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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
 Washington, D.C. 20549
 FORM 10-K
 þ
    
    Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
 For the fiscal year ended December 31, 2009
 Commission file number 000-27312
 TOLLGRADE COMMUNICATIONS, INC.
  PENNSYLVANIA
(State or other jurisdiction of 
incorporation or organization)
    
    25-1537134
(I.R.S. Employer
Identification No.)493 Nixon Road, Cheswick, Pennsylvania
(Address of principal executive offices)
    
    15024
(Zip Code)
 412-820-1400
 Securities registered pursuant to Section 12(b) of the Act:
 Common Stock, par value $0.20 per share
    
    The NASDAQ Stock Market LLC(Title of Class)
    
    (Exchange on which registered)
 o þ
 o þ
 þ o
 o o
 o þ
  Large accelerated filer o
    
    Accelerated filer þ
    
    Non-accelerated filer o
    
    Smaller reporting company o(Do not check if a smaller reporting company)
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DOCUMENTS INCORPORATED BY REFERENCE
 Part of Form 10-K into whichDocument
    
    Document is incorporatedPortions of the Proxy Statement to be
distributed in connection with the 2010
Annual Meeting of Shareholders
    
    III
 - 2 -




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##### 



TABLE OF CONTENTS
 Part IItem 1. Business
    
    
    4Item 1A. Risk Factors
    
    
    12Item 1B. Unresolved Staff Comments
    
    
    22Item 2. Properties
    
    
    22Item 3. Legal Proceedings
    
    
    22Item 4. Reserved
    
    
    22Part IIItem 5. Market for the Registrants Common Stock, Related Stockholder Matters
and Issuer Purchases of Equity Securities
    
    
    22Item 6. Selected Financial Data
    
    
    25Item 7. Managements Discussion and Analysis of Financial Condition and Results of
Operations
    
    
    26Item 7A. Quantitative and Qualitative Disclosures About Market Risk
    
    
    38Item 8. Financial Statements and Supplementary Data
    
    
    38Item 9. Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure
    
    
    63Item 9A. Controls and Procedures
    
    
    63Item 9B. Other Information
    
    
    63Part IIIItem 10. Directors, Executive Officers and Corporate Governance
    
    
    64Item 11. Executive Compensation
    
    
    64Item 12. Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters
    
    
    64Item 13. Certain Relationships and Related Transactions and Director Independence
    
    
    65Item 14. Principal Accountant Fees and Services
    
    
    65Part IVItem 15. Exhibits and Financial Statement Schedules
    
    
    65SIGNATURES
    
    
    68EX-10.10EX-10.12EX-10.37EX-10.38EX-23.1EX-31.1EX-31.2EX-32
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PART I
 CAUTIONARY STATEMENT FOR PURPOSES OF THE SAFE HARBOR PROVISIONS OF THE PRIVATE
SECURITIES LITIGATION REFORM ACT OF 1995.
    
 Item 1.
    
    Business.
  ®  ® ®
  - 4 -




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®
    www.sec.gov
 Products
and Services
 Telecommunications Test and Measurement Products
    - 5 -




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Systems Test Products
 ®
        - 6 -




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MCU
    Services
and Managed Services
    Electric Utility Monitoring Products
   Operating Segment
  - 7 -




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Research and Development
      Sales and Marketing
   Competition
   - 8 -




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Our Customers
     Manufacturing and Quality Control
  - 9 -




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Proprietary Rights
 ® ® ® ® ® ® ® ® ® ® ® SM
    Backlog
    Employees
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Executive Officers of the Company
  Joseph A. Ferrara
    
    Chief Executive Officer, President and Board Member of
Tollgrade since November 2007; serving as Chairman of
the Board of Directors since May 2009; Senior Vice
President, Sales and Marketing of Tollgrade from August
2007 until November 2007; prior thereto General Manager
Data Networks Division of Ericsson from January 2006
until July 2007 following Ericssons acquisition of
Marconi Corporation plcs (Marconi) product
divisions; Chief Executive Officer of Marconis North
American operations from June 2005 until January 2006;
Vice President of Business Operations of Marconis Data
Networks Division from February until June 2005 and
July 2000 until April 2004; and Vice President of
Marketing of Marconis Data Networks Division from
April 2004 until February 2005. Age 43.Michael D. Bornak
    
    Chief Financial Officer of the Company since November
2009; served as the Companys interim Chief Financial
Officer from September 2009 to November 2009; prior
thereto served as Chief Financial Officer of Solar Power
Industries, Inc. from June 2008 until July 2009; Chief
Financial Officer for MHF Logistical Solutions, Inc.
from February 2005 to June 2008; Vice President of
Finance and Chief Financial Officer of Portec Rail
Products, Inc. from January 1998 to February 2005. Mr.
Bornak is also a Certified Public Accountant. Age 47.David L. Blakeney
    
    Vice President, Research and Development of the Company
since October 2008; prior thereto consultant to the
Company in the same capacity from March 2008 until
October 2008; Vice President, Engineering, for Altrix
Logic from December 2006 until October 2008; prior
thereto, Vice President of Engineering for the Data
Networks Division of Ericsson from April 1999 to
October 2006. Age 48.Jennifer M. Reinke
    
