-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, N2lwGiKVkADI+I2CbydYu5nmpJ7pO2lXoP3BNqlv8jMYp9F/3uiT/qjwJ4IPzCoO SY4UI+oBNY8Hu864l7MtQw== 0000950128-03-000826.txt : 20030721 0000950128-03-000826.hdr.sgml : 20030721 20030721120917 ACCESSION NUMBER: 0000950128-03-000826 CONFORMED SUBMISSION TYPE: 8-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20030717 ITEM INFORMATION: Financial statements and exhibits ITEM INFORMATION: Regulation FD Disclosure FILED AS OF DATE: 20030721 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TOLLGRADE COMMUNICATIONS INC \PA\ CENTRAL INDEX KEY: 0001002531 STANDARD INDUSTRIAL CLASSIFICATION: SERVICES-TELEPHONE INTERCONNECT SYSTEMS [7385] IRS NUMBER: 251537134 STATE OF INCORPORATION: PA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 8-K SEC ACT: 1934 Act SEC FILE NUMBER: 000-27312 FILM NUMBER: 03794108 BUSINESS ADDRESS: STREET 1: 493 NIXON RD CITY: CHESWICK STATE: PA ZIP: 15024 BUSINESS PHONE: 4122742156 8-K 1 j0220301e8vk.txt TOLLGRADE COMMUNICATIONS, INC. | FORM 8-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 8-K CURRENT REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Date of Report (Date of earliest event reported) - July 17, 2003 TOLLGRADE COMMUNICATIONS, INC. (Exact Name of Registrant as Specified in Its Charter) PENNSYLVANIA 000-27312 25-1537134 (State or other jurisdiction of (Commission (IRS Employer incorporation) File Number) Identification No.) 493 NIXON ROAD CHESWICK, PENNSYLVANIA 15024 (Address of Principal Executive Offices) (Zip code) Registrant's telephone number, including area code -- (412) 820-1400 ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS Exhibit Number Description ------ ----------- 99.1 Tollgrade Communications, Inc. Press Release dated July 17, 2003, announcing results of operations for the fiscal quarter ended June 28, 2003. ITEM 12. RESULTS OF OPERATIONS AND FINANCIAL CONDITION In a press release dated July 17, 2003, Tollgrade Communications, Inc. announced its results of operations for the fiscal quarter ended June 28, 2003. The text of the press release is set forth in Exhibit 99.1 hereto. 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 hereunto duly authorized. TOLLGRADE COMMUNICATIONS, INC. Date: July 21, 2003 By: /s/ Christian L. Allison ------------------------- ------------------------------------- Christian L. Allison Chief Executive Officer EXHIBIT INDEX (Pursuant to Item 601 of Regulation S-K) Exhibit Number Description and Method of Filing - ------ -------------------------------- 99.1 Tollgrade Communications, Inc. Press Release dated July 17, 2003, announcing results of operations for the fiscal quarter ended June 28, 2003, filed herewith. EX-99.1 3 j0220301exv99w1.txt EX-99.1 PRESS RELEASE Exhibit 99.1 [TOLLGRADE LOGO] TOLLGRADE COMMUNICATIONS, INC. Network Assurance Simplified 493 Nixon Road / Cheswick, PA 15024 www.tollgrade.com - -------------------------------------------------------------------------------- C O R P O R A T E C O M M U N I C A T I O N S - -------------------------------------------------------------------------------- CONTACT: Chris Allison 412-820-1407 callison@tollgrade.com CHEETAH ACQUISITION CONTRIBUTES TO 17.5% RISE IN TOLLGRADE SALES PITTSBURGH, PA - July 17, 2003 - Tollgrade Communications, Inc. (NASDAQ: TLGD) today reported revenue of $17,133,547 and earnings of 6 cents per share for the second quarter ended June 28, 2003. Revenue and earnings per share for the second quarter of 2002 were $14,583,910 and 8 cents per share, respectively. The results reported for the second quarter of 2003 include for the first time an entire quarter's results of the Company's Cheetah(TM) status and performance monitoring business which was acquired during the first quarter of 2003. On a year to date basis, the Company recorded revenues of $31,676,970 and earnings of 9 cents per share for the period ended June 28, 2003; revenues were $32,106,184 and earnings were 19 cents per share in the corresponding period of the prior year. Second quarter 2003 revenues of $17,133,547 exceeded the Company's previous revenue guidance of $13.0 million to $16.0 million while slightly higher product development, bad debts and consulting expenses kept actual earnings at the upper end of the guidance range of break-even to six cents. "Capital expenditures among our RBOC customers continue to be lean," said Chris Allison, Tollgrade's chairman and chief executive officer. "Although we had a strong MCU(R) quarter with sales to BellSouth and Qwest, lower Digital Loop Carrier (DLC) deployments particularly impacted our MCU business. Our LoopCare(TM) business was solid, but down in comparison to the first quarter of this year. As we expected, longer soak times for software products can make this business lumpy. In addition, looming labor negotiations involving an RBOC customer could add to the difficult environment. We are, however, happy to report that all of our LoopCare maintenance agreements are signed, including multi-year agreements with Verizon and SBC. In the cable sector, our CheetahNet(TM) and CheetahLight(TM) business had a solid quarter. Our cable team did a great job." The company's 2001 acquisition of the LoopCare test system business from Lucent Technologies continued to make a positive contribution to the