Attached files
file | filename |
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EX-32 - EX-32 - TOLLGRADE COMMUNICATIONS INC \PA\ | l40323exv32.htm |
EX-31.2 - EX-31.2 - TOLLGRADE COMMUNICATIONS INC \PA\ | l40323exv31w2.htm |
EX-10.2 - EX-10.2 - TOLLGRADE COMMUNICATIONS INC \PA\ | l40323exv10w2.htm |
EX-31.1 - EX-31.1 - TOLLGRADE COMMUNICATIONS INC \PA\ | l40323exv31w1.htm |
Table of Contents
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 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 June 30, 2010
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: 000-27312
TOLLGRADE COMMUNICATIONS, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania | 25-1537134 | |
(State or other jurisdiction | (I.R.S. Employer | |
of incorporation or organization) | Identification No.) |
493 Nixon Rd.
Cheswick, PA 15024
(Address of principal executive offices, including zip code)
Cheswick, PA 15024
(Address of principal executive offices, including zip code)
412-820-1400
(Registrants telephone number, including area code)
(Registrants telephone number, including area code)
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.
Yes þ No o
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 (§ 229.405) during the preceding 12 months (or for such
shorter period that the registrant was required to submit and post such files).
Yes o No o
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 the definitions of large accelerated
filer, accelerated filer and smaller reporting company in Rule 12b-2 of the Exchange Act):
Large accelerated filer o | Accelerated filer þ | Non-accelerated filer o | Smaller reporting company o | |||
(Do not check if a smaller reporting company) |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the
Exchange Act).
Yes o No þ
As of
August 2, 2010, there were 12,708,982 shares of the Registrants Common Stock, $0.20 par value
per share, outstanding.
TOLLGRADE COMMUNICATIONS, INC.
Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2010
Table of Contents
For the Quarter Ended June 30, 2010
Table of Contents
2
Table of Contents
PART I. FINANCIAL INFORMATION
Item 1. CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(In thousands, except par value) (Unaudited)
(In thousands, except par value) (Unaudited)
June 30, 2010 | December 31, 2009 | |||||||
ASSETS |
||||||||
Current assets: |
||||||||
Cash and cash equivalents |
$ | 64,147 | $ | 66,046 | ||||
Short-term investments |
3 | 3 | ||||||
Trade accounts receivable, net of allowance for doubtful accounts of $1,403 and $1,496 in 2010 and 2009 |
10,860 | 6,998 | ||||||
Other receivables |
189 | 1,007 | ||||||
Inventories, net |
1,567 | 2,119 | ||||||
Prepaid expenses and deposits |
794 | 759 | ||||||
Deferred and refundable income taxes |
629 | 196 | ||||||
Total current assets |
78,189 | 77,128 | ||||||
Property and equipment, net |
2,574 | 3,101 | ||||||
Intangibles, net |
6,041 | 7,110 | ||||||
Deferred tax assets |
107 | 119 | ||||||
Other assets |
143 | 229 | ||||||
Total assets |
$ | 87,054 | $ | 87,687 | ||||
LIABILITIES AND SHAREHOLDERS EQUITY |
||||||||
Current liabilities: |
||||||||
Accounts payable |
$ | 1,506 | $ | 927 | ||||
Accrued warranty |
565 | 504 | ||||||
Accrued expenses |
1,519 | 2,456 | ||||||
Accrued salaries and wages |
839 | 1,190 | ||||||
Income taxes payable |
251 | 393 | ||||||
Deferred revenue |
2,907 | 2,463 | ||||||
Total current liabilities |
7,587 | 7,933 | ||||||
Pension Obligation |
897 | 983 | ||||||
Other tax liabilities |
724 | 738 | ||||||
Deferred tax liabilities |
251 | 290 | ||||||
Total liabilities |
9,459 | 9,944 | ||||||
Commitments and contingencies |
| | ||||||
Shareholders equity: |
||||||||
Common
stock, $0.20 par value; 50,000 authorized shares, issued shares, 13,871 in 2010 and 13,788 in 2009 |
2,774 | 2,746 | ||||||
Additional paid-in capital |
75,756 | 75,244 | ||||||
Treasury stock, at cost, 1,162 shares in 2010 and 1,151 in 2009 |
(8,632 | ) | (8,563 | ) | ||||
Retained earnings |
9,107 | 9,543 | ||||||
Accumulated other comprehensive loss |
(1,410 | ) | (1,227 | ) | ||||
Total shareholders equity |
77,595 | 77,743 | ||||||
Total liabilities and shareholders equity |
$ | 87,054 | $ | 87,687 | ||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial statements.
3
Table of Contents
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except per share data) (Unaudited)
(In thousands, except per share data) (Unaudited)
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, | June 27, | June 30, | June 27, | |||||||||||||
2010 | 2009 | 2010 | 2009 | |||||||||||||
Revenue: |
||||||||||||||||
Products |
$ | 4,936 | $ | 4,141 | $ | 9,158 | $ | 9,970 | ||||||||
Services |
6,564 | 6,502 | 13,509 | 10,990 | ||||||||||||
Total Revenue |
11,500 | 10,643 | 22,667 | 20,960 | ||||||||||||
Cost of sales: |
||||||||||||||||
Products |
2,273 | 2,769 | 4,087 | 5,554 | ||||||||||||
Services |
1,863 | 1,935 | 3,856 | 3,359 | ||||||||||||
Amortization |
389 | 649 | 789 | 1,290 | ||||||||||||
Severance |
(51 | ) | 93 | 417 | 276 | |||||||||||
Total cost of sales |
4,474 | 5,446 | 9,149 | 10,479 | ||||||||||||
Gross profit |
7,026 | 5,197 | 13,518 | 10,481 | ||||||||||||
Operating expenses: |
||||||||||||||||
Selling and marketing |
1,273 | 1,628 | 3,336 | 3,283 | ||||||||||||
General and administrative |
1,954 | 2,839 | 4,172 | 5,414 | ||||||||||||
Research and development |
1,680 | 2,405 | 4,040 | 4,441 | ||||||||||||
Severance |
627 | 3 | 1,885 | 66 | ||||||||||||
Total operating expenses |
5,534 | 6,875 | 13,433 | 13,204 | ||||||||||||
Income/(Loss) from operations |
1,492 | (1,678 | ) | 85 | (2,723 | ) | ||||||||||
Other (expense)/ income |
(315 | ) | 391 | (724 | ) | 509 | ||||||||||
Income(Loss) before income taxes |
1,177 | (1,287 | ) | (639 | ) | (2,214 | ) | |||||||||
(Benefit) provision for income taxes |
(50 | ) | 198 | (203 | ) | 295 | ||||||||||
Income(Loss) from continuing operations |
1,227 | (1,485 | ) | (436 | ) | (2,509 | ) | |||||||||
Loss from discontinued operations |
0 | (24 | ) | | (223 | ) | ||||||||||
Net Income(Loss) |
$ | 1,227 | ($ | 1,509 | ) | ($ | 436 | ) | ($ | 2,732 | ) | |||||
Per share information: |
||||||||||||||||
Weighted average shares of common stock and equivalents: |
||||||||||||||||
Basic |
12,649 | 12,681 | 12,652 | 12,680 | ||||||||||||
Diluted |
12,815 | 12,681 | 12,652 | 12,680 | ||||||||||||
Net Income(loss) per common and common equivalent shares: |
||||||||||||||||
Basic |
$ | 0.10 | ($ | 0.12 | ) | ($ | 0.03 | ) | ($ | 0.22 | ) | |||||
Diluted |
$ | 0.10 | ($ | 0.12 | ) | ($ | 0.03 | ) | ($ | 0.22 | ) | |||||
Income(Loss)
per common and common equivalent shares from continuing operations: |
||||||||||||||||
Basic |
$ | 0.10 | ($ | 0.12 | ) | ($ | 0.03 | ) | ($ | 0.20 | ) | |||||
Diluted |
$ | 0.10 | ($ | 0.12 | ) | ($ | 0.03 | ) | ($ | 0.20 | ) | |||||
Income(loss)
per common and common equivalent shares from discontinued operations: |
||||||||||||||||
Basic |
$ | 0.00 | $ | 0.00 | $ | 0.00 | ($ | 0.02 | ) | |||||||
Diluted |
$ | 0.00 | $ | 0.00 | $ | 0.00 | ($ | 0.02 | ) |
The accompanying notes are an integral part of the unaudited condensed consolidated financial
statements.
