##### Table of Contents



UNITED STATES SECURITIES AND EXCHANGE COMMISSION
 WASHINGTON, DC 20549
 FORM 10-Q
  þ
    
    Quarterly Report pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the quarterly period ended March 31, 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.
  Pennsylvania
    
    25-1537134(State or other jurisdiction 
of incorporation or organization)
    
    (I.R.S. Employer
Identification No.)
 493 Nixon Rd.
Cheswick, PA 15024
 412-820-1400
 þ o
 o  o
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
 o þ




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##### 



TOLLGRADE COMMUNICATIONS, INC.
 Quarterly Report on Form 10-Q
For the Quarter Ended March 31, 2010  Table of Contents
 Page No.PART I. FINANCIAL INFORMATIONItem 1 Condensed Consolidated Financial Statements (Unaudited)Condensed Consolidated Balance Sheets as of March 31, 2010 and
December 31, 2009
    
    
    3Condensed Consolidated Statements of Operations for the three
month periods ended March 31, 2010 and March 28, 2009
    
    
    4Condensed Consolidated Statements of Cash Flows for the three
month periods ended March 31, 2010 and March 28, 2009
    
    
    5Condensed Consolidated Statements of Changes in Shareholders
Equity for the three month period ended March 31, 2010
    
    
    6Notes to Condensed Consolidated Financial Statements
    
    
    7Item 2 Managements Discussion and Analysis of Financial
Condition and Results of Operations
    
    
    13Item 3 Quantitative and Qualitative Disclosures about Market Risk
    
    
    22Item 4 Controls and Procedures
    
    
    22PART II. OTHER INFORMATIONItem 1A Risk Factors
    
    
    23Item 6 Exhibits
    
    
    24SIGNATURES
    
    
    25EXHIBIT INDEX
    
    
    26EX-10.1EX-10.2EX-31.1EX-31.2EX-32
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##### 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)
 March 31, 2010
    
    
    December 31, 2009| |ASSETSCurrent assets:Cash and cash equivalents
    
    $
    63,757
    
    
    $
    66,046Short-term investments
    
    
    3
    
    
    
    3Trade accounts receivable, net of allowance for doubtful
accounts of $1,496 in 2010 and 2009
    
    
    8,041
    
    
    
    6,998Other receivables
    
    
    1,066
    
    
    
    1,007Inventories, net
    
    
    1,851
    
    
    
    2,119Prepaid expenses and deposits
    
    
    781
    
    
    
    759Deferred and refundable income taxes
    
    
    809
    
    
    
    196Total current assets
    
    
    76,308
    
    
    
    77,128Property and equipment, net
    
    
    2,903
    
    
    
    3,101Intangibles, net
    
    
    6,563
    
    
    
    7,110Deferred tax assets
    
    
    105
    
    
    
    119Other assets
    
    
    193
    
    
    
    229Total assets
    
    $
    86,072
    
    
    $
    87,687LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    979
    
    
    $
    927Accrued warranty
    
    
    480
    
    
    
    504Accrued expenses
    
    
    3,495
    
    
    
    2,456Accrued salaries and wages
    
    
    590
    
    
    
    1,190Income taxes payable
    
    
    282
    
    
    
    393Deferred revenue
    
    
    1,890
    
    
    
    2,463Total current liabilities
    
    
    7,716
    
    
    
    7,933Other long-term obligations
    
    
    1,705
    
    
    
    1,721Deferred tax liabilities
    
    
    265
    
    
    
    290Total liabilities
    
    
    9,686
    
    
    
    9,944Commitments and contingencies
    
    
    
    
    
    
    Shareholders equity:Common stock, $0.20 par value; 50,000 authorized shares,
issued shares, 13,858 in 2010 and 13,788 in 2009
    
    
    2,772
    
    
    
    2,746Additional paid-in capital
    
    
    75,724
    
    
    
    75,244Treasury stock, at cost, 1,162 shares in 2010 and 1,151 in 2009
    
    
    (8,632
    )
    
    
    (8,563
    )Retained earnings
    
    
    7,880
    
    
    
    9,543Accumulated other comprehensive loss
    
    
    (1,358
    )
    