business, although separate right-to-use licenses fees were lower in the current quarter than in the comparable period of 2002. Sales of LoopCare software products separate and unrelated to the DigiTest(R) system products, which tend to be lumpy, were $929,000 in the second quarter of 2003 compared to $2,322,000 in the second quarter of 2002. Total LoopCare revenues, including software and services, were $3,225,000 in the second quarter of 2003 compared to $4,212,000 in the second quarter of 2002. Overall sales of the Company's core MCU products, which extend testability into the POTS network, were $6,387,000 in the second quarter of 2003, compared to $7,588,000 in the second quarter of 2002. RBOC customers are generally continuing to restrain capital spending in traditional POTS line areas such as Digital Loop Carrier deployment due to continuing line losses. Sales of Tollgrade's DigiTest system products were $1,230,000 in the second quarter of 2003 compared with $1,016,000 in the same period of 2002. The 2003 quarter included sales to both RBOC and CLEC accounts for LTS modernization programs and initial DigiTest system sales, respectively. Overall sales of cable hardware and software products were solid for the 2003 quarter at $5,345,000, of which $3,731,000 were contributed by Cheetah and CheetahNet (formerly NetMentor(TM)), and $1,614,000 were attributable to CheetahLight (formerly LIGHTHOUSE(TM)). CheetahLight product sales increased during the 2003 quarter from $996,000 in the year earlier period due to the strength of shipments to a new customer, Bright House Networks. Second quarter 2003 revenue from Services, which includes installation oversight and project management services provided to RBOCs and fees for software maintenance, increased to $3,243,000 from $2,566,000 in the prior year quarter. Contributing to the increase was an approximately 12% increase in Tollgrade's traditional service offerings in addition to the inclusion of CheetahNet maintenance fees. SECOND QUARTER 2003 FINANCIAL AND OPERATING DATA Second quarter gross profit increased 11.4% to $9,414,572 from the second quarter of 2002 primarily as a result of the additional sales volumes related to the Cheetah products. As a percentage of sales, gross profit was 54.9% versus 57.9% a year ago. This decrease was primarily attributable both to lower LoopCare software right-to-use fees in the second quarter of 2003 as well as the impact of the Cheetah business that produces lower margins due to the highly competitive CATV markets. Amortization expense related to the LoopCare and Cheetah operations was $510,306 for the second quarter of 2003, while amortization that related to the LoopCare acquisition was $365,429 in the second quarter of 2002. Overall operating expenses increased $1,266,115 or 18.4%, to $8,155,611 from $6,889,496 in the second quarter of 2002. Selling and marketing expenses in the quarter were $2,420,786, an increase of 8.8% percent from the same period in 2002, due primarily to the inclusion of the Cheetah business, as well as higher consulting and 2 incentive compensation expense, offset by fewer employees and lower commissions, travel and discretionary expenses in other parts of the business. General and administrative expenses increased 44.1% to $1,828,262 from the year earlier quarter due largely to the inclusion of the Cheetah business as well as increased provisions for bad debts related to CATV customers, higher business insurance costs and higher incentive compensation and professional service costs. Research and development expenses were $3,906,563, an increase of 15.0% from the second quarter of 2002. This increase was due primarily to the inclusion of the Cheetah business offset by a general reduction in work force at the end of the third quarter of 2002. As a result of the above, income from operations was $1,258,961 in the second quarter of 2003, a 19.3% decrease from the same period of 2002. The company's order backlog for firm customer purchase orders and signed software maintenance contracts was $8,122,000 as of June 28, 2003, in comparison to a backlog of $10,698,000 as of March 29, 2003 and $7,179,000 as of December 31, 2002. The backlog at June 28, 2003 included approximately $4,200,000 related to software maintenance contracts, which will be earned and recognized as income on a straight-line basis during the remaining terms of the underlying agreements. Including these maintenance billings, Tollgrade expects approximately 40% of the current backlog to be recognized as revenue in the third quarter of 2003. As of March 29, 2003, two of the Company's RBOC LoopCare annual maintenance agreements were under negotiation and extension. One of those agreements was signed during the recently completed second quarter. The second was signed just subsequent to June 28, 2003 and thus is not included in the backlog as of June 28, 2003. THIRD QUARTER OUTLOOK Regarding the Company's third quarter outlook, Chris Allison reported that "Although we have increased the diversification of our product offerings with our Cheetah and LoopCare acquisitions, the capital expenditure and broadband roll-out environment remains unclear. In addition, the third quarter has historically been down for us due to typical seasonality issues. We, therefore, are providing third quarter 2003 guidance with sales of $12.0 to $16.0 million with per share results ranging from a loss of $(0.03) to earnings of $0.06. However, if a labor disruption should occur at a significant RBOC customer, the impact could be material resulting in revenues as low as $11.0 million and a loss per share of $(0.07)." 