,397, or 46.1% of revenues, compared to gross profit dollars for 2Q10 of $21,845, or 48.0% 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 2Q11 were $63,534, a decrease of $981 compared to Selling, general & administrative expenses for 2Q10 of $64,515. Selling, general & administrative expenses as a percent of revenues for 2Q11 were 23.3% compared to 27.8% for 2Q10. The Company incurred certain Selling, general & administrative expenses that Management considers non-operating items. These items are historical stock option granting practices investigation and related matters costs of $0 and $3,992 and severance expenses of $791 and $649 for a total of $791 and $4,641, or 0.3% and 2.0% of revenues, for 2Q11 and 2Q10, respectively. Excluding these items, Selling, general & administrative expenses would have increased $2,869 from $59,874 to $62,743 and Selling, general & administrative expenses as a percent of revenues would have decreased 2.8% from 25.8% to 23.0%. Management believes that the foregoing provides insight into components of these expenses to enable a better understanding of the Company’s results of operations.

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The increase in Selling, general & administrative expenses was primarily due to the increase in team member costs to help support the total revenue growth discussed above. The decrease in Selling, general & administrative expenses as a percent of revenue over the prior year was primarily due to revenue growth during 2Q11.
Intangibles amortization
Intangibles amortization for 2Q11 was $3,058, an increase of $908 compared to Intangibles amortization for 2Q10 of $2,150. The increase was primarily attributable to the addition of intangible assets from acquisitions completed subsequent to the second quarter of Fiscal 2010.
Operating income
As a result of the foregoing, Operating income for 2Q11 was $23,528, or 8.6% of revenues, an increase of $7,919 compared to Operating income for 2Q10 of $15,609, or 6.7% of revenues.
Interest expense (income), net
Net interest expense for 2Q11 was $1,742, or 0.6% of revenues, compared to net interest expense for 2Q10 of $2,596, or 1.1% of revenues. The Company’s interest-rate swaps contributed a gain of $314 and a loss of $380 for 2Q11 and 2Q10, respectively, due to the change in fair value. Excluding the effect of the interest-rate swaps, net interest expense would have decreased $160 from $2,216, or 1.0% of revenues, to $2,056, or 0.8% of revenues. This decrease in net interest expense is due to decreases in the weighted-average interest rate from 1.4% for 2Q10 to 1.3% for 2Q11 and in the weighted-average outstanding debt from $243,393 for 2Q10 to $225,510 for 2Q11. The decrease in the weighted-average interest rate is due primarily to the overall decline in short-term interest rates.
Provision for income taxes
The tax provision for 2Q11 was $8,302, an effective tax rate of 38.0%. This compares to the tax provision for 2Q10 of $4,912, an effective tax rate of 37.5%. The tax rate for 2Q11 was higher than 2Q10 due to changes in the overall mix of taxable income among worldwide offices, foreign currency exchange effects on previously-taxed income and reductions in uncertain income tax positions (including interest and penalties). The Company anticipates that its deferred tax asset is realizable in the foreseeable future.
Net income
As a result of the foregoing, Net income for 2Q11 was $13,550, or 5.0% of revenues, compared to Net income for 2Q10 of $8,186, or 3.5% of revenues.
Six months Fiscal 2011 (“2QYTD11”) compared to six months Fiscal 2010 (“2QYTD10”):
Total Revenues
Total revenues for 2QYTD11 were $536,520, an increase of 15% compared to total revenues for 2QYTD10 of $467,125. The Acquired Companies contributed incremental revenue of $15,266 and $0 for 2QYTD11 and 2QYTD10, respectively. Excluding the effects of the acquisitions and the negative exchange rate impact of $486 in 2QYTD11 relative to the U.S. dollar, total revenues would have increased 12% from $467,125 to $521,740 for the reasons discussed below.
Revenues by Geography
North America
Revenues in North America for 2QYTD11 were $471,024, an increase of 16% compared to revenues for 2QYTD10 of $404,511. The Acquired Companies contributed incremental revenue of $15,266 and $0 for 2QYTD11 and 2QYTD10, respectively. Excluding the effects of the acquisitions and the positive exchange rate impact of $1,043 in 2QYTD11 relative to the U.S. dollar, North American revenues would have increased 12% from $404,511 to $454,715. The Company believes that this increase is primarily due to increased activity for both end-user and indirect sales of its Voice Services within the government (primarily federal and state) and retail revenue verticals, increased activity for both end-user and indirect sales of its Data Services within the business services and technology revenue verticals and a general increase in activity for its Hotline Services.

