EX-99.2 4 l28229aexv99w2.htm EX-99.2 EX-99.2
 

Exhibit 99.2
Broadband Test Systems
CONDENSED COMBINED BALANCE SHEETS
(in thousands)
(unaudited)
                 
    July 1,     December 31,   
    2007     2006  
 
                
ASSETS                
Current assets:
                
Cash and cash equivalents
   $ —     $ —  
Accounts receivable, less allowance for doubtful accounts of $0 on July 1, 2007 and December 31, 2006
     4,921       3,169  
Inventories, net
     500       507  
Prepayments and other current assets
     267       207  
Assets held for sale (note D)
     4,273       4,273  
 
            
 
Total current assets
     9,961       8,156  
 
            
 
Property, plant and equipment:
                
Machinery and equipment
     19,300       20,985  
Less: Accumulated depreciation
     18,577       20,157  
 
            
 
Net property, plant and equipment
     723       828  
Deferred tax assets
     264       440  
Other assets
     55       —  
 
            
 
Total assets
   $ 11,003     $ 9,424  
 
            
 
                
LIABILITIES                
Current liabilities:
                
Accounts payable
   $ 240     $ 163  
Accrued expenses (note C)
     796       2,084  
Accrued employee compensation and benefits
     1,008       1,346  
Deferred revenue and customer advances
     1,260       2,418  
 
            
 
Total liabilities
     3,304       6,011  
 
            
 
                
PARENT COMPANY EQUITY                
Parent company investment
     7,644       3,413  
Accumulated other comprehensive income
     55       —  
 
            
 
Total parent company equity
     7,699       3,413  
 
            
 
Total liabilities and parent company equity
   $ 11,003     $ 9,424  
 
            
The accompanying notes, together with the Notes to the Combined Financial Statements for the year ended December 31, 2006,
are an integral part of the condensed combined financial statements.

1

 

Broadband Test Systems
CONDENSED COMBINED STATEMENTS OF OPERATIONS
(in thousands)
(unaudited)
                 
    Six Months Ended  
    July 1,     July 2,  
    2007     2006  
 
                
Net revenue:
                
Products
   $ 2,714     $ 4,345  
Services
     7,510       7,675  
 
            
 
                
Total net revenue
     10,224       12,020  
 
            
Cost of revenues:
                
Cost of products
     1,241       2,420  
Cost of services
     3,899       3,429  
 
            
 
                
Total cost of revenue
     5,140       5,849  
 
            
Gross profit
     5,084       6,171  
 
            
Operating expenses:
                
Engineering and development
     1,751       3,374  
Selling and marketing
     1,344       2,687  
General and administrative
     1,233       1,731  
Restructuring (note F)
     170       894  
 
            
 
                
Total operating expenses
     4,498       8,686  
 
            
 
                
Income (loss) from operations
     586       (2,515 )
 
                
Provision (benefit) for income taxes
     194       (67 )
 
            
 
                
Net income (loss)
   $ 392     $ (2,448 )
 
            
The accompanying notes, together with the Notes to the Combined Financial Statements for the year ended December 31, 2006,
are an integral part of the condensed combined financial statements.

2

 

Broadband Test Systems
CONDENSED COMBINED STATEMENTS OF CASH FLOWS
(in thousands)
(unaudited)
                 
    Six Months Ended  
    July 1,     July 2,  
    2007     2006  
 
                
Cash flows from operating activities:
                
Net income (loss)
   $ 392     $ (2,448 )
Adjustments to reconcile net income (loss) to net cash (used for) provided by operating activities:
                
Depreciation
     185       355  
Stock-based compensation from Parent
     450       580  
Provision for inventory obsolescence
     —       156  
Deferred income tax
     176       (98 )
Other non-cash items, net
     55       74  
Changes in operating assets and liabilities:
                
Accounts receivable
     (1,752 )     4,915  
Inventories
     7       215  
Prepayments and other assets
     (115 )     (26 )
Accounts payable
     77       (1,097 )
Accrued expenses
     (1,288 )     879  
Accrued employee compensation and benefits
     (338 )     (445 )
Deferred revenue and customer advances
     (1,158 )     (48 )
 
