##### 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 June 30, 2007
 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
    
    (I.R.S. Employerof incorporation or organization)
    
    Identification No.)
 493 Nixon Rd.
Cheswick, PA 15024
 412-820-1400
  þ o
  o þ o
  o þ




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##### 



TOLLGRADE COMMUNICATIONS, INC.
 Quarterly Report on Form 10-Q
For the Quarter Ended June 30, 2007  Table of Contents
 PAGENO.PART I. FINANCIAL INFORMATIONItem 1 Condensed Consolidated Financial Statements (unaudited):Condensed Consolidated Balance Sheets as of June 30, 2007 and December
31, 2006
    
    
    3Condensed Consolidated Statements of Operations for the three and six
month periods ended June 30, 2007 and July 1, 2006
    
    
    4Condensed Consolidated Statements of Cash Flows for the six month
periods ended June 30, 2007 and July 1, 2006
    
    
    5Notes to Condensed Consolidated Financial Statements
    
    
    6Item 2 Managements Discussion and Analysis of Financial Condition and
Results of Operations
    
    
    14Item 3 Quantitative and Qualitative Disclosures about Market Risk
    
    
    34Item 4 Controls and Procedures
    
    
    34PART II. OTHER INFORMATIONItem 1A Risk Factors
    
    
    35Item 4 Submission of Matters to a Vote of Security Holders
    
    
    46Item 6 Exhibits
    
    
    47SIGNATURES
    
    
    49EXHIBIT INDEX
    
    
    50Exhibit 3.1bExhibit 3.2aExhibit 10.1Exhibit 31.1Exhibit 31.2Exhibit 32EX-10.1EX-31.1EX-31.2EX-32
  2




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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)
 June 30, 2007
    
    December 31, 2006*ASSETSCurrent assets:Cash and cash equivalents
    
    $
    54,171
    
    
    $
    57,378Short-term investments
    
    
    12,761
    
    
    
    5,323Accounts receivable:Trade, net of allowance for doubtful accounts of
$447 in 2007 and $535 in 2006
    
    
    9,994
    
    
    
    15,149Other
    
    
    1,460
    
    
    
    1,918Inventories
    
    
    11,888
    
    
    
    8,556Prepaid expenses
    
    
    958
    
    
    
    776Receivable from officer
    
    
    145
    
    
    
    148Deferred tax assets and refundable income tax
    
    
    2,262
    
    
    
    2,939Assets held for sale
    
    
    589
    
    
    
    1,190Total current assets
    
    
    94,228
    
    
    
    93,377Property and equipment, net
    
    
    3,209
    
    
    
    3,301Intangibles and capitalized software, net
    
    
    40,400
    
    
    
    41,487Goodwill
    
    
    23,836
    
    
    
    23,836Other assets
    
    
    664
    
    
    
    351Total assets
    
    $
    162,337
    
    
    $
    162,352LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    1,215
    
    
    $
    1,580Accrued warranty
    
    
    2,040
    
    
    
    2,135Accrued expenses
    
    
    1,308
    
    
    
    2,590Accrued salaries and wages
    
    
    428
    
    
    
    658Accrued royalties payable
    
    
    305
    
    
    
    200Deferred income
    
    
    2,984
    
    
    
    2,783Total current liabilities
    
    
    8,280
    
    
    
    9,946Deferred tax liabilities and other taxes
    
    
    3,386
    
    
    
    2,962Total liabilities
    
    
    11,666
    
    
    
    12,908Contingencies and commitmentsShareholders equity:Preferred stock, $1.00 par value; Authorized
shares, 10,000; issued shares, -0- in 2007 and 2006
    
    
    
    
    
    
    Common stock, $.20 par value; authorized shares,
50,000; issued shares, 13,725 in 2007 and 13,709
in 2006
    
    
    2,743
    
    
    
    2,742Additional paid-in capital
    
    
    73,142
    
    
    