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Europe
Revenues in Europe for 2QYTD11 were $47,740, a decrease of 1% compared to revenues for 2QYTD10 of $48,058. Excluding the negative exchange rate impact of $2,481 in 2QYTD11 relative to the U.S. dollar, Europe revenues would have increased 5% from $48,058 to $50,221. The Company believes this increase is primarily due to a general increase in activity for its Data Services and for a large order for its Hotline Services within the business services revenue vertical. Revenues in Europe continue to be impacted by weak general economic conditions that affected client demand for its Data Services and Hotline Services.
All Other
Revenues for All Other for 2QYTD11 were $17,756, an increase of 22% compared to revenues for 2QYTD10 of $14,556. Excluding the positive exchange rate impact of $952 in 2QYTD11 relative to the U.S. dollar, All Other revenues would have increased 15% from $14,556 to $16,804.
Revenue by Service Type
Data Services
Revenues from Data Services for 2QYTD11 were $107,946, an increase of 13% compared to revenues for 2QYTD10 of $95,338. Excluding the positive exchange rate impact of $214 in 2QYTD11 relative to the U.S. dollar for its international Data Services, Data Services revenues would have increased 13% from $95,338 to $107,732. The Company believes that this increase is primarily due to increased activity for both end-user and indirect sales in North America within the business services and technology revenue verticals.
Voice Services
Revenues from Voice Services for 2QYTD11 were $336,110, an increase of 18% compared to revenues for 2QYTD10 of $283,994. The Acquired Companies contributed incremental revenue of $15,266 and $0 for 2QYTD11 and 2QYTD10, respectively. Excluding the effects of the acquisitions, Voice Services revenues would have increased 13% from $283,994 to $320,844. The Company believes that this increase is primarily due to increased activity for both end-user and indirect sales of its Voice Services within the government (primarily federal and state) and retail revenue verticals. There was no exchange rate impact on Voice Services revenues as all of the Company’s Voice Services revenues are denominated in U.S. dollars.
Hotline Services
Revenues from Hotline Services for 2QYTD11 were $92,464, an increase of 5% compared to revenues for 2QYTD10 of $87,793. Excluding the negative exchange rate impact of $700 in 2QYTD11 relative to the U.S. dollar for its international Hotline Services, Hotline Services revenues would have increased 6% from $87,793 to $93,164. The Company believes that this increase is primarily due to general increase in activity in North America and All Other.
Gross profit
Gross profit dollars for 2QYTD11 were $179,734, an increase of 9% compared to gross profit dollars for 2QYTD10 of $164,687. Gross profit as a percent of revenues for 2QYTD11 was 33.5%, a decrease of 1.8% compared to gross profit as a percentage of revenues for 2QYTD10 of 35.3%. The Company believes the percent decrease was due primarily to an increase in project-related work, which carries a lower margin than MAC work and maintenance work, in its Voice Services, lower margin projects primarily due to continued pricing pressures for its Data Services and client mix for its Hotline Services. The dollar increase is primarily due to the increase in revenues partially offset by the decrease in gross profit as a percentage of revenues.
Gross profit dollars for Data Services for 2QYTD11 were $28,426, or 26.3% of revenues, compared to gross profit dollars for 2QYTD10 of $26,089, or 27.4% of revenues. Gross profit dollars for Voice Services for 2QYTD11 were $108,680, or 32.3% of revenues, compared to gross profit dollars for 2QYTD10 of $96,666, or 34.0% of revenues. Gross profit dollars for Hotline Services for 2QYTD11 were $42,628, or 46.1% of revenues, compared to gross profit dollars for 2QYTD10 of $41,932, or 47.8% of revenues. Please see the preceding paragraph for the analysis of gross profit variances by segment.