            
 
                
Net cash (used for) provided by operating activities
     (3,309 )     3,012  
 
            
 
                
Cash flows from investing activities:
                
Investments in property, plant and equipment
     (80 )     (221 )
 
            
 
                
Net cash used for investing activities
     (80 )     (221 )
 
            
 
                
Cash flows from financing activities:
                
Transfer from (to) Parent
     3,389       (2,791 )
 
            
 
                
Net cash provided by (used for) financing activities
     3,389       (2,791 )
 
            
 
                
Decrease in cash and cash equivalents
   $ —     $ —  
Cash and cash equivalents at beginning of year
     —       —  
 
            
 
                
Cash and cash equivalents at end of year
   $ —     $ —  
 
            
The accompanying notes, together with the Notes to the Combined Financial Statements for the year ended December 31, 2006,
are an integral part of the condensed combined financial statements.

3

 

Broadband Test Systems
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS
(unaudited)
A.   THE BUSINESS
The accompanying condensed, combined financial statements are those of Teradyne Broadband Test Systems (“Broadband Test Systems”). Broadband Test Systems was a division of Teradyne, Inc. (the “Parent”) until August 1, 2007 at which time it was sold to Tollgrade Communications Inc., for $11.3 million. Broadband Test Systems provides test systems and services for testing lines and qualifying lines for Digital Subscriber Line (DSL) and traditional voice telephone networks.
B.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The amounts set forth in the accompanying condensed combined financial statements of Broadband Test Systems are unaudited and in the opinion of management, all adjustments, consisting only of normal recurring adjustments, necessary for a fair presentation of such interim financial statements have been included. The December 31, 2006 condensed combined balance sheet data were derived from the audited financial statements, but do not include all disclosures required by generally accepted accounting principles. The accompanying condensed combined financial statements of Broadband Test Systems should be read in conjunction with the audited financial statements for the year ended December 31, 2006 and include assets, liabilities, operating results and cash flows of the business as included in the historical financial statements of the Parent. Broadband Test Systems’ costs and expenses include allocations from the Parent for centralized information technology, employee benefits, legal, accounting, real estate, insurance, treasury, financing and other corporate and infrastructure costs, as well as allocations for profit sharing, variable compensation and stock-based compensation (see Note K). Management believes the assumptions used to prepare Broadband Test Systems’ condensed combined financial statements from the historical statements of the Parent are reasonable and include all costs of doing business. The financial information included herein may not necessarily reflect the condensed combined financial position, operating results, changes in parent company equity and cash flows of Broadband Test Systems in the future or what they would have been had Broadband Test Systems been a separate, stand-alone entity during the periods presented. Because a direct ownership relationship did not exist among all various units comprising Broadband Test Systems, the Parent’s net investment in Broadband Test Systems is shown in lieu of stockholder’s equity in the condensed combined financial statements.
Principles of Combination
The condensed combined financial statements include the accounts of Broadband Test Systems. All intra-company transactions and balances have been eliminated in combination.
Preparation of Financial Statements and Use of Estimates
The preparation of the condensed combined financial statements requires management to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent liabilities. Actual results may differ significantly from these estimates.
Concentrations of Credit Risk
Broadband Test Systems’ customers are concentrated in the telecommunications industry. Broadband Test Systems markets its products principally in North America and Europe. Broadband Test Systems had customers that accounted for greater than 10% of the total revenue and outstanding accounts receivable, as follows:
                                 
    Accounts Receivable     Revenue  
          As of     Six months     Six months  
    As of     December 31,     ended July 1,     ended July 2,  
    July 1, 2007     2006     2007     2006  
 
Customer A
     69 %     40 %     42 %     24 %
Customer B
     13 %     *       12 %     14 %
Customer C
     *       15 %     14 %     22 %
Customer D
     *       13 %     *       *  
Customer E
     *       10 %     *       *  
Customer F
     *       *       *       10 %
 
*   Indicates that the amount is less than 10% of Broadband Test Systems’ accounts receivable and revenue for the respective period.