    General Counsel of the Company since November 2009 and
Secretary of the Company since December 2009; Assistant
General Counsel of the Company from February 2009 to
November 2009; Corporate Attorney for the Company from
March 2003 to February 2009; served as the Companys
Assistant Secretary from March 2003 to December 2009;
prior thereto, Associate Attorney with Reed Smith LLP,
from August 1998 to March 2003. Age 37.Robert H. King
    
    Vice President, Global Sales and Marketing of the
Company since February 2009; Executive Director,
Business Development of the Company from December 2008
until February 2009; prior thereto President and
General Manager of the Broadband Products Group at
Sunrise Telecom Incorporated (Sunrise) from April
2006 until June 2008; Vice President, Sales at Sunrise
from January 2000 until April 2006. Age 48.Joseph G. OBrien
    
    Vice President, Human Resources of the Company since
October 1997; Director of Employee Development of the
Company from April 1997 until October 1997; prior
thereto, Coordinator, Elderberry Junction, Goodwill
Industries, a charitable organization, from May 1995
until April 1997. Age 50.Kenneth J. Shebek
    
    Vice President, Operations of the Company since October
2008; prior thereto, Vice President of Supply and
Logistics for the Data Networks Division of Ericsson
from January, 2006 until October 2008; Vice President
of Supply Chain for Marconi and its Vice President of
North American Operations from January 2003 to December
2005. Age 47.
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Item 1A.
    
    Risk Factors
  Revenue from product sales may be subject to further declines due to the mature nature of many of
our product lines and from customers transitioning their access network service assurance
solutions.
     Our service business may be negatively affected by a trend of reduced capital spending and by
delays in our ability, or by our inability, to secure and extend long-term maintenance contracts
with our existing or new customers, and by customer initiatives to consolidate services purchases
with a single supplier.
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Our future growth depends to a large extent upon our success in developing and selling new products
and service offerings. We have focused our growth efforts and are managing our investments. If we
are unable to drive sales of new products and services to counter the expected declines in our
legacy product lines, this could have a materially adverse impact on our future financial
results.
    Our restructuring efforts and cost reduction plans may be ineffective or may limit our ability to
compete.
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Failure to achieve the maximum revenues under our managed services contract could have an adverse
effect on our revenues and results of operations.
  A continuing downturn in the global economy may adversely affect our revenues, results of
operations and financial condition.
  
    
    Poor availability of credit,
    
    Continued recession in the United States economy and other countries that we serve,
    
    Fluctuation in the value of the U.S. dollar relative to foreign currencies in
jurisdictions where we transact business,
    
    Significant act of terrorism which disrupts global trade or consumer confidence,
    
    Geopolitical tensions including war and civil unrest, and
    
    Reduced levels of economic activity or disruption of domestic or international
transportation.
   We are dependent upon our ability to attract, retain and motivate our key personnel.
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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 or services that they purchase from us,
would significantly reduce our revenues and net income.
  
    
    Conditions of the telecommunications market and the weakening 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;
    
    Failure of our customers to meet established purchase forecasts and growth
projections;
    
    Competition among the large domestic carriers, competitive exchange carriers and
wireless telecommunications and cable providers; and
    
    Reorganizations, including management changes, at one or more of our customers or
potential customers.
  Our operating results may vary from quarter to quarter, causing our stock price to fluctuate.
  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.
  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 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.
   We depend on a single contract manufacturer to produce more than 80% of our hardware customer
product requirements. Changes to this relationship may result in delays or disruptions that could
harm our business.
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We depend on single source component parts for certain product designs, and our reliance on third
parties to manufacture certain aspects of our products involves risks, including delays in product
shipments and reduced control over product quality.
  If we fail to accurately predict our manufacturing requirements, we could incur additional costs or
experience manufacturing delays that could harm our business.
  Our future sales in international markets are subject to numerous risks and uncertainties.
  We face intense competition, which could result in our losing market share or experiencing a
decline in our gross margins.
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Our future results are dependent on our ability to establish, maintain and expand our distribution
channels and our existing third-party distributors.
  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.
   The continued adoption of industry-wide standards in the telecommunications market could have a
material adverse effect on our profitability.
  The presence of available open source software could adversely affect our ability to maximize
revenue from software products.
  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.
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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.
    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.
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If our accounting controls and procedures are circumvented or otherwise fail to achieve their
intended purposes, our business could be seriously harmed.
  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.
  Compliance with environmental regulations could be costly, and noncompliance could have a material
adverse effect on our results of operations, expenses and financial condition.
  We are subject to governmental export and import controls that could subject us to liability or
impair our ability to compete in international markets.
  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 license from third-party developers to perform key functions in our
products.
  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;
    
    Lack of research coverage by sell-side market analysts;
    
    Announcements by us or our competitors of significant acquisitions, strategic
partnerships, joint ventures, capital commitments or other strategic announcements;
    
    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.
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Item 1B.
    
    Unresolved Staff Comments.
  
 Item 2.
    
    Properties.
    
 Item 3.
    
