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• | We evaluated a range of strategic alternatives with the assistance of our financial advisor Needham & Company. We concluded that the most appropriate strategy to enhance shareholder value was through a refocusing of Tollgrade’s core business by emphasizing our service assurance offerings to the telecom market. | |
• | We initiated a $15 million stock buyback program reflecting the confidence of our Board and management in Tollgrade’s operating fundamentals and growth prospects. We do not believe that the Company’s recent share valuation reflects Tollgrade’s underlying long-term value and prospects. Our goal is to unlock this value. |
• | Key leadership appointments were made to strengthen the capabilities and contributions of our management team as we pursue this refocused strategy. The collective technology experience of these individuals and our employees around the world is an important ingredient in creating the path for growth in our core test and measurement markets where Tollgrade has an excellent reputation and significant embedded customer base. | |
• | We recently announced entering into a new multiyear managed services agreement with a large global network equipment provider for expected revenue of $20 million over the four year term, which positions us to offer our existing and new customers an expanded portfolio of managed services. | |
• | We also completed the divestiture of our cable status monitoring product line which will afford us the opportunity to focus more on our core service assurance solutions. |
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• | We finalized negotiations and signed multiyear software maintenance agreements with major service provider customers with a combined expected contract value of over $19 million; | |
• | Our sales and marketing organization has been strengthened and energized by adding new talent and refocusing resources on new product development and other areas where we see significant opportunity in the market for Tollgrade; | |
• | We continue to make improvements in our operating performance from both a cost and process standpoint. For example, we have implemented a direct fulfillment supply chain model fully leveraging our supply partner capabilities and have moved products representing 80% of our hardware revenue to this model to date. We will continue to move the remaining products to this model by year end. These changes are critical steps in |
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our move to a variable cost model while allowing us to reduce our internal fixed cost requirements; | ||
• | And we most recently completed the sale of our cable status monitoring product lines, allowing us to focus our efforts and resources in our core business. |
Respectfully, | ||||
Joseph A. Ferrara | ||||
Chairman of the Board President and Chief Executive Officer June, 2009 | ||||
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Partner, Attorney at Law
Reed Smith LLP
Private Investor
Chief Marketing Officer, Reed Smith LLP
Chairman of the Board,
President and Chief Executive Officer,
Tollgrade Communications, Inc.
Professor of Internal Medicine
Lake Erie College of Osteopathic Medicine of Bradenton
Lead Director, Tollgrade Communications, Inc.
Chairman and Executive Vice President,
Janney Montgomery Scott LLC
Retired CFO, Senior Vice President and Treasurer,
SCA North America (Packaging Division), formerly Tuscarora Incorporated
Chairman of the Board,
President and Chief Executive Officer
Chief Financial Officer and Treasurer
Vice President, Research and Development
Vice President, Global Services and Marketing
Vice President, Operations
General Counsel and Corporate Secretary
Vice President, Human Resources
(0609)
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SECURITIES AND EXCHANGE COMMISSION
þ | Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 |
PENNSYLVANIA (State or other jurisdiction of incorporation or organization) | 25-1537134 (I.R.S. Employer Identification No.) | |
493 Nixon Road, Cheswick, Pennsylvania (Address of principal executive offices) | 15024 (Zip Code) |
Common Stock, par value $0.20 per share | The NASDAQ Stock Market LLC | |
(Title of Class) | (Exchange on which registered) |
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o (Do not check if a smaller reporting company) | Smaller reporting company o |
Part of Form 10-K into which | ||
Document | Document is incorporated | |
Portions of the Proxy Statement to be distributed in connection with the 2009 Annual Meeting of Shareholders and to be filed pursuant to Regulation 14A | III |
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Joseph A. Ferrara | Chief Executive Officer, President and Board Member of Tollgrade since November 2007; Senior Vice President, Sales and Marketing of Tollgrade from August 2007 until November 2007; prior thereto General Manager Data Networks Division of Ericsson, Inc. from January 2006 until July 2007 following Ericsson’s acquisition of Marconi’s product divisions; Chief Executive Officer of Marconi Corporation plc’s North American operations from June 2005 until January 2006; Vice President of Business Operations of Marconi’s Data Networks Division from February until June 2005 and July 2000 until April 2004; and Vice President of Marketing of Marconi’s Data Networks Division from April 2004 until February 2005; Age 42. | |
Sara M. Antol | General Counsel of the Company since December 2000; Secretary of the Company since April 1996; Chief Counsel of the Company from April 1996 until December 2000; prior thereto, attorney at Babst, Calland, Clements & Zomnir, P.C., a law firm; Age 47. | |
David L. Blakeney | Vice President, Research and Development of the Company since October 2008; prior thereto consultant to the Company in the same capacity from March 2008 until October 2008; Vice President, Engineering, for Altrix Logic from December 2006 until October 2008; prior thereto, Vice President of Engineering for the Data Networks Division of Ericsson, Inc., formerly, Marconi plc from April 1999 to October 2006; Age 47. | |
Gary W. Bogatay, Jr. | Chief Financial Officer of the Company since October 2008; prior thereto Chief Financial Officer, Secretary and Treasurer of BANKS.com, Inc. from April 2004 until October 2008; Vice President of Finance of The Pennsylvania Culinary Institute, a subsidiary of Career Education, from January 2003 to April 2004; Age 39. | |
Grant Cushny | Vice President of Global Sales and Professional Services of the Company since August 2007; General Manager of Broadband Test Division of Teradyne, Inc. from June 2006 until July 2007; prior thereto Director of Professional Services from January 2004 until June 2006 and Director of Engineering from January 2000 until January 2004; Age 45. | |
Robert H. King | Vice President, Sales and Marketing of the Company since February 2009; Executive Director, Business Development of the Company from December 2008 until February 2009; prior thereto President and General Manager of the Broadband Products Group at Sunrise Telecom from April 2006 until June 2008; Vice President, Sales at Sunrise from September 2003 until April 2006; Age 47. | |
Joseph G. O’Brien | Vice President, Human Resources of the Company since October 1997; Director of Employee Development of the Company from April 1997 until October 1997; prior thereto, Coordinator, Elderberry Junction, Goodwill Industries, a charitable organization, from May 1995 until April 1997; Age 49. | |
Kenneth J. Shebek | Vice President, Operations of the Company since October 2008; prior thereto, Vice President of Supply and Logistics for the Data Networks Division of Ericsson, Inc., formerly, Marconi, plc. |
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From January, 2006 until October 2008; Vice President of Supply Chain for Marconi, plc, and its Vice President of North American Operations from January 2003 to December 2005; Age 46. |
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• | poor availability of credit, | ||
• | continued recession in the United States economy and other countries that we serve, | ||
• | erosion in the value of the U.S. dollar relative to foreign currencies in jurisdictions where we transact business, | ||
• | significant act of terrorism which disrupts global trade or consumer confidence, | ||
• | geopolitical tensions including war and civil unrest, and | ||
• | reduced levels of economic activity or disruption of domestic or international transportation. |
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• | the conditions of the communications market and the weakening economy in general; | ||
• | subscriber line loss and related reduced demand for wireline telecommunications services; | ||
• | changes or shifts in the technology utilized in the networks; | ||
• | labor disputes between our customers and their collective bargaining units; | ||
• | the failure of our customers to meet established purchase forecasts and growth projections; | ||
• | competition among the large domestic carriers, competitive exchange carriers and wireless telecommunications and cable providers; and | ||
• | reorganizations, including management changes, at one or more of our customers or potential customers. |
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• | General market and economic conditions; | ||
• | Changes in the telecommunications industry; | ||