4

 

Broadband Test Systems
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
(unaudited)
B.   SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES — (continued)
Inventories
Inventories, net of related reserves, as of July 1, 2007 and December 31, 2006, consisted of:
                 
    July 1,     December 31,  
    2007     2006  
    (in thousands)  
Raw materials
   $ 228     $ 184  
Work in progress
     33       107  
Finished goods
     239       216  
 
            
 
   $ 500     $ 507  
 
            
C.   SUPPLEMENTAL BALANCE SHEET INFORMATION
Accrued expenses consist of the following:
                 
    July 1,     December 31,  
    2007     2006  
    (in thousands)  
Professional and contracted services
   $ 180     $ 1,105  
Sales and property taxes
     399       402  
Employee severance
     95       271  
Other
     122       306  
 
            
 
Total
   $ 796     $ 2,084  
 
            
D.   ASSETS HELD FOR SALE
During the fourth quarter of 2006, Broadband Test Systems decided to sell its corporate headquarters and operations facility in Deerfield, Illinois to eliminate excess facility space. Accordingly, beginning in the fourth quarter 2006 the assets were reclassified as held for sale on the balance sheet. In addition, depreciation related to those assets, which was not material, ceased at that time.
During August 2007, the sale of the land and building was completed for a price of $8.5 million and a net gain of approximately $3.6 million.
E.   RECENTLY ISSUED ACCOUNTING PRONOUNCEMENTS
In September 2006, the Financial Accounting Standards Board (FASB) issued Statement of Financial Accounting Standards No. 157, Fair Value Measurements (SFAS No. 157). SFAS No. 157 establishes a framework for measuring fair value and requires expanded disclosures regarding fair value measurements. This accounting standard is effective for financial statements issued for fiscal years beginning after November 15, 2007. SFAS No. 157 will not have a material impact on the Broadband Test Systems’ financial position and results of operations.

5

 

Broadband Test Systems
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
(unaudited)
F.   RESTRUCTURING
Restructuring charges for Broadband Test Systems relate to employee severance and benefits from reduction-in-force activities as a result of decreases in product demand. The tables below summarize the restructuring charges and activity for the six months ended July 1, 2007 and July 2, 2006. The restructuring accrual is reflected in accrued expenses.
         
    Restructuring  
    activity  
    (in thousands)  
Balance at December 31, 2006
   $ 271  
2007 provision
     170  
Cash payments
     (346 )
 
      
Balance at July 1, 2007
   $ 95  
 
      
         
    Restructuring  
    activity  
    (in thousands)  
Balance at December 31, 2005
   $ 2  
2006 provision
     894  
Cash payments
     (2 )
 
      
Balance at July 2, 2006
   $ 894  
 
      
During the six months ended July 1, 2007, Broadband Test Systems recorded a charge of $170 thousand for severance and related employee benefits related to the termination of one employee located in the United States.
During the six months ended July 2, 2006, Broadband Test Systems recorded a charge of $894 thousand for severance and related employee benefits related to the termination of 14 employees located primarily in the United States.
G.   STOCK-BASED COMPENSATION
During the six months ended July 1, 2007, the Parent granted restricted stock units to Broadband Test Systems employees. The total number of units granted was 45 thousand at the weighted average grant date fair value of $15.28. Awards granted to employees were scheduled to vest in equal installments over four years.
H.   OTHER COMPREHENSIVE INCOME
Other comprehensive income is calculated as follows (in thousands):
                 
    For the Six Months Ended  
    July 1, 2007     July 2, 2006  
Net income (loss)
   $ 392     $ (2,448 )
Change in unrealized loss on foreign exchange contracts
     55       (30 )
 
            
Other comprehensive income (loss)
   $ 447     $ (2,478 )
 
            

6

 