    Legal Proceedings.
  
 Item 4.
    
    Reserved.
 
 PART II
 
 Item 5. Market for the Registrants Common Stock, Related Stockholder Matters and Issuer
Purchases of Equity Securities.
  2009
    
    2008High
    
    Low
    
    High
    
    LowFirst Quarter
    
    $
    7.14
    
    
    $
    4.73
    
    
    $
    8.13
    
    
    $
    5.08Second Quarter
    
    $
    5.95
    
    
    $
    5.04
    
    
    $
    6.07
    
    
    $
    4.24Third Quarter
    
    $
    6.93
    
    
    $
    4.98
    
    
    $
    7.00
    
    
    $
    4.25Fourth Quarter
    
    $
    6.83
    
    
    $
    5.49
    
    
    $
    5.56
    
    
    $
    3.00
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(d) Maximum Number(or Approximate(c) Total number of
    
    Dollar Value) ofshares purchased as part
    
    Shares that May Yet(a) Total Number of
    
    (b) Average Price Paid
    
    of publicly announced
    
    Be Purchased UnderPeriod
    
    Shares Purchased (1)
    
    per Share
    
    plans or programs
    
    the Plans or ProgramsNovember 2009
    
    
    45,850
    
    
    $
    6.07
    
    
    
    45,850
    
    
    $
    12,519,000December 2009
    
    
    33,193
    
    
    $
    6.01
    
    
    
    33,193
    
    
    $
    12,318,000
 
 (1)
    
    On October 28, 2008, the Board of Directors approved a share repurchase program, pursuant to
which the Company could repurchase common stock with an aggregate share value of up to $15
million with no expiration date. Such purchases could be made through open market
transactions and privately negotiated transactions at the Companys discretion, subject to
market conditions and other factors. The repurchase program does not obligate the Company to
acquire any particular amount of common stock and, at the Boards discretion, may be
suspended, discontinued or modified at any time. As of December 31, 2009 and 2008, the
Company had acquired 79,043 and 496,918 shares pursuant to this program at a total cost of
approximately $0.5 million and $2.2 million, respectively. The shares that were repurchased
are being held for later resale or to be utilized under certain employee benefit programs and
are not considered cancelled or retired shares. - 23 -




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STOCK PERFORMANCE GRAPH
   
 December
    
    
    December
    
    
    December
    
    
    December
    
    
    December
    
    
    December31,
    
    
    31,
    
    
    31,
    
    
    31,
    
    
    31,
    
    
    31,2004
    
    
    2005
    
    
    2006
    
    
    2007
    
    
    2008
    
    
    2009Tollgrade
    
    
    100
    
    
    
    89
    
    
    
    86
    
    
    
    66
    
    
    
    39
    
    
    
    50NASDAQ Telecomm (IXUT)
    
    
    100
    
    
    
    93
    
    
    
    119
    
    
    
    129
    
    
    
    74
    
    
    
    109S&P 500
    
    
    100
    
    
    
    103
    
    
    
    117
    
    
    
    121
    
    
    
    75
    
    
    
    92
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Item 6.
    
    Selected Financial Data.
  (IN THOUSANDS, EXCEPT PER SHARE DATA AND NUMBER OF EMPLOYEES)
 FOR THE YEARS ENDED DECEMBER 31:
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005Revenues:Products
    
    $
    19,936
    
    
    $
    26,997
    
    
    $
    36,143
    
    
    $
    35,270
    
    
    $
    35,608Services
    
    
    25,005
    
    
    
    22,055
    
    
    
    15,689
    
    
    
    11,736
    
    
    
    11,860Total revenue
    
    
    44,941
    
    
    
    49,052
    
    
    
    51,832
    
    
    
    47,006
    
    
    
    47,468Cost of sales:Products
    
    
    11,812
    
    
    
    14,181
    
    
    
    15,874
    
    
    
    14,653
    
    
    
    14,130Services
    
    
    7,143
    
    
    
    6,146
    
    
    
    4,103
    
    
    
    3,473
    
    
    
    2,707Amortization of intangible assets
    
    
    2,576
    
    
    
    3,085
    
    
    
    2,199
    
    
    
    2,597
    
    
    
    2,225Inventory write-down
    
    
    3,070
    
    
    
    759
    
    
    
    
    
    
    
    4,101
    
    
    
    424Impairment of long-lived assets
    
    
    27,151
    
    
    
    201
    
    
    
    1,090
    
    
    
    
    
    
    
    Severance
    
    
    778
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Total cost of sales
    
    
    52,530
    
    
    
    24,372
    
    
    
    23,266
    
    
    
    24,824
    
    
    
    19,486Gross margin
    
    
    (7,589
    )
    
    
    24,680
    
    
    
    28,566
    
    
    
    22,182
    
    
    
    27,982Operating expenses:Selling and marketing
    
    
    6,809
    
    
    
    6,835
    
    
    
    7,807
    
    
    
    7,794
    
    
    
    6,650General and administrative
    
    
    12,141
    
    
    
    9,455
    
    
    
    9,702
    
    
    
    7,702
    
    
    
    7,224Research and development
    
    
    9,411
    
    
    