4
Table of Contents
TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
(In thousands) (Unaudited)
June 30, 2010 | June 27, 2009 | |||||||
Cash flows from operating activities : |
||||||||
Net loss |
($ | 436 | ) | ($ | 2,732 | ) | ||
Adjustments to reconcile net loss to net cash provided by operating activities |
||||||||
Loss from discontinued operations |
| 223 | ||||||
Amortization expense |
789 | 1,290 | ||||||
Depreciation expense |
610 | 560 | ||||||
Stock-based compensation expense |
519 | 545 | ||||||
Deferred income taxes |
(683 | ) | 180 | |||||
Provision for losses on inventory |
(279 | ) | 226 | |||||
Provision for allowance for doubtful accounts |
(92 | ) | 66 | |||||
Changes in assets and liabilities: |
||||||||
Accounts receivable-trade |
(4,075 | ) | (1,049 | ) | ||||
Other receivable |
882 | 307 | ||||||
Inventories |
831 | 1,197 | ||||||
Prepaid expenses, deposits and other assets |
37 | 388 | ||||||
Accounts payable |
634 | 561 | ||||||
Accrued warranty |
101 | (274 | ) | |||||
Accrued expenses |
(177 | ) | (496 | ) | ||||
Accrued royalties payable |
68 | (230 | ) | |||||
Income taxes payable |
(549 | ) | (19 | ) | ||||
Net cash provided by operating activities of discontinued operations |
| 12 | ||||||
Net cash (used in)/provided by operating activities |
(1,820 | ) | 755 | |||||
Cash flows from investing activities: |
||||||||
Proceeds on sale of cable product line |
| 3,012 | ||||||
Proceeds from note receivable |
106 | 17 | ||||||
Redemption/maturity of short term investments |
| 2,220 | ||||||
Purchase of assets |
| (300 | ) | |||||
Purchase of property and equipment |
(165 | ) | (399 | ) | ||||
Net cash used in investing activities of discontinued operations |
| (57 | ) | |||||
Net cash (used in)/provided by investing activities |
(59 | ) | 4,493 | |||||
Cash flows from financing activities: |
||||||||
Exercise of common stock options |
44 | | ||||||
Repurchase of treasury stock |
(69 | ) | | |||||
Net cash used in financing activities |
(25 | ) | | |||||
Net increase in cash and cash equivalents |
(1,904 | ) | 5,248 | |||||
Effect of exchange rate changes on cash and cash equivalents |
5 | 494 | ||||||
Cash and cash equivalents, beginning of period |
66,046 | 57,976 | ||||||
Cash and cash equivalents, end of period |
$ | 64,147 | $ | 63,718 | ||||
Supplemental disclosure of cash flow information: |
||||||||
Cash paid during the period for income taxes |
892 | 285 | ||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial
statements.
5
Table of Contents
Tollgrade Communications, Inc. and Subsidiaries
Consolidated Statements of Changes in Shareholders Equity
In thousands (Unaudited)
In thousands (Unaudited)
Common Stock | Treasury Stock | |||||||||||||||||||||||||||||||
Accumulated | ||||||||||||||||||||||||||||||||
Additional | Other | |||||||||||||||||||||||||||||||
Paid-In | Retained | Comprehensive | ||||||||||||||||||||||||||||||
Shares | Amount | Capital | Shares | Amount | Earnings | Loss | Total | |||||||||||||||||||||||||
Balance at |
||||||||||||||||||||||||||||||||
December 31, 2009 |
13,788 | $ | 2,746 | $ | 75,244 | 1,151 | ($8,563 | ) | $ | 9,543 | ($1,227 | ) | $ | 77,743 | ||||||||||||||||||
Exercise of
common stock options |
13 | 2 | 42 | 44 | ||||||||||||||||||||||||||||
Purchase of
treasury stock |
11 | (69 | ) | (69 | ) | |||||||||||||||||||||||||||
Compensation
expense for options and restricted stock, net |
70 | 26 | 470 | 496 | ||||||||||||||||||||||||||||
Foreign
currency translation |
(183 | ) | (183 | ) | ||||||||||||||||||||||||||||
Net loss |
(436 | ) | (436 | ) | ||||||||||||||||||||||||||||
Balance at June 30, 2010 |
13,871 | $ | 2,774 | $ | 75,756 | 1,162 | ($8,632 | ) | $ | 9,107 | ($1,410 | ) | $ | 77,595 | ||||||||||||||||||
The accompanying notes are an integral part of the unaudited condensed consolidated financial
statements.
6
Table of Contents
NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
FINANCIAL STATEMENTS (Unaudited)
1. BASIS OF PRESENTATION
In 2010, Tollgrade Communications, Inc. (Tollgrade, the Company, we) will report our
quarterly results as of the end of each calendar quarter beginning with the quarter ended March 31,
2010. Prior to 2010, we reported our quarterly results based on fiscal quarters and, as such, our
prior year quarters ended on March 28, 2009, June 27, 2009, September 26, 2009 and December 31,
2009. For comparative purposes, for the second quarter and the first six months of 2009, we have
evaluated the three days business activity between June 27, 2009 and June 30, 2009 and found no
material differences in revenue, cost of sales, operating expenses, assets, liabilities and equity
that would cause us to restate our 2009 second quarter or six month financial results. We have
prepared the accompanying unaudited condensed consolidated financial statements included herein in
accordance with accounting principles generally accepted in the United States of America for
interim financial information and Article 10 of Regulation S-X. The unaudited condensed
consolidated financial statements as of and for the three month and six month periods ended June
30, 2010 should be read in conjunction with our consolidated financial statements (and notes
thereto) included in our Annual Report on Form 10-K for the year ended December 31, 2009.
Accordingly, the accompanying unaudited condensed consolidated financial statements do not include
all of the information and footnotes required by accounting principles generally accepted in the
United States of America for complete financial statements, although we believe that the
disclosures are adequate to make the information presented not misleading. In the opinion of our
management, all adjustments considered necessary for a fair statement of the accompanying unaudited
condensed consolidated financial statements were included, and all adjustments are of a normal and
recurring nature. Operating results for the quarter ended June 30, 2010 are not necessarily
indicative of the results that may be expected for the year ending December 31, 2010.
RECENTLY ISSUED ACCOUNTING GUIDANCE
In October 2009, the Financial Accounting Standards Board (FASB) issued revised accounting
guidance for multiple-deliverable arrangements. The amended guidance requires that arrangement
considerations be allocated at the inception of the arrangement to all deliverables using the
relative selling price method and provides for expanded disclosures related to such arrangements.
It is effective for revenue arrangements entered into or materially modified in fiscal years
beginning on or after June 15, 2010.
2. FAIR VALUE MEASUREMENTS
Fair value is defined as the price that would be received to sell an asset or paid to transfer a
liability in an orderly transaction between market participants at the measurement date. The fair
value hierarchy distinguishes between (1) market participant assumptions developed based on market
data obtained from independent sources (observable inputs) and (2) an entitys own assumptions
about market participant assumptions developed based on the best information available in the
circumstances (unobservable inputs). The fair value hierarchy consists of three broad levels, which
gives the highest priority to unadjusted quoted prices in active markets for identical assets or
liabilities (Level 1) and the lowest priority to unobservable inputs (Level 3). The three levels of
the fair value hierarchy are described below:
| 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; and | ||
| Level 3 Inputs that are both significant to the fair value measurement and unobservable. |
7
Table of Contents
The fair value of cash equivalents was $64.1 million and $66.0 million at June 30, 2010 and
December 31, 2009, respectively. These financial instruments are classified in Level 1 of the fair
value hierarchy.
3. STOCK-BASED COMPENSATION
We currently sponsor one active stock compensation plan. Our 2006 Long-Term Incentive Compensation
Plan (the 2006 Plan) was adopted by our Board of Directors in March 2006 and was approved by our
shareholders in May 2006. The 2006 Plan originally authorized up to 1,300,000 shares under the
Plan, and was amended during 2009 to increase the shares authorized for issuance under the 2006
Plan to 2,800,000 shares, provided however, that the maximum number of restricted shares of that
total shall be 300,000. This amendment was adopted by our Board of Directors in May 2009 and
approved by our shareholders in August 2009. Awards in the form of stock options, restricted
shares, stock appreciation rights, performance shares or performance units may be granted to
directors, officers and other employees under the 2006 Plan.
Options granted to employees under our equity compensation plans prior to 2007 generally vested
over a two-year period with one-third vesting upon grant. Beginning in 2007, options granted to
employees under the 2006 Plan generally vest over a three-year period, with one-third vesting at
the end of each year during such period. Options granted to non-employee directors are generally
fully vested on the date of the grant. Options granted under our equity compensation plans expire
ten years from the date of the grant. The grant price on any such shares or options is equal to the
fair market value of our shares at the date of the grant, as defined in the 2006 Plan. Restricted
shares and stock appreciation rights will vest in accordance with the terms of the applicable award
agreement and the 2006 Plan. The 2006 Plan requires that non-performance-based restricted stock
grants to employees vest in no less than three years, while performance-based restricted stock
grants may vest after one year. Grants of restricted stock to directors may vest after one year.
Under the terms of the 2006 Plan, during the restriction period, a holder of restricted shares has
the right to vote the shares, but is not permitted to trade them.
Stock-Based Compensation Expense
During the first quarter of 2010, in connection with his appointment as Chairman of the Board, the
Compensation Committee of the Board of Directors approved a grant of stock appreciation rights
(SARS) with respect to 250,000 shares of our common stock to Edward Kennedy. The SARS vest only
upon the satisfaction of certain conditions, none of which are considered probable at June 30,
2010; however, such conditions may be satisfied in the future. In addition, in connection with his
appointment as Chairman, Mr. Kennedy received a grant of 50,000 restricted shares. As Mr. Kennedy,
who has since been named our President and CEO, was a non-employee director at the time of the
grant, the terms of the restricted share award provide that the shares will vest, and the
restrictions on the shares will be lifted, one year from the date of grant, unless Mr. Kennedy is
removed from the Board for cause during that time.