    72,477Treasury stock, at cost, 462 shares in 2007 and 2006
    
    
    (4,791
    )
    
    
    (4,791
    )Retained earnings
    
    
    79,577
    
    
    
    79,016Total shareholders equity
    
    
    150,671
    
    
    
    149,444Total liabilities and shareholders equity
    
    $
    162,337
    
    
    $
    162,352
 *
    
    Amounts derived from audited financial statements presented in the Companys Annual Report on
Form 10-K for the year ended December 31, 2006.
  3




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TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS
 (In thousands, except per share data) (Unaudited)
 Three Months Ended
    
    
    Six Months EndedJune 30, 2007
    
    
    July 1, 2006
    
    
    June 30, 2007
    
    
    July 1, 2006Revenues:Products
    
    $
    11,181
    
    
    $
    12,415
    
    
    $
    21,449
    
    
    $
    26,775Services
    
    
    3,000
    
    
    
    3,838
    
    
    
    5,774
    
    
    
    7,085Total revenues:
    
    
    14,181
    
    
    
    16,253
    
    
    
    27,223
    
    
    
    33,860Cost of product sales:Products
    
    
    4,976
    
    
    
    6,316
    
    
    
    9,503
    
    
    
    13,975Services
    
    
    831
    
    
    
    1,404
    
    
    
    1,760
    
    
    
    2,429Amortization of intangibles
    
    
    570
    
    
    
    913
    
    
    
    1,138
    
    
    
    1,8906,377
    
    
    
    8,633
    
    
    
    12,401
    
    
    
    18,294Gross Profit:
    
    
    7,804
    
    
    
    7,620
    
    
    
    14,822
    
    
    
    15,566Selling and marketing
    
    
    2,325
    
    
    
    2,937
    
    
    
    4,510
    
    
    
    5,623General and administrative
    
    
    2,340
    
    
    
    1,864
    
    
    
    4,448
    
    
    
    4,183Research and development
    
    
    2,992
    
    
    
    3,590
    
    
    
    5,945
    
    
    
    7,250Restructuring expense
    
    
    212
    
    
    
    
    
    
    
    594
    
    
    
    Total operating expenses
    
    
    7,869
    
    
    
    8,391
    
    
    
    15,497
    
    
    
    17,056(Loss) from operations
    
    
    (65
    )
    
    
    (771
    )
    
    
    (675
    )
    
    
    (1,490
    )Interest and other income, net
    
    
    740
    
    
    
    628
    
    
    
    1,516
    
    
    
    1,255Income (loss) before income taxes
    
    
    675
    
    
    
    (143
    )
    
    
    841
    
    
    
    (235
    )Provision (benefit) for income taxes
    
    
    225
    
    
    
    (39
    )
    
    
    280
    
    
    
    (67
    )Net income (loss)
    
    $
    450
    
    
    $
    (104
    )
    
    $
    561
    
    
    $
    (168
    )Earnings (loss) per share information:Weighted average shares of common
stock and equivalents:Basic
    
    
    13,260
    
    
    
    13,247
    
    
    
    13,257
    
    
    
    13,230Diluted
    
    
    13,516
    
    
    
    13,247
    
    
    
    13,480
    
    
    
    13,230Net income (loss) per common and
common equivalent shares:Basic
    
    $
    0.03
    
    
    $
    (0.01
    )
    
    $
    0.04
    
    
    $
    (0.01
    )Diluted
    
    $
    0.03
    
    
    $
    (0.01
    )
    
    $
    0.04
    
    
    $
    (0.01
    )
  4




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TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
 
 CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands) (Unaudited)
 Six Months EndedJune 30, 2007
    
    July 1, 2006Cash flows from operating activities:Net income (loss)
    
    $
    561
    
    
    $
    (168
    )Adjustments to reconcile net income (loss) to net
cash provided by operating activities:Depreciation and amortization
    
    
    1,947
    
    
    
    2,989Compensation expense related to stock plans
    
    
    628
    
    
    