    
    (1,227
    )Total shareholders equity
    
    
    76,386
    
    
    
    77,743Total liabilities and shareholders equity
    
    $
    86,072
    
    
    $
    87,687
  3




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##### Table of Contents



TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data) (Unaudited)
 Three Months EndedMarch 31,
    
    
    March 28,2010
    
    
    2009Revenue:Products
    
    $
    4,222
    
    
    $
    5,829Services
    
    
    6,945
    
    
    
    4,488Total Revenue
    
    
    11,167
    
    
    
    10,317Cost of sales:Products
    
    
    1,814
    
    
    
    2,785Services
    
    
    1,993
    
    
    
    1,424Amortization
    
    
    400
    
    
    
    641Severance
    
    
    468
    
    
    
    183Total cost of sales
    
    
    4,675
    
    
    
    5,033Gross profit
    
    
    6,492
    
    
    
    5,284Operating expenses:Selling and marketing
    
    
    2,063
    
    
    
    1,655General and administrative
    
    
    2,218
    
    
    
    2,575Research and development
    
    
    2,360
    
    
    
    2,036Severance
    
    
    1,258
    
    
    
    63Total operating expenses
    
    
    7,899
    
    
    
    6,329Loss from operations
    
    
    (1,407
    )
    
    
    (1,045
    )Other (expense)/ income
    
    
    (409
    )
    
    
    118Loss before income taxes
    
    
    (1,816
    )
    
    
    (927
    )(Benefit) provision for income taxes
    
    
    (153
    )
    
    
    97Loss from continuing operations
    
    
    (1,663
    )
    
    
    (1,024
    )Loss from discontinued operations
    
    
    
    
    
    
    (199
    )Net Loss
    
    $
    (1,663
    )
    
    $
    (1,223
    )Per share information:Weighted average shares of common stock and equivalents:Basic
    
    
    12,656
    
    
    
    12,679Diluted
    
    
    12,656
    
    
    
    12,679Net loss per common and common equivalent shares:Basic
    
    $
    (0.13
    )
    
    $
    (0.10
    )Diluted
    
    $
    (0.13
    )
    
    $
    (0.10
    )Loss per common and common equivalent shares from
continuing operations:Basic
    
    $
    (0.13
    )
    
    $
    (0.08
    )Diluted
    
    $
    (0.13
    )
    
    $
    (0.08
    )Net loss per common and common equivalent shares from
discontinued operations:Basic
    
    $
    (0.00
    )
    
    $
    (0.02
    )Diluted
    
    $
    (0.00
    )
    
    $
    (0.02
    )
  4




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TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
 (In thousands) (Unaudited)
 March 31, 2010
    
    
    March 28, 2009Cash flows from operating activities:Net loss
    
    $
    (1,663
    )
    
    $
    (1,223
    )Adjustments to reconcile net loss to net cash provided by operating
activitiesLoss from discontinued operations
    
    
    
    
    
    
    199Amortization expense
    
    
    400
    
    
    
    641Depreciation expense
    
    
    327
    
    
    
    312Stock-based compensation expense
    
    
    506
    
    
    
    295Deferred income taxes
    
    
    (825
    )
    
    
    64Provision for losses on inventory
    
    
    
    
    
    
    40Provision for allowance for doubtful accounts
    
    
    
    
    
    
    79Changes in assets and liabilities:Accounts receivable-trade
    
    
    (1,161
    )
    
    
    (1,897
    )Other receivable
    
    
    96
    
    
    
    1,004Inventories
    
    
    267
    
    
    
    669Prepaid expenses, deposits and other assets
    
    
    5
    
    
    
    218Accounts payable
    
    
    115
    
    
    
    42Accrued warranty
    
    
    (2
    )
    
    
    (160
    )Accrued expenses
    
    
    410
    
    
    
    (441
    )Income taxes payable
    
    
    (494
    )
    
    
    (112
    )Net cash provided by operating activities of discontinued operations
    
    
    
    
    
    
    7Net cash used in operating activities
    
    
    (2,019
    )
    
    
    (263
    )Cash flows from investing activities:Redemption of short-term investments
    