A total of 50,000 restricted shares were also granted under the 2006 Plan during the first quarter
of 2010 to executive officers. Of these grants, 30,000 shares were issued to our former Chief
Executive Officer, and 20,000 shares were issued to our Chief Financial Officer. The terms of these
awards provide that they will vest, and the restrictions on the shares will be released, on the
third anniversary of the grant date, provided in each case that the employee is still in our employ
at such time. The 30,000 restricted shares granted to our former CEO were forfeited when he left
the Company in June 2010.
8
Table of Contents
During the second quarter of 2010, the Compensation Committee of the Board of Directors awarded
477,500 stock options to certain named executives and other key employees.
We recognized total stock-based compensation expense of less than $0.1 million and approximately
$0.5 million for the three and six month periods ended June 30, 2010, respectively. Total
stock-based compensation expense recognized from continuing operations for the three and six month
periods ended June 27, 2009 was $0.2 million and $0.5 million, respectively.
The unamortized stock-based compensation expense from operations related to stock options and
restricted stock totaled $2.2 million at June 30, 2010.
Transactions involving stock options under our current and prior plans and otherwise are summarized
below:
Number of | Range of Option | Weighted Average | ||||||||
Shares | Prices | Exercise Price | ||||||||
Outstanding, December 31, 2009 |
1,684,795 | $3.27 - $159.19 | $ | 27.29 | ||||||
Granted |
477,500 | $6.43 - $6.48 | $ | 6.48 | ||||||
Exercised |
(13,167 | ) | $3.40 | 3.40 | ||||||
Cancelled/Forfeited/Expired |
(539,173 | ) | $6.09 - $43.91 | 25.71 | ||||||
Outstanding, June 30, 2010 |
1,609,955 | $3.27 $159.19 | $ | 12.45 | ||||||
4. SEVERANCE
During the second quarter of 2010, we incurred a severance charge of $0.9 million related to the
departure of our former Chief Executive Officer. This severance charge was partially offset by the
reversal of $0.3 million of accruals related to the severance charges we recorded in the first
quarter of 2010.
During the first quarter of 2010, we accelerated our efforts to reduce our operating expenses in
order to help position us to achieve stronger profitability levels in the future. As such, we
eliminated 48 positions across all functional levels of the organization in an effort to reduce our
overall cost structure. The total severance charge associated with these actions was approximately
$1.7 million of which approximately $0.5 million was recorded as cost of sales expense and $1.2
million was recorded as an operating expense. The majority of the cash payments related to this
action were made during the second quarter of 2010, and we anticipate no further expenses related
to these actions.
During the second quarter of 2009, we decided to outsource almost all of our in-house manufacturing
to a third party vendor and, as such, we reduced our production staffing. The total severance
expense associated with this action was approximately $0.1 million. All cash payments related to
this action were paid in 2009 and no further expense is expected.
During the first quarter of 2009, we implemented a restructuring program pursuant to which we
realigned existing resources to new projects, reduced our field service and sales staffing and
completed other reduction activities. The severance costs associated with this program amounted to
approximately $0.3 million of which approximately $0.2 million was recorded in cost of sales and
approximately $0.1 million was recorded as operating expenses. All cash payments related to this
program were paid in 2009 and no further expense is expected.
9
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5. INTANGIBLE ASSETS
The following information is provided regarding our intangible assets (in thousands):
June 30, 2010 | ||||||||||||||||||||
Impairments | ||||||||||||||||||||
Accumulated | During the | |||||||||||||||||||
Useful Life | Amortization and | Reporting | ||||||||||||||||||
Amortizing Intangible Assets: | (Years) | Gross | Impairments | Period | Net | |||||||||||||||
Post warranty service agreements |
6-15 | $ | 37,300 | $ | 32,582 | $ | | $ | 4,718 | |||||||||||
Technology |
2-10 | 13,974 | 12,969 | | $ | 1,005 | ||||||||||||||
Customer relationships |
5-15 | 883 | 637 | | $ | 246 | ||||||||||||||
Tradenames and other |
1-10 | 571 | 499 | | $ | 72 | ||||||||||||||
Total Intangible Assets |
$ | 52,728 | $ | 46,687 | $ | 0 | $ | 6,041 | ||||||||||||
December 31, 2009 | ||||||||||||||||||||
Impairments | ||||||||||||||||||||
Accumulated | During the | |||||||||||||||||||
Useful Life | Amortization and | Reporting | ||||||||||||||||||
Amortizing Intangible Assets: | (Years) | Gross | Impairments | Period | Net | |||||||||||||||
Post warranty service agreements |
6-15 | $ | 37,779 | $ | 5,438 | $ | 26,960 | $ | 5,381 | |||||||||||
Technology |
2-10 | 14,000 | 12,488 | 191 | 1,321 | |||||||||||||||
Customer relationships |
5-15 | 927 | 613 | | 314 | |||||||||||||||
Tradenames and other |
1-10 | 537 | 443 | | 94 | |||||||||||||||
Total Intangible Assets |
$ | 53,243 | $ | 18,982 | $ | 27,151 | $ | 7,110 | ||||||||||||
Differences between reported amortization expense and the change in reported accumulated
amortization may
vary because of foreign currency translation differences between the balance sheet and income
statement.
Amortization expense is estimated to be $0.8 million, $1.2 million, $0.7 million, $0.5 million and
$0.5 million for the remainder of 2010, and each of the years 2011, 2012, 2013 and 2014,
respectively.
Impairments
Long-Lived Assets
We perform impairment reviews of our long-lived assets upon a change in business conditions or upon
the occurrence of a triggering event.
In mid-December 2009, we learned that a major customer of our LoopCare post-warranty software
maintenance services would not renew its direct contract with us for those services following the
contracts expiration date on December 31, 2009. As such, we incurred an impairment charge of
approximately $27.0 million related to this occurrence following our review of the carrying value
of this long-lived asset.
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6. INVENTORIES
Inventories consisted of the following (in thousands):
June 30, 2010 | December 31, 2009 | |||||||
Raw materials |
$ | 3,428 | $ | 3,584 | ||||
Work in process |
676 | 830 | ||||||
Finished goods |
1,925 | 2,352 | ||||||
Total Gross Inventory |
6,029 | 6,766 | ||||||
Reserves for slow moving and obsolete inventory |
(4,462 | ) | (4,647 | ) | ||||
Net Inventory |
$ | 1,567 | $ | 2,119 | ||||
7. PRODUCT WARRANTY
Activity in the warranty accrual is as follows (in thousands):
June 30, 2010 | December 31, 2009 | |||||||
Balance at the beginning of the period |
$ | 504 | $ | 926 | ||||
Accruals for warranties issued during the period |
234 | 894 | ||||||
Settlements during the period |
(173 | ) | (1,316 | ) | ||||
Balance at the end of the period |
$ | 565 | $ | 504 | ||||
8. PER SHARE INFORMATION
Basic loss per common share is computed by dividing net loss by the weighted-average number of
common shares outstanding during the reporting period. Diluted loss per common share is computed
by dividing net loss by the combination of dilutive common share equivalents, comprised of shares
issuable under our share-based compensation plans and the weighted-average number of common shares
outstanding during the reporting period. Dilutive common share equivalents include the dilutive
effect of in-the-money options, which is calculated, based on the average share price for each
period using the treasury stock method. Under the treasury stock method, the exercise price of a
share, the amount of compensation cost, if any, for future service that we have not yet recognized,
and the amount of estimated tax benefits that would be recorded in additional paid-in capital, if
any, when the share is exercised are assumed to be used to repurchase shares in the current period.
When we are in a loss position, we do not include any stock options outstanding with an exercise
price below the average market price, as their effect would be considered anti-dilutive. Since we
reported net income in the second quarter of 2010, our per share information for the three month
period ended June 30, 2010 includes the dilutive effect of 166,115 equivalent shares. The three
month period ended June 27, 2009, and the six month periods ended June 30, 2010 and June 27, 2009,
do not include the effect of dilutive securities because inclusion would be anti-dilutive to the
earnings per share calculation. As of June 30, 2010 and
June 27, 2009, 1,337,647 and 1,710,096
equivalent shares, respectively, were anti-dilutive.
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9. REVENUE CONCENTRATION, MAJOR CUSTOMERS
The following table represents our total sales by major product lines as well as the percentage of
total revenue represented by sales of each such major product line.