    229Deferred and refundable income taxes
    
    
    1,101
    
    
    
    284Excess tax benefits from share-based compensation
    
    
    (6
    )
    
    
    Restructuring charges
    
    
    246
    
    
    
    Provision for losses on inventories
    
    
    268
    
    
    
    (48
    )Provision for allowance for doubtful accounts
    
    
    39
    
    
    
    54Changes in assets and liabilities:Accounts receivable-trade
    
    
    5,116
    
    
    
    403Accounts receivable-other
    
    
    238
    
    
    
    (506
    )Inventories
    
    
    (3,600
    )
    
    
    (507
    )Prepaid expenses and other assets
    
    
    (492
    )
    
    
    194Accounts payable
    
    
    (365
    )
    
    
    (441
    )Accrued warranty
    
    
    (95
    )
    
    
    (71
    )Accrued expenses, deferred income & accrued
salaries and wages
    
    
    (1,305
    )
    
    
    (1,519
    )Accrued royalties payable
    
    
    105
    
    
    
    (390
    )Income taxes payable
    
    
    
    
    
    
    (542
    )Net cash provided by (used in) operating activities
    
    
    4,386
    
    
    
    (39
    )Cash flows from investing activities:Purchase of Emerson test division
    
    
    
    
    
    
    (5,501
    )Purchase of short-term investments
    
    
    (11,608
    )
    
    
    (6,528
    )Redemption/maturity of short-term investments
    
    
    4,170
    
    
    
    14,348Capital expenditures, including capitalized software
    
    
    (761
    )
    
    
    (825
    )Sale of assets held for sale
    
    
    568
    
    
    
    Net cash (used in) provided by investing activities
    
    
    (7,631
    )
    
    
    1,494Cash flows from financing activities:Proceeds from the exercise of stock options
    
    
    32
    
    
    
    406Excess tax benefits from share-based compensation
    
    
    6
    
    
    
    94Net cash provided by financing activities
    
    
    38
    
    
    
    500Net (decrease) increase in cash and cash equivalents
    
    
    (3,207
    )
    
    
    1,955Cash and cash equivalents at beginning of period
    
    $
    57,378
    
    
    $
    49,421Cash and cash equivalents at end of period
    
    $
    54,171
    
    
    $
    51,376
  5




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NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
 1. BASIS OF PRESENTATION
  RECLASSIFICATIONS
  NEW ACCOUNTING STANDARDS
  2. STOCK COMPENSATION PLANS AND ACCOUNTING FOR STOCK-BASED COMPENSATION EXPENSE
 The Plans
  6




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Stock-Based Compensation Expense
  Shares Authorized But Not GrantedJune 30, 2007
    
    December 31, 20061998 Employee Incentive Compensation Plan
    
    
    160,673
    
    
    
    153,3732006 Long-term Incentive Compensation Plan
    
    
    1,146,118
    
    
    
    1,276,666
 7




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Number of
    
    
    
    
    
    Weighted AverageShares
    
    Range of Option Prices
    
    Exercise PriceOutstanding, December 31, 2006
    
    
    1,358,385
    
    
    $
    7.28  159.19
    
    
    $
    30.24Granted
    
    
    10,000
    
    
    
    9.84
    
    
    
    9.84Exercised
    
    
    (4,000
    )
    
    
    7.56-9.49
    
    
    
    7.80Cancelled
    
    
    (13,350
    )
    
    
    12.55-159.19
    
    
    
    63.85Outstanding, June 30, 2007
    
    
    1,351,035
    
    
    
    7.28-159.19
    
    
    
    29.80
 3. RESTRUCTURING
   Balance atDecember

    
    
    
    
    
    Cash

    
    Asset write-

    
    Balance at31, 2006

    
    Expense

    
    payments

    
    downs

    
    June 30, 2007Facility
rationalization
including employee
costs
    
    $
    341
    
    
    $
    567
    
    
    $
    (441
    )
    
    $
    (220
    )
    