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Selling, general & administrative expenses
Selling, general & administrative expenses for 2QYTD11 were $127,154, a decrease of $1,244 compared to Selling, general & administrative expenses for 2QYTD10 of $128,398. Selling, general & administrative expenses as a percent of revenues for 2QYTD11 were 23.7% compared to 27.5% for 2QYTD10. The Company incurred certain Selling, general & administrative expenses that Management considers non-operating items. These items are historical stock option granting practices investigation and related matters costs of $0 and $4,256, the United States General Services Administration (“GSA”) settlement of $0 and $2,145 and severance expenses of $1,078 and $1,661 for a total of $1,078 and $8,062, or 0.2% and 1.7% of revenues, for 2QYTD11 and 2QYTD10, respectively. Excluding these items, Selling, general & administrative expenses would have increased $5,740 from $120,336 to $126,076 and Selling, general & administrative expenses as a percent of revenues would have decreased 2.3% from 25.8% to 23.5%. Management believes that the foregoing provides insight into components of these expenses to enable a better understanding of the Company’s results of operations.
The increase in Selling, general & administrative expenses was primarily due to the increase in team member costs to help support the total revenue growth discussed above. The decrease in Selling, general & administrative expenses as a percent of revenue over the prior year was primarily due to revenue growth during 2QYTD11.
Intangibles amortization
Intangibles amortization for 2QYTD11 was $6,160, nearly equivalent to Intangibles amortization for 2QYTD10 of $6,195. Intangibles amortization was impacted by the addition of intangible assets from acquisitions completed subsequent to the second quarter of Fiscal 2010 which was offset by the amortization run-out for certain intangible assets.
Operating income
As a result of the foregoing, Operating income for 2QYTD11 was $46,420, or 8.7% of revenues, an increase of $16,326 compared to Operating income for 2QYTD10 of $30,094, or 6.4% of revenues.
Interest expense (income), net
Net interest expense for 2QYTD11 was $3,432, or 0.6% of revenues, compared to net interest expense for 2QYTD10 of $4,740, or 1.0% of revenues. The Company’s interest-rate swaps contributed a gain of $846 and a loss of $177 for 2QYTD11 and 2QYTD10, respectively, due to the change in fair value. Excluding the effect of the interest-rate swaps, net interest expense would have decreased $285 from $4,563, or 1.0% of revenues, to $4,278, or 0.8% of revenues. This decrease in net interest expense is due to decreases in the weighted-average interest rate from 1.5% for 2QYTD10 to 1.3% for 2QYTD11 and in the weighted-average outstanding debt from $249,113 for 2QYTD10 to $222,595 for 2QYTD11. The decrease in the weighted-average interest rate is due primarily to the overall decline in short-term interest rates.
Provision for income taxes
The tax provision for 2QYTD11 was $16,359, an effective tax rate of 38.0%. This compares to the tax provision for 2QYTD10 of $9,593, an effective tax rate of 37.5%. The tax rate for 2QYTD11 was higher than 2QYTD10 due to changes in the overall mix of taxable income among worldwide offices, foreign currency exchange effects on previously-taxed income and reductions in uncertain income tax positions (including interest and penalties). The Company anticipates that its deferred tax asset is realizable in the foreseeable future.
Net income
As a result of the foregoing, Net income for 2QYTD11 was $26,694, or 5.0% of revenues, compared to Net income for 2QYTD10 of $15,988, or 3.4% of revenues.
Liquidity and Capital Resources
Operating Activities
Net cash provided by operating activities during 2QYTD11 was $8,139. Significant factors contributing to the source of cash were: net income of $26,694 inclusive of non-cash charges of $9,296 and $5,506 for amortization / depreciation expense and stock compensation expense, respectively, as well as increases in trade accounts payable of $4,168, billings in excess of costs of $5,078 and accrued taxes of $5,244. Significant factors contributing to a use of cash include increases in trade accounts receivable, net inventory and costs in excess of billings of $14,103, $1,757 and $17,085, respectively, primarily due to increased business activity during 2QYTD11, as well as decreases in accrued compensation and benefits of $5,068 and other liabilities of $3,701 and an increase in other current assets of $4,879. The increase in costs in excess of billings reflects additional large contracts where contract billing terms do not necessarily coincide with percentage-of-completion revenue recognition. It should be noted that the increase in costs in excess of billings represents revenue growth and not a delay in the collection of working capital. Changes in the above accounts are based on average Fiscal 2011 exchange rates.

25


 

Net cash provided by operating activities during 2QYTD10 was $30,549. Significant factors contributing to the source of cash were: net income of $15,988 inclusive of non-cash charges of $10,112 and $3,279 for amortization / depreciation expense and stock compensation expense, respectively, as well as decreases in net inventory of $3,624, net trade accounts receivable of $23,064 and an increase in accrued expenses of $3,457. Significant factors contributing to a use of cash include decreases in billings in excess of costs, restructuring reserves, accrued compensation and benefits and trade accounts payable of $7,220, $4,737, $5,162 and $3,821, respectively, and an increase in costs in excess of billings of $13,733. Changes in the above accounts are based on average Fiscal 2010 exchange rates.
As of September 30, 2010 and 2009, the Company had cash and cash equivalents of $20,220 and $23,785, respectively, working capital of $160,153 and $126,845, respectively, and a current ratio of 1.8 and 1.6, 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 12 months.
Investing Activities
Net cash used by investing activities during 2QYTD11 was $3,523. Significant factors contributing to the cash outflow were: $1,885 for gross capital expenditures and $1,683 for holdbacks and contingent fee payments related to prior period acquisitions.
Net cash used by investing activities during 2QYTD10 was $2,235. Significant factors contributing to the cash outflow were: $1,305 for holdbacks and contingent fee payments related to prior period acquisitions and $1,033 for gross capital expenditures.
Financing Activities
Net cash used by financing activities during 2QYTD11 was $6,268. Significant factors contributing to the cash outflow were $2,109 for the payment of dividends and $3,957 of net payments on long-term debt.
Net cash used by financing activities during 2QYTD10 was $29,097. Significant factors contributing to the cash outflow were $26,993 of net payments on long-term debt and $2,104 for the payment of dividends.
Total Debt
Revolving Credit Agreement – On January 30, 2008, the Company entered into a Third Amended and Restated Credit Agreement dated as of January 30, 2008 (the “Credit Agreement”) with Citizens Bank of Pennsylvania, as agent, and a group of lenders. The Credit Agreement expires on January 30, 2013. Borrowings under the Credit Agreement are permitted up to a maximum amount of $350,000, which includes up to $20,000 of swing-line loans and $25,000 of letters of credit. The 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 or (b) a rate per annum equal to the LIBOR rate plus 0.50% to 1.125% (determined by a leverage ratio based on the Company’s consolidated Earnings Before Interest Taxes Depreciation and Amortization (“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 September 30, 2010, the Company was in compliance with all financial covenants under the Credit Agreement.
As of September 30, 2010, the Company had total debt outstanding of $207,998. Total debt was comprised of $206,415 outstanding under the Credit Agreement and $1,583 of obligations under capital leases. 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 (3) months ended September 30, 2010 was $237,255, $225,510 and 1.3%, respectively, compared to $251,095, $243,393 and 1.4%, respectively, for the three (3) months ended September 30, 2009. 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 six (6) months ended September 30, 2010 was $237,255, $222,595 and 1.3%, respectively, compared to $261,750, $249,113 and 1.5%, respectively, for the six (6) months ended September 30, 2009.