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, 2010 | June 30, 2009 | June 30, 2010 | June 30, 2009 | |||||||||||||||||||||||||||||
Test Products |
$ | 3,606 | 31 | % | $ | 3,359 | 32 | % | $ | 6,036 | 26 | % | $ | 6,914 | 33 | % | ||||||||||||||||
MCU |
1,330 | 12 | % | 782 | 7 | % | 3,122 | 14 | % | 3,056 | 15 | % | ||||||||||||||||||||
Services |
6,564 | 57 | % | 6,502 | 61 | % | 13,509 | 60 | % | 10,990 | 52 | % | ||||||||||||||||||||
Total |
$ | 11,500 | 100 | % | $ | 10,643 | 100 | % | $ | 22,667 | 100 | % | $ | 20,960 | 100 | % | ||||||||||||||||
As of June 30, 2010, we had approximately $3.8 million of accounts receivable with two
customers, each of which individually exceeded 10% of our June 30, 2010 receivable balances. As of
December 31, 2009, we had approximately $5.4 million of accounts receivable with three customers,
each of which individually exceeded 10% of our December 31, 2009 receivable balances.
The following table represents sales to our customers that individually exceeded 10% of our net
sales:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, 2010 | June 30, 2009 | June 30, 2010 | June 30, 2009 | |||||||||||||||||||||||||||||
Customer A |
$ | 2,317 | 20 | % | $ | 2,086 | 20 | % | $ | 5,147 | 23 | % | $ | 5,155 | 25 | % | ||||||||||||||||
Customer B |
1,806 | 16 | % | 1,558 | 15 | % | 3,558 | 16 | % | | | |||||||||||||||||||||
Customer C |
| | 1,330 | 13 | % | | | | | |||||||||||||||||||||||
Total |
$ | 4,123 | $ | 4,974 | $ | 8,705 | $ | 5,155 | ||||||||||||||||||||||||
Our sales are primarily in the following geographic areas: Domestic (United States); the
Americas (excluding the United States); Europe and Africa and Asia. The following table represents
sales to our customers based on these geographic locations:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, 2010 | June 27, 2009 | June 30, 2010 | June 27, 2009 | |||||||||||||||||||||||||||||
Region |
||||||||||||||||||||||||||||||||
Europe/Africa |
$ | 4,151 | 36 | % | $ | 2,494 | 23 | % | $ | 7,606 | 33 | % | $ | 4,563 | 22 | % | ||||||||||||||||
Americas |
412 | 4 | % | 938 | 9 | % | 647 | 3 | % | 1,704 | 8 | % | ||||||||||||||||||||
Asia |
347 | 3 | % | 332 | 3 | % | 359 | 2 | % | 499 | 2 | % | ||||||||||||||||||||
Total International |
4,910 | 43 | % | 3,764 | 35 | % | 8,612 | 38 | % | 6,766 | 32 | % | ||||||||||||||||||||
Total Domestic |
6,590 | 57 | % | 6,879 | 65 | % | 14,055 | 62 | % | 14,194 | 68 | % | ||||||||||||||||||||
Total Revenue |
$ | 11,500 | 100 | % | $ | 10,643 | 100 | % | $ | 22,667 | 100 | % | $ | 20,960 | 100 | % | ||||||||||||||||
10. COMPREHENSIVE INCOME
Three Months Ended | Six Months Ended | |||||||||||||||
June 30, 2010 | June 27, 2009 | June 30, 2010 | June 27, 2009 | |||||||||||||
Net Income/(Loss) |
$ | 1,227 | ($ | 1,509 | ) | ($ | 436 | ) | ($ | 2,732 | ) | |||||
Foreign currency translation |
(52 | ) | 937 | (183 | ) | 620 | ||||||||||
Comprehensive Income/(Loss) |
$ | 1,175 | ($ | 572 | ) | ($ | 619 | ) | ($ | 2,112 | ) | |||||
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Item 2.
MANAGEMENTS DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
The following discussion should be read in conjunction with the Unaudited Condensed Consolidated
Financial Statements and Notes thereto appearing elsewhere in this report. Additionally, when used
in this form 10-Q unless the context requires otherwise, the terms we, our, and us refer to
Tollgrade Communications, Inc.
CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
Managements Discussion and Analysis of Results of Financial Condition and Results of Operations
(this MD&A) should be read in conjunction with our annual report on Form 10-K for the year ended
December 31, 2009 (the Form 10-K).
Certain statements contained in this MD&A and elsewhere in this report are forward-looking
statements within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section
21E of the Securities Exchange Act of 1934, as amended, which involve risks and uncertainties.
These statements relate to future events or our future financial performance. In some cases,
forward-looking statements can be identified by terminology such as believe, expect, intend,
may, will, should, could, potential, continue, estimate, plan, or anticipate, or
the negatives thereof, other variations thereon or compatible terminology. These statements involve
a number of risks and uncertainties. Actual events or results may differ materially from any
forward-looking statement as a result of various factors, including those described in Part II,
Item 1A below under Risk Factors.
Cable Product Line
On May 27, 2009 we completed the sale of our cable product line for consideration of approximately
$3.4 million, subject to adjustment for certain items pursuant to the terms of the sale agreement.
The cable product line no longer supported our refocused growth strategy and the divestiture allows
us to continue to focus on our core telecommunications markets and customers. Unless otherwise
indicated, references to revenues and earnings throughout this MD&A refer to revenues and
earnings from continuing operations and do not include revenue and earnings from the discontinued
cable product line. Similarly, discussion of other matters in our Condensed Consolidated Financial
Statements refers to continuing operations unless otherwise indicated. The results from the
divested product line are reported in discontinued operations.
Overview
Tollgrade Communications, Inc. is a leading provider of centralized test and measurement systems
and service offerings to the telecommunications market. Our products enable our customers to
remotely diagnose and proactively address problems in their networks. Our services and managed
services offerings complement our product solutions as well as provide customer support and
engineering services. In addition, we are also utilizing our core expertise in service assurance
to develop our LightHouse product line for the electric utility market as this product line is
designed to provide power grid monitoring capabilities.
For the second quarter ended June 30, 2010, we reported our first quarterly net income since the
third quarter of 2008. We believe our profitability was primarily driven by our revenue
performance during the second quarter of 2010, coupled with reduced costs resulting from our recent
efforts to realign our business.
Specifically, we reported revenue of $11.5 million during the second quarter of 2010, which
represented an 8% increase over revenues posted during the second quarter of 2009, and a nearly 3%
increase over revenues achieved during the first quarter of this year. We see these revenue gains
as a positive sign that our business
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conditions are improving. In addition, during the second quarter of 2010, we began to realize the
benefits of our recent efforts to realign our business. We took decisive action during the first
quarter of 2010 to accelerate the reduction of our operating costs, primarily through a reduction
in our workforce. This workforce reduction was fully completed by the end of the second quarter
2010, and together with some employee attrition, should result in annualized savings in excess of $6.2 million.
The savings achieved from this accelerated cost reduction effort, combined with the cost savings
achieved as a result of reductions made during the fourth quarter of 2009 and our outsourcing of
almost all of our in-house manufacturing during the first half of 2009, have had a positive impact
on our gross margins and lowered our overall operating costs. We believe that these actions have
positioned the Company to sustain profitability in the future while strengthening our competitive
position in the marketplace.
As part of the comprehensive review process that we undertook during the first quarter of 2010, we
consolidated and focused activities in a number of areas as follows:
| We reviewed our organic growth initiatives and as a result have reduced a number of our internal initiatives, while sharpening our focus on near-term opportunities with the best prospects for revenue and profitability. We reduced capital investment in areas involving higher risk prior to any realized returns. As a result, early in the second quarter of 2010, we discontinued two yet to be announced projects, one of which was still in its early research stage and the other of which was in the initial stages of development. | ||
| We will continue to fully support our broad product portfolio, including hardware, software and services offerings targeted at the telecommunications market, while ensuring that our existing and new customers receive the highest level of service. We will also continue to support growth initiatives in our telecommunications product lines, including customer-driven expansion of our hardware and software offerings. | ||
| We will continue to support our LightHouse power utility product offering. We completed an expanded trial of this product with a major U.S. power utility customer in late June 2010 and expect to receive the customers decision regarding deployment or further trial expansion during the third quarter 2010. We also have a trial underway for this product offering with a large Canadian utility customer. | ||
| We will continue to pursue opportunities to expand our professional services and managed service offerings. We have taken steps to forge or strengthen relationships with global network equipment manufacturers, as well as direct relationships with service providers, to offer new service capabilities. Our goal is to increase our penetration in the services market and in our telecommunications accounts. | ||
| We anticipate that the reduction in our workforce along with the attrition of an additional seven employees over the first half of 2010 should generate annualized savings in excess of $6.2 million in salary and benefits costs. |
We believe that these actions will better align our resources and reduce our overall cost structure
so that we can become more competitive in the marketplace as we look to secure future revenue
opportunities and position ourselves to provide a greater return to our shareholders.
Products
In September 2009, we introduced our new test management OSS, Stratum. Stratums initial features
are based on both existing customer requests for enhanced features and our view of the trends in
the marketplace. Now that the base development for Stratum is complete, development going forward
will be driven through customer-led initiatives and projects.