    10,789
    
    
    
    10,987
    
    
    
    9,088
    
    
    
    8,830Restructuring/severance
    
    
    1,180
    
    
    
    827
    
    
    
    922
    
    
    
    566
    
    
    
    775Impairment of long-lived assets and
goodwill
    
    
    293
    
    
    
    
    
    
    
    20,036
    
    
    
    
    
    
    
    Total operating expenses
    
    
    29,834
    
    
    
    27,906
    
    
    
    49,454
    
    
    
    25,150
    
    
    
    23,479(Loss) income from operations
    
    
    (37,423
    )
    
    
    (3,226
    )
    
    
    (20,888
    )
    
    
    (2,968
    )
    
    
    4,503Other income, net
    
    
    567
    
    
    
    1,337
    
    
    
    2,770
    
    
    
    2,741
    
    
    
    1,359(Loss) income before income taxes
    
    
    (36,856
    )
    
    
    (1,889
    )
    
    
    (18,118
    )
    
    
    (227
    )
    
    
    5,862(Benefit) provision for income taxes
    
    
    (874
    )
    
    
    1,137
    
    
    
    1,220
    
    
    
    (1,213
    )
    
    
    1,301(Loss) income from continuing operations
    
    
    (35,982
    )
    
    
    (3,026
    )
    
    
    (19,338
    )
    
    
    986
    
    
    
    4,561(Loss) from discontinued operations
    
    
    (223
    )
    
    
    (4,089
    )
    
    
    (6,815
    )
    
    
    (2,820
    )
    
    
    (1,043
    )Net (Loss) income
    
    $
    (36,205
    )
    
    $
    (7,115
    )
    
    $
    (26,153
    )
    
    $
    (1,834
    )
    
    $
    3,518Weighted average shares
of common stock equivalents:Basic
    
    
    12,683
    
    
    
    13,102
    
    
    
    13,219
    
    
    
    13,239
    
    
    
    13,168Diluted
    
    
    12,683
    
    
    
    13,102
    
    
    
    13,219
    
    
    
    13,239
    
    
    
    13,217EARNINGS PER SHARE INFORMATION:Net (loss) income per common share:Basic
    
    $
    (2.85
    )
    
    $
    (0.54
    )
    
    $
    (1.98
    )
    
    $
    (0.14
    )
    
    $
    0.27Diluted
    
    $
    (2.85
    )
    
    $
    (0.54
    )
    
    $
    (1.98
    )
    
    $
    (0.14
    )
    
    $
    0.27EARNINGS PER SHARE INFORMATION:Net (loss) income per common share
from continuing operations:Basic
    
    $
    (2.83
    )
    
    $
    (0.23
    )
    
    $
    (1.46
    )
    
    $
    0.07
    
    
    $
    0.35Diluted
    
    $
    (2.83
    )
    
    $
    (0.23
    )
    
    $
    (1.46
    )
    
    $
    0.07
    
    
    $
    0.35
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FOR THE YEARS ENDED DECEMBER 31:
    
    2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005EARNINGS PER SHARE INFORMATION:Net (loss) income per common share
from discontinued operations:Basic
    
    $
    (0.02
    )
    
    $
    (0.31
    )
    
    $
    (0.52
    )
    
    $
    (0.21
    )
    
    $
    (0.08
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.31
    )
    
    $
    (0.52
    )
    
    $
    (0.21
    )
    
    $
    (0.08
    )
 2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005BALANCE SHEET DATA:Working capital
    
    $
    69,195
    
    
    $
    75,475
    
    
    $
    77,080
    
    
    $
    83,186
    
    
    $
    80,806Total assets
    
    
    87,687
    
    
    
    124,347
    
    
    
    140,143
    
    
    
    162,352
    
    
    
    163,329Pension obligation
    
    
    983
    
    
    
    889
    
    
    
    908
    
    
    
    
    
    
    
    Shareholders equity
    
    
    77,743
    
    
    
    112,454
    
    
    
    123,000
    
    
    
    149,444
    
    
    
    150,261
 2009
    
    
    2008
    
    
    2007
    
    
    2006
    
    
    2005OTHER DATA:(unaudited)Number of full-time
employees at year-end
    
    
    167
    
    
    
    179
    
    
    
    205
    
    
    
    161
    
    
    
    177
 
 Item 7. Item 7. Managements Discussion and Analysis (MD&A) of Financial Condition and Results
of Operations.
  Cable Product Line
  Overview
  Industry and Market Trends
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Our Responses to These Industry Trends
       
    
    First and foremost, ensure profitability;
    
    Second, minimize resources and spending on legacy products to allow for focused investments;
and
    
    Third, align the business around growth initiatives and focus our resources on near term
opportunities.
  - 27 -




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Results of Operations for the Year Ended December 31, 2009 Compared to the Year Ended December 31,
2008
 Revenue
 2009
    
    
    2008
    
    
    Change
    
    
    %System Test Products
    
    $
    14,118
    
    
    $
    18,061
    
    
    $
    (3,943
    )
    
    
    -22
    %MCU
    
    
    5,694
    
    
    
    8,936
    
    
    