    
    
    
    
    
    1,968Purchase of property and equipment
    
    
    (151
    )
    
    
    (79
    )Net cash used in investing activities of discontinued operations
    
    
    
    
    
    
    (7
    )Net cash (used in)/provided by investing activities
    
    
    (151
    )
    
    
    1,882Cash flows from financing activities:Repurchase of Treasury Stock
    
    
    (69
    )
    
    
    Net cash used in financing activities
    
    
    (69
    )
    
    
    Net increase in cash and cash equivalents
    
    
    (2,239
    )
    
    
    1,619Effect of exchange rate changes on cash and cash equivalents
    
    
    (50
    )
    
    
    (24
    )Cash and cash equivalents, beginning of period
    
    
    66,046
    
    
    
    57,976Cash and cash equivalents, end of period
    
    $
    63,757
    
    
    $
    59,571Supplemental disclosure of cash flow information:Cash paid during the period for income taxes
    
    $
    704
    
    
    $
    146
  5




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Tollgrade Communications, Inc. and Subsidiaries
 
 Consolidated Statements of Changes in Shareholders Equity
 In thousands (Unaudited)
 AccumulatedOther
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Additional
    
    
    Treasury Stock
    
    
    Retained
    
    
    Comprehensive
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Paid-In Capital
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Loss
    
    
    Total
    
    
    LossBalance at December 31, 2009
    
    
    13,788
    
    
    $
    2,746
    
    
    $
    75,244
    
    
    
    1,151
    
    
    $
    (8,563
    )
    
    $
    9,543
    
    
    $
    (1,227
    )
    
    $
    77,743Purchase of Treasury Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    11
    
    
    
    (69
    )
    
    
    
    
    
    
    
    
    
    
    (69
    )Compensation expense for
options and restricted
stock, net
    
    
    70
    
    
    
    26
    
    
    
    480
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    506Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (131
    )
    
    
    (131
    )
    
    
    (131
    )Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,663
    )
    
    
    
    
    
    
    (1,663
    )
    
    $
    (1,663
    )Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (1,794
    )Balance at March 31, 2010
    
    
    13,858
    
    
    $
    2,772
    
    
    $
    75,724
    
    
    
    1,162
    
    
    $
    (8,632
    )
    
    $
    7,880
    
    
    $
    (1,358
    )
    
    $
    76,386
  6




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NOTES TO THE UNAUDITED CONDENSED CONSOLIDATED
FINANCIAL STATEMENTS (Unaudited)
 1. BASIS OF PRESENTATION
  RECENTLY ISSUED ACCOUNTING GUIDANCE
  2. FAIR VALUE MEASUREMENTS
  7




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
    
    Level 1  Unadjusted quoted prices in active markets that are accessible at the
measurement date for identical, unrestricted assets or liabilities;
    
    Level 2  Inputs other than quoted prices included within Level 1 that are observable
for the asset or liability, either directly or indirectly, including quoted prices for
similar assets or liabilities in active markets; quoted prices for identical or similar
assets or liabilities in markets that are not active; inputs other than quoted prices that
are observable for the asset or liability (e.g., interest rates); and inputs that are
derived principally from or corroborated by observable market data by correlation or other
means; and
    
    Level 3  Inputs that are both significant to the fair value measurement and
unobservable.
  3. STOCK BASED COMPENSATION
   Stock-Based Compensation Expense
  8




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Number of
    
    Range of Option
    
    Weighted AverageShares
    
    Prices
    
    Exercise PriceOutstanding, December 31, 2009
    
    
    1,684,795
    
    
    $
    3.27  159.19
    
    
    $
    27.29Exercised
    
    
    
    
    
    
    
    
    
    
    Cancelled/Forfeited/Expired
    
    
    (39,419
    )
    
    
    5.17  57.11
    
    
    
    52.50Outstanding, March 31, 2010
    
    
    1,645,376
    
    
    $
    3.27  159.19
    
    
    $
    15.75
 4. SEVERANCE
   9




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5. INTANGIBLE ASSETS
  March 31, 2010ImpairmentsUseful
    
    
    
    
    