    $
    247Real estate
impairment
    
    
    
    
    
    
   27


    
    
    
    
    
    
    (27
    )
    
    
    Total
    
    $
    341
    
    
    $
    594
    
    
    $
    (441
    )
    
    $
    (247
    )
    
    $
    247
   4. ACQUISITION
  8




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Accounts Receivable
    
    $
    1,827Inventories
    
    
    1,113Property and Equipment
    
    
    112Intangible Assets:Customer Relationship
    
    
    193Tradename
    
    
    62Purchased Technology
    
    
    761Sales Order Backlog
    
    
    97Goodwill
    
    
    2,274Total Assets Acquired
    
    
    6,439Deferred Income
    
    
    175Accounts Payable
    
    
    636Restructuring
    
    
    127Total Liabilities
    
    
    938Net Assets Acquired
    
    $
    5,501
  (In Thousands, Except PerShare Data)Unaudited Pro FormaSix Months EndedJuly 1, 2006Revenues
    
    $
    35,426(Loss) from operations
    
    $
    (1,477
    )Net (loss)
    
    $
    (159
    )Diluted (loss) per share
    
    $
    (0.01
    )
 9




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##### Table of Contents



5. INTANGIBLE ASSETS
  Useful
    
    June 30, 2007Life
    
    
    
    
    
    Accumulated(Years)
    
    Gross
    
    Amortization
    
    NetAmortizing Intangible Assets:Post Warranty Service Agreements
    
    
    50
    
    
    $
    32,000
    
    
    $
    1,120
    
    
    $
    30,880Technology
    
    
    5-10
    
    
    
    17,963
    
    
    
    12,695
    
    
    
    5,268Customer Relationships
    
    
    5-15
    
    
    
    2,843
    
    
    
    918
    
    
    
    1,925Other
    
    
    1-3
    
    
    
    159
    
    
    
    132
    
    
    
    27Non-Amortizing Intangible Assets:Tradenames
    
    
    
    
    
    
    2,300
    
    
    
    
    
    
    
    2,300Total Intangible Assets
    
    
    
    
    
    $
    55,265
    
    
    $
    14,865
    
    
    $
    40,400Goodwill
    
    
    
    
    
    $
    23,836
    
    
    $
    
    
    
    $
    23,836
 Useful
    
    December 31, 2006Life
    
    
    
    
    
    Accumulated(Years)
    
    Gross
    
    Amortization
    
    NetAmortizing Intangible Assets:Post Warranty Service Agreements
    
    
    50
    
    
    $
    32,000
    
    
    $
    800
    
    
    $
    31,200Technology
    
    
    5-10
    
    
    
    17,912
    
    
    
    12,057
    
    
    
    5,855Customer Relationships
    
    
    5-15
    
    
    
    2,843
    
    
    
    748
    
    
    
    2,095Other
    
    
    1-3
    
    
    
    159
    
    
    
    122
    
    
    
    37Non-Amortizing Intangible Assets:Tradenames
    
    
    
    
    
    
    2,300
    
    
    
    
    
    
    
    2,300Total Intangible Assets
    
    
    
    
    
    $
    55,214
    
    
    $
    13,727
    
    
    $
    41,487Goodwill
    
    
    
    
    
    $
    23,836
    
    
    $
    
    
    
    $
    23,836
   10




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6. INVENTORIES
  June 30, 2007
    
    
    December 31, 2006Raw materials
    
    $
    8,041
    
    
    $
    5,895Work in process
    
    
    2,851
    
    
    
    2,728Finished goods
    
    
    3,518
    
    
    
    2,35814,410
    
    
    
    10,981Reserve for slow moving and obsolete inventory
    
    
    (2,522
    )
    
    
    (2,425
    )$
    11,888
    
    
    $
    8,556
 7. PER SHARE INFORMATION
   Three Months Ended
    
    
    Six Months EndedJune 30, 2007
    
    
    June 30, 2007Net Income
    
    $
    450
    
    
    $
    561Common and common equivalent shares:Weighted average common shares outstanding
    