3 ABOUT TOLLGRADE Tollgrade Communications, Inc. is a full-system provider of leading hardware and software testing solutions for the global telecommunications and cable broadband industries. Tollgrade designs, engineers, markets and supports test systems, test access and status monitoring products. The Company, which is headquartered in the Pittsburgh suburb of Cheswick, Pa., recorded 2002 revenues of $58.6 million. The Company's web address is www.tollgrade.com. -- More -- 4 TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (In thousands, except per-share data)
Three Months Ended Six Months Ended 06/28/03 06/29/02 06/28/03 06/29/02 -------- -------- -------- -------- REVENUES: Products $ 13,916 $ 12,018 $ 25,487 $ 26,947 Services 3,218 2,566 6,190 5,159 - --------------------------------------------------------------------------------------------------- 17,134 14,584 31,677 32,106 - --------------------------------------------------------------------------------------------------- COST OF SALES: Products 6,233 4,870 11,524 10,932 Services 976 900 1,766 1,855 Amortization 510 365 1,403 730 - --------------------------------------------------------------------------------------------------- 7,719 6,135 14,693 13,517 - --------------------------------------------------------------------------------------------------- GROSS PROFIT 9,415 8,449 16,984 18,589 - --------------------------------------------------------------------------------------------------- OPERATING EXPENSES: Selling and marketing 2,421 2,225 4,391 4,642 General and administrative 1,828 1,268 3,565 2,795 Research and development 3,907 3,396 7,228 7,391 - --------------------------------------------------------------------------------------------------- Total operating expenses 8,156 6,889 15,184 14,828 - --------------------------------------------------------------------------------------------------- INCOME FROM OPERATIONS 1,259 1,560 1,800 3,761 OTHER INCOME 85 200 232 438 - --------------------------------------------------------------------------------------------------- INCOME BEFORE INCOME TAXES 1,344 1,760 2,032 4,199 PROVISION FOR INCOME TAXES 511 669 772 1,595 - --------------------------------------------------------------------------------------------------- Net income $ 833 $ 1,091 $ 1,260 $ 2,604 - --------------------------------------------------------------------------------------------------- DILUTED EARNINGS PER-SHARE INFORMATION: Weighted average shares of common stock and equivalents: 13,335 13,339 13,276 13,386 - --------------------------------------------------------------------------------------------------- Net income per common and common equivalent shares $ 0.06 $ 0.08 $ 0.09 $ 0.19 - ---------------------------------------------------------------------------------------------------
-- More -- 5 TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES UNAUDITED CONDENSED CONSOLIDATED BALANCE SHEETS (In thousands)
JUNE 28, Dec. 31, 2003 2002 ------------- ------------- ASSETS CURRENT ASSETS: Cash and cash equivalents $ 28,060 $ 33,799 Short-term investments 14,181 19,329 Accounts receivable: Trade 10,838 7,946 Other 90 152 Inventories 13,763 14,093 Prepaid expenses 1,220 1,530 Deferred and refundable tax assets 1,934 2,041 - ------------------------------------------------------------------------------------------- TOTAL CURRENT ASSETS 70,086 78,890 Property and equipment, net 8,626 7,439 Deferred tax assets 3,356 2,770 Capitalized software costs, net 8,607 5,539 Intangibles 44,500 38,500 Goodwill 20,240 16,162 Other assets 344 242 - ------------------------------------------------------------------------------------------- TOTAL ASSETS $ 155,759 $ 149,542 - ------------------------------------------------------------------------------------------- LIABILITIES AND SHAREHOLDERS' EQUITY CURRENT LIABILITIES: Accounts payable $ 1,195 $ 500 Accrued warranty 3,123 1,981 Accrued expenses 1,531 749 Accrued salaries and wages 684 543 Accrued royalties payable 412 322 Income taxes payable 1,368 1,141 Deferred income 1,349 466 - ------------------------------------------------------------------------------------------- TOTAL CURRENT LIABILITIES 9,662 5,702 Deferred tax liabilities 2,228 1,484 - ------------------------------------------------------------------------------------------- TOTAL LIABILITIES 11,890 7,186 Total shareholders' equity 143,869 142,356 - ------------------------------------------------------------------------------------------- TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $ 155,759 $ 149,542 - -------------------------------------------------------------------------------------------
--More -- 6 TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS (In thousands)