    
    
    
    
    
    During theLife
    
    
    
    
    
    
    Accumulated
    
    
    ReportingAmortizing Intangible Assets:
    
    (Years)
    
    
    Gross
    
    
    Amortization
    
    
    Period
    
    
    NetPost warranty service agreements
    
    
    6-15
    
    
    $
    37,538
    
    
    $
    32,497
    
    
    $
    
    
    
    $
    5,041Technology
    
    
    2-10
    
    
    
    13,986
    
    
    
    12,825
    
    
    
    
    
    
    
    1,161Customer relationships
    
    
    5-15
    
    
    
    903
    
    
    
    625
    
    
    
    
    
    
    
    278Tradenames and other
    
    
    1-10
    
    
    
    574
    
    
    
    491
    
    
    
    
    
    
    
    83Total Intangible Assets
    
    
    
    
    
    $
    53,001
    
    
    $
    46,438
    
    
    $
    
    
    
    $
    6,563
 December 31, 2009ImpairmentsUseful
    
    
    
    
    
    
    
    
    
    
    During TheLife
    
    
    
    
    
    
    Accumulated
    
    
    ReportingAmortizing Intangible Assets:
    
    (Years)
    
    
    Gross
    
    
    Amortization
    
    
    Period
    
    
    NetPost warranty service agreements
    
    
    6-15
    
    
    $
    37,779
    
    
    $
    5,438
    
    
    $
    26,960
    
    
    $
    5,381Technology
    
    
    2-10
    
    
    
    14,000
    
    
    
    12,488
    
    
    
    191
    
    
    
    1,321Customer relationships
    
    
    5-15
    
    
    
    927
    
    
    
    613
    
    
    
    
    
    
    
    314Tradenames and other
    
    
    1-10
    
    
    
    537
    
    
    
    443
    
    
    
    
    
    
    
    94Total Intangible Assets
    
    
    
    
    
    $
    53,243
    
    
    $
    18,982
    
    
    $
    27,151
    
    
    $
    7,110
   Impairments
 Long-Lived Assets
   10




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6. INVENTORIES
  March 31, 2010
    
    December 31, 2009Raw materials
    
    $
    3,701
    
    
    $
    3,584Work in process
    
    
    823
    
    
    
    830Finished goods
    
    
    2,191
    
    
    
    2,352Total Gross Inventory
    
    
    6,715
    
    
    
    6,766Reserves for slow moving and obsolete inventory
    
    
    (4,864
    )
    
    
    (4,647
    )Net Inventory
    
    $
    1,851
    
    
    $
    2,119
 7. PRODUCT WARRANTY
  March 31, 2010
    
    December 31, 2009Balance at the beginning of the period
    
    $
    504
    
    
    $
    926Accruals for warranties issued during the period
    
    
    16
    
    
    
    894Settlements during the period
    
    
    (40
    )
    
    
    (1,316
    )Balance at the end of the period
    
    $
    480
    
    
    $
    504
 8. PER SHARE INFORMATION
  11




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9. REVENUE CONCENTRATION, MAJOR CUSTOMERS
  March 31,
    
    March 28,2010
    
    2009MCU
    
    $
    1,776
    
    
    
    16
    %
    
    $
    2,274
    
    
    
    22
    %Test Products
    
    
    2,446
    
    
    
    22
    %
    
    $
    3,555
    
    
    
    34
    %Services
    
    
    6,945
    
    
    
    62
    %
    
    $
    4,488
    
    
    
    44
    %Total
    
    $
    11,167
    
    
    
    100
    %
    
    $
    10,317
    
    
    
    100
    %
   March 31,
    
    March 28,2010
    
    2009Customer A
    
    $
    2,828
    
    
    
    25
    %
    
    $
    3,068
    
    
    
    30
    %Customer B
    
    
    1,752
    
    
    
    16
    %
    
    
    
    
    
    
    Customer C
    
    
    953
    
    
    
    9
    %
    
    
    1,209
    
    
    
    12
    %Customer D
    
    
    950
    
    
    
    9
    %
    
    
    1,445
    
    
    
    14
    %Customer E
    
    
    680
    
    
    