• | Actual or anticipated variations in operating results; | ||
• | Announcements of technological innovations, new products or new services by us or by our competitors or customers; | ||
• | The fact that we no longer receive research coverage by sell-side market analysts; | ||
• | Announcements by us or our competitors of significant acquisitions, strategic partnerships, joint ventures, capital commitments or other strategic announcements; | ||
• | Announcements by our customers regarding end market conditions and the status of existing and future infrastructure network deployments; | ||
• | Additions or departures of key personnel; and | ||
• | Future equity or debt offerings or our announcements of these offerings. |
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2008 | 2007 | |||||||||||||||
High | Low | High | Low | |||||||||||||
First Quarter | $ | 8.13 | $ | 5.08 | $ | 12.90 | $ | 9.57 | ||||||||
Second Quarter | $ | 6.07 | $ | 4.24 | $ | 13.55 | $ | 10.35 | ||||||||
Third Quarter | $ | 7.00 | $ | 4.25 | $ | 11.34 | $ | 8.60 | ||||||||
Fourth Quarter | $ | 5.56 | $ | 3.00 | $ | 10.31 | $ | 7.08 |
(d) Maximum | ||||||||||||||||
Number (or | ||||||||||||||||
(c) Total number of | Approximate Dollar | |||||||||||||||
shares purchased as | Value) of Shares that | |||||||||||||||
part | May Yet Be | |||||||||||||||
(a) Total Number of | (b) Average Price Paid | of publicly announced | Purchased Under the | |||||||||||||
Period | Shares Purchased (1) | per Share | plans or programs | Plans or Programs | ||||||||||||
October 26 — November 22, 2008 | 496,918 | $ | 4.39 | 496,918 | $ | 12,800,000 |
(1) | On October 28, 2008, the Board of Directors approved a share repurchase program, pursuant to which the Company could repurchase common stock with an aggregate share value of up to $15 million with no expiration date. Such purchases could be made through open market transactions and privately negotiated transactions at the Company’s discretion, subject to market conditions and other factors. The repurchase program does not obligate the Company to acquire any particular amount of common stock and, at the Board’s discretion, may be suspended, discontinued or modified at any time. As of December 31, 2008, the Company had acquired 496,918 shares pursuant to this program at a total cost of $2.2 million. The share repurchase program currently remains in effect as approved by the Board. |
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December | December | December | December | December | December | |||||||||||||||||||
31, | 31, | 31, | 31, | 31, | 31, | |||||||||||||||||||
2003 | 2004 | 2005 | 2006 | 2007 | 2008 | |||||||||||||||||||
Tollgrade | 100 | 70 | 62 | 60 | 46 | 27 | ||||||||||||||||||
NASDAQ | ||||||||||||||||||||||||
Telecomm (IXUT) | 100 | 108 | 100 | 128 | 140 | 80 | ||||||||||||||||||
S&P 500 | 100 | 109 | 112 | 128 | 132 | 81 |
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(IN THOUSANDS, EXCEPT PER SHARE DATA AND | ||||||||||||||||||||
NUMBER OF EMPLOYEES) | ||||||||||||||||||||
YEARS ENDED DECEMBER 31, | ||||||||||||||||||||
2008(1) | 2007(2) | 2006(3) | 2005(4) | 2004(5) | ||||||||||||||||
Revenues: | ||||||||||||||||||||
Products | $ | 33,317 | $ | 48,893 | $ | 51,564 | $ | 51,904 | $ | 49,770 | ||||||||||
Services | 23,907 | 17,667 | 13,830 | 14,415 | 13,048 | |||||||||||||||
57,224 | 66,560 | 65,394 | 66,319 | 62,818 | ||||||||||||||||
Cost of sales: | ||||||||||||||||||||
Products | 17,797 | 23,501 | 25,277 | 24,326 | 22,191 | |||||||||||||||
Services | 7,110 | 4,989 | 4,543 | 3,883 | 3,768 | |||||||||||||||
Amortization | 3,513 | 3,058 | 3,419 | 3,004 | 2,624 | |||||||||||||||
Impairment of intangible assets | 3,291 | 2,263 | — | — | — | |||||||||||||||
Write-down of inventory/acquired software | 759 | — | 4,308 | 424 | — | |||||||||||||||
32,470 | 33,811 | 37,547 | 31,637 | 28,583 | ||||||||||||||||
Gross profit | 24,754 | 32,749 | 27,847 | 34,682 | 34,235 | |||||||||||||||
Operating expenses: | ||||||||||||||||||||
Selling and marketing | 8,477 | 10,224 | 10,552 | 8,882 | 9,483 | |||||||||||||||
General and administrative | 9,615 | 9,857 | 7,981 | 7,486 | 7,346 | |||||||||||||||
Research and development | 13,099 | 13,572 | 13,276 | 14,079 | 15,756 | |||||||||||||||
Severance/restructuring charges | 884 | 1,838 | 1,840 | 775 | 269 | |||||||||||||||
Impairment of goodwill | — | 24,958 | — | — | — | |||||||||||||||
Total operating expenses | 32,075 | 60,449 | 33,649 | 31,222 | 32,854 | |||||||||||||||
(Loss) income from operations | (7,321 | ) | (27,700 | ) | (5,802 | ) | 3,460 | 1,381 | ||||||||||||
Other income, net | 1,343 | 2,767 | 2,755 | 1,359 | 447 | |||||||||||||||
(Loss) income before income taxes | (5,978 | ) | (24,933 | ) | (3,047 | ) | 4,819 | 1,828 | ||||||||||||
Provision (benefit) for income taxes | 1,137 | 1,220 | (1,213 | ) | 1,301 | 914 | ||||||||||||||
(Loss) net income | $ | (7,115 | ) | $ | (26,153 | ) | $ | (1,834 | ) | $ | 3,518 | $ | 914 | |||||||
EARNINGS PER SHARE INFORMATION: | ||||||||||||||||||||
Net (loss) income per common share: | ||||||||||||||||||||
Basic | $ | (0.54 | ) | $ | (1.98 | ) | $ | (0.14 | ) | $ | 0.27 | $ | 0.07 | |||||||
Diluted | $ | (0.54 | ) | $ | (1.98 | ) | $ | (0.14 | ) | $ | 0.27 | $ | 0.07 | |||||||
Weighted average shares of common stock equivalents: | ||||||||||||||||||||
Basic | 13,102 | 13,219 | 13,239 | 13,168 | 13,141 | |||||||||||||||
Diluted | 13,102 | 13,219 | 13,239 | 13,217 | 13,253 | |||||||||||||||
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
BALANCE SHEET DATA: | ||||||||||||||||||||
Working capital | $ | 75,475 | $ | 77,080 | $ | 83,186 | $ | 80,806 | $ | 70,845 | ||||||||||
Total assets | 124,347 | 140,143 | 162,352 | 163,329 | 157,145 | |||||||||||||||
Pension obligation | 889 | 908 | — | — | — | |||||||||||||||
Shareholders’ equity | 112,454 | 123,000 | 149,444 | 150,261 | 146,401 |
2008 | 2007 | 2006 | 2005 | 2004 | ||||||||||||||||
OTHER DATA:(unaudited) | ||||||||||||||||||||
Number of full-time employees at year-end | 210 | 250 | 225 | 253 | 262 |
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(1) | During 2008, the Company recorded a $1.2 million restructuring charge primarily associated with employee severance and the refinement of estimates related to employee relocation and lease termination costs, a $0.5 million severance charge, a charge of $3.3 million associated with the impairment of certain intangible assets, and a $0.7 million inventory restructuring charge. | |
(2) | During 2007, the Company recorded a $0.9 million restructuring charge primarily associated with employee severance and the refinement of estimates related to employee relocation and lease termination costs, a $0.9 million severance charge, a charge of $2.3 million associated with the impairment of certain intangible assets, and a $25.0 million goodwill impairment charge. | |
(3) | During 2006, the Company recorded a $4.3 million inventory restructuring charge and a $1.8 million restructuring charge for employee related costs. | |
(4) | During 2005, the Company recorded a $0.8 million severance charge related to the retirement of the Company’s former Chief Executive Officer and an impairment charge of $0.4 million related to software that was no longer part of the Company’s strategy. | |
(5) | During 2004, the Company recorded a $0.3 million severance charge related to employee severance from a cost reduction program that was implemented. |
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• | Focus our strategic efforts and resources on the substantial and growing telecom service assurance market, where we have a significant installed customer base, and use this position to expand into adjacent markets; | ||
• | Develop an integrated software platform that will serve multiple applications and products for the telecom industry including the next-generation IP service assurance market; | ||
• | Secure new potential partnerships that we expect will enable us to allow us to expand our system solutions into adjacent market segments; | ||
• | Continue to monitor and control costs in all areas of our business; | ||
• | Look for opportunities to accelerate our business strategy while maintaining our focus on ongoing current initiatives; | ||
• | Improve management team capabilities to support the refocused strategy; | ||
• | Enhance company value through investment, organic growth and potential acquisitions that promote our strategic objectives; and |
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• | Initiate a $15 million share repurchase program. |
• | our customers are reducing their capital and operating expense budgets as they look to balance potential lower revenues due to the impact of the recession in the United States and other international economies; | ||
• | incumbent telephone carriers continue to lose customers and revenue to cable competitors, wireless substitution and alternate new media providers; | ||
• | our traditional customer base of incumbent telephone carriers (especially the large domestic carriers) have considerably slowed their investments in legacy areas and are focusing their capital spending on wireless and next-generation wireline projects such as fiber to the home/curb/premise, IPTV, and DSL services; | ||
• | triple play service, voice, video and data services competition is fierce and intensifying; | ||
• | adoption of open standards for in cable and telecommunications systems is resulting in increased competition; | ||