Six Months Ended JUNE 28, 2003 June 29, 2002 - ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES: Net income $ 1,260 $ 2,604 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation and amortization 2,543 1,878 Tax benefit from exercise of stock options 55 113 Refund and utilization of income taxes paid 376 810 Deferred income taxes 130 214 Provisions for losses on inventory 181 1,296 Disposition of slow moving and obsolete inventory (278) (424) Provision for allowance for doubtful accounts 343 ----- Changes in assets and liabilities: Increase in accounts receivable-trade (3,235) (1,707) Decrease in accounts receivable-other 62 182 Decrease in inventory 1,588 1,787 Decrease in prepaid expenses and other assets 291 82 Increase (decrease) in accounts payable 695 (537) Increase in accrued warranty 525 207 Increase in accrued expenses and deferred income 875 459 Increase (decrease) in accrued royalties payable 90 (27) Increase (decrease) in accrued salaries and wages 141 (104) Increase in income taxes payable 226 153 - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by operating activities 5,868 6,986 - ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES: Purchase of Cheetah (15,109) ----- Purchase of investments (878) (4,557) Redemption/maturity of investments 6,026 4,332 Capital expenditures (1,844) (1,405) Investments in other assets ----- (52) - ---------------------------------------------------------------------------------------------------------------------- Net cash used in investing activities (11,805) (1,682) - ---------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES: Purchase of treasury stock ----- (1,626) Proceeds from exercise of stock options 198 278 - ---------------------------------------------------------------------------------------------------------------------- Net cash provided by (used for) financing activities 198 (1,348) - ---------------------------------------------------------------------------------------------------------------------- Net (decrease) increase in cash and cash equivalents (5,739) 3,956 Cash and cash equivalents at beginning of period 33,799 32,106 - ---------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $ 28,060 $ 36,062 - ----------------------------------------------------------------------------------------------------------------------
7 FORWARD-LOOKING STATEMENTS The statements contained in this release which are not historical facts are considered "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. These statements, which may be expressed in a variety of ways, including the use of forward-looking terminology and the use of future or present tense language, relate to, among other things, expected revenue and earnings results. The Company does not undertake any obligation to publicly update any forward-looking statements. These forward-looking statements and other forward-looking statements contained in other public disclosures of the Company are based on assumptions that involve risks and uncertainties and are subject to change based on the considerations described below. These risks, uncertainties and other factors may cause actual results, performance or achievements to differ materially from anticipated future results, performance or achievements expressed or implied by such forward looking statements. Therefore, the Company wishes to caution each reader of this release to consider the following factors and certain other factors discussed herein and in past reports including, but not limited to, prior year Annual Reports and Form 10-K and Form 10-Q reports filed with the Securities and Exchange Commission ("SEC"). The factors discussed herein may not be exhaustive. Therefore, the factors discussed herein should be read together with other reports and documents that are filed by the Company with the SEC from time to time, which may supplement, modify, supersede or update the factors listed in this document. General economic conditions and the economic conditions of the telecommunications and cable industries, including the effect of subscriber line loss and competition for the Company's RBOC customers from wireless, cable providers and other carriers entering the local telephone service market can and has affected the capital budgets of the Company's customers. If such conditions result in a further reduction of such budgets, the Company's revenues could be adversely affected. If the Company's customers find themselves unable to meet their established purchase forecasts and their own growth projections, such customers may curtail their purchase of the Company's products, which would adversely affect the Company's revenues. If the Company is unable to establish customer or sales distribution or original equipment manufacturer ("OEM") relationships relating to the Cheetah cable status and performance monitoring product line, it could affect the rate of incoming orders, which would adversely affect the Company's sales and revenues. If the financial strength of certain of the Company's major customers should deteriorate or such customers should encounter difficulties in accessing capital, the ability of such customers to purchase and pay for the Company's products could be impaired, with a corresponding adverse effect on the Company's revenues. If third parties with whom the Company has entered into sales and marketing partnerships should fail to meet their own performance objectives, customer demand for the Company's products could be adversely affected, which would have an adverse