    6
    %
    
    
    1,071
    
    
    
    10
    %Total
    
    $
    7,163
    
    
    
    
    
    
    $
    6,793
  March 31,
    
    March 28,2010
    
    2009RegionEMEA
    
    $
    3,455
    
    
    
    31
    %
    
    $
    2,069
    
    
    
    20
    %Americas
    
    
    235
    
    
    
    2
    %
    
    
    766
    
    
    
    7
    %Asia
    
    
    12
    
    
    
    0
    %
    
    
    167
    
    
    
    2
    %Total International
    
    
    3,702
    
    
    
    33
    %
    
    
    3,002
    
    
    
    29
    %Total Domestic
    
    
    7,465
    
    
    
    67
    %
    
    
    7,315
    
    
    
    71
    %Total Revenue
    
    $
    11,167
    
    
    
    100
    %
    
    $
    10,317
    
    
    
    100
    %
 12




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Item 2. MANAGEMENTS 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.
   Cable Product Line
  Overview
   13




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##### Table of Contents




    
    After a review of our organic growth initiatives we determined to reduce the number of
such initiatives in order to sharpen our focus on near-term opportunities with the best
prospects for revenue and profitability and reduced areas involving higher risk or
significant investment prior to any realized returns. As a result, 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 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 continue to
support growth initiatives in our telecommunication product lines, including customer
driven expansion of our hardware and software offerings as well as supporting our power
utility product offering as we are currently in an expanded trial with a major U.S. power
utility customer.
 
    
    We are pursuing several opportunities to continue to expand our professional services
and managed service offerings and 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 overall goal is to increase our
penetration in the services market and in our telecommunication carrier accounts.
 
    
    We implemented a workforce reduction which eliminated approximately 50 full-time
employee positions across all functional areas of the organization. We anticipate these
actions will result in an annualized savings of over $5.8 million in salaries and benefits.
We expect the reductions and transition process to be completed by the end of the second
quarter to achieve virtually 100% of the annualized savings on a forward looking basis
beginning July 1, 2010. We believe that the reduction in operating costs will not affect
our ability to deliver the level of service our customers have come to expect.
  14




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Products
    Electric Utility Monitoring Products
   Services and Managed Services
   15




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##### Table of Contents



Our Customers
  Backlog
  RESULTS OF OPERATIONS
 THREE MONTHS ENDED MARCH 31, 2010 COMPARED TO THREE MONTHS ENDED MARCH 28, 2009
 Revenues
 March 31,
    


    March 28,2010
    
    2009
    
    Change
    
    %System Test Products
    
    $
    2,430
    
    
    $
    3,555
    
    
    $
    (1,125
    )
    
    
    -32
    %MCU
    
    
    1,776
    
    
    
    2,274
    
    
    
    (498
    )
    
    
    -22
    %Other
    
    
    16
    
    
    
    
    
    
    
    16
    
    
    
    Total Products
    
    
    4,222
    
    
    
    5,829
    
    
    
    (1,607
    )
    
    
    -28
    %Services
    
    
    6,945
    
    
    
    4,488
    
    
    
    2,457
    
    
    
    55
    %Total Revenues
    
    $
    11,167
    
    
    $
    10,317
    
    
    $
    850
    
    
    
    8
    %
   16




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Gross Profit
  Selling and Marketing Expenses
 March 31,
    
    March 28,2010
    
    2009
    
    Change
    
    %Employee Costs
    
    $
    1,502
    
    
    $
    1,147
    
    
    $
    355
    
    
    
    31
    %Travel Expenses
    
    
    207
    
    
    
    175
    
    
    
    32
    
    
    
    18
    %Consulting
    
    
    113
    
    
    
    110
    
    
    
    3
    
    
    
    3
    %Other
    
    
    241
    
    
    
    223
    
    
    
    18
    
    
    
    8
    %Total
    
    $
    2,063
    
    
    $
    1,655
    
    
    $
    408
    
    
    
    25
    %
  17




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##### Table of Contents



General and Administrative Expenses
 March 31,
    
    March 28,2010
    
    2009
    
    Change
    
    %Employee Costs
    
    $
    913
    
    
    $
    947
    
    
    $
    (34
    )
    