• | increased consolidation among large domestic carriers and others in the telecommunications industry; | ||
• | telecommunications customers continue to evaluate the benefits and costs of full service assurance solutions versus less robust integrated testing solutions, and other competing software solutions; and | ||
• | adjacent test and measurement markets continue to evolve and expand in areas that we did not traditionally pursue, such as the electric power industry. |
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Years | ||||||||||||||||
Twelve-month | ||||||||||||||||
Remaining | Carrying | Rolling | ||||||||||||||
Life at | Value at | Projected | ||||||||||||||
Asset Description | Life | 12/31/08 | 12/31/08 | Amortization | ||||||||||||
(in millions) | ||||||||||||||||
LoopCare | ||||||||||||||||
Base Software | 10 | 2.75 | $ | 1.2 | $ | 0.5 | ||||||||||
Post-Warranty Maintenance Service Agreements | 50 | 46.75 | 29.9 | 0.6 | ||||||||||||
Emerson | ||||||||||||||||
Proprietary Technology | 5 | 2.25 | 0.3 | 0.1 | ||||||||||||
Broadband Test Division | ||||||||||||||||
Post-Warranty Maintenance Service Agreements | 48 | 46.60 | 1.0 | 0.3 | ||||||||||||
Post-Warranty Maintenance Service Agreements | 20 | 18.60 | 2.3 | 0.5 | ||||||||||||
Post-Warranty Maintenance Service Agreements | 10 | 8.60 | 0.5 | 0.1 | ||||||||||||
Post-Warranty Maintenance Service Agreements | 6 | 4.60 | 0.1 | — | ||||||||||||
Technology | 3-10 | 1.60-8.60 | 0.6 | 0.1 | ||||||||||||
Customer Relationships | 10 | 8.60 | 0.5 | 0.2 | ||||||||||||
Other | 0.5-10 | 0.25-9.00 | 0.5 | 0.3 | ||||||||||||
$ | 36.9 | $ | 2.7 | |||||||||||||
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Balance at | Balance at | |||||||||||||||||||
December 31, | Restructuring | Cash | Asset write- | December 31, | ||||||||||||||||
2007 | charge/expense | payments | downs | 2008 | ||||||||||||||||
Severance | $ | — | $ | 494 | $ | (494 | ) | $ | — | $ | — | |||||||||
Inventory write-down | — | 738 | — | (738 | ) | — | ||||||||||||||
Total | $ | — | $ | 1,232 | $ | (494 | ) | $ | (738 | ) | $ | — | ||||||||
Balance at | Balance at | |||||||||||||||||||
December 31, | Cash | Asset write- | December 31, | |||||||||||||||||
2007 | Expense | payments | downs | 2008 | ||||||||||||||||
Facility rationalization including employee costs | $ | 103 | $ | 29 | $ | (116 | ) | $ | (16 | ) | $ | — | ||||||||
Real estate impairment | — | 8 | — | (8 | ) | — | ||||||||||||||
Total | $ | 103 | $ | 37 | $ | (116 | ) | $ | (24 | ) | $ | — | ||||||||
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Balance at | Balance at | |||||||||||||||||||
December 31, | Cash | Asset write- | December 31, | |||||||||||||||||
2006 | Expense | payments | downs | 2007 | ||||||||||||||||
Facility rationalization, including employee costs | $ | 341 | $ | 914 | $ | (778 | ) | $ | (374 | ) | $ | 103 | ||||||||
Real estate impairment | — | 28 | — | (28 | ) | — | ||||||||||||||
Total | $ | 341 | $ | 942 | $ | (778 | ) | $ | (402 | ) | $ | 103 | ||||||||
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Less than 1 | More than 5 | |||||||||||||||||||
Total | year | 1-3 years | 3-5 years | years | ||||||||||||||||
Operating Lease Obligations | $ | 2,010 | $ | 704 | $ | 994 | $ | 312 | $ | — | ||||||||||
Purchase Obligations | 138 | 75 | 42 | 21 | — | |||||||||||||||
FIN 48 Obligations | 489 | — | 489 | — | — | |||||||||||||||
Pension Obligations | 914 | 25 | — | — | 889 | |||||||||||||||
Total | $ | 3,551 | $ | 804 | $ | 1,525 | $ | 333 | $ | 889 | ||||||||||
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• | Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. | ||
• | Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. | ||
• | Level 3—Inputs that are both significant to the fair value measurement and unobservable. |
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March 29, | June 28, | September 27, | December 31, | |||||||||||||
2008(2) | 2008(3) | 2008(4) | 2008(5) | |||||||||||||
Revenue(1) | $ | 13,184 | $ | 14,597 | $ | 15,206 | $ | 14,237 | ||||||||
Gross profit(1) | 2,518 | 7,342 | 8,196 | 6,698 | ||||||||||||
Net (loss) income(1) | $ | (6,504 | ) | $ | (255 | ) | $ | 918 | $ | (1,274 | ) | |||||
Earnings (Loss) Per Share Information | ||||||||||||||||
Weighted average shares | ||||||||||||||||
Basic | 13,158 | 13,158 | 13,173 | 12,908 | ||||||||||||
Diluted | 13,158 | 13,158 | 13,187 | 12,908 | ||||||||||||
Basic | $ | (0.49 | ) | $ | (0.02 | ) | $ | 0.07 | $ | (0.10 | ) | |||||
Diluted | $ | (0.49 | ) | $ | (0.02 | ) | $ | 0.07 | $ | (0.10 | ) | |||||
March 31, | June 30, | September 29, | December 31, | |||||||||||||
2007(6) | 2007(6) | 2007(7) | 2007(8) | |||||||||||||
Revenue(1) | $ | 13,042 | $ | 14,181 | $ | 20,578 | $ | 18,752 | ||||||||
Gross profit(1) | 7,018 | 7,804 | 10,946 | 6,969 | ||||||||||||
Net income (loss)(1) | $ | 111 | $ | 450 | $ | 1,426 | $ | (28,140 | ) | |||||||
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March 31, | June 30, | September 29, | December 31, | |||||||||||||
2007(6) | 2007(6) | 2007(7) | 2007(8) | |||||||||||||
Earnings (Loss) Per Share Information | ||||||||||||||||
Weighted average shares | ||||||||||||||||
Basic | 13,254 | 13,260 | 13,207 | 13,156 | ||||||||||||
Diluted | 13,442 | 13,516 | 13,440 | 13,156 | ||||||||||||
Basic | $ | 0.01 | $ | 0.03 | $ | 0.11 | $ | (2.14 | ) | |||||||
Diluted | $ | 0.01 | $ | 0.03 | $ | 0.11 | $ | (2.14 | ) | |||||||
(1) | Revenues, gross profit and net (loss) income are rounded to millions each quarter. Therefore, the sum of the quarterly amounts may not equal the annual amounts reported. | |
(2) | During the first quarter ended March 29, 2008, the Company recorded a $0.4 million restructuring charge primarily associated with employee severance and the refinement of estimates related to employee relocation and lease termination costs. | |
(3) | During the second quarter ended June 28, 2008, the Company recorded a $0.1 million restructuring charge primarily associated with the refinement of estimates related to employee relocation and lease termination costs. | |
(4) | During the third quarter ended September 27, 2008, the Company did not record a restructuring charge during this period. | |
(5) | During the fourth quarter ended December 31, 2008, the Company recorded a charge of $0.4 million severance charge. | |
(6) | During the first quarter ended March 31, 2007, the Company recorded a $0.4 million restructuring charge primarily associated with employee severance and the refinement of estimates related to employee relocation and lease termination costs. | |
(7) | During the second quarter ended June 30, 2007, the Company recorded a $0.2 million restructuring charge primarily associated with the refinement of estimates related to employee relocation and lease termination costs. | |
(8) | During the third quarter ended September 29, 2007, the Company recorded a $0.2 million restructuring charge primarily associated with the refinement of estimates related to employee relocation and lease termination costs. | |
(9) | During the fourth quarter ended December 31, 2007, the Company recorded a charge of $2.3 million associated with the impairment of certain intangible assets, $0.9 million severance charge, $0.1 million restructuring charge primarily associated with the refinement of estimates related to employee relocation, and a $25.0 million goodwill impairment charge. |
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51 | ||
52 | ||
53 | ||
55 | ||
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Pittsburgh, Pennsylvania
March 13, 2009
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Consolidated Balance Sheets
In thousands (except par value)
December 31, 2008 | December 31, 2007 | |||||||
ASSETS | ||||||||
Current assets: | ||||||||
Cash and cash equivalents | $ | 57,976 | $ | 58,222 | ||||
Short-term investments | 2,419 | 632 | ||||||
Accounts receivable: | ||||||||
Trade, net of allowance for doubtful accounts of $377 in 2008 and $478 in 2007 | 10,560 | 14,625 | ||||||
Other | 668 | 2,255 | ||||||
Inventories | 10,673 | 13,687 | ||||||
Prepaid expenses and deposits | 1,449 | 1,120 | ||||||
Deferred and refundable income taxes | 453 | 503 | ||||||
Assets held for sale | — | 272 | ||||||
Total current assets | 84,198 | 91,316 | ||||||
Property and equipment, net | 2,953 | 4,279 | ||||||
Intangibles | 36,853 | 44,215 | ||||||
Deferred tax asset | 81 | — | ||||||
Other assets | 262 | 333 | ||||||
Total assets | $ | 124,347 | $ | 140,143 | ||||
LIABILITIES AND SHAREHOLDERS’ EQUITY | ||||||||
Current liabilities: | ||||||||
Accounts payable | $ | 1,265 | $ | 4,214 | ||||
Accrued warranty | 1,590 | 1,937 | ||||||
Accrued expenses | 1,655 | 3,148 | ||||||
Accrued salaries and wages | 363 | 891 | ||||||
Accrued royalties payable | 299 | 707 | ||||||
Income taxes payable | 268 | 572 | ||||||
Deferred revenue | 3,283 | 2,767 | ||||||
Total current liabilities | 8,723 | 14,236 | ||||||
Pension obligation | 889 | 908 | ||||||
Deferred tax liabilities | 1,792 | 1,727 | ||||||
Other tax liabilities | 489 | 272 | ||||||
Total liabilities | 11,893 | 17,143 | ||||||
Commitments and contingencies | ||||||||
Shareholders’ equity: | ||||||||
Common stock, $0.20 par value, 50,000 authorized shares, issued shares, 13,733 in 2008 and 13,731 in 2007 | 2,744 | 2,744 | ||||||
Additional paid-in capital | 73,923 | 73,389 | ||||||
Treasury stock, at cost, 1,072 shares in 2008 and 575 shares in 2007 | (8,081 | ) | (5,900 | ) | ||||