26


 

As of September 30, 2010, the Company had $4,636 outstanding in letters of credit and $138,948 in unused commitments under the Credit Agreement.
Dividends
Fiscal 2011
2Q11 - The Company’s Board of Directors (the “Board”) declared a cash dividend of $0.06 per share on all outstanding shares of the common stock. The dividend totaled $1,057 and was paid on October 15, 2010 to stockholders of record at the close of business on October 1, 2010.
1Q11 - The Board declared a cash dividend of $0.06 per share on all outstanding shares of the common stock. The dividend totaled $1,056 and was paid on July 19, 2010 to stockholders of record at the close of business on July 2, 2010.
Fiscal 2010
2Q10 - The Board declared a cash dividend of $0.06 per share on all outstanding shares of the common stock. The dividend totaled $1,053 and was paid on October 9, 2009 to stockholders of record at the close of business on September 25, 2009.
1Q10 - The Board declared a cash dividend of $0.06 per share on all outstanding shares of the common stock. The dividend totaled $1,052 and was paid on July 10, 2009 to stockholders of record at the close of business on June 26, 2009.
While the Company expects to continue to declare quarterly dividends, the payment of future dividends is at the discretion of the Board and the timing and amount of any future dividends will depend upon earnings, cash requirements and financial condition of the Company. Under the Credit Agreement, the Company is permitted to make any distribution or dividend as long as no Event of Default or Potential Default (each as defined in the Credit Agreement) occurs or is continuing.
Repurchase of Common Stock
Fiscal 2011
There were no repurchases of common stock during the three (3) and six (6) months ended September 30, 2010. During such period, the Company made tax payments of $482 and withheld 16,488 shares of common stock, which were designated as treasury shares, for an average price per share of $29.26, related to share withholding to satisfy income taxes due as a result of the vesting in May 2010 of certain restricted stock units.
Fiscal 2010
There were no repurchases of common stock during Fiscal 2010.
Since the inception of the repurchase program in April 1999 through September 30, 2010, the Company has repurchased 7,626,195 shares of common stock for an aggregate purchase price of $323,095, or an average purchase price per share of $42.37. These shares do not include the treasury shares withheld for tax payments resulting from the vesting in May 2010 of certain restricted stock units. As of September 30, 2010, 873,805 shares were available under repurchase programs approved by the Board. Additional repurchases of common stock may occur from time to time depending upon factors such as the Company’s cash flows and general market conditions. While the Company expects to continue to repurchase shares of common stock for the foreseeable future, there can be no assurance as to the timing or amount of such repurchases. Under the Credit Agreement, the Company is permitted to repurchase its common stock as long as no Event of Default or Potential Default (each as defined in the Credit Agreement) occurs or is continuing, the leverage ratio (after taking into consideration the payment made to repurchase such common stock) would not exceed 2.75 to 1.0 and the availability to borrow under the Credit Facility would not be less than $20,000.
Legal Proceedings
See the matter discussed in 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.

27


 

Valuation of Goodwill
Since September 26, 2009 (the date of the Company’s most recent annual goodwill impairment assessment), the Company’s stock market capitalization has been lower than its net book value. However, each of the Company’s reporting units continues to operate profitably and generate significant cash flow from operations, and the Company expects that each will continue to do so throughout the remainder of Fiscal 2011 and beyond. In addition, the Company believes that a reasonable potential buyer would offer a control premium for the business that would adequately cover the 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. There have been no changes to the Company’s critical accounting policies during the three (3) and six (6) months ended September 30, 2010.
Impact of Recently Issued Accounting Pronouncements
See Note 2 of the Notes to the Consolidated Financial Statements for further discussion of recently-issued accounting standards and the related 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 analogous expressions are intended to identify forward-looking statements. One can also identify forward-looking statements by the fact that they do not relate strictly to historical or current facts. Such statements are inherently subject to a variety of risks and uncertainties that could cause actual results to differ materially from those projected. Although it is not possible to predict or identify all risk factors, such risks and uncertainties may include, among others, levels of business activity and operating expenses, expenses relating to corporate compliance requirements, cash flows, global economic and business conditions, successful integration of acquisitions, the timing and costs of restructuring programs, successful marketing of DVH services, successful implementation of the Company’s M&A program, including identifying appropriate targets, consummating transactions and successfully integrating the businesses, successful implementation of the Company’s government contracting programs, competition, changes in foreign, political and economic conditions, fluctuating foreign currencies compared to the U.S. dollar, rapid changes in technologies, client preferences, the Company’s arrangements with suppliers of voice equipment and technology and various other matters, many of which are beyond the Company’s control. Additional risk factors are included in the Form 10-K. These forward-looking statements are made pursuant to the safe harbor provisions of the Private Securities Litigation Reform Act of 1995 and speak only as of the date of this Form 10-Q. The Company expressly disclaims any obligation or undertaking to release publicly any updates or any changes in the Company’s expectations with regard thereto or any change in events, conditions or circumstances on which any statement is based.