    (3,242
    )
    
    
    -36
    %Other
    
    
    124
    
    
    
    
    
    
    
    124
    
    
    
    100
    %Total Products
    
    
    19,936
    
    
    
    26,997
    
    
    
    (7,061
    )
    
    
    -26
    %Services
    
    
    25,005
    
    
    
    22,055
    
    
    
    2,950
    
    
    
    13
    %Total Revenues
    
    $
    44,941
    
    
    $
    49,052
    
    
    $
    (4,111
    )
    
    
    -8
    %
    Gross Margin
  Selling and Marketing Expenses
 2009
    
    
    2008
    
    
    Change
    
    
    %Employee Costs
    
    $
    4,780
    
    
    $
    4,583
    
    
    $
    197
    
    
    
    4
    %Travel Expenses
    
    
    694
    
    
    
    799
    
    
    
    (105
    )
    
    
    -13
    %Professional Fees
    
    
    419
    
    
    
    677
    
    
    
    (258
    )
    
    
    -38
    %Other
    
    
    916
    
    
    
    776
    
    
    
    140
    
    
    
    18
    %Total
    
    $
    6,809
    
    
    $
    6,835
    
    
    
    (26
    )
    
    
    0
    %
  - 28 -




---



##### Table of Contents



General and Administrative Expenses
 2009
    
    
    2008
    
    
    Change
    
    
    %Employee Costs
    
    $
    3,922
    
    
    $
    3,912
    
    
    $
    10
    
    
    
    0
    %Professional Fees
    
    
    3,880
    
    
    
    3,132
    
    
    
    748
    
    
    
    24
    %Bad Debt
    
    
    1,121
    
    
    
    
    
    
    
    1,121
    
    
    
    100
    %Stock Compensation
    
    
    855
    
    
    
    299
    
    
    
    556
    
    
    
    186
    %Other
    
    
    2,363
    
    
    
    2,112
    
    
    
    251
    
    
    
    12
    %Total
    
    $
    12,141
    
    
    $
    9,455
    
    
    
    2,686
    
    
    
    28
    %
  Research and Development Expenses
 2009
    
    
    2008
    
    
    Change
    
    
    %Employee Costs
    
    $
    7,977
    
    
    $
    8,435
    
    
    $
    (458
    )
    
    
    -5
    %Professional Services
    
    
    722
    
    
    
    1,205
    
    
    
    (483
    )
    
    
    -40
    %Depreciation
    
    
    622
    
    
    
    865
    
    
    
    (243
    )
    
    
    -28
    %Other
    
    
    90
    
    
    
    284
    
    
    
    (194
    )
    
    
    -68
    %Total
    
    $
    9,411
    
    
    $
    10,789
    
    
    
    (1,378
    )
    
    
    -13
    %
  Severance Expense
   - 29 -




---



##### Table of Contents



Long-Lived Asset Impairments
   Other Income, (net)
  (Benefit)/Provisions for Income Taxes
  Loss from Continuing Operations and Loss Per Share from Continuing Operations:
  - 30 -




---



##### Table of Contents



Results of Operations for the Year Ended December 31, 2008 Compared to the Year Ended December 31,
2007
 Revenue
 2008
    
    
    2007
    
    
    Change
    
    
    %System Test Products
    
    $
    18,061
    
    
    $
    23,480
    
    
    $
    (5,419
    )
    
    
    -23
    %MCU
    
    
    8,936
    
    
    
    12,663
    
    
    
    (3,727
    )
    
    
    -29
    %Total Products
    
    
    26,997
    
    
    
    36,143
    
    
    
    (9,146
    )
    
    
    -25
    %Services
    
    
    22,055
    
    
    
    15,689
    
    
    
    6,366
    
    
    
    41
    %Total Revenue
    
    $
    49,052
    
    
    $
    51,832
    
    
    $
    (2,780
    )
    
    
    -5
    %
    Gross Margin
  Selling and Marketing Expenses
 2008
    
    
    2007
    
    
    Change
    
    
    %Employee Costs
    
    $
    4,583
    
    
    $
    4,887
    
    
    $
    (304
    )
    
    
    -6
    %Travel Expenses
    
    
    799
    
    
    
    936
    
    
    
    (137
    )
    
    
    -15
    %Professional Fees
    
    
    677
    
    
    
    1,019
    
    
    
    (342
    )
    
    
    -34
    %Other
    
    
    776
    
    
    
    965
    
    
    
    (189
    )
    
    
    -20
    %Total
    
    $
    6,835
    
    
    $
    7,807
    
    
    
    (972
    )
    
    
    -12
    %
  - 31 -




---



##### Table of Contents



General and Administrative Expenses
 2008
    
    
    2007
    
    
    Change
    
    
    %Employee Costs
    
    $
    3,912
    
    
    $
    3,901
    
    
    $
    11
    
    
    
    0
    %Professional Fees
    
    
    3,132
    
    
    
    2,367
    
    
    
    765
    
    
    
    32
    %Stock Compensation
    
    
    299
    
    
    
    494
    
    
    
    (195
    )
    
    
    -39
    %Other
    
    
    2,112
    
    
    