Retained earnings | 45,748 | 52,863 | ||||||
Accumulated other comprehensive loss | (1,880 | ) | (96 | ) | ||||
Total shareholders’ equity | 112,454 | 123,000 | ||||||
Total liabilities and shareholders’ equity | $ | 124,347 | $ | 140,143 | ||||
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Consolidated Statements of Operations
In thousands (except per share data)
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Revenues: | ||||||||||||
Products | $ | 33,317 | $ | 48,893 | $ | 51,564 | ||||||
Services | 23,907 | 17,667 | 13,830 | |||||||||
57,224 | 66,560 | 65,394 | ||||||||||
Cost of sales: | ||||||||||||
Products | 17,797 | 23,501 | 25,277 | |||||||||
Services | 7,110 | 4,989 | 4,543 | |||||||||
Amortization | 3,513 | 3,058 | 3,419 | |||||||||
Severance expense/inventory write-down | 759 | — | 4,308 | |||||||||
Impairment of intangible assets | 3,291 | 2,263 | — | |||||||||
32,470 | 33,811 | 37,547 | ||||||||||
Gross profit | 24,754 | 32,749 | 27,847 | |||||||||
Operating expenses: | ||||||||||||
Selling and marketing | 8,477 | 10,224 | 10,552 | |||||||||
General and administrative | 9,615 | 9,857 | 7,981 | |||||||||
Research and development | 13,099 | 13,572 | 13,276 | |||||||||
Restructuring expense | 37 | 942 | 1,840 | |||||||||
Severance expense | 847 | 896 | — | |||||||||
Impairment of goodwill | — | 24,958 | — | |||||||||
Total operating expense | 32,075 | 60,449 | 33,649 | |||||||||
Loss from operations | (7,321 | ) | (27,700 | ) | (5,802 | ) | ||||||
Other income: | ||||||||||||
Interest income | 1,343 | 2,767 | 2,755 | |||||||||
Total other income | 1,343 | 2,767 | 2,755 | |||||||||
Loss before income taxes | (5,978 | ) | (24,933 | ) | (3,047 | ) | ||||||
Provision (benefit) for income taxes | 1,137 | 1,220 | (1,213 | ) | ||||||||
Net loss | $ | (7,115 | ) | $ | (26,153 | ) | $ | (1,834 | ) | |||
PER SHARE INFORMATION: | ||||||||||||
Weighted average shares of common stock and equivalents: | ||||||||||||
Basic | 13,102 | 13,219 | 13,239 | |||||||||
Diluted | 13,102 | 13,219 | 13,239 | |||||||||
Net loss per common share: | ||||||||||||
Basic | $ | (0.54 | ) | $ | (1.98 | ) | $ | (0.14 | ) | |||
Diluted | $ | (0.54 | ) | $ | (1.98 | ) | $ | (0.14 | ) | |||
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Consolidated Statements of Cash Flows
(In thousands)
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Cash flows from operating activities: | ||||||||||||
Net loss | $ | (7,115 | ) | $ | (26,153 | ) | $ | (1,834 | ) | |||
Adjustments to reconcile net loss to net cash provided by operating activities: | ||||||||||||
Depreciation and amortization | 5,192 | 4,755 | 5,499 | |||||||||
Impairment of goodwill and intangible assets | 3,291 | 27,221 | — | |||||||||
Valuation allowance | 123 | 9,922 | — | |||||||||
Compensation expense related to stock plans | 534 | 815 | 517 | |||||||||
Deferred income taxes | 246 | (9,435 | ) | (441 | ) | |||||||
Excess tax benefits from share based compensation | — | (10 | ) | (94 | ) | |||||||
Restructuring and asset impairment | 775 | 473 | 5,309 | |||||||||
Provision for losses on inventories | 953 | 402 | (90 | ) | ||||||||
Provision for allowance for doubtful accounts | 100 | 86 | 86 | |||||||||
Changes in assets and liabilities, net of acquisitions: | ||||||||||||
Accounts receivable — trade | 5,026 | 4,197 | (3,952 | ) | ||||||||
Accounts receivable — other | 1,204 | 562 | (512 | ) | ||||||||
Inventories | 1,316 | (4,106 | ) | (1,727 | ) | |||||||
Refundable income taxes | (64 | ) | 897 | (231 | ) | |||||||
Prepaid expenses deposits and other assets | (302 | ) | (150 | ) | 565 | |||||||
Accounts payable | (4,513 | ) | 1,959 | (318 | ) | |||||||
Accrued warranty | (343 | ) | (198 | ) | (85 | ) | ||||||
Accrued expenses, deferred revenue and salaries and wages | (1,122 | ) | (1,902 | ) | 40 | |||||||
Accrued royalties payable | (407 | ) | 500 | (381 | ) | |||||||
Income taxes payable | (287 | ) | 557 | (678 | ) | |||||||
Net cash provided by operating activities: | 4,607 | 10,392 | 1,673 | |||||||||
Cash flows from investing activities: | ||||||||||||
Purchase of Emerson test business | — | — | (5,501 | ) | ||||||||
Purchase of BTD from Teradyne | — | (11,855 | ) | — | ||||||||
Purchase of investments | (4,266 | ) | (12,194 | ) | (9,646 | ) | ||||||
Redemption/maturity of investments | 2,479 | 16,885 | 22,333 | |||||||||
Capital expenditures, including capitalized software | (507 | ) | (2,324 | ) | (1,247 | ) | ||||||
Investments in other assets | — | — | (155 | ) | ||||||||
Sale of assets held for sale | 265 | 892 | — | |||||||||
Net cash (used in) provided by investing activities: | (2,029 | ) | (8,596 | ) | 5,784 | |||||||
Cash flows from financing activities: | ||||||||||||
Repurchase of treasury shares | (2,181 | ) | (1,109 | ) | — | |||||||
Proceeds from the exercise of stock options | — | 89 | 406 | |||||||||
Excess tax benefit from share based compensation | — | 10 | 94 | |||||||||
Net cash (used in) provided by financing activities: | (2,181 | ) | (1,010 | ) | 500 | |||||||
Net increase in cash and cash equivalents | 397 | 786 | 7,957 | |||||||||
Effect of exchange rate change on cash and cash equivalents | (643 | ) | 58 | — | ||||||||
Cash and cash equivalents at beginning of year | 58,222 | 57,378 | 49,421 | |||||||||
Cash and cash equivalents at end of year | $ | 57,976 | $ | 58,222 | $ | 57,378 | ||||||
Supplemental disclosure of cash flow information: | ||||||||||||
Cash paid during the year for income taxes | $ | 14 | $ | 3 | $ | 811 |
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Condensed Consolidated Statements of Changes in Shareholders’ Equity
(In thousands) (Unaudited)
Accumulated | ||||||||||||||||||||||||||||||||
Other | Other | |||||||||||||||||||||||||||||||
Common Stock | Additional | Treasury | Retained | Comprehensive | Comprehensive | |||||||||||||||||||||||||||
Shares | Amount | Paid-In | Stock | Earnings | Loss | Total | Loss | |||||||||||||||||||||||||
Balance at December 31, 2005 | 13,664 | $ | 2,733 | $ | 71,469 | $ | (4,791 | ) | $ | 80,850 | — | $ | 150,261 | |||||||||||||||||||
Exercise of common stock options | 45 | 9 | 397 | — | — | — | 406 | |||||||||||||||||||||||||
Tax benefit from exercise of stock options | — | — | 94 | — | — | — | 94 | |||||||||||||||||||||||||
Compensation expense for options and restricted stock, net | — | — | 517 | — | — | — | 517 | |||||||||||||||||||||||||
Net loss | — | — | — | — | (1,834 | ) | — | (1,834 | ) | $ | (1,834 | ) | ||||||||||||||||||||
Comprehensive loss | — | — | — | — | — | — | — | $ | (1,834 | ) | ||||||||||||||||||||||
Balance at December 31, 2006 | 13,709 | 2,742 | 72,477 | (4,791 | ) | 79,016 | — | 149,444 | ||||||||||||||||||||||||
Exercise of common stock options | 10 | 2 | 87 | — | — | — | 89 | |||||||||||||||||||||||||
Tax benefit from exercise of stock options | — | — | 10 | — | — | — | 10 | |||||||||||||||||||||||||
Purchase of treasury stock | — | — | — | (1,109 | ) | — | — | (1,109 | ) | |||||||||||||||||||||||
Compensation expense for options and restricted stock, net | 12 | — | 815 | — | — | — | 815 | |||||||||||||||||||||||||
Actuarial gain, net of tax | — | — | — | — | — | 32 | 32 | $ | 32 | |||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | (128 | ) | (128 | ) | (128 | ) | |||||||||||||||||||||
Net loss | — | — | — | — | (26,153 | ) | — | (26,153 | ) | (26,153 | ) | |||||||||||||||||||||
Comprehensive loss | — | — | — | — | — | — | — | $ | (26,249 | ) | ||||||||||||||||||||||
Balance at December 31, 2007 | 13,731 | 2,744 | 73,389 | (5,900 | ) | 52,863 | (96 | ) | 123,000 | — | ||||||||||||||||||||||
Purchase of treasury stock | — | — | — | (2,181 | ) | — | — | (2,181 | ) | — | ||||||||||||||||||||||
Compensation expense for options and restricted stock, net | 2 | — | 534 | — | — | — | 534 | |||||||||||||||||||||||||
Actuarial gain, net of tax | — | — | — | — | — | 87 | 87 | $ | 87 | |||||||||||||||||||||||
Foreign currency translation | — | — | — | — | — | (1,871 | ) | (1,871 | ) | (1,871 | ) | |||||||||||||||||||||
Net loss | — | — | — | — | (7,115 | ) | — | (7,115 | ) | (7,115 | ) | |||||||||||||||||||||
�� | ||||||||||||||||||||||||||||||||
Comprehensive loss | — | — | — | — | — | — | — | $ | (8,899 | ) | ||||||||||||||||||||||
Balance at December 31, 2008 | 13,733 | $ | 2,744 | $ | 73,923 | $ | (8,081 | ) | $ | 45,748 | $ | (1,880 | ) | $ | 112,454 | |||||||||||||||||
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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
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• | Level 1—Unadjusted quoted prices in active markets that are accessible at the measurement date for identical, unrestricted assets or liabilities. | ||
• | Level 2—Inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly or indirectly, including quoted prices for similar assets or liabilities in active markets; quoted prices for identical or similar assets or liabilities in markets that are not active; inputs other than quoted prices that are observable for the asset or liability (e.g., interest rates); and inputs that are derived principally from or corroborated by observable market data by correlation or other means. | ||
• | Level 3—Inputs that are both significant to the fair value measurement and unobservable. |
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Stock Options | ||||||||||||
Year Ended | Year Ended | Year Ended | ||||||||||
December 31, 2008 | December 31, 2007 | December 31, 2006 | ||||||||||