28


 

Item 3. Quantitative and Qualitative Disclosures About Market Risk.
The Company is exposed to market risks in the ordinary course of business that include interest-rate volatility and foreign currency exchange rates volatility. Market risk is measured as the potential negative impact on earnings, cash flows or fair values resulting from a hypothetical change in interest rates or foreign currency exchange rates over the next year. The Company does not hold or issue any other financial derivative instruments (other than those specifically noted below) nor does it engage in speculative trading of financial derivatives.
Interest-rate Risk
The Company’s primary interest-rate risk relates to its long-term debt obligations. As of September 30, 2010, the Company had total long-term obligations of $206,415 under the Credit Agreement. Of the outstanding debt, $150,000 was in variable rate debt that was effectively converted to a fixed rate through multiple interest-rate swap agreements (discussed in more detail below) and $56,415 was in variable rate obligations. As of September 30, 2010, an instantaneous 100 basis point increase in the interest rate of the variable rate debt would reduce the Company’s net income in the subsequent fiscal quarter by $139 ($86 net of tax) assuming the Company employed no intervention strategies.
To mitigate the risk of interest-rate fluctuations associated with the Company’s variable rate long-term debt, the Company has implemented an interest-rate risk management strategy that incorporates the use of derivative instruments to minimize significant unplanned fluctuations in earnings caused by interest-rate volatility. The Company’s goal is to manage interest-rate sensitivity by modifying the re-pricing characteristics of certain balance sheet liabilities so that the net-interest margin is not, on a material basis, adversely affected by the movements in interest rates.
On July 26, 2006, the Company entered into a five-year floating-to-fixed interest-rate swap that is based on a 3-month LIBOR rate versus a 5.44% fixed rate, has a notional value of $100,000 (which reduced to $50,000 as of June 26, 2009) and does not qualify for hedge accounting. On June 15, 2009, the Company entered into a three-year floating-to-fixed interest-rate swap that is based on a 3-month LIBOR rate versus a 2.28% fixed rate, has a notional value of $100,000 reducing to $50,000 after two years and does not qualify for hedge accounting. Changes in the fair market value of the interest-rate swap are recorded as an asset or liability within the Company’s Consolidated Balance Sheets and Interest expense (income) within the Company’s Consolidated Statements of Income.
Foreign Exchange Rate Risk
The Company has operations, clients and suppliers worldwide, thereby exposing the Company’s financial results to foreign currency fluctuations. In an effort to reduce this risk of foreign currency fluctuations, the Company generally sells and purchases inventory based on prices denominated in U.S. dollars. Intercompany sales to subsidiaries are generally denominated in the subsidiaries’ local currency. The Company has entered and will continue in the future, on a selective basis, to enter into foreign currency contracts to reduce the foreign currency exposure related to certain intercompany transactions, primarily trade receivables and loans. 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 Income. In the event it becomes probable that the hedged forecasted transaction will not occur, the ineffective portion of any gain or loss on the related cash flow hedge would be reclassified from AOCI to the Company’s Consolidated Statements of Income.
As of September 30, 2010, the Company had open foreign currency contracts in Australian and Canadian dollars, Danish krone, Euros, Mexican pesos, Norwegian kroner, British pounds sterling, Swedish krona, Swiss francs and Japanese yen. The open contracts have contract rates ranging from 1.05 to 1.23 Australian dollar, 1.01 to 1.08 Canadian dollar, 5.52 to 6.21 Danish krone, 0.69 to 0.83 Euro, 12.66 to 12.66 Mexican peso, 5.68 to 6.60 Norwegian kroner, 0.62 to 0.68 British pound sterling, 6.84 to 7.97 Swedish krona, 1.03 to 1.17 Swiss franc and 93.10 to 93.10 Japanese yen, all per U.S. dollar. The total open contracts had a notional amount of $81,379 and will expire within ten (10) months.