    2,940
    
    
    
    (828
    )
    
    
    -28
    %Total
    
    $
    9,455
    
    
    $
    9,702
    
    
    
    (247
    )
    
    
    -3
    %
  Research and Development Expenses
 2008
    
    
    2007
    
    
    Change
    
    
    %Employee Costs
    
    $
    8,435
    
    
    $
    8,430
    
    
    $
    5
    
    
    
    0
    %Professional Services
    
    
    1,205
    
    
    
    1,277
    
    
    
    (72
    )
    
    
    -6
    %Depreciation
    
    
    865
    
    
    
    830
    
    
    
    35
    
    
    
    4
    %Other
    
    
    284
    
    
    
    450
    
    
    
    (166
    )
    
    
    -37
    %Total
    
    $
    10,789
    
    
    $
    10,987
    
    
    
    (198
    )
    
    
    -2
    %
  Severance Expense
   Long-Lived Asset Impairments
  - 32 -




---



##### Table of Contents



Other Income, (net)
  Provisions for Income Taxes
  Loss from Continuing Operations and Loss Per Share from Continuing Operations
  Liquidity and Capital Resources
       - 33 -




---



##### Table of Contents



Off-Balance Sheet Arrangements
  Commitments and Contractual Obligations
    Payments due by period
 More than 5Total
    
    
    Less than 1 year
    
    
    1-3 years
    
    
    3-5 years
    
    
    yearsOperating Lease
Obligations
    
    $
    2,023
    
    
    $
    968
    
    
    $
    1,005
    
    
    $
    50
    
    
    $
    Purchase Obligations
    
    
    295
    
    
    
    183
    
    
    
    62
    
    
    
    50
    
    
    
    Uncertain Tax
Obligations
    
    
    738
    
    
    
    
    
    
    
    738
    
    
    
    
    
    
    
    Pension Obligations
    
    
    1,003
    
    
    
    20
    
    
    
    
    
    
    
    
    
    
    
    983Total
    
    $
    4,059
    
    
    $
    1,171
    
    
    $
    1,805
    
    
    $
    100
    
    
    $
    983
   - 34 -




---



##### Table of Contents



Critical Accounting Policies
  Revenue Recognition
      Intangible Assets and Goodwill
  - 35 -




---



##### Table of Contents



Inventory Valuation
   - 36 -




---



##### Table of Contents



Allowance for Doubtful Accounts
   Income Taxes
  Warranty
  Pension Benefits
    Stock-Based Compensation
  Foreign Currency Translation
   - 37 -




---



##### Table of Contents



Recent Accounting Pronouncements
  
 Item 7A.
    
    Quantitative and Qualitative Disclosures About Market Risk.
   
 Item 8.
    
    Financial Statements and Supplementary Data.
  Report of Independent Registered Public Accounting FirmConsolidated Balance SheetsConsolidated Statements of OperationsConsolidated Statements of Changes in Shareholders EquityConsolidated Statements of Cash FlowsNotes to Consolidated Financial StatementsSchedule II  Valuation and Qualifying Accounts
 - 38 -




---



##### Table of Contents



Report of Independent Registered Public Accounting Firm
  Internal
Control  Integrated Framework
   
 - 39 -




---



##### Table of Contents



Tollgrade Communications, Inc. and Subsidiaries  
 Consolidated Balance Sheets
In thousands (except par value)
 December 31, 2009
    
    
    December 31, 2008ASSETSCurrent assets:Cash and cash equivalents
    
    $
    66,046
    
    
    $
    57,976Short-term investments
    
    
    3
    
    
    
    2,419Accounts receivable:Trade, net of allowance for doubtful accounts at $1,496 in 2009 and $222 in 2008
    
    
    6,998
    
    
    
    9,392Other
    
    
    1,007
    
    
    
    632Inventories
    
    
    2,119
    
    
    
    7,865Prepaid expenses and deposits
    
    
    759
    
    
    
    1,200Deferred and refundable income taxes
    
    
    196
    
    
    
    453Current assets related to discontinued operations
    
    
    
    
    
    
    4,261Total current assets
    
    
    77,128
    
    
    
    84,198Property and equipment, net
    
    
    3,101
    
    
    
    2,661Intangibles
    
    
    7,110
    
    
    
    36,678Deferred tax assets
    
    
    119
    
    
    
    81Other assets
    
    
    229
    
    
    
    262Noncurrent assets related to discontinued operations
    
    
    
    
    
    
    467Total assets
    
    $
    87,687
    
    
    $
    124,347LIABILITIES AND SHAREHOLDERS EQUITYCurrent liabilities:Accounts payable
    
    $
    927
    
    
    $
    1,227Accrued warranty
    
    
    504
    
    
    
    926Accrued expenses
    
    
    2,319
    
    
    
    1,511Accrued salaries and wages
    
    
    1,190
    
    
    
    354Accrued royalties payable
    
    
    137
    
    
    
    288Income taxes payable
    
    
    393
    
    
    
    268Deferred revenue
    
    
    2,463
    
    
    
    3,024Current liabilities related to discontinued operations
    
    
    