Weighted average grant date fair values | $ | 2.68 | $ | 3.69 | $ | 4.84 | ||||||
Expected life (in years) | 5.0 | 5.0 | 5.0 | |||||||||
Risk free interest rate | 2.8 | % | 3.6 | % | 4.7 | % | ||||||
Volatility | 48.1 | % | 48.6 | % | 56.1 | % |
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Weighted Average | ||||||||||||||||||||||||
Number of Shares | Range of Exercise Price | Exercise Price | ||||||||||||||||||||||
Outstanding, December 31, 2005 | 1,780,037 | $ | 7.28 — $159.19 | $ | 26.87 | |||||||||||||||||||
Granted | 30,000 | 9.00 — 9.19 | 9.13 | |||||||||||||||||||||
Exercised (A) | (44,984 | ) | 7.56 — 12.55 | 9.02 | ||||||||||||||||||||
Cancelled/Forfeited/Expired | (406,668 | ) | 7.28 — 117.34 | 16.28 | ||||||||||||||||||||
Outstanding, December 31, 2006 | 1,358,385 | 7.28 — 159.19 | 30.24 | |||||||||||||||||||||
Granted | 160,000 | 7.78 — 9.84 | 7.91 | |||||||||||||||||||||
Exercised (A) | (10,500 | ) | 7.56 — 9.49 | 8.49 | ||||||||||||||||||||
Cancelled/Forfeited/Expired | (67,323 | ) | 8.49 — 159.19 | 43.74 | ||||||||||||||||||||
Outstanding, December 31, 2007 | 1,440,562 | 7.28 — 159.19 | 27.28 | |||||||||||||||||||||
Granted | 684,400 | 3.27 — 6.57 | 5.97 | |||||||||||||||||||||
Exercised (A) | — | — | — | |||||||||||||||||||||
Cancelled/Forfeited/Expired | (519,472 | ) | 6.57 — 55.90 | 12.16 | ||||||||||||||||||||
Outstanding, December 31, 2008 | 1,605,490 | $ | 3.27 — 159.19 | $ | 23.08 | |||||||||||||||||||
Number of Shares | ||||||||||||||||||||||||
Options exercisable at: | ||||||||||||||||||||||||
December 31, 2006 | 1,258,092 | $ | 31.96 | |||||||||||||||||||||
December 31, 2007 | 1,280,563 | $ | 29.70 | |||||||||||||||||||||
December 31, 2008 | 937,757 | $ | 35.14 |
(A) | The intrinsic value associated with exercised options which represent the difference between the strike price and the market value of Tollgrade stock at the time of exercise was less then $0.1 million in 2008 and 2007, respectively. |
Stock Options Outstanding | Stock Options Exercisable | |||||||||||||||||||||||||||||||
Number | Number | Weighted | ||||||||||||||||||||||||||||||
Outstanding | Weighted | Weighted | Exercisable | Average | Weighted | |||||||||||||||||||||||||||
as of | Average | Average | Aggregate | as of | Remaining | Average | Aggregate | |||||||||||||||||||||||||
Range of Exercise | December 31, | Remaining | Exercise | Intrinsic | December | Contractual | Exercise | Intrinsic | ||||||||||||||||||||||||
Prices | 2008 | Contractual Life | Price ($) | Value ($) | 31, 2008 | Life | Price ($) | Value (B) ($) | ||||||||||||||||||||||||
$3.27 — 4.39 | 128,000 | 9.81 | $ | 3.34 | $ | 181,200 | — | — | $ | — | $ | — | ||||||||||||||||||||
4.40 — 6.57 | 466,400 | 9.08 | 6.57 | 30,000 | 9.08 | 6.57 | ||||||||||||||||||||||||||
6.58 — 8.49 | 295,425 | 7.88 | 8.13 | 195,425 | 7.34 | 8.31 | ||||||||||||||||||||||||||
8.50 — 13.63 | 179,415 | 4.41 | 11.30 | 176,082 | 4.34 | 11.33 | ||||||||||||||||||||||||||
13.64 — 28.40 | 247,000 | 2.88 | 23.65 | 247,000 | 2.88 | 23.65 | ||||||||||||||||||||||||||
28.41 — 55.90 | 152,750 | 2.32 | 45.29 | 152,750 | 2.32 | 45.29 | ||||||||||||||||||||||||||
55.91 — 71.88 | 2,000 | 1.34 | 71.88 | 2,000 | 1.34 | 71.88 | ||||||||||||||||||||||||||
71.89 — 103.59 | 8,000 | 1.80 | 103.59 | 8,000 | 1.80 | 103.59 | ||||||||||||||||||||||||||
103.60 — 117.34 | 113,000 | 1.62 | 117.34 | 113,000 | 1.62 | 117.34 | ||||||||||||||||||||||||||
117.35 — 159.19 | 13,500 | 1.53 | 159.19 | 13,500 | 1.53 | 159.19 | ||||||||||||||||||||||||||
Total $3.27-159.19 | 1,605,490 | 6.16 | $ | 23.08 | $ | 181,200 | 937,757 | 4.04 | $ | 35.14 | $ | — | ||||||||||||||||||||
(B) | The aggregate intrinsic value in the preceding table represents the difference between the strike price and the market value of Tollgrade stock on December 31, 2008. The market value of Tollgrade’s stock was $6.33 on December 31, 2008. The total number of shares in-the-money options exercisable was zero and 131,000 shares on December 31, 2008 and 2007, respectively. |
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Weighted Average | ||||||||||||||||
Weighted Average | Remaining | Aggregate Intrinsic | ||||||||||||||
No. of Shares | Exercise Price | Contractual Term | Value(1) | |||||||||||||
Vested | 937,757 | $ | 35.14 | 4.0 | $ | — | ||||||||||
Expected to Vest | 667,733 | $ | 5.97 | 9.2 | $ | 181,200 | ||||||||||
Total | 1,605,490 | $ | 23.08 | 6.2 | $ | 181,200 | ||||||||||
(1) | The aggregate intrinsic value in the preceding table represents the difference between the exercise price and the value of Tollgrade stock $6.33 and $8.02 on December 31, 2008 and December 31, 2007 respectively. |
Balance at | Balance at | |||||||||||||||||||
December 31, | Restructuring | Cash | Asset write- | December 31, | ||||||||||||||||
2007 | charge/expense | payments | downs | 2008 | ||||||||||||||||
Severance | $ | — | $ | 494 | $ | (494 | ) | $ | — | $ | — | |||||||||
Inventory write-down | — | 738 | — | (738 | ) | — | ||||||||||||||
Total | $ | — | $ | 1,232 | $ | (494 | ) | $ | (738 | ) | $ | — | ||||||||
Balance at | Balance at | |||||||||||||||||||
December 31, | Cash | Asset write- | December 31, | |||||||||||||||||
2007 | Expense | payments | downs | 2008 | ||||||||||||||||
Facility rationalization including employee costs | $ | 103 | $ | 29 | $ | (116 | ) | $ | (16 | ) | $ | — | ||||||||
Real estate impairment | — | 8 | — | (8 | ) | — | ||||||||||||||
Total | $ | 103 | $ | 37 | $ | (116 | ) | $ | (24 | ) | $ | — | ||||||||
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Accounts Receivable | $ | 4,579 | ||
Inventories | 1,428 | |||
Property and equipment | 454 | |||
Intangible assets | 7,937 | |||
Goodwill | 1,122 | |||
Other | 26 | |||
Total assets acquired | 15,546 | |||
Deferred income | 1,588 | |||
Accounts payable | 709 | |||
Pension obligation | 870 | |||
Relocation and lease termination accrual | 524 | |||
Total liabilities | 3,691 | |||
Net assets acquired | $ | 11,855 | ||
(In Thousands, Except Per Share | (In Thousands, Except Per | |||||||
Data) | Share Data) | |||||||
Unaudited Pro Forma | Unaudited Pro Forma | |||||||
Year Ended | Year Ended | |||||||
December 31, 2007 | December 31, 2006 | |||||||
Revenues | $ | 77,714 | $ | 85,962 | ||||
Loss from operations | $ | (27,632 | ) | $ | (11,192 | ) | ||
Net loss | $ | (26,082 | ) | $ | (5,078 | ) | ||
Pro forma basic and diluted loss per share | $ | (1.97 | ) | $ | (0.38 | ) | ||
Actual basis and diluted loss per share | $ | (1.98 | ) | $ | (0.14 | ) | ||
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Accounts receivable | $ | 1,827 | ||
Inventories | 1,113 | |||
Property and equipment | 112 | |||
Intangible assets | 1,113 | |||
Goodwill | 2,274 | |||
Total assets acquired | 6,439 | |||
Deferred income | 175 | |||
Accounts payable | 636 | |||
Restructuring | 127 | |||
Total liabilities | 938 | |||
Net assets acquired | $ | 5,501 | ||
(In Thousands, Except Per Share Data) | ||||
Unaudited | ||||
Year end | ||||
Pro Forma | ||||
December 31, 2006 | ||||
Revenues | $ | 66,960 | ||
Loss from operations | $ | (5,792 | ) | |
Net loss | $ | (1,822 | ) | |
Pro forma basic and diluted loss per share | $ | (0.14 | ) | |
Actual diluted loss per share | $ | (0.14 | ) | |
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Useful | December 31, 2008 | |||||||||||||||||||
Life | Accumulated | |||||||||||||||||||
Amortizing Intangible Assets: | (Years) | Gross | Amortization | Impairments | Net | |||||||||||||||
Post Warranty Service Agreements | 6-50 | $ | 37,563 | $ | 3,752 | $ | — | $ | 33,811 | |||||||||||
Technology | 2-10 | 18,762 | 14,979 | 1,396 | 2,387 | |||||||||||||||
Customer Relationships | 5-15 | 3,554 | 1,420 | 1,676 | 458 | |||||||||||||||
Tradenames and other | 0.5-10 | 809 | 393 | 219 | 197 | |||||||||||||||
Total Intangible Assets | $ | 60,688 | $ | 20,544 | $ | 3,291 | $ | 36,853 | ||||||||||||
Useful | December 31, 2007 | |||||||||||||||||||
Life | Accumulated | |||||||||||||||||||
Amortizing Intangible Assets: | (Years) | Gross | Amortization | Impairments | Net | |||||||||||||||
Post Warranty Service Agreements | 6-50 | $ | 38,204 | $ | 2,019 | $ | — | $ | 36,185 | |||||||||||
Technology | 3-10 | 19,249 | 13,858 | 448 | 4,943 | |||||||||||||||
Customer Relationships | 5-15 | 3,626 | 1,190 | — | 2,436 | |||||||||||||||
Tradenames and other | 0.5-10 | 2,635 | 169 | 1,815 | 651 | |||||||||||||||
Total Intangible Assets | $ | 63,714 | $ | 17,236 | $ | 2,263 | $ | 44,215 | ||||||||||||
Goodwill | December 31, 2008 | December 31, 2007 | ||||||
Balance at beginning of the year | $ | — | $ | 23,836 | ||||
Acquisitions | — | 1,122 | ||||||
Impairments | — | (24,958 | ) | |||||
Balance at end of the year | $ | — | $ | — | ||||
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Useful Life | Value | |||||||
Post-Warranty Service Agreements | 6 — 48 years | $ | 6,090 | |||||
Technology | 3 — 10 years | $ | 800 | |||||
Customer Relationships | 10 years | $ | 776 | |||||
Other | 0.5 — 10 years | $ | 174 | |||||
Goodwill | $ | 1,122 |
Useful Life | Value | |||||||
Customer Relationship | 5 years | $ | 193 | |||||
Technology | 5 years | $ | 761 | |||||
Tradename | 3 years | $ | 62 | |||||
Backlog | 6 months | $ | 97 | |||||
Goodwill | $ | 2,274 |
December 31, 2008 | December 31, 2007 | |||||||
Raw materials | $ | 6,225 | $ | 8,393 | ||||
Work in process | 3,296 | 3,582 | ||||||
Finished goods | 3,492 | 4,321 | ||||||
13,013 | 16,296 | |||||||