    
    13,260
    
    
    
    13,257Effect of dilutive securities- stock options
    
    
    256
    
    
    
    22313,516
    
    
    
    13,480Income per share:Basic
    
    $
    0.03
    
    
    $
    0.04Diluted
    
    $
    0.03
    
    
    $
    0.04
 8. PRODUCT WARRANTY
  11




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Six Months Ended
    
    
    Year EndedJune 30, 2007
    
    
    December 31, 2006Balance at the beginning of the period
    
    $
    2,135
    
    
    $
    2,220Accruals for warranties issued during the period
    
    
    619
    
    
    
    1,595Settlements during the period
    
    
    (714
    )
    
    
    (1,680
    )Balance at the end of the period
    
    $
    2,040
    
    
    $
    2,135
 9. CONTINGENCIES AND COMMITMENTS
  10. INCOME TAXES
    11. MAJOR CUSTOMERS AND INTERNATIONAL SALES
  12




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12. SUBSEQUENT EVENT.
  13




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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.
 CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE SECURITIES
LITIGATION REFORM ACT OF 1995.
 will, believes, intends, expects, plans, could or may,
  OVERVIEW
 About the Company
 ®
 14




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About our customers
   PRODUCTS
 TELECOMMUNICATION TEST SYSTEMS
  15




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®
 DigiTest and LoopCare; N(x)Test, N(x)DSL-3 and LTSC
 ® 
    16




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MCU
 ®
 17




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##### Table of Contents



CABLE TESTING PRODUCTS
  ®
  SERVICES
  BACKLOG
  18




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OPERATING SEGMENT
  INTERNATIONAL SALES
    19




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APPLICATION OF CRITICAL ACCOUNTING POLICIES
  Revenue Recognition
  20




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Goodwill and Intangible Assets
  21




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22




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Sensitivity Analysis
  YearsTwelve-monthRemaining
    
    
    Carrying
    
    
    RollingOriginal
    
    
    Life at
    
    
    Value at
    
    
    ProjectedAsset Description
    
    Life
    
    
    06/30/07
    
    
    06/30/07
    
    
    Amortization(in millions)LoopCareBase Software
    
    
    10
    
    
    
    4.25
    
    
    $
    1.9
    
    
    $
    0.5Post-WarrantyMaintenance Service
Agreements
    
    
    50
    
    
    
    48.25
    
    
    
    30.9
    
    
    
    0.6CheetahBase Software
    
    
    10
    
    
    
    5.50
    
    
    
    1.6
    
    
    
    0.3Proprietary Technology
    
    
    10
    
    
    
    5.50
    
    
    
    0.6
    
    
    
    0.1Customer Base
    
    
    15
    
    
    
    10.50
    
    
    
    1.8
    
    
    
    0.3EmersonProprietary Technology
    
    
    5
    
    
    
    3.75
    
    
    
    0.1
    
    
    
    0.2Customer Relationship
    
    
    5
    
    
    
    3.75
    
    
    
    0.5
    
    
    
    0.1Other
    
    
    3-5
    
    
    
    1.75
    
    
    
    0.7
    
    
    
    0.1$
    38.1
    
    
    $
    2.2
  Reviews for Impairment:
  23




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Inventory Valuation
  24




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Allowance for Doubtful Accounts
   Income Taxes
  Warranty
  Long-Lived Assets Held for Sale
  25




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Restructuring Accrual
   RESULTS OF OPERATIONS
 SECOND QUARTER OF 2007 COMPARED TO SECOND QUARTER OF 2006
 Revenues
   26




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®
 27




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Gross Profit
  Selling and Marketing Expense
  General and Administrative Expense
 .
 Research and Development Expense
  Restructuring Expense
   28




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Interest Income
  Income Taxes
  Net Income (Loss) and Income (Loss) Per Share
  SIX MONTHS ENDED JUNE 30, 2007 COMPARED TO SIX MONTHS ENDED JULY 1, 2006
 Revenues
  29