effect on the Company's revenues. Seasonal fluctuations in customer demand for the Company's products can create corresponding fluctuations in period-to-period revenues, and any increases in the rate of order cancellation by customers could adversely affect future revenues. The carrying value of certain intangible assets, including goodwill, acquired by the Company from Lucent Technologies, Inc. ("Lucent") and Acterna, LLC could be impaired if changing market conditions indicate that lower than anticipated cash flows will be produced by such intangible assets. If the Company were to encounter a shortage of key manufacturing components from limited sources of supply, or to experience manufacturing delays caused by reduced manufacturing capacity or integration issues related to the acquisition of the Cheetah product line, the loss of key assembly subcontractors or 8 other factors, the Company's ability to produce and ship its manufactured products could be adversely affected, with an adverse effect upon revenues. Disputes between the Company's customers and their organized labor groups could cause those customers to reduce or curtail their purchase of the Company's products until resolution of such disputes, which would adversely affect revenues. The introduction of improved products or services or reduced prices by the Company's competitors could reduce the demand for the Company's products and services and adversely affect revenues. If the Company proves unable to respond effectively to technological change in its industry, such as an evolution of the telephone network from circuit to packet-based, by developing new products and services and obtaining customer approval and acceptance of its products and services, demand for the Company's products and services could be adversely affected, which would adversely affect revenues. The Company is dependent on a relatively narrow range of products and a small number of large customers. As a result, the failure of one or a small number of the Company's products to gain or maintain acceptance in the marketplace, or the decision by one or a few of the Company's customers to curtail their purchases of the Company's products could have an adverse effect on revenues. If one or more of a small number of key employees of the Company were to cease to be associated with the Company, the Company's future results could be adversely affected. If the Company is unable to successfully assert and defend its proprietary rights in the technology utilized in its products, its future results could be adversely affected. If third parties were able to successfully assert that the Company's use of technology infringed upon the proprietary rights of others, the future results of the Company could be adversely affected. If one or more of the Company's products were proven to be defective, the Company's relationships with its customers could be jeopardized and the Company could be subject to potential liability, adversely affecting the Company's future results. If for any reason demand for the Company's products should decrease, including the successful development of a secondary market for the Company's products by a third party, the Company could continue to find itself with excess inventory and obsolete parts on hand, which could adversely affect future results. Changes in government regulation, such as modification or repeal of The Telecommunications Act of 1996, increasing the costs of doing business by the Company or its customers, or preventing the Company or its customers from engaging in business activities they may wish to conduct could adversely affect the Company's future results. The Company has recently completed certain acquisitions and expects to pursue additional acquisitions and new business opportunities in the future as part of its business strategy. If the Company fails to integrate successfully the operations and products of acquired businesses, or if such acquisitions subject the Company to unexpected liabilities and claims, the Company's future results could be adversely affected. The Company's future sales in international markets are subject to numerous risks and uncertainties, including local economic and labor conditions, political instability including terrorism and other acts of war or hostility, unexpected changes in the regulatory environment, trade protection measures, tax laws, the ability of the Company to market current or develop new products suitable for international markets, obtaining and maintaining successful distribution and resale channels and foreign currency exchange rates. Reductions in the demand for or the sales of the Company's products in international markets could adversely affect future results. 9 (TM)LoopCare is a trademark of Tollgrade Communications, Inc. (TM)Cheetah is a trademark of Tollgrade Communications, Inc. (TM)CheetahNet is a trademark of Tollgrade Communications, Inc. (TM)CheetahLight is a trademark of Tollgrade Communications, Inc. (TM)NetMentor is a trademark of Tollgrade Communications, Inc. (R) DigiTest is a registered trademark of Tollgrade Communications, Inc. (R) MCU is a registered trademark of Tollgrade Communications, Inc. (R) LIGHTHOUSE is a registered trademark of Tollgrade Communications, Inc. #### 10 -----END PRIVACY-ENHANCED MESSAGE-----