29


 

Item 4. Controls and Procedures.
Conclusions Regarding the Effectiveness of Disclosure Controls and Procedures
Management, including the Company’s Chief Executive Officer and Chief Financial Officer, is responsible for establishing and maintaining adequate disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the “Exchange Act”)) for the Company. Management assessed the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2010. Based upon this assessment, Management has concluded that the Company’s disclosure controls and procedures were effective as of September 30, 2010 to provide reasonable assurance that information required to be disclosed by the Company in the reports filed or submitted by it under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and to provide reasonable assurance that information required to be disclosed by the Company in such reports is accumulated and communicated to Management, including its principal executive officer and principal financial officer, as appropriate to allow timely decisions regarding required disclosure.
The SEC’s general guidance permits the exclusion of an assessment of the effectiveness of a registrant’s disclosure controls and procedures as they relate to its internal control over financial reporting for an acquired business during the first year following such acquisition if, among other circumstances and factors, there is not adequate time between the acquisition date and the date of assessment. As previously noted in this Form 10-Q, Black Box completed the acquisition of Quanta during Fiscal 2010. Quanta represents approximately 0.7% of the Company’s total assets as of September 30, 2010. Management’s assessment and conclusion on the effectiveness of the Company’s disclosure controls and procedures as of September 30, 2010 excludes an assessment of the internal control over financial reporting of Quanta.
Changes in Internal Control Over Financial Reporting
There have not been any changes in the Company’s internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) of the Exchange Act) during the most recent fiscal quarter that have materially affected or are reasonably likely to materially affect the Company’s internal control over financial reporting.
Limitations on the Effectiveness of Controls
All internal control systems, no matter how well designed, have inherent limitations. Therefore, even those systems determined to be effective can provide only reasonable assurance with respect to financial statement preparation and presentation. Because of its inherent limitations, the Company’s internal control over financial reporting may not prevent or detect misstatements. In addition, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies and procedures may deteriorate.

30


 

PART II. OTHER INFORMATION
Item 6. Exhibits.
     
Exhibit    
Number   Description
21.1
  Subsidiaries of the Registrant (1)
 
   
31.1
  Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002 (1)
 
   
31.2
  Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002 (1)
 
   
32.1
  Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
(1)   Filed herewith.

31


 

SIGNATURE
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
         


Dated:    November 10, 2010
 
BLACK BOX CORPORATION

 
 
  /s/ Michael McAndrew    
  Michael McAndrew, Executive Vice President,   
  Chief Financial Officer, Treasurer,
Secretary and Principal Accounting Officer 
 

32


 

         
EXHIBIT INDEX
     
Exhibit    
Number   Description
21.1
  Subsidiaries of the Registrant (1)
 
   
31.1
  Certification of the Chief Executive Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002 (1)
 
   
31.2
  Certification of the Chief Financial Officer pursuant to Rule 13a-14(a) of the Securities Exchange Act of 1934, as amended, and Section 302 of the Sarbanes-Oxley Act of 2002 (1)
 
   
32.1
  Certification of the Chief Executive Officer and Chief Financial Officer pursuant to Rule 13a-14(b) of the Securities Exchange Act of 1934, as amended, and 18 U.S.C. Section 1350 as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 (1)
(1)   Filed herewith.

33

Exhibit 21.1
SUBSIDIARIES OF THE REGISTRANT
         
        State or Other
        Jurisdiction of
        Incorporation or
Legal Name   Doing Business As   Organization
 
       
Black Box Corporation
  Black Box Corporation   Delaware
 
       
ACS Communications, Inc.
  ACS Communications, Inc.   Texas
 
       
ACS Dataline of the Northwest, Inc.
  Black Box Network Services
Black Box Network Services — West
  Oregon
 
       
ACS Investors, LLC
  ACS Investors, LLC   Delaware
 
       
ACS Dataline, LP
  Black Box Network Services
Black Box Network Services — West
  Texas
 
       
ACS Partners, LLC
  ACS Partners, LLC   Texas
 
       
ADS Telecom, Inc.
  Black Box Network Services   Florida
 
       
B & C Telephone, Inc.
  Black Box Network Services   Washington
 
  Black Box Network Services — Spokane    
 
       
BBox Holding Company
  BBox Holding Company   Delaware
 
       
Advanced Communications Corporation
  Black Box Network Services — South Carolina   South Carolina
 
       
Advanced Network Technologies, Inc.
  Black Box Network Services — California   California
 
       
American Telephone Wiring Company
  Black Box Network Services — West Virginia Operations   West Virginia
 
       
Atimco Network Services, Inc.
  Black Box Network Services — Western Pennsylvania   Pennsylvania
 
     Operations    
 
       
Black Box Corporation of Pennsylvania
  Black Box Network Services   Delaware
 
       
BB Technologies, Inc.
  BB Technologies, Inc.   Delaware
 
       
Black Box A/S
  Black Box A/S   Denmark
 
       
Black Box Canada Corporation
  Black Box Canada Corporation   Canada
 
       
Black Box Comunicaciones, S.A.
  Black Box Comunicaciones, S.A.   Spain
 
       
Black Box Datacom B.V.
  Black Box Datacom B.V.   Netherlands

 


 

         
        State or Other
        Jurisdiction of
        Incorporation or
Legal Name   Doing Business As   Organization
 
       
Black Box Deutschland GmbH
  Black Box Deutschland GmbH   Germany
 
       
Black Box Netzwerk Service GmbH
  Black Box Netzwerk Service GmbH   Germany
 
       
Black Box do Brasil Industria e Comercio Ltda.
  Black Box do Brasil Industria e Comercio Ltda.   Brazil
 
       
Black Box France
  Black Box France   France
 
       
Black Box GmbH
  Black Box GmbH   Austria
 
Black Box Holdings Australia Pty. Ltd.
  Black Box Holdings Australia Pty. Ltd.   Australia
 