Broadband Test Systems
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
(unaudited)
I.   RETIREMENT PLANS
U.S., U.K. and German Defined Benefit Pension Plans
The Parent has defined benefit pension plans covering certain of its U.S., U.K. and German employees. The accompanying condensed combined financial statements include an allocation of total pension expense based on the portion of the Parent’s plans which are estimated to be related to Broadband Test Systems employees. Pension expense of $194 thousand and $265 thousand are included in Broadband Test Systems’ statements of operations for the six months ended July 1, 2007 and July 2, 2006, respectively. The Broadband Test Systems condensed combined balance sheets do not contain any assets or liabilities related to the Parent’s pension plans. There were no existing liabilities for contributions that were due but unpaid as of July 1, 2007 and July 2, 2006.
J.   INCOME TAXES
The six months ended July 1, 2007 income tax provision relates to foreign taxes. Included in the six months ended July 1, 2007 tax provision is a write-off of $164 thousand of deferred tax assets related to Belgium net operating loss carryforwards, as it is no longer more likely than not that these assets will be realized.
In June 2006, the FASB issued FIN No. 48, “Accounting for Uncertainty in Income Taxes” (“FIN 48”), which clarifies the accounting for uncertainty in income taxes recognized in an enterprise’s financial statements in accordance with SFAS No. 109, “Accounting for Income Taxes.” This interpretation prescribes a recognition threshold and measurement attribute for the financial statement recognition and measurement of a tax position taken or expected to be taken in a tax return. This interpretation also provides guidance on de-recognition, classification, interest and penalties, accounting in interim periods, disclosure, and transition. Broadband Test Systems adopted FIN 48 on January 1, 2007. As a result of the implementation of FIN 48, there was no adjustment in the liability for unrecognized income tax benefits. At the adoption date of January 1, 2007 and as of July 1, 2007, Broadband Test Systems had no unrecognized tax benefits. Broadband Test Systems recognizes interest and penalties related to uncertain tax positions in income tax expense. As of the adoption date of January 1, 2007 and as of July 1, 2007, Broadband Test Systems had no accrued interest related to uncertain tax positions. Broadband Test Systems files federal, state and foreign income tax returns. Broadband Test Systems has open tax years beginning in 2003 for major jurisdictions including U.S., U.K. and Germany.
K.   RELATED PARTY TRANSACTIONS
Parent Allocations
Broadband Test Systems’ costs and expenses include allocations from the Parent for centralized information technology, legal, accounting, employee benefits, real estate, insurance, treasury and other corporate and infrastructure costs, as well as allocations for profit sharing, variable compensation and stock-based compensation. These allocations have been determined on bases that Broadband Test Systems and the Parent considered to be reasonable reflections of the utilization of services or the benefit received by Broadband Test Systems. The allocation methods include relative sales, headcount, salaries, square footage and usage. Allocated costs included in the condensed combined statement of operations for the six months ended July 1, 2007 and July 2, 2006 were as follows (in thousands):
                 
    Six months     Six months  
    ended     ended  
    July 1, 2007     July 2, 2006  
 
Cost of revenues
   $ 123     $ 192  
Engineering and development
     207       320  
Selling and marketing
     242       384  
General and administrative
     794       1,131  
 
            
 
Total
   $ 1,366     $ 2,027  
 
            

7

 

Broadband Test Systems
NOTES TO CONDENSED COMBINED FINANCIAL STATEMENTS—(Continued)
(unaudited)
K.   RELATED PARTY TRANSACTIONS — (continued)
Broadband Test Systems’ assets and liabilities include allocations from the Parent related to the centralized services provided by the Parent, including prepaid insurance premiums, general and administrative prepaid assets and accruals (such as prepaid maintenance fees and legal and audit fee accruals), profit sharing and variable compensation. The condensed combined balance sheet of Broadband Test Systems include the following allocated assets and liabilities as of July 1, 2007 and December 31, 2006:
                 
    July 1,   December 31,
    2007   2006
 
Prepayments and other current assets
   $ 160     $ 109  
Other assets
     55       —  
Accrued expenses
     158       241  
Accrued employee compensation and benefits
     1,008       1,346  

8