    
    -4
    %Stock Compensation
    
    
    415
    
    
    
    197
    
    
    
    218
    
    
    
    111
    %Legal & Professional Fees
    
    
    260
    
    
    
    760
    
    
    
    (500
    )
    
    
    -66
    %General Insurance
    
    
    89
    
    
    
    170
    
    
    
    (81
    )
    
    
    -48
    %Other
    
    
    541
    
    
    
    501
    
    
    
    40
    
    
    
    8
    %Total
    
    $
    2,218
    
    
    $
    2,575
    
    
    $
    (357
    )
    
    
    -14
    %
  Research and Development Expenses
 March 31,
    
    March 28,2010
    
    2009
    
    Change
    
    %Employee Costs
    
    $
    1,889
    
    
    $
    1,992
    
    
    $
    (103
    )
    
    
    -5
    %Professional Fees
    
    
    336
    
    
    
    102
    
    
    
    234
    
    
    
    229
    %Depreciation
    
    
    143
    
    
    
    190
    
    
    
    (47
    )
    
    
    -25
    %Cost of sales allocation
    
    
    (329
    )
    
    
    (613
    )
    
    
    284
    
    
    
    -46
    %Other
    
    
    321
    
    
    
    365
    
    
    
    (44
    )
    
    
    -12
    %Total
    
    $
    2,360
    
    
    $
    2,036
    
    
    $
    324
    
    
    
    16
    %
  18




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##### Table of Contents



Severance Expenses
  Other (Expense)/Income
  Income Taxes
   Loss from Continuing Operations and Loss Per Share from Continuing Operations
  19




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##### Table of Contents



LIQUIDITY AND CAPITAL RESOURCES
      COMMITMENTS AND CONTRACTUAL OBLIGATIONS
  20




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##### Table of Contents








Less than 1
    
    
    
    
    
    
    
    
    
    More than 5Total
    
    year
    
    1-3 years
    
    3-5 years
    
    yearsOperating Lease Obligations
    
    $
    1,657
    
    
    $
    761
    
    
    $
    871
    
    
    $
    25
    
    
    $
    Severance Obligation
    
    
    1,726
    
    
    
    1,726
    
    
    
    
    
    
    
    
    
    
    
    Purchase Obligations
    
    
    11
    
    
    
    
    
    
    
    11
    
    
    
    
    
    
    
    Uncertain Tax Obligations
    
    
    750
    
    
    
    
    
    
    
    750
    
    
    
    
    
    
    
    Pension Obligations
    
    
    956
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    956Total
    
    $
    5,100
    
    
    $
    2,487
    
    
    $
    1,632
    
    
    $
    25
    
    
    $
    956






Application of Critical Accounting Policies




21



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##### Table of Contents



Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
   
 Item 4. CONTROLS AND PROCEDURES
   22




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##### Table of Contents



PART II. OTHER INFORMATION
 
 Item 1A.
    
    RISK FACTORS
   23




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##### Table of Contents



Item 6.  EXHIBITS
 (a)  Exhibits:
  ExhibitNumber
    
    Description10.1
    
    Appendix I to Management Incentive Compensation Plan for
2010 Award Year, adopted February 19, 2010, filed
herewith10.2
    
    Summary of Compensation Program for non-employee Chairman
of the Board of Directors, adopted March 23, 2010, filed
herewith31.1
    
    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.
 
 24




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##### Table of Contents



SIGNATURES
  Tollgrade Communications, Inc.
(Registrant)Dated: May 6, 2010
    /s/ Joseph A. FerraraJoseph A. FerraraChief Executive Officer and PresidentDated: May 6, 2010
    /s/ Michael D. BornakMichael D. BornakChief Financial Officer and Treasurer 25




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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description10.1
    
    Appendix I to Management Incentive Compensation Plan for 2010
Award Year, adopted February 19, 2010, filed herewith10.2
    
    Summary of Compensation Program for non-employee Chairman of the
Board of Directors, adopted March 23, 2010, filed herewith31.1
    
    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.
 26