       
Black Box Italia S.r.l.
  Black Box Italia S.r.l.   Italy
 
       
Black Box Network Products NV
  Black Box Network Products NV   Belgium
 
       
Black Box Network Cabling NV
  Black Box Network Cabling NV   Belgium
 
       
Black Box Network Design NV
  Black Box Network Design NV   Belgium
 
       
Black Box Network Services AG
  Black Box Network Services AG   Switzerland
 
       
Black Box Network Services Australia Pty Ltd
  Black Box Network Services Australia Pty Ltd   Australia
 
       
Black Box Network Services New Zealand Limited
  Black Box Network Services New Zealand Limited   New Zealand
 
       
Black Box Network Services Kabushiki Kaisha
  Black Box Network Services Kabushiki Kaisha   Japan
 
       
Black Box Network Services (UK) Limited
  Black Box Network Services (UK) Limited   England
 
  Black Box Network Services (UK) Limited —    
 
      Northern Ireland    
 
       
Black Box P.R. Corp.
  Black Box P.R. Corp.   Puerto Rico
 
       
Black Box Network and Electrical Services, Inc.
  Black Box Network and Electrical Services, Inc.   New York
 
  Allcom Electric    
 
       
Black Box Network Services, Inc. — Government
  Black Box Network Services, Inc. — Government   Tennessee
Solutions
     Solutions    

2


 

         
        State or Other
        Jurisdiction of
        Incorporation or
Legal Name   Doing Business As   Organization
 
       
Cable Consultants, Incorporated
  Black Box Network Services — Atlanta   Georgia
 
       
Comm Line, Inc.
  Black Box Network Services   Ohio
 
       
Communication Contractors, Inc.
  Black Box Network Services — Chicago   Illinois
 
       
Datel Communications, Inc.
  Black Box Network Services — Arizona   Arizona
 
       
Delaney Telecom, Inc.
  Black Box Network Services   Pennsylvania
 
       
DESIGNet, Inc.
  Black Box Network Services — San Jose   California
 
       
Integrated Cabling Systems, Inc.
  Black Box Network Services — Nebraska   Nebraska
 
       
Jet Line Communications, Inc.
  Black Box Network Services — Dallas   Texas
 
       
BBC Acquisition, LLC
  BBC Acquisition, LLC   Texas
 
       
FBS Communications, L.P.
  Black Box Network Services — San Antonio   Texas
 
K & A Communications, Inc.
  Black Box Network Services   Missouri
 
       
Koncepts Communications of L.I., Corp.
  Black Box Network Services — Tristate Operations   New York
 
       
LOGOS Communications Systems, Inc.
  LOGOS Communications Systems, Inc.   Ohio
 
       
Michael Electric, Inc.
  Black Box Network Services — New Jersey   New Jersey
 
       
Midwest Communications Technologies, Inc.
  Black Box Network Services   Ohio
 
       
Midwest Electronics and Communications, Inc.
  Black Box Network Services — Denver Operations   Colorado
 
       
R & D Services, Inc.
  Black Box Network Services   Massachusetts
 
  Black Box Network Services — New England    
 
       
Teldata Corporation
  Black Box Network Services — Tennessee   Tennessee
 
       
Telefuture Communications Ltd.
  Black Box Network Services — New Rochelle Office   New York
 
       
Todd Communications, Inc.
  Black Box Network Services — North Carolina   North Carolina
 
       
U.S. Premise Networking Services, Inc.
  Black Box Network Services — MN   Minnesota
 
       
Black Box AB
  Black Box AB   Sweden
 
       
Black Box Chile S.A.
  Black Box Chile S.A.   Chile

3


 

         
        State or Other
        Jurisdiction of
        Incorporation or
Legal Name   Doing Business As   Organization
 
       
Black Box de Mexico, S.A. de C.V.
  Black Box de Mexico, S.A. de C.V.   Mexico
 
       
Black Box Finland OY
  Black Box Finland OY   Finland
 
       
Black Box Network Services AB
  Black Box Network Services AB   Sweden
 
       
Black Box Network Services Corporation
  Black Box Network Services Corporation   Taiwan
 
       
Black Box Network Services (Dublin) Limited
  Black Box Network Services (Dublin) Limited   Ireland
 
       
Black Box Network Services Puebla S.A. de C.V.
  Black Box Network Services Puebla S.A. de C.V.   Mexico
 
       
Black Box Network Services S.r.l.
  Black Box Network Services S.r.l.   Italy
 
       
Black Box Network Services SDN. BHD.
  Black Box Network Services SDN. BHD.   Malaysia
 
       
Black Box Network Services Singapore Pte Ltd.
  Black Box Network Services Singapore Pte Ltd.   Singapore
 
Black Box Norge AS
  Black Box Norge AS   Norway
 
       
Black Box Services Reseaux Mediterranee
  Black Box Services Reseaux Mediterranee   France
 