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In October 2009, we signed an agreement with Accanto Systems, SRL to provide mobile and VoIP
protocol analyzers under the Tollgrade brand name. The agreement enables us to sell the Accanto
protocol analyzer probes and OSS platforms with exclusivity in the United States, Canada, and the
Caribbean. The protocol probes monitor signaling protocols and network traffic, allowing rapid
resolution of difficult network and equipment problems. In the second quarter of 2010, we secured
orders for individual analyzer sales to multiple customers, and we signed a multi-year service
agreement with a Tier 1 telecommunications provider in the U.S. to provide professional services on
a previously deployed system.
Electric Utility Monitoring Products
We have conducted trials with a number of utility provider customers and other technology providers
throughout 2009 and continuing throughout the second quarter of 2010. In particular, we have
conducted extensive trials with one major utility company and during the second quarter 2010, we
expanded this trial, including customer-specific product features and capabilities. We are working
with the customer to review and analyze the trial data in support of building the case for a full
scale deployment. Our goal is to convert the pilot program into a full-scale deployment. This
expanded trial was completed at the end of June 2010 and we expect to receive the customers
decision during the third quarter 2010 with respect to system deployment or an expanded trial. We
are also actively pursuing additional customer trials.
The market for power grid monitoring has been slower to evolve than we originally projected and to
date, our efforts in the monitoring segment of the market have not produced the results we
anticipated. However, we continue to believe the power utility market offers potential for
long-term growth.
Services and Managed Services
Historically, our services business was comprised of the more traditional POTS-based testability
services, and the revenue stream was largely project-based and as such, difficult to predict.
During the last few years, our services business has shifted toward more contract-based software
maintenance services, the revenue from which is more predictable. We expect our services business
to continue to comprise a large percentage of our revenue in the future.
The managed services market is an area of potential growth for us. We are focused on expanding our
managed services business with both our telecommunications customers as well as larger network
equipment and managed service providers.
Our Customers
Our customers include the top telecom providers and numerous independent telecom and broadband
providers around the world. Our primary customers for our telecommunications products and services
are large domestic and European telecommunications service providers. We track our
telecommunication sales by two large customer groups, the first of which includes AT&T, Verizon and
Qwest (collectively referred to herein as large domestic carriers), and the second of which
includes certain large international telephone service providers in Europe, namely British Telecom,
Royal KPN N.V., Belgacom S.A., Deutsche Telecom AG (T-Com) and Telefónica O2 Czech Republic, a.s.
(collectively referred to herein as the European Telcos). For the three and six months ended
2010, sales to the large domestic customers and European Telcos are as follows:
Three Months Ended | Six Months Ended | |||||||||||||||||||||||||||||||
June 30, 2010 |
June 27, 2009 |
June 30, 2010 |
June 27, 2009 |
|||||||||||||||||||||||||||||
Large Domestic Carriers |
$ | 4,327 | 38 | % | $ | 3,948 | 37 | % | $ | 8,862 | 39 | % | $ | 9,293 | 44 | % | ||||||||||||||||
European Telcos |
$ | 2,294 | 20 | % | $ | 2,201 | 21 | % | $ | 4,264 | 19 | % | $ | 4,784 | 23 | % |
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Backlog
Our order backlog for firm customer purchase orders, software maintenance contracts and managed
services contracts was $14.3 million as of June 30, 2010 compared to a backlog of $15.6 million as
of December 31, 2009. The backlog at June 30, 2010 and December 31, 2009 included approximately
$7.2 million and $8.4 million, respectively, related to software maintenance contracts, which is
primarily earned and recognized as income on a straight-line basis during the remaining terms of
these agreements. During the remainder of 2010, we expect to recognize $8.2 million of the June
30, 2010 backlog.
RESULTS OF OPERATIONS
THREE MONTHS ENDED JUNE 30, 2010 COMPARED TO THREE MONTHS ENDED JUNE 27, 2009
Revenue
June 30, 2010 | June 27, 2009 | Change | % | |||||||||||||
System Test Products |
$ | 3,606 | $ | 3,359 | $ | 247 | 7 | % | ||||||||
MCU |
1,330 | 782 | 548 | 70 | % | |||||||||||
Total Products |
4,936 | 4,141 | 795 | 19 | % | |||||||||||
Services |
6,564 | 6,502 | 62 | 1 | % | |||||||||||
Total Revenues |
$ | 11,500 | $ | 10,643 | $ | 857 | 8 | % |
Our total revenues for the second quarter of 2010 were $11.5 million compared to total
revenues of approximately $10.6 million for the second quarter of 2009.
Our product revenue consists primarily of sales of our system test products as well as sales of our
traditional MCU product line. Product revenue was approximately $4.9 million or 43% of our total
second quarter revenue compared to $4.1 million or 39% of our total second quarter revenue for
2009. Overall, our second quarter 2010 product revenue increased by approximately $0.8 million or
19% compared to the same period in the prior year. The increase in our total product sales is
primarily attributable to an additional $0.5 million of MCU product sales to certain large domestic
carriers as well as an increase in our system test products, primarily our LoopCare product line of
approximately $0.3 million. Although we expect continued MCU sales in the foreseeable future,
this is a mature product line with sales that fluctuate based on an unpredictable demand over time.
Our services revenue consists of software maintenance, managed services agreements, installation
oversight and product management services. Services revenue was approximately $6.6 million or 57%
of total second quarter of 2010 revenue compared to $6.5 million
or 61% of the total second quarter
revenue for 2009. Overall, our second quarter 2010 services revenue was almost equal to the same
period in the prior year.
Gross Profit
Our gross profit for the second quarter of 2010 was $7.0 million compared to $5.2 million in the
second quarter of 2009, an increase of $1.8 million or 35%. As a percentage of sales, our gross
profit margin for the second quarter of 2010 was 61% versus 49% for the second quarter of 2009.
The increase in our gross profit and gross profit margin is primarily attributable to our cost
reduction efforts that began in 2009 and continued into 2010,
to reduce our overall costs through workforce reductions and outsourcing almost 100% of our
in-house manufacturing, as well as lower amortization expenses.
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Selling and Marketing Expenses
June 30, 2010 | June 27, 2009 | Change | % | |||||||||||||
Employee Costs |
$ | 956 | $ | 1,165 | ($ | 209 | ) | -18 | % | |||||||
Travel Expenses |
92 | 199 | (107 | ) | -54 | % | ||||||||||
Consulting Expenses |
90 | 92 | (2 | ) | -2 | % | ||||||||||
Other Expenses |
135 | 172 | (37 | ) | -22 | % | ||||||||||
Total |
$ | 1,273 | $ | 1,628 | ($ | 355 | ) | -22 | % |
Our total selling and marketing expenses were approximately $1.3 million in the second quarter
of 2010 compared to approximately $1.6 million in the second
quarter of 2009, a decrease of approximately $0.3
million, or 22%. Our selling and marketing expenses consist primarily of employee costs, which
include salaries and related payroll taxes, benefits, and commission expenses as well as related
travel expenses and certain consulting expenses and other miscellaneous expenses. This decrease is
primarily attributable to savings in salaries and payroll taxes, benefits and related travel
expense as a result of our recent workforce reduction. Our selling and marketing consulting costs
have remained almost equal quarter over quarter while various other expense items resulted in a
slight decrease quarter over quarter, none of which are individually material. As a percentage of
revenue, selling and marketing expenses decreased to 11% in the second quarter of 2010 as compared
to 15% in the second quarter of 2009.
General and Administrative Expenses
June 30, 2010 | June 27, 2009 | Change | % | |||||||||||||
Employee Costs |
$ | 817 | $ | 1,047 | ($ | 230 | ) | -22 | % | |||||||
Legal & Professional Fees |
621 | 1,287 | (666 | ) | -52 | % | ||||||||||
General Insurance Expense |
92 | 171 | (79 | ) | -46 | % | ||||||||||
Other Expense |
424 | 334 | 90 | 27 | % | |||||||||||
Total |
$ | 1,954 | $ | 2,839 | ($ | 885 | ) | -31 | % |
Our general and administrative expenses for the second quarter of 2010 were approximately $1.9
million compared to approximately $2.8 million in the second quarter of 2009, a decrease of $0.9
million or 31%. General and administrative expenses consist primarily of employee costs, which
include salaries and related payroll taxes and benefit related costs, stock compensation expenses,
legal and professional fees, general insurance expenses, and other various expenses. Our second
quarter 2010 general and administrative expenses decreased primarily as a result of lower legal and
professional fees and our recent workforce reductions compared to the same prior period. The decrease in legal and professional fees of
approximately $0.7 million was due primarily to costs associated with a potential 2009 acquisition
candidate that amounted to approximately $0.1 million, reduced board fees of $0.2 million, legal
fees associated with the 2009 proxy contest that amounted to $0.3 million as well as savings in
2010 due to our change in accounting firms and a concerted effort to reduce our use of outside
legal counsel. The decline in our insurance expenses of approximately $79,000 during the second
quarter of 2010 was due primarily to changes in our directors and officers insurance program as
well as negotiating lower premiums in our overall general insurance programs. Various other
expense items resulted in a slight increase quarter over quarter, none of
which are individually material. As a percentage of revenues, general and administrative expenses
decreased to 17% in the second quarter of 2010 compared to 27% in the second quarter of 2009.