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30




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®
 Gross Profit
  Selling and Marketing Expense
  General and Administrative Expense
  Research and Development Expense
  Restructuring Expense
  31




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Interest Income
  Provision for Income Taxes
  Net (Loss) Income and (Loss) Earnings Per Share
  LIQUIDITY AND CAPITAL RESOURCES
   32




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33




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KEY RATIOS
  NEW ACCOUNTING STANDARDS
  
 Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
  
 Item 4. CONTROLS AND PROCEDURES
  34




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PART II. OTHER INFORMATION
 
 Item 1A. RISK FACTORS
  We depend upon a few major customers for a majority of our revenues, and the loss of any of these
customers, or the substantial reduction in the products that they purchase from us, would
significantly reduce our revenues and net income.
  
    
    the conditions of the communications market and the economy in general;
    
    subscriber line loss and related reduced demand for wireline telecommunications services;
    
    changes or shifts in the technology utilized in the networks;
    
    labor disputes between our customers and their collective bargaining units;
    
    the failure of our customers to meet established purchase forecasts and growth projections;
    
    competition among the RBOCs, competitive exchange carriers and wireless telecommunications
and cable providers; and
    
    reorganizations, including management changes, at one or more of our customers or
potential customers.
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Our operating results may vary from quarter to quarter, causing our stock price to fluctuate.
  The sale of our products is dependent upon our ability to satisfy the proprietary requirements of
our customers.
  The sale of our products is dependent on our ability to respond to rapid technological change,
including evolving industry-wide standards, and may be adversely affected by the development, and
acceptance by our customers, of new technologies which may compete with or reduce the demand for
our products.
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Our reliance on third parties to manufacture certain elements of our products involves risks,
including delays in product shipments and reduced control over product quality.
  Our future sales in international markets are subject to numerous risks and uncertainties.
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We face intense competition, which could result in our losing market share or experiencing a
decline in our gross margins.
   Our future results are dependent on our ability to establish, maintain and expand our distribution
channels and our existing third-party distributors.
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The sales cycle for our system products is long, and the delay or failure to complete one or more
large transactions in a quarter could cause our operating results to fall below our expectations.
   We depend on sales of our MCU products for a meaningful portion of our revenues, but this product
is mature and its sales will continue to decline.
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Our Services business is subject to a trend of reduced capital spending by our major customers.
  Our continued emphasis on our network assurance and testing solutions and cable status monitoring
products, and on software products in particular, could have a material adverse effect on our
profitability.
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Our customers are subject to an evolving governmental regulatory environment that could
significantly reduce the demand for our products or increase our costs of doing business.
   Our limited ability to protect our proprietary information and technology may adversely affect our
ability to compete, and our products could infringe upon the intellectual property rights of
others, resulting in claims against us the results of which could be costly.
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The success of some of our products is dependent on our ability to maintain licenses to technology
from the manufacturers of systems with which our products must be compatible.
  If we are unable to satisfy our customers specific product quality, certification or network
requirements, our business could be disrupted and our financial condition could be harmed.
  We have completed, and may pursue additional acquisitions, which could result in the disruption of
our current business, difficulties related to the integration of acquired businesses, and
substantial expenditures.
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The failure of acquired assets to meet expectations, or a decline in our fair value determined by
market prices of our stock, could indicate impairment of our intangible assets and result in
impairment charges.
  If our accounting controls and procedures are circumvented or otherwise fail to achieve their
intended purposes, our business could be seriously harmed.
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If we ship products that contain defects, the market acceptance of our products and our reputation
will be harmed and our customers could seek to recover their damages from us.
  We are dependent upon our ability to attract, retain and motivate our key personnel.
  Consolidations in, or a continued slowdown in, the telecommunications industry could harm our
business.
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Our expenses are relatively fixed in the short term, and we may be unable to adjust spending to
compensate for unexpected revenue shortfalls.
  We rely on software that we have licensed from third-party developers to perform key functions in
our products.
  We are affected by a pattern of product price decline in certain markets, which can harm our
business.
  Our common stock price may be extremely volatile.
  