       
CBS Technologies Corp.
  Black Box Network Services   New York
 
       
Consultoria en Redes, S.A. de C.V.
  Consultoria en Redes, S.A. de C.V.   Mexico
 
       
J.C. Informatica Integral, S.A. de C.V.
  J.C. Informatica Integral, S.A. de C.V.   Mexico
 
       
Lanetwork Sales Ltd.
  Lanetwork Sales Ltd.   Canada
 
       
Mutual Telecom Services Inc.
  Black Box Network Services   Delaware
 
       
Network Communications Technologies, Inc.
  Black Box Network Services
Black Box Network Services — Charlotte
  North Carolina
 
       
Norstan, Inc.
  Black Box Network Services   Minnesota
 
       
Norstan Canada Inc.
  Norstan Canada Inc.   Minnesota
 
       
Norstan Canada, Ltd./Norstan Canada, Ltee
  Black Box Network Services   Canada
 
       
Norstan Communications, Inc.
  Black Box Network Services   Minnesota

4


 

         
        State or Other
        Jurisdiction of
        Incorporation or
Legal Name   Doing Business As   Organization
 
       
NextiraOne, LLC
  Black Box Network Services   Delaware
 
  Black Box Network Services — Illinois    
 
  Black Box Network Services — Midwest    
 
  Black Box Network Services — Northeast    
 
  Black Box Network Services — Northwest    
 
  Black Box Network Services — South    
 
       
Data Communications 2000, Inc.
  Data Communications 2000, Inc.   California
 
       
Milgo Holdings Canada, LLC
  Milgo Holdings Canada, LLC   Delaware
 
       
NextiraOne Canada ULC
  NextiraOne Canada ULC   Canada
 
       
NextiraOne California L.P.
  NextiraOne California L.P.   California
 
       
NXO Installation, LLC
  NXO Installation, LLC   Delaware
 
       
NextiraOne Federal, LLC
 
  Black Box Network Services
Black Box Network Services — Federal
  Delaware
 
       
Quanta Systems, LLC
  Quanta Systems, LLC   Delaware
 
       
NextiraOne New York, LLC
  Black Box Network Services   Delaware
 
       
Vibes Technologies, Inc.
  Black Box Resale Services   Minnesota
 
       
Norstan Financial Services, Inc.
  Norstan Financial Services, Inc.   Minnesota
 
       
Norstan International, Inc.
  Norstan International, Inc.   Minnesota
 
       
Nortech Telecommunications Inc.
  Black Box Network Services — Elk Grove   Illinois
 
Nu-Vision Technologies, Inc.
  Black Box Network Services   New York
 
       
Nu-Vision Technologies, LLC
  Black Box Network Services
Black Box Network Services — Oregon
  New York
 
       
BCS II, LLC
  BCS II, LLC   Delaware
 
       
Scottel Voice & Data, Inc.
  Black Box Network Services
Black Box Network Services — Pacific
  California
 
       
UCI Communications LLC
  Black Box Network Services   South Carolina

5

Exhibit 31.1
CERTIFICATION
I, R. Terry Blakemore, certify that:
  1.   I have reviewed this Quarterly Report on Form 10-Q of Black Box Corporation;
 
  2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
  3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
  4.  
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a.  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b.  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c.  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d.  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  5.  
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a.  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b.  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 10, 2010
         
/s/ R. Terry Blakemore      

R. Terry Blakemore 
   
President and Chief Executive Officer     
 

Exhibit 31.2
CERTIFICATION
I, Michael McAndrew, certify that:
  1.   I have reviewed this Quarterly Report on Form 10-Q of Black Box Corporation;
 
  2.  
Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
 
  3.  
Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
 
  4.  
The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
  a.  
Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
 
  b.  
Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
 
  c.  
Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
 
  d.  
Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and
  5.  
The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):
  a.  
All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and
 
  b.  
Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.
Date: November 10, 2010
     
/s/ Michael McAndrew
   
 
   
 
Michael McAndrew    
Executive Vice President, Chief Financial Officer,
Treasurer and Secretary (Principal Accounting Officer) 

Exhibit 32.1
CERTIFICATION PURSUANT TO
18 U.S.C. SECTION 1350,
AS ADOPTED PURSUANT TO
SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002
In connection with the Quarterly Report of Black Box Corporation (the “Company”) on Form 10-Q for the period ended October 2, 2010 as filed with the Securities and Exchange Commission on the date hereof (the “Report”), each of the undersigned officers of the Company, pursuant to 18 U.S.C. §1350, as adopted pursuant to §906 of the Sarbanes-Oxley Act of 2002, certifies that to his knowledge:
     (1) The Report fully complies with the requirements of section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
     (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
         
     
/s/ R. Terry Blakemore      
 
R. Terry Blakemore     
President and Chief Executive Officer
November 10, 2010 
 
         
     
/s/ Michael McAndrew      
 
Michael McAndrew     
Executive Vice President, Chief Financial Officer,
Treasurer and Secretary (Principal Accounting Officer)
November 10, 2010 
 
 
This certification is made solely for purposes of 18 U.S.C. Section 1350, subject to the knowledge standard contained therein, and not for any other purpose.