Reserves for slow moving and obsolete inventory | (2,340 | ) | (2,609 | ) | ||||
$ | 10,673 | $ | 13,687 | |||||
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Years | December 31, 2008 | December 31, 2007 | ||||||||||
Test equipment and tooling | 3-5 | $ | 11,547 | $ | 11,246 | |||||||
Office equipment and fixtures | 5-7 | 9,663 | 9,724 | |||||||||
Leasehold improvements | 1-6 | 2,723 | 2,860 | |||||||||
23,933 | 23,830 | |||||||||||
Less accumulated depreciation and amortization | (20,980 | ) | (19,551 | ) | ||||||||
$ | 2,953 | $ | 4,279 | |||||||||
December 31, 2008 | December 31, 2007 | |||||||
Balance at the beginning of the year | $ | 1,937 | $ | 2,135 | ||||
Accruals for warranties issued during the year | 1,789 | 1,680 | ||||||
Settlements during the year | (2,136 | ) | (1,878 | ) | ||||
Balance at the end of the year | $ | 1,590 | $ | 1,937 | ||||
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Pension | Pension | |||||||
Benefits | Benefits | |||||||
(in thousands) | 2008 | 2007 | ||||||
Change in projected benefit obligation: | ||||||||
Projected benefit obligation at January 1, | $ | 1,260 | $ | — | ||||
Acquisition of BTD | — | 1,226 | ||||||
Service cost | 83 | 37 | ||||||
Interest cost | 65 | 27 | ||||||
Plan participants’ contributions | 5 | 2 | ||||||
Actuarial gains | (96 | ) | (32 | ) | ||||
Effect of foreign currency | (60 | ) | — | |||||
Projected benefit obligation at December 31, | $ | 1,257 | $ | 1,260 | ||||
2008 | 2007 | |||||||
Change in fair value of plan assets: | ||||||||
January 1, | $ | 352 | $ | — | ||||
Acquisition of BTD | — | 332 | ||||||
Employer contribution | 23 | 9 | ||||||
Plan participants’ contributions | 5 | 2 | ||||||
Actual return on plan assets (net of cost) | 5 | 9 | ||||||
Effect of foreign currency | (17 | ) | — | |||||
Fair value of plan assets at December 31, | $ | 368 | $ | 352 | ||||
Unfunded status of plans at December 31, | $ | 889 | $ | 908 | ||||
2008 | 2007 | |||||||
Amounts recognized in accumulated other comprehensive income: | ||||||||
Prior service cost | — | — | ||||||
Actuarial gains, net | $ | 87 | $ | 32 | ||||
Total | $ | 87 | $ | 32 | ||||
Pension | Pension | |||||||
Benefits | Benefits | |||||||
(in thousands) | 2008 | 2007 | ||||||
Noncurrent assets | $ | — | $ | — | ||||
Noncurrent liabilities | 889 | 908 | ||||||
Net amount recognized at December 31, | $ | 889 | $ | 908 | ||||
Pension | Pension | |||||||
Benefits | Benefits | |||||||
(in thousands) | 2008 | 2007 | ||||||
Projected benefit obligation in excess of plan assets: | ||||||||
Projected benefit obligation | $ | 1,257 | $ | 1,260 | ||||
Fair value of plan assets | $ | 368 | $ | 352 | ||||
Accumulated benefit obligation in excess of plan assets: | ||||||||
Accumulated benefit obligation | $ | 933 | $ | 959 |
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Pension | Pension | |||||||
Benefits | Benefits | |||||||
(in thousands) | 2008 | 2007 | ||||||
Components of net periodic benefit cost: | ||||||||
Service cost | $ | 83 | $ | 37 | ||||
Interest cost | 65 | 27 | ||||||
Expected return on plan assets | (15 | ) | (6 | ) | ||||
Net periodic benefit cost | $ | 133 | $ | 58 | ||||
(in thousands) | ||||
Expected benefit payments: | ||||
2009 — 2012 | — | |||
2013 — 2017 | $ | 229 |
2008 | 2007 | |||||||
Weighted-average assumptions used to determine the benefit obligation | ||||||||
Discount rate | 6.00 | % | 5.39 | % | ||||
Rate of compensation increase | 3.00 | % | 2.78 | % | ||||
Weighted-average assumptions used to determine the net benefit costs | ||||||||
Discount rate | 5.37 | % | 5.39 | % | ||||
Rate of compensation increase | 3.00 | % | 2.78 | % | ||||
Expected annual return on plan assets | 4.0 | % | 4.0 | % |
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2008 | 2007 | 2006 | ||||||||||
Current: | ||||||||||||
Federal | $ | (16 | ) | $ | (19 | ) | $ | (781 | ) | |||
Foreign | 777 | 742 | — | |||||||||
State | 7 | 10 | 9 | |||||||||
768 | 733 | (772 | ) | |||||||||
Deferred: | ||||||||||||
Federal | — | 648 | (530 | ) | ||||||||
Foreign | 369 | (180 | ) | — | ||||||||
State | — | 19 | 89 | |||||||||
369 | 487 | (441 | ) | |||||||||
$ | 1,137 | $ | 1,220 | $ | (1,213 | ) | ||||||
Years Ended December 31, | ||||||||||||
2008 | 2007 | 2006 | ||||||||||
Federal statutory tax rate | (34 | %) | (34 | %) | (34 | %) | ||||||
Foreign income taxes | (1 | %) | — | — | ||||||||
State income taxes | — | — | — | |||||||||
Valuation allowance | 49 | % | 38 | % | 3 | % | ||||||
Tax contingency reserve | 5 | % | 1 | % | (2 | %) | ||||||
Export sales benefit | — | — | (4 | %) | ||||||||
Tax exempt interest | — | — | (6 | %) | ||||||||
Other | — | — | 3 | % | ||||||||
Effective tax rate | 19 | % | 5 | % | (40 | %) | ||||||
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2008 | 2007 | |||||||
Deferred Tax Assets: | ||||||||
Excess of tax basis over book basis for: | ||||||||
Property and equipment | $ | 328 | $ | 416 | ||||
Goodwill and intangible assets | 9,331 | 8,831 | ||||||
Inventory | 634 | 380 | ||||||
Reserves recorded for: | ||||||||
Warranty | 602 | 734 | ||||||
Inventory | 819 | 849 | ||||||
Allowance for doubtful accounts | 132 | 170 | ||||||
Severance | 34 | 60 | ||||||
Federal net operating loss carryforwards | 3,660 | 1,103 | ||||||
State net operating loss carryforwards | 3,409 | 3,063 | ||||||
Stock based compensation | 595 | 417 | ||||||
Pension benefit obligation | 39 | 12 | ||||||
Other | 31 | 120 | ||||||
Gross deferred tax assets | $ | 19,614 | $ | 16,155 | ||||
Valuation allowance | (15,848 | ) | (12,655 | ) | ||||
Deferred tax assets | $ | 3,766 | $ | 3,500 | ||||
Deferred Tax Liabilities: | ||||||||
Excess of book basis over tax basis for: | ||||||||
Intangible assets | $ | (4,984 | ) | $ | (4,511 | ) | ||
Property and equipment | (14 | ) | (93 | ) | ||||
Other | (90 | ) | (120 | ) | ||||
Total deferred tax liability | (5,088 | ) | (4,724 | ) | ||||
Net deferred tax liabilities | $ | (1,322 | ) | $ | (1,224 | ) | ||
Reconciliation to the consolidated balance sheets: | ||||||||
Deferred tax asset current | $ | 389 | $ | 503 | ||||
Deferred tax assets non-current | $ | 81 | — | |||||
Deferred tax liabilities non-current | (1,792 | ) | (1,727 | ) | ||||
Net deferred tax liability | $ | (1,322 | ) | $ | (1,224 | ) | ||
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2008 | 2007 | |||||||
Beginning balance — January 1, | $ | 272 | $ | 96 | ||||
Additional uncertain tax positions | 244 | 201 | ||||||
Reductions due to expirations of statute of limitations | (27 | ) | (25 | ) | ||||
Ending balance — December 31, | $ | 489 | $ | 272 | ||||
At December 31, 2008 | ||||
2009 | $ | 769 | ||
2010 | 580 | |||
2011 | 546 | |||
2012 | 377 | |||
2013 | — | |||
Thereafter | — | |||
$ | 2,272 | |||
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December 31, 2008 | December 31, 2007 | |||||||||||||||
Carrying Amount | Fair Value | Carrying Amount | Fair Value | |||||||||||||
Financial assets: | ||||||||||||||||
Cash and cash equivalents | $ | 57,976 | $ | 57,976 | $ | 58,222 | $ | 58,222 | ||||||||
Short-term investments | $ | 2,419 | $ | 2,419 | $ | 632 | $ | 632 |
December 31, 2008 | December 31, 2007 | December 31, 2006 | ||||||||||
Net loss | $ | (7,115 | ) | $ | (26,153 | ) | $ | (1,834 | ) | |||
Weighted average common shares outstanding | 13,102 | 13,219 | 13,239 | |||||||||
Effect of dilutive securities — stock options | — | — | — | |||||||||
13,102 | 13,219 | 13,239 | ||||||||||
Loss per share: | ||||||||||||
Basic | $ | (0.54 | ) | $ | (1.98 | ) | $ | (0.14 | ) | |||
Diluted | $ | (0.54 | ) | $ | (1.98 | ) | $ | (0.14 | ) | |||
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For the Years Ended December 31, 2008, 2007 and 2006
(In thousands)
Col. B | Col C. | Col. E | ||||||||||||||||||
Balance at | Additions | Balance at | ||||||||||||||||||
Beginning | Charged to | Charged to | Col. D | End | ||||||||||||||||
Col. A | of Year | Expense | Other Accounts | Deductions | of Year | |||||||||||||||
Allowance for doubtful accounts: | ||||||||||||||||||||
Year ended December 31, 2008 | $ | 478 | 100 | — | (201 | ) | $ | 377 | ||||||||||||
Year ended December 31, 2007 | $ | 535 | 86 | — | (143 | ) | $ | 478 | ||||||||||||
Year ended December 31, 2006 | $ | 465 | 86 | — | (16 | ) | $ | 535 | ||||||||||||
Inventory reserve: | ||||||||||||||||||||
Year ended December 31, 2008 | $ | 2,609 | 953 | — | (1,222 | ) | $ | 2,340 | ||||||||||||
Year ended December 31, 2007 | $ | 2,425 | 402 | — | (218 | ) | $ | 2,609 | ||||||||||||
Year ended December 31, 2006 | $ | 2,095 | (90 | ) | 420 | — | $ | 2,425 | ||||||||||||
Warranty reserve: | ||||||||||||||||||||
Year ended December 31, 2008 | $ | 1,937 | 1,789 | — | (2,136 | ) | $ | 1,590 | ||||||||||||
Year ended December 31, 2007 | $ | 2,135 | 1,680 | — | (1,878 | ) | $ | 1,937 | ||||||||||||
Year ended December 31, 2006 | $ | 2,220 | 1,595 | — | (1,680 | ) | $ | 2,135 | ||||||||||||
Valuation allowance on net deferred tax assets: | ||||||||||||||||||||
Year ended December 31, 2008 | $ | 12,655 | 123 | 3,070 | — | $ | 15,848 | |||||||||||||
Year ended December 31, 2007 | $ | 2,733 | 9,922 | — | — | $ | 12,655 | |||||||||||||
Year ended December 31, 2006 | $ | 2,004 | 729 | — | — | $ | 2,733 |
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No. of securities remaining | ||||||||||||
available for future issuance | ||||||||||||
Weighted average | under equity compensation plans | |||||||||||
No. of securities to be | exercise | (excluding securities to be issued | ||||||||||