    
    General market and economic conditions;
    
    Changes in the telecommunications industry;
    
    Actual or anticipated variations in operating results;
    
    Announcements of technological innovations, new products or new
services by us or by our competitors or customers;
    
    Changes in financial estimates or recommendations by stock market
analysts regarding us or our competitors;
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
    
    Announcements by us or our competitors of significant acquisitions,
strategic partnerships, joint ventures or capital commitments;
    
    Announcements by our customers regarding end market conditions and the
status of existing and future infrastructure network deployments;
    
    Additions or departures of key personnel; and
    
    Future equity or debt offerings or our announcements of these offerings.
  We may be subject from time to time to legal proceedings, and any adverse determinations in these
proceedings could materially harm our business.
  
 ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
   Nominee for Director
    
    Total Votes Cast
    
    For
    
    WithheldDr. Richard H. Heibel
    
    
    13,132,957
    
    
    
    12,772,924
    
    
    
    360,033Robert W. Kampmeinert
    
    
    13,132,957
    
    
    
    12,856,461
    
    
    
    276,496
   46




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For
    
    Against
    
    Abstain
    
    Non-Votes13,020,550
    
    101,404
    
    11,003
    
    0
   For
    
    Against
    
    Abstain
    
    Non-Votes13,017,824
    
    105,312
    
    9,821
    
    0
  
 Item 6. EXHIBITS
   ExhibitNumber
    
    Description3.1b
    
    Amendment effective May 17, 2007 to the Amended and Restated
Articles of Incorporation of the Company, filed as Exhibit 3.1 to
the Companys Current Report on Form 8-K filed on May 21, 2007.3.2a
    
    Bylaws of Tollgrade Communications, Inc. Amended and Restated
effective May 17, 2007, filed as Exhibit 3.2 to the Companys
Current Report on Form 8-K filed on May 21, 2007.10.1*
    
    Asset Purchase Agreement dated May 31, 2007 between Tollgrade
Communications, Inc. and Teradyne, Inc., 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.
 
 *
    
    Note: Pursuant to Item 601(b)(2) of Regulation S-K, schedules containing disclosure of certain
materials and exceptions to the representations and warranties have been omitted. The Company will
provide a copy of such schedules supplementally to the SEC upon request. The description of the
schedules is included only for purposes of Item 601(b)(2) of Regulation S-K.
 47




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®  ®  ®  ®  ®  ®
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SIGNATURES
  Tollgrade Communications, Inc.
(Registrant)Dated: July 27, 2007
    /s/ Mark B. PetersonMark B. PetersonChief Executive OfficerDated: July 27, 2007
    /s/ Samuel C. KnochSamuel C. KnochChief Financial Officer and TreasurerDated: July 27, 2007
    /s/ Sean M. ReillySean M. ReillyController 49




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EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1b
    
    Amendment effective May 17, 2007 to the Amended and Restated
Articles of Incorporation of the Company, filed as Exhibit 3.1 to
the Companys Current Report on Form 8-K filed on May 21, 2007.3.2a
    
    Bylaws of Tollgrade Communications, Inc. Amended and Restated
effective May 17, 2007, filed as Exhibit 3.2 to the Companys
Current Report on Form 8-K filed on May 21, 2007.10.1*
    
    Asset Purchase Agreement dated May 31, 2007 between Tollgrade
Communications, Inc. and Teradyne, Inc., 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.
 
 *
    
    Note: Pursuant to Item 601(b)(2) of Regulation S-K, schedules containing disclosure of certain
materials and exceptions to the representations and warranties have been omitted. The Company will
provide a copy of such schedules supplementally to the SEC upon request. The description of the
schedules is included only for purposes of Item 601(b)(2) of Regulation S-K.
 50