    
    
    
    1,125Total current liabilities
    
    
    7,933
    
    
    
    8,723Pension obligation
    
    
    983
    
    
    
    889Deferred tax liabilities
    
    
    290
    
    
    
    1,792Other tax liabilities
    
    
    738
    
    
    
    489Total liabilities
    
    
    9,944
    
    
    
    11,893Commitments and contingenciesShareholders equity:Common stock, $0.20 par value 50,000 authorized shares,
issued shares, 13,788 in 2009 and 13,733 in 2008
    
    
    2,746
    
    
    
    2,744Additional paid-in capital
    
    
    75,244
    
    
    
    73,923Treasury stock, at cost, 1,151 shares in 2009 and 1,072 shares in 2008
    
    
    (8,563
    )
    
    
    (8,081
    )Retained earnings
    
    
    9,543
    
    
    
    45,748Accumulated other comprehensive loss
    
    
    (1,227
    )
    
    
    (1,880
    )Total shareholders equity
    
    
    77,743
    
    
    
    112,454Total liabilities and shareholders equity
    
    $
    87,687
    
    
    $
    124,347
  - 40 -




---



##### Table of Contents



Tollgrade Communications, Inc. and Subsidiaries

Consolidated Statements of Operations
In thousands (except per share data)
 Years Ended December 31,2009
    
    2008
    
    2007Revenues:Products
    
    $
    19,936
    
    
    $
    26,997
    
    
    $
    36,143Services
    
    
    25,005
    
    
    
    22,055
    
    
    
    15,689Total revenues
    
    
    44,941
    
    
    
    49,052
    
    
    
    51,832Cost of sales:Products
    
    
    11,812
    
    
    
    14,181
    
    
    
    15,874Services
    
    
    7,143
    
    
    
    6,146
    
    
    
    4,103Amortization
    
    
    2,576
    
    
    
    3,085
    
    
    
    2,199Inventory write-down
    
    
    3,070
    
    
    
    759
    
    
    
    Impairment of long-lived assets
    
    
    27,151
    
    
    
    201
    
    
    
    1,090Severance
    
    
    778
    
    
    
    
    
    
    
    Total cost of sales
    
    
    52,530
    
    
    
    24,372
    
    
    
    23,266Gross margin
    
    
    (7,589
    )
    
    
    24,680
    
    
    
    28,566Operating expenses:Selling and marketing
    
    
    6,809
    
    
    
    6,835
    
    
    
    7,807General and administrative
    
    
    12,141
    
    
    
    9,455
    
    
    
    9,702Research and development
    
    
    9,411
    
    
    
    10,789
    
    
    
    10,987Severance expense
    
    
    1,180
    
    
    
    827
    
    
    
    922Impairment of long-lived assets
    
    
    293
    
    
    
    
    
    
    
    20,036Total operating expense
    
    
    29,834
    
    
    
    27,906
    
    
    
    49,454Loss from operations
    
    
    (37,423
    )
    
    
    (3,226
    )
    
    
    (20,888
    )Other income
    
    
    567
    
    
    
    1,337
    
    
    
    2,770Loss before income taxes
    
    
    (36,856
    )
    
    
    (1,889
    )
    
    
    (18,118
    )(Benefit) provision for income taxes
    
    
    (874
    )
    
    
    1,137
    
    
    
    1,220Loss from continuing operations
    
    
    (35,982
    )
    
    
    (3,026
    )
    
    
    (19,338
    )Loss from discontinued operations
    
    
    (223
    )
    
    
    (4,089
    )
    
    
    (6,815
    )Net loss
    
    $
    (36,205
    )
    
    $
    (7,115
    )
    
    $
    (26,153
    )PER SHARE INFORMATION:Weighted average shares of common stock and equivalents:Basic
    
    
    12,683
    
    
    
    13,102
    
    
    
    13,219Diluted
    
    
    12,683
    
    
    
    13,102
    
    
    
    13,219Net loss per common share:Basic
    
    $
    (2.85
    )
    
    $
    (0.54
    )
    
    $
    (1.98
    )Diluted
    
    $
    (2.85
    )
    
    $
    (0.54
    )
    
    $
    (1.98
    )Net loss per common share from continuing operations:Basic
    
    $
    (2.83
    )
    
    $
    (0.23
    )
    
    $
    (1.46
    )Diluted
    
    $
    (2.83
    )
    
    $
    (0.23
    )
    
    $
    (1.46
    )Net loss per common share from discontinued operations:Basic
    
    $
    (0.02
    )
    
    $
    (0.31
    )
    
    $
    (0.52
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.31
    )
    
    $
    (0.52
    )
  - 41 -




---



##### Table of Contents



Tollgrade Communications, Inc. and Subsidiaries

Consolidated Statements of Changes in Shareholders Equity
In thousands
 AccumulatedOther
    
    
    
    
    
    
    OtherCommon Stock
    
    
    Additional
    
    
    Treasury Stock
    
    
    Retained
    
    
    Comprehensive
    
    
    
    
    