issued upon exercise of | price of outstanding | �� | upon exercise of outstanding | |||||||||
outstanding options | options | options) | ||||||||||
Equity compensation plans approved by security holders | ||||||||||||
1995 Long-Term Incentive Compensation Plan (1) | 642,325 | $ | 41.97 | — | ||||||||
2006 Long-Term Incentive Compensation Plan | 761,067 | $ | 6.33 | 459,039 | ||||||||
Equity compensation plans not approved by security holders | ||||||||||||
1998 Employee Incentive Compensation Plan (1) | 202,098 | $ | 26.15 | — | ||||||||
Total: | 1,605,490 | 459,039 |
(1) | No further grants may be made under these plans. |
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(a) | The following documents have been filed as part of this report or, where noted, incorporated by reference: |
(1) | Financial Statements | ||
The financial statements of the Company are listed in the Index to Consolidated Financial Statements on Page 46. | |||
(2) | Financial Statement Schedule | ||
The financial statement schedule filed in response to Item 8 and Item 15(d) of Form 10-K, Schedule II (Valuation and Qualifying Accounts), is listed in the Index to Consolidated Financial Statements on Page 46. | |||
(3) | The following exhibits are included herewith and made a part hereof: |
Exhibit | ||
Number | Description | |
3.1 | Amended and Restated Articles of Incorporation of the Company (the “Articles”) as amended through May 6, 1998 (conformed copy), incorporated herein by reference to Exhibit 3.1 to the Annual Report of Tollgrade Communications, Inc. (the “Company”) on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March 24, 1999 (the “1998 Form 10-K”). | |
3.1a | Statement with Respect to Shares dated July 23, 1996 (conformed copy), incorporated herein by reference to Exhibit 3.1a to the 1998 Form 10-K. | |
3.1b | Amendment to Articles incorporated herein by reference, filed on the Company’s Current Report on Form 8-K filed with the SEC on May 21, 2007. | |
3.2 | Amended and Restated Bylaws of the Company filed as Exhibit 3.2 to the Company’s Current Report on Form 8-K filed with the SEC on May 21, 2007. | |
10.1* | 1995 Long-Term Incentive Compensation Plan, amended and restated as of January 24, 2002, incorporated herein | |
by reference to Exhibit B to the 2002 Proxy Statement of the Company, filed with the SEC on March 22, 2002. | ||
10.2* | Form of Stock Option Agreement dated December 14, 1995 and December 29, 1995 for Non-Statutory Stock Options granted under the 1995 Long-Term Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.15 to the Company’s Form 10-K, filed with the SEC on March 19, 1997 (the “1996 Form 10-K”). | |
10.3* | Form of Stock Option Agreement for Non-Statutory Stock Options granted under the 1995 Long-Term Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.2 to the Company’s Form 10-Q, filed with the SEC on November 12, 1996. | |
10.4* | Form of Non-employee Director Stock Option Agreement with respect to the Company’s 1995 Long-Term Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.25 to the Company’s Form 10-K filed with the SEC on March 25, 1998 (the “1997 Form 10-K”). | |
10.5* | Form of Change in Control Agreement, together with a schedule listing the name of each Executive with whom the Company has entered into an agreement in substantially identical form and in each case the date of such agreement, filed herewith. | |
10.6* | 1998 Employee Incentive Compensation Plan, amended and restated as of January 24, 2002, incorporated herein by reference to Exhibit 10.25 to the Company’s Form 10-K, filed with the SEC on March 22, 2002 (the “2001 Form 10-K”). | |
10.7 | Asset Purchase Agreement by and between Lucent Technologies, Inc. and Tollgrade Communications, Inc. dated September 28, 2001, incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 15, 2001. |
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Exhibit | ||
Number | Description | |
10.8 | Purchase and Sale Agreement, entered into February 13, 2003, between the Company and Acterna, LLC, incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 27, 2003. | |
10.9 | Lease and License for Alterations dated October 18, 2007 among Tollgrade UK Limited, Tollgrade Communications, Inc., Bedell Corporate Trustees Limited and Atrium Trustees (as Trustees of the Park One Unit Trust), filed as Exhibit 10.2 to the Company’s Form 10-Q filed with the SEC on November 8, 2007. | |
10.10 | Agreement dated November 27, 2006 by and between Knightsbridge Realty L.L.C. and Tollgrade Communications, Inc., filed as Exhibit 10.1 to the Company’s Current Report of Form 8-K filed with the SEC on November 30, 2006. | |
10.11 | Lease Agreement, dated as of August 31, 2005, between Regional Industrial Development Corporation of Southwestern Pennsylvania and the Company, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2005. | |
10.12 | Asset Purchase Agreement dated February 7, 2006 by and among Emerson Electric Co., Emerson Network Power, Energy Systems, North America, Inc. and Tollgrade Communications, Inc., filed as Exhibit 10.25 to the 2006 Form 10-K. | |
10.13* | Management Incentive Compensation Plan, as amended, filed as Exhibit 10.1 to the Company’s Form 10-Q filed with the SEC on April 27, 2007. | |
10.14* | Tollgrade Communications, Inc. 2006 Long-Term Incentive Compensation Plan filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 11, 2006. | |
10.15* | Form of Stock Option Agreement for Non-Statutory Stock Options granted under the 2006 Long-Term Incentive Compensation Plan, filed as Exhibit 10.1 to the Company’s Form 10-Q filed with the SEC on October 27, 2006. | |
10. 16 | Asset Purchase Agreement dated May 31, 2007 between Tollgrade Communications, Inc. and Teradyne, Inc., filed as Exhibit 10.1 to the Company’s Form 10-Q filed with the SEC on July 27, 2007. | |
10.17* | Form of Employee Restricted Share Agreement for restricted share grants pursuant to the 2006 Long-Term Incentive Compensation Plan, filed as Exhibit 10.37 to the Company’s Form 10-K filed with the SEC on March 17, 2008 (the “2007 Form 10-K”). | |
10.18* | Form of Director Restricted Share Agreement for restricted share grants pursuant to the 2006 Long-Term Incentive Compensation Plan, filed as Exhibit 10.38 to the 2007 Form 10-K. | |
10.19* | Amendment dated December 13, 2007 to the Management Incentive Compensation Plan, filed as Exhibit 10.39 to the 2007 Form 10-K. | |
10.20* | Amendment dated December 13, 2007 to the 1995 Long-Term Incentive Compensation Plan, filed as Exhibit 10.40 to the 2007 Form 10-K. | |
10.21* | Amendment dated December 13, 2007 to the 1998 Long-Term Incentive Compensation Plan, filed as Exhibit 10.41 to the 2007 Form 10-K. | |
10.22* | Separation and Mutual Release Agreement dated January 7, 2008 between the Company and Carol M. Franklin, filed as Exhibit 10.1 to the Current Report on Form 8-K/A filed with the SEC on January 10, 2008. | |
10.23* | Severance Policy, filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on January 31, 2008. | |
10.24* | Employment Agreement, dated April 10, 2008 between the Company and Joseph A. Ferrara, filed as Exhibit 10.1 to the Current Report on Form 8-K/A filed with the SEC on April 16, 2008. | |
10.25* | Severance and Retention Agreement dated October 14, 2008 between the Company and Kenneth J. Shebek, filed as Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on October 22, 2008. | |
10.26* | Severance Agreement dated October 14, 2008 between the Company and David L. Blakeney, filed as Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on October 22, 2008. | |
10.27* | Severance Agreement dated October 14, 2008 between the Company and Gary W. Bogatay, Jr., filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on October 22, 2008. | |
10.28* | Agreement dated November 21, 2008 between the Company and Samuel C. Knoch, filed as Exhibit 10.1 to the Current Report on Form 8-K/A filed with the SEC on November 26, 2008. | |
10.29* | Agreement dated November 28, 2008 between the Company and Matthew J. Rosgone, filed as Exhibit 10.1 to the Current Report on Form 8-K/A filed with the SEC on December 3, 2008. | |
10.30* | Summary of Compensatory Arrangement with Robert H. King, as described in the Current Report on Form 8-K filed with the SEC on February 20, 2009. |
* | Management contract or compensatory plan, contract or arrangement required to be filed by Item 601(b)(10)(iii) of Regulation S-K. |
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™Cheetah is a trademark of Tollgrade Communications, Inc.
™CheetahLight is a trademark of Tollgrade Communications, Inc.
™CheetahNet is a trademark of Tollgrade Communications, Inc.
™CheetahXD is a trademark of Tollgrade Communications, Inc.
™HUB is a trademark of Tollgrade Communications, Inc.
™ICE is a trademark of Tollgrade Communications, Inc.
™LightHouse is a trademark of Tollgrade Communications, Inc.
™N(x)Test is a trademark of Tollgrade Communications, Inc.
™N(x)DSL is a trademark of Tollgrade Communications, Inc.
™N(x)DSL-3 a trademark of Tollgrade Communications, Inc.
™LTSC is a trademark of Tollgrade Communications, Inc.
®Tollgrade is a registered trademark of Tollgrade Communications, Inc.
®DigiTest is a registered trademark of Tollgrade Communications, Inc.
®EDGE is a registered trademark of Tollgrade Communications, Inc.
®MCU is a registered trademark of Tollgrade Communications, Inc.
®4TEL is a registered trademark of Tollgrade Communications, Inc.