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Research and Development Expenses
June 30, 2010 | June 27, 2009 | Change | % | |||||||||||||
Employee Costs |
$ | 1,527 | $ | 2,045 | ($ | 518 | ) | -25 | % | |||||||
Professional Fees |
106 | 129 | (23 | ) | -18 | % | ||||||||||
Depreciation |
145 | 157 | (12 | ) | -8 | % | ||||||||||
Cost of sales allocation |
(377 | ) | (250 | ) | (127 | ) | 51 | % | ||||||||
Other |
279 | 324 | (45 | ) | -14 | % | ||||||||||
Total |
$ | 1,680 | $ | 2,405 | ($ | 725 | ) | -30 | % |
Our research and development expenses for the second quarter of 2010 were approximately $1.7
million compared to approximately $2.4 million in the second quarter of 2009, a decrease of $0.7
million or 30%. Our research and development expenses consist primarily of payroll and related
benefit costs, professional fees, depreciation expenses and other expenses. In addition, because
some of our contractual agreements require us to provide engineering development or repair services
to our customers, a portion of our engineering costs were allocated to cost of sales. Our second
quarter 2010 employee related costs have declined by approximately $0.5 million primarily as a
result of our recent workforce reductions compared to the same prior period. Our professional fees
and depreciation expenses have remained almost equal quarter over quarter. The allocation of
research and development charges to cost of sales has increased by approximately $0.1 million as a
result of a greater portion of engineering time spent on existing products and services as compared
to research projects. Various other expense items resulted in a slight decrease quarter over
quarter, none of which are individually material. As a percentage of revenue, research and
development expense for the second quarter of 2010 was 15% as compared to 23% for the second
quarter of 2009.
Severance Expenses
During the second quarter of 2010, we incurred a severance charge of $0.9 million related to the
departure of our former Chief Executive Officer. This severance charge was partially offset by the
reversal of $0.3 million of accruals related to the severance charges we recorded in the first
quarter of 2010.
During the second quarter of 2009, we decided to outsource almost all of our in-house manufacturing
to a third party vendor and, as such, we reduced our production staffing. The total severance
expense associated with this action was approximately $0.1 million. All cash payments related to
this action were paid in 2009 and no further expense is expected.
Other (Expense)/Income
Other expense for the second quarter of 2010 was $0.3 million compared to $0.4 million of other
income for the second quarter of 2009. This decrease of $0.7 million is due primarily to temporary
foreign currency translation adjustments on intercompany loans with our foreign subsidiaries as a
result of the declining Euro and Pound Sterling against the U.S. dollar. In prior years, our
intercompany loans with our foreign subsidiaries were considered permanent in nature due to no
formal loan agreements being in place, thus the foreign exchange translation adjustments on these
loans when converted to U.S. dollars were recorded directly to our balance sheet. In December
2009, these intercompany loans were formalized into loan agreements with established maturity dates
and in accordance with GAAP, the loans were no longer considered permanent, but became temporary in
nature, and thus the foreign currency translation adjustments on these loans from Euros and Pounds
to U.S. dollars are now recorded directly to the income statement.
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In the second quarter of 2010, these adjustments represented approximately $0.3 million of non-cash
expense as
compared to no expense being recorded in the second quarter of 2009. In addition, in the second
quarter of 2009, we received an insurance settlement in the amount of $0.2 million. Finally, our
interest income on our excess cash balances was negatively impacted by the overall decline in
prevailing interest rates and as a result interest income was less than $0.1 million in the second
quarter 2010 as compared to approximately $0.1 million in the second quarter 2009.
Income Taxes
We recorded an income tax benefit of $0.1 million during the second quarter of 2010 compared to an
income tax expense of $0.2 million in the second quarter of 2009. The decrease in tax expense in
the second quarter of 2010 is primarily due to lower taxable earnings or losses in the foreign
operating jurisdictions as compared to the second quarter 2009.
We continue to record a valuation allowance against U.S. federal, state and certain foreign net
operating losses from continuing operations incurred in the second quarter of 2010 as the tax
benefit generated from those losses was deemed to be likely unrealizable in future periods.
Loss from Continuing Operations and Loss Per Share from Continuing Operations
For the second quarter of 2010, we recorded net income from continuing operations of approximately
$1.2 million compared to a net loss from continuing operations of $1.5 million for the second
quarter 2009, an improvement of $2.7 million quarter over quarter for the reasons stated above.
Our basic and diluted income from continuing operations per common share was $0.10 for the second
quarter of 2010 compared to a loss of $(0.12) for the second quarter of 2009. Basic weighted
average common and common equivalent shares outstanding were approximately 12.7 million for the
second quarter of both 2010 and 2009. Diluted weighted average common and common equivalent shares
outstanding were approximately 12.8 and 12.7 million for the second quarter 2010 and 2009
respectively.
SIX MONTHS ENDED JUNE 30, 2010 COMPARED TO SIX MONTHS ENDED JUNE 27, 2009
Revenue
June 30, 2010 | June 27, 2009 | Change | % | |||||||||||||
System Test Products |
$ | 6052 | $ | 6,914 | ($ | 862 | ) | -12 | % | |||||||
MCU |
3106 | 3,056 | $ | 50 | 2 | % | ||||||||||
Total Products |
9,158 | 9,970 | ($ | 812 | ) | -8 | % | |||||||||
Services |
13,509 | 10,990 | $ | 2,519 | 23 | % | ||||||||||
Total Revenues |
$ | 22,667 | $ | 20,960 | $ | 1,707 | 8 | % |
Our total revenues for the six months ended June 30, 2010 were $22.7 million compared to total
revenues of $21.0 million for the six months ended June 27, 2009.
Our product revenue consists primarily of sales of our system test products as well as sales of our
traditional MCU product line. Product revenue was approximately $9.2 million or 40% of our total
revenues for the first six months of 2010 compared to approximately $10.0 million or 48% of total revenues for
the first six months of 2009. Overall, our 2010 six month product revenues decreased by
approximately $0.8 million or 8% compared to the same prior
year period. The decrease in
our total product sales is primarily attributable to a $0.5 million
decline in our LDU/4TEL/Celerity products and $0.3 million decline in our LoopCare product. Our
MCU product line revenues for the six months ended 2010 were almost identical to the same 2009
period. Although we expect continued MCU sales in the foreseeable future, this is a mature product
line with sales that fluctuate based on an unpredictable demand.
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Our services revenue consists of software maintenance, managed services agreements, installation
oversight and product management services. Services revenue was approximately $13.5 million or 60%
of revenues for the first six months of 2010 compared to $11.0 million or 52% of revenues for the
same 2009 period. Overall, our service revenue increased by approximately $2.5 million or 23%
compared to the same period in the prior year. The increase was primarily attributable to our
multi-year managed services agreement with Ericsson that we completed during the second quarter of
2009. Revenues under the Ericsson agreement were approximately $3.6 million for the six months
ended 2010 compared to $1.5 million for the six months ended 2009. In addition, revenue from our
new OEM product line that was brought on-board in late 2009 amounted to approximately $0.3 million
during the first six months of 2010.
Gross Profit
Our gross
profit for the first six months ended 2010 was $13.5 million
compared to $10.5 million for the first
six months of 2009, an increase of $3.0 million or 29%. As a percentage of sales, our gross
profit margin for the six months ended 2010 was 60% versus 50% for the six months ended 2009. The
increase in our gross profit and gross profit margin is primarily attributable to our cost
reduction efforts that began in 2009, to reduce our overall costs through workforce reductions and
outsourcing almost 100% of our in-house manufacturing, as well as lower amortization expense.
Selling and Marketing Expenses
June 30, 2010 | June 27, 2009 | Change | % | |||||||||||||
Employee Costs |
$ | 2,459 | $ | 2,312 | $ | 147 | 6 | % | ||||||||
Travel Expenses |
299 | 370 | (71 | ) | -19 | % | ||||||||||
Consulting |
227 | 204 | 23 | 11 | % | |||||||||||
Other |
351 | 397 | (46 | ) | -12 | % | ||||||||||
Total |
$ | 3,336 | $ | 3,283 | $ | 53 | 2 | % |
Our total selling and marketing expenses were flat at approximately $3.3 million for the first
six months of 2010 and 2009. Selling and marketing expenses consist primarily of payroll and
benefits, commissions, and travel expenses. Although this function of our business was also
impacted by the workforce reductions, most of these reductions occurred in the latter half of the
second quarter due to transition efforts. Additionally, commission expense and bonus expense are
slightly higher due to the increased sales period over period. Various other expense items resulted in a
slight decrease period over period, none of which are individually material. As a percentage of
revenues, selling and marketing expenses decreased to 15% in the first six months of 2010 as
compared to 16% in the first six months of 2009.