®Celerity is a registered trademark of Tollgrade Communications, Inc.
®DOCSIS is a registered trademark of Cable Television Laboratories, Inc.
All other trademarks are the property of their respective owners.
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TOLLGRADE COMMUNICATIONS, INC. | ||||
By | /s/Joseph A. Ferrara | |||
Joseph A. Ferrara | ||||
Chief Executive Officer and President | ||||
Signature | Title | |
/s/ Joseph A. Ferrara | Chief Executive Officer, President and Director (Principal Executive Officer) | |
/s/ James J. Barnes | Director | |
/s/ Daniel P. Barry | Director | |
/s/ David S. Egan | Director | |
/s/ Richard H. Heibel, M.D. | Director | |
/s/ Robert W. Kampmeinert | Director | |
/s/Brian C. Mullins | Director | |
/s/ Gary W. Bogatay, Jr. | Chief Financial Officer and Treasurer (Principal Financial Officer) | |
/s/ R. Joseph Fink | Controller (Principal Accounting Officer) |
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(Pursuant to Item 601 of Regulation S-K)
Exhibit | ||
Number | Description | |
3.1 | Amended and Restated Articles of Incorporation of the Company (the “Articles”) as amended through May 6, 1998 (conformed copy), incorporated herein by reference to Exhibit 3.1 to the Annual Report of Tollgrade Communications, Inc. (the “Company”) on Form 10-K, filed with the Securities and Exchange Commission (the “SEC”) on March 24, 1999 (the “1998 Form 10-K”). | |
3.1a | Statement with Respect to Shares dated July 23, 1996 (conformed copy), incorporated herein by reference to Exhibit 3.1a to the 1998 Form 10-K. | |
3.1b | Amendment to Articles incorporated herein by reference, filed on the Company’s Current Report on Form 8-K filed with the SEC on May 21, 2007. | |
3.2 | Amended and Restated Bylaws of the Company filed as Exhibit 3.2 to the Company’s Current Report on Form 8- K filed with the SEC on May 21, 2007. | |
10.1 | 1995 Long-Term Incentive Compensation Plan, amended and restated as of January 24, 2002, incorporated herein by reference to Exhibit B to the 2002 Proxy Statement of the Company, filed with the SEC on March 22, 2002. | |
10.2 | Form of Stock Option Agreement dated December 14, 1995 and December 29, 1995 for Non-Statutory Stock Options granted under the 1995 Long-Term Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.15 to the Company’s Form 10-K, filed with the SEC on March 19, 1997 (the “1996 Form 10-K”). | |
10.3 | Form of Stock Option Agreement for Non-Statutory Stock Options granted under the 1995 Long-Term Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.2 to the Company’s Form 10-Q, filed with the SEC on November 12, 1996. | |
10.4 | Form of Non-employee Director Stock Option Agreement with respect to the Company’s 1995 Long-Term Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.25 to the Company’s Form 10-K filed with the SEC on March 25, 1998 (the “1997 Form 10-K”). | |
10.5 | Form of Change in Control Agreement, together with a schedule listing the name of each Executive with whom the Company has entered into an agreement in substantially identical form and in each case the date of such agreement, filed herewith. | |
10.6 | 1998 Employee Incentive Compensation Plan, amended and restated as of January 24, 2002, incorporated herein by reference to Exhibit 10.25 to the Company’s Form 10-K, filed with the SEC on March 22, 2002 (the “2001 Form 10-K”). | |
10.7 | Asset Purchase Agreement by and between Lucent Technologies, Inc. and Tollgrade Communications, Inc. dated September 28, 2001, incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on October 15, 2001. | |
10.8 | Purchase and Sale Agreement, entered into February 13, 2003, between the Company and Acterna, LLC, incorporated herein by reference to Exhibit 2.1 to the Company’s Current Report on Form 8-K filed with the SEC on February 27, 2003. | |
10.9 | Lease and License for Alterations dated October 18, 2007 among Tollgrade UK Limited, Tollgrade Communications, Inc., Bedell Corporate Trustees Limited and Atrium Trustees (as Trustees of the Park One Unit Trust), filed as Exhibit 10.2 to the Company’s Form 10-Q filed with the SEC on November 8, 2007. | |
10.10 | Agreement dated November 27, 2006 by and between Knightsbridge Realty L.L.C. and Tollgrade Communications, Inc., filed as Exhibit 10.1 to the Company’s Current Report of Form 8-K filed with the SEC on November 30, 2006. | |
10.11 | Lease Agreement, dated as of August 31, 2005, between Regional Industrial Development Corporation of Southwestern Pennsylvania and the Company, incorporated herein by reference to Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on September 7, 2005. | |
10.12 | Asset Purchase Agreement dated February 7, 2006 by and among Emerson Electric Co., Emerson Network Power, Energy Systems, North America, Inc. and Tollgrade Communications, Inc., filed as Exhibit 10.25 to the 2006 Form 10-K. | |
10.13 | Management Incentive Compensation Plan, as amended, filed as Exhibit 10.1 to the Company’s Form 10-Q filed with the SEC on April 27, 2007. | |
10.14 | Tollgrade Communications, Inc. 2006 Long-Term Incentive Compensation Plan filed as Exhibit 10.1 to the Company’s Current Report on Form 8-K filed with the SEC on May 11, 2006. |
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Exhibit | ||
Number | Description | |
10.15 | Form of Stock Option Agreement for Non-Statutory Stock Options granted under the 2006 Long-Term Incentive Compensation Plan, filed as Exhibit 10.1 to the Company’s Form 10-Q filed with the SEC on October 27, 2006. | |
10. 16 | Asset Purchase Agreement dated May 31, 2007 between Tollgrade Communications, Inc. and Teradyne, Inc., filed as Exhibit 10.1 to the Company’s Form 10-Q filed with the SEC on July 27, 2007. | |
10.17 | Form of Employee Restricted Share Agreement for restricted share grants pursuant to the 2006 Long-Term Incentive Compensation Plan, filed as Exhibit 10.37 to the Company’s Form 10-K filed with the SEC on March 17, 2008 (the “2007 Form 10-K”). | |
10.18 | Form of Director Restricted Share Agreement for restricted share grants pursuant to the 2006 Long-Term Incentive Compensation Plan, filed as Exhibit 10.38 to the 2007 Form 10-K. | |
10.19 | Amendment dated December 13, 2007 to the Management Incentive Compensation Plan, filed as Exhibit 10.39 to the 2007 Form 10-K. | |
10.20 | Amendment dated December 13, 2007 to the 1995 Long-Term Incentive Compensation Plan, filed as Exhibit 10.40 to the 2007 Form 10-K. | |
10.21 | Amendment dated December 13, 2007 to the 1998 Long-Term Incentive Compensation Plan, filed as Exhibit 10.41 to the 2007 Form 10-K. | |
10.22 | Separation and Mutual Release Agreement dated January 7, 2008 between the Company and Carol M. Franklin, filed as Exhibit 10.1 to the Current Report on Form 8-K/A filed with the SEC on January 10, 2008. | |
10.23 | Severance Policy, filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on January 31, 2008. | |
10.24 | Employment Agreement, dated April 10, 2008 between the Company and Joseph A. Ferrara, filed as Exhibit 10.1 to the Current Report on Form 8-K/A filed with the SEC on April 16, 2008. | |
10.25 | Severance and Retention Agreement dated October 14, 2008 between the Company and Kenneth J. Shebek, filed as Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on October 22, 2008. | |
10.26 | Severance Agreement dated October 14, 2008 between the Company and David L. Blakeney, filed as Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on October 22, 2008. | |
10.27 | Severance Agreement dated October 14, 2008 between the Company and Gary W. Bogatay, Jr., filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on October 22, 2008. | |
10.28 | Agreement dated November 21, 2008 between the Company and Samuel C. Knoch, filed as Exhibit 10.1 to the Current Report on Form 8-K/A filed with the SEC on November 26, 2008. | |
10.29 | Agreement dated November 28, 2008 between the Company and Matthew J. Rosgone, filed as Exhibit 10.1 to the Current Report on Form 8-K/A filed with the SEC on December 3, 2008. | |
10.30 | Summary of Compensatory Arrangement with Robert H. King, as described in the Current Report on Form 8-K filed with the SEC on February 20, 2009. | |
21.1 | List of subsidiaries of the Company, filed as Exhibit 21.1 to the 2007 Form 10-K. | |
23.1 | Consent of PricewaterhouseCoopers LLP, filed herewith. | |
31.1 | Certification of Chief Executive Officer, filed herewith. | |
31.2 | Certification of Chief Financial Officer, filed herewith. | |
32 | Certification of Chief Executive Officer and Chief Financial Officer pursuant to 18 U.S.C. Section 350, filed herewith. |
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Pittsburgh, Pennsylvania
March 13, 2009
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1. | I have reviewed this Report on Form 10-K of Tollgrade Communications, Inc. | ||
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 controls 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 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 registrant’s board of directors (or persons performing the equivalent function): |
(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. |
/s/ JOSEPH A. FERRARA | ||||
Name: | Joseph A. Ferrara | |||
Title: | Chief Executive Officer and President |
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1. | I have reviewed this Report on Form 10-K of Tollgrade Communications, Inc. | ||
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 controls 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 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 registrant’s board of directors (or persons performing the equivalent function): |
(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. |
/s/ GARY W. BOGATAY, JR. | ||||
Name: | Gary W. Bogatay, Jr. | |||
Title: | Chief Financial Officer and Treasurer |
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/s/ JOSEPH A. FERRARA | ||||
Name: | Joseph A. Ferrara | |||
Title: | Chief Executive Officer and President | |||
/s/ GARY W. BOGATAY, JR. | ||||
Name: | Gary W. Bogatay, Jr. | |||
Title: | Chief Financial Officer and Treasurer |
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Jersey City, NJ 07310-1900
1 800 756 3353
TDD for hearing impaired: 1 800 231 5469
Foreign shareholders: +1 201 680 6578
TDD for foreign shareholders: +1 201 680 6610
www.bnymellon.com/shareowner/isd
Tollgrade Communications, Inc.
493 Nixon Road
Cheswick, PA 15024
1 800 878 3399 / www.tollgrade.com
493 Nixon Road
Cheswick, PA 15024
1 800 878 3399 / www.tollgrade.com
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annual
report