General and Administrative Expenses
June 30, 2010 | June 27, 2009 | Change | % | |||||||||||||
Employee Costs |
$ | 2,146 | $ | 2,191 | ($ | 45 | ) | -2 | % | |||||||
Legal & Professional Fees |
930 | 2,086 | (1,156 | ) | -55 | % | ||||||||||
General Insurance |
181 | 341 | (160 | ) | -47 | % | ||||||||||
Other |
915 | 796 | 119 | 15 | % | |||||||||||
Total |
$ | 4,172 | $ | 5,414 | ($ | 1,242 | ) | -23 | % |
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Our general and administrative expenses for the first six months of 2010 were approximately
$4.2 million compared to approximately $5.4 million in the first six months of 2009, a decrease of
$1.2 million or 23%. General and administrative expenses consist primarily of payroll and employee
benefit related costs, stock compensation expenses, legal and professional fees, general insurance
expenses, and other various expenses. Our general and administrative expenses decreased primarily
as a result of lower legal and professional fees. The decrease in legal and professional fees of
approximately $1.2 million is due primarily to costs associated with a potential 2009 acquisition
that amounted to approximately $0.1, reduced board fees of $0.5 million, legal fees associated with
the 2009 proxy contest that amounted to $0.5 as well as savings in 2010 due to our change in
accounting firms and a concerted effort to reduce our use of outside legal counsel. Our insurance expense decline is primarily due to changes
in our directors and officers insurance program as well as negotiating lower premiums in our
overall general insurance plans. Various other expense items resulted in a slight increase period
over period, none of which are individually material. As a percentage of revenues, general and
administrative expenses decreased to 18% in the first six months of 2010 as compared to 26% in the
first six months of 2009.
Research and Development Expenses
June 30, 2010 | June 27, 2009 | Change | % | |||||||||||||
Employee Costs |
$ | 3,415 | $ | 4,038 | ($ | 623) | -15 | % | ||||||||
Professional Fees |
462 | 279 | 183 | 66 | % | |||||||||||
Depreciation |
288 | 347 | (59) | -17 | % | |||||||||||
Facilities |
318 | 210 | 108 | 51 | % | |||||||||||
Cost of sales allocation |
(706 | ) | (863 | ) | 157 | -18 | % | |||||||||
Other |
263 | 430 | (167 | ) | -39 | % | ||||||||||
Total |
$ | 4,040 | $ | 4,441 | ($ | 401 | ) | -9 | % |
Our research and development expenses for the first six months of 2010 were approximately $4.0
million compared to approximately $4.4 million for the first six months of 2009, a decrease of $0.4
million or 9%. Our research and development expense consist primarily of payroll and related
benefit costs, professional fees, depreciation expenses and other expenses. In addition, because
some of our contractual agreements require us to provide engineering development or repair services
to our customers, a portion of our engineering costs were allocated to cost of sales. Our employee
related costs have declined by approximately $0.6 million as a result of our workforce reductions.
Professional fees have increased by $0.2 million which is primarily attributable to additional
costs associated with the managed service agreement with Ericsson that commenced during the second
quarter of 2009. Depreciation expenses have decreased quarter over quarter as a result of some
assets in the prior year becoming fully depreciated. The allocation of research and development
charges to cost of sales
has decreased by approximately $0.2 million as a result of less customer application time in the
six months ended 2010 as compared to 2009. Various other expense items resulted in a slight
decrease period over period, none of which are individually material. As a percentage of revenues,
research and development expense for the first six months of 2010 was 18% as compared to 21% for
the first six months of 2009.
Severance Expenses
At the end of the first quarter of 2010, as part of our efforts to accelerate cash generation and
improve profitability, we developed a plan to significantly reduce our operating cost structure
across all functional areas of the organization. As part of that plan, we reduced our workforce by
approximately 48 full time employees. During the first quarter of 2010 we recorded severance
charges for these actions in the amount of approximately $1.7 million of which approximately $0.5
million was recorded as part of cost of sales and $1.2 million was recorded as an operating
expense. During the second quarter of 2010, we incurred a severance charge of $0.9 million related
to the departure of our former Chief Executive Officer. This severance charge was partially offset
by the reversal of $0.3 million of accruals related to the severance charge we recorded in the
first quarter of 2010.
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During the second quarter of 2009, we decided to outsource almost all of our in-house manufacturing
to a third party vendor and, as such, we reduced our production staffing. The total severance
expense associated with this action was approximately $0.1 million. All cash payments related to
this action were paid in 2009 and no further expense is expected.
During the first quarter of 2009, we implemented a restructuring program pursuant to which we
realigned existing resources to new projects, reduced our field service and sales staffing and
completed other reduction activities. The severance costs associated with this program amounted to
approximately $0.3 million of which approximately $0.2 million was recorded in cost of sales and
approximately $0.1 million was recorded as operating expenses. All cash payments related to this
program were paid in 2009 and no further expense is expected.
Other (Expense)/Income
Other expense for the six months ended 2010 was $0.7 million compared to other income of $0.5
million for the six months ended 2009. This decrease of $1.2 million is due primarily to temporary
foreign currency translation adjustments on intercompany loans with our foreign subsidiaries as a
result of the declining Euro and Pound Sterling against the U.S. dollar. In prior years, our
intercompany loans with our foreign subsidiaries were considered permanent in nature due to no
formal loan agreements being in place, thus the foreign exchange translation adjustments on these
loans when converted to U.S. dollars were recorded directly to our balance sheet. In December
2009, these intercompany loans were formalized into loan agreements with established maturity dates
and in accordance with GAAP, the loans were no longer considered permanent, but became temporary in
nature, and thus the foreign currency translation adjustments on these loans from Euros and Pounds
to U.S. dollars are now recorded directly to the income statement.
For the six month period ended June 30, 2010, these adjustments represented approximately $0.7
million of non-cash expense as compared to no expense recorded in the same 2009 period. In
addition, we received an insurance settlement in the prior year quarter in the amount of $0.2
million related to a loss of assets in a foreign jurisdiction. Finally, our interest income on our
excess cash balances was negatively impacted by the overall decline in prevailing interest rates
and as a result interest income was approximately $0.1 million in the first six months of 2010 as
compared to $0.3 million in the first six months of 2009.
Income Taxes
We recorded an income tax benefit of $0.2 million during the first six months of 2010 compared to
income tax
expense of $0.3 million in the first six months of 2009. The decrease in tax expense over the first
six months of 2010 is primarily due to lower taxable earnings or losses in the foreign operating
jurisdictions as compared to the first six months of 2009.
We continue to record a valuation allowance against U.S. federal, state and certain foreign net
operating losses from continuing operations as the tax benefit generated from those losses was
deemed to be likely unrealizable in future periods.
Loss from Continuing Operations and Loss Per Share from Continuing Operations
For the first six months of 2010, we recorded a net loss from continuing operations of
approximately $0.4 million compared to a net loss from continuing operations of $2.5 million for
the first six months of 2009, a decrease of $2.1 million for the reasons stated above. Our basic
and diluted loss from continuing operations per common share was $(0.03) for the first six months
of 2010 compared to $(0.20) for the first six months of 2009. Basic and diluted weighted average
common and common equivalent shares outstanding were approximately 12.7 million for both the six
months ended 2010 and 2009.
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LIQUIDITY AND CAPITAL RESOURCES
We have historically met our working capital and capital spending requirements, including the
funding for expansion of operations, product developments and acquisitions, through net cash flows
provided by operating activities. Our principle source of liquidity is our operating cash flows
and cash on our balance sheet. Our cash, cash equivalents and short-term investments are
unrestricted and available for corporate purposes, including acquisitions, research and development
and other general working capital requirements. In addition, there are no material restrictions on
our ability to transfer and remit funds among our international affiliated companies. Our cash and
cash equivalents and short-term investments decreased to $64.1 million at June 30, 2010 from $66.0
million at December 31, 2009. The $1.9 million decrease in cash and cash equivalents and short
term investments from December 31, 2009 is primarily attributable to cash payments of $2.2 million
for severance payments related to the October 2009, the first quarter 2010 workforce reductions and
a severance payment made to our former chief executive officer. Our June 30, 2010 cash balance was
also impacted by certain large outstanding customer receivables that were subsequently collected in
early July 2010. Our cash balance as of the end of July was approximately $66.6 million. We
believe we have sufficient cash balances to meet our cash flow requirements and growth objectives
over the next twelve months.
We had working capital of $70.6 million at June 30, 2010, an increase of $1.4 million from
$69.2 million of working capital as of December 31, 2009. The increase in working capital was due
primarily to an increase in trade accounts receivables offset by a reduction of $1.0 million in
accrued other expenses as a result of the severance payouts along with a reduction in accrued
salaries and wages as a result of the 2009 incentive payout that occurred in March 2010.
Net cash used in operating activities for the six months ended June 30, 2010 was $1.8 million
compared to net cash provided by operating activities of $0.8 million for the same period in the
prior year. The increase in net cash used in operating activities of $1.8 million for the first
six months of 2010 is primarily attributable to the increase in accounts receivable as a result of
timing on accounts receivable collections as mentioned above. The net cash provided by operations
of $0.8 million for the first six months of 2009 is primarily attributable to lower levels of
inventories.
Net cash used in investing activities was approximately $0.1 million for the six months ended June
30, 2010, which was primarily related to capital expenditures of approximately $0.2 million to
support our operations partially offset from $0.1 million of collections from a note receivable
related to the sale of our cable product line in 2009. Net cash provided by investing activities
of $4.5 million for the six months ended June 27, 2009 was primarily related to proceeds from the
sale of our cable product line of approximately $3.0 million and the
redemption of a short term investment in the amount of approximately $2.2 million. These increases
in cash were offset by the use of cash of approximately $0.3 million related to the purchase of
certain assets from Ericsson in the second quarter of 2009 and $0.4 million of capital expenditures
to support our operations.
Net cash used in financing activities was approximately $25,000 for the six month period ended June
30, 2010 as the result of our purchase of approximately 10,600 shares of our common stock under our
stock repurchase program for approximately $69,000 offset by cash received from the exercise of
stock grants in the amount of $44,000.
COMMITMENTS AND CONTRACTUAL OBLIGATIONS
We lease office space and equipment under agreements which are accounted for as operating leases.
The office lease for our Cheswick, Pennsylvania facility expires on March 31, 2011. The lease for
our Piscataway, New Jersey location expires on April 30, 2012. We also have office leases in
Bracknell, United Kingdom and
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Wuppertal, Germany, which expire on December 24, 2012 and January 31,
2011, respectively, and we lease office space in Kontich, Belgium pursuant to a lease commitment
which continues through October 2010 and continues month to month thereafter until terminated by
either party. We are also involved in various month-to-month leases for research and development
and office equipment at all locations.
Minimum annual future commitments due by period as of June 30, 2010 are (in thousands):
Less than 1 | More than 5 | |||||||||||||||||||
Total | year | 1-3 years | 3-5 years | years | ||||||||||||||||
Operating Lease Obligations |
1,355 | $ | 441 | $ | 889 | $ | 25 | $ | 0 | |||||||||||
Severance Obligation |
300 | 300 | 0 | 0 | 0 | |||||||||||||||
Uncertain Tax Obligations |
414 | 0 | 414 | 0 | 0 | |||||||||||||||
Pension Obligations |
897 | 0 | 0 | 0 | 897 | |||||||||||||||
Total |
$ | 2,966 | $ | 741 | $ | 1,303 | $ | 25 | $ | 897 | ||||||||||
The lease expense for the three month periods ended June 30, 2010 and June 27, 2009 was $0.2
million for the respective periods. The lease expense for the six months ended June 30, 2010 and
June 27, 2009 was $0.4 million for the respective periods.
In addition, we are, from time to time, party to various legal claims and disputes, either asserted
or unasserted, which arise in the ordinary course of business. While the final resolution of these
matters cannot be predicted with certainty, we do not believe that the outcome of any of these
claims will have a material adverse effect on our consolidated financial position, or annual
results of operations or cash flow.
Application of Critical Accounting Policies
The preparation of financial statements in conformity with generally accepted accounting principles
requires 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.
Therefore, the determination of estimates requires the exercise of judgment based on various
assumptions and other factors such as historical experience, economic
conditions, and in some cases, actuarial techniques. Actual results may differ from those
estimates. A discussion of market risks affecting us can be found in Quantitative and Qualitative
Disclosures about Market Risk in this Quarterly Report on Form 10-Q.
A summary of our significant accounting policies and application of these policies are included in
the Notes to Consolidated Financial Statements and in MD&A included in our Annual Report on Form
10-K for the year ended December 31, 2009. Management believes that the application of these
policies on a consistent basis enables us to provide useful and reliable financial information
about our operating results and financial condition. There were no changes to our critical
accounting policies during the first six months of 2010.
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Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Our current investment policy limits our investments in financial instruments to cash and cash
equivalents, individual municipal bonds and corporate and government bonds. The use of financial
derivatives and preferred and common stocks is strictly prohibited. We believe that our risk is
minimized through proper diversification along with the requirements that the securities must be of
investment grade with an average rating of A or better by Standard & Poors. We hold our
investment securities to maturity and believe that earnings and cash flows are not materially
affected by changes in interest rates, due to the nature and short-term investment horizon for
which these securities are invested.
In addition, we are exposed to foreign currency translation fluctuations with our international
operations. We do not have any foreign exchange derivative contracts to hedge against foreign
currency exposures. Therefore, we are exposed to the related effects when the foreign currency
exchange rates fluctuate. If the U.S. dollar strengthens against the Euro and/or the British pound
sterling and or the Czech Republics Koruna, the translation rate for these foreign currencies will
decrease, which will have a negative impact on our operating income. Foreign currency translation
fluctuations have no impact on cash flows as long as we continue to reinvest any profits back into
the respective foreign operations.
Item 4. CONTROLS AND PROCEDURES
The Chief Executive Officer and the Chief Financial Officer and Treasurer of the Company (its
principal executive officer and principal financial officer, respectively) have concluded, based on
their evaluation as of the end of the period covered by this report, that the Companys disclosure
controls and procedures pursuant to Rule 13a-15 of the Securities Exchange Act of 1934 are
effective to ensure that information required to be disclosed by the Company in the reports filed
or submitted by it under the Securities Exchange Act of 1934, as amended, is recorded, processed,
summarized and reported within the time periods specified in the SECs rules and forms, and include
controls and procedures designed to ensure that information required to be disclosed by the Company
in such reports is accumulated and communicated to the Companys management, including the Chief
Executive Officer and the Chief Financial Officer and Treasurer, as appropriate, to allow timely
decisions regarding required disclosure.
There were no changes in the Companys internal controls over financial reporting (as defined in
Rule 13a-15(f) under the Securities Exchange Act of 1934) that occurred during the quarter
ended June 30, 2010 that have materially affected or are reasonably likely to materially affect our
internal controls over financial reporting.
PART II. OTHER INFORMATION
Item 1A. | RISK FACTORS |
In addition to the other information set forth in this Form 10-Q, we wish to caution each reader of
this Form 10-Q to carefully consider the factors discussed in Part I, Item 1A, Risk Factors in
our Annual Report on Form 10-K for the year ended December 31, 2009 (our 2009 Form 10-K), which
could materially affect our business, financial condition or future results. There are no material
changes in our risk factors from those disclosed in our 2009 Form 10-K, except as follows:
Reduction in Workforce
Over the first six months of 2010, we implemented initiatives to reduce our operating expense
structure in an effort to improve profitability and to increase our cash generation capabilities.
These initiatives included a reduction in our workforce across all levels of the Company, and a
reduction in the number of growth initiatives that we had underway, as we are focusing on near-term
and customer-driven opportunities. Although we
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believe these actions will result in the reduction in our operating expenses that we have
anticipated and will accelerate our efforts to increase our profitability and cash generation, they
may not do so in the timeframes or to the degree that we expect. In addition, we face the risk
that these actions may impair our ability to hire and retain key personnel and to effectively
develop and market new or improved products and remain competitive in our markets. These
circumstances could cause our revenue and earnings to be lower than we expect.
Item 6. EXHIBITS
(a) | Exhibits: |
The following exhibits are being filed with this report:
Exhibit | ||
Number | Description | |
10.1
|
Summary of commission compensation program for Robert H. King adopted April 27, 2010, incorporated by reference to the Companys Report on Form 8-K filed on April 30, 2010 | |
10.2
|
Separation and Mutual Release Agreement, dated June 18, 2010, between Tollgrade Communications, Inc. and Joseph A. Ferrara, 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. |
LoopCare is a trademark of Tollgrade Communications, Inc.
ICE is a trademark of Tollgrade Communications, Inc.
N(x)Test is a trademark of Tollgrade Communications, Inc.
LTSC is a trademark of Tollgrade Communications, Inc.
Stratum 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.
®MCU is a registered trademark of Tollgrade Communications, Inc.
®4TEL is a trademark of Tollgrade Communications, Inc.
®Celerity is a trademark of Tollgrade Communications, Inc.
All other trademarks are the property of their respective owners.
ICE is a trademark of Tollgrade Communications, Inc.
N(x)Test is a trademark of Tollgrade Communications, Inc.
LTSC is a trademark of Tollgrade Communications, Inc.
Stratum 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.
®MCU is a registered trademark of Tollgrade Communications, Inc.
®4TEL is a trademark of Tollgrade Communications, Inc.
®Celerity is a trademark of Tollgrade Communications, Inc.
All other trademarks are the property of their respective owners.
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SIGNATURES
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.
Tollgrade Communications, Inc. | ||||
(Registrant) | ||||
Dated: August
3, 2010
|
/s/ Edward H. Kennedy
|
|||
Chief Executive Officer and President | ||||
Dated: August
3, 2010
|
/s/ Michael D. Bornak
|
|||
Chief Financial Officer and Treasurer |
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EXHIBIT INDEX
(Pursuant to Item 601 of Regulation S-K)
(Pursuant to Item 601 of Regulation S-K)
Exhibit | ||
Number | Description | |
10.1
|
Summary of commission compensation program for Robert H. King adopted April 27, 2010, incorporated by reference to the Companys Report on Form 8-K filed on April 30, 2010 | |
10.2
|
Separation and Mutual Release Agreement, dated June 18, 2010, between Tollgrade Communications, Inc. and Joseph A. Ferrara, 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. |
28