    
    ComprehensiveShares
    
    
    Amount
    
    
    Paid-In
    
    
    Shares
    
    
    Amount
    
    
    Earnings
    
    
    Loss
    
    
    Total
    
    
    LossBalance at December 31, 2006
    
    
    13,709
    
    
    $
    2,742
    
    
    $
    72,477
    
    
    
    462
    
    
    $
    (4,791
    )
    
    $
    79,016
    
    
    $
    
    
    
    $
    149,444Exercise of Common Stock Options
    
    
    10
    
    
    
    2
    
    
    
    87
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    89Tax Benefit
from exercise of stock options
    
    
    
    
    
    
    
    
    
    
    10
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    10Purchase of Treasury Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    113
    
    
    
    (1,109
    )
    
    
    
    
    
    
    
    
    
    
    (1,109
    )Compensation expense for options and
restricted stock, net
    
    
    12
    
    
    
    
    
    
    
    815
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    815Actuarial gain, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    32
    
    
    
    32
    
    
    $
    32Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (128
    )
    
    
    (128
    )
    
    
    (128
    )Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (26,153
    )
    
    
    
    
    
    
    (26,153
    )
    
    
    (26,153
    )Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (26,249
    )Balance at December 31, 2007
    
    
    13,731
    
    
    
    2,744
    
    
    
    73,389
    
    
    
    575
    
    
    
    (5,900
    )
    
    
    52,863
    
    
    
    (96
    )
    
    
    123,000Purchase of Treasury Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    497
    
    
    
    (2,181
    )
    
    
    
    
    
    
    
    
    
    
    (2,181
    )Compensation expense for options and
restricted stock, net
    
    
    2
    
    
    
    
    
    
    
    534
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    534Actuarial gain, net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    87
    
    
    
    87
    
    
    $
    87Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (1,871
    )
    
    
    (1,871
    )
    
    
    (1,871
    )Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (7,115
    )
    
    
    
    
    
    
    (7,115
    )
    
    
    (7,115
    )Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (8,899
    )Balance at December 31, 2008
    
    
    13,733
    
    
    
    2,744
    
    
    
    73,923
    
    
    
    1,072
    
    
    
    (8,081
    )
    
    
    45,748
    
    
    
    (1,880
    )
    
    
    112,454Exercise of Common Stock Options
    
    
    10
    
    
    
    2
    
    
    
    52
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    54Purchase of Treasury Stock
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    79
    
    
    
    (482
    )
    
    
    
    
    
    
    
    
    
    
    (482
    )Compensation expense for options and
restricted stock, net
    
    
    45
    
    
    
    
    
    
    
    1,269
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,269Actuarial loss net of tax
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (13
    )
    
    
    (13
    )
    
    $
    (13
    )Foreign currency translation
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    666
    
    
    
    666
    
    
    
    666Net Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    (36,205
    )
    
    
    
    
    
    
    (36,205
    )
    
    
    (36,205
    )Comprehensive Loss
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    $
    (35,552
    )Balance at December 31, 2009
    
    
    13,788
    
    
    $
    2,746
    
    
    $
    75,244
    
    
    
    1,151
    
    
    $
    (8,563
    )
    
    $
    9,543
    
    
    $
    (1,227
    )
    
    $
    77,743
  - 42 -




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##### Table of Contents



Tollgrade Communications, Inc. and Subsidiaries  
 Consolidated Statements of Cash Flows
(In thousands)
 Years Ended December 31,2009
    
    2008
    
    2007Cash flows from operating activities:Net loss
    
    $
    (36,205
    )
    
    $
    (7,115
    )
    
    $
    (26,153
    )Adjustments to reconcile net loss to net cash provided by operating activities:Loss from discontinued operations
    
    
    223
    
    
    
    4,089
    
    
    
    6,815Depreciation and amortization
    
    
    3,761
    
    
    
    4,559
    
    
    
    3,588Impairment of long-lived assets
    
    
    27,444
    
    
    
    201
    
    
    
    21,126Valuation allowance
    
    
    
    
    
    
    123
    
    
    
    9,922Compensation expense related to stock plans
    
    
    1,236
    
    
    
    468
    
    
    
    727Gain on disposed assets
    
    
    (42
    )
    
    
    
    
    
    
    Deferred income taxes
    
    
    (1,030
    )
    
    
    182
    
    
    
    (9,435
    )Excess tax benefits from share based compensation
    
    
    
    
    
    
    
    
    
    
    (10
    )Write-down of inventory
    
    
    3,070
    
    
    
    759
    
    
    
    Provision for losses on inventories
    
    
    231
    
    
    
    969
    
    
    
    875Provision for allowance for doubtful accounts
    
    
    1,119
    
    
    
    100
    
    
    
    86Changes in assets and liabilities, net of acquisitions:Accounts receivable  trade
    
    
    2,362
    
    
    
    3,782
    
    
    
    2,998Accounts receivable  other
    
    
    786
    
    
    
    1,215
    
    
    
    (37
    )Inventories
    
    
    2,445
    
    
    
    348
    
    
    
    (1,750
    )Refundable income taxes
    
    
    
    
    
    
    
    
    
    
    897Prepaid expenses and deposits
    
    
    284
    
    
    
    (375
    )
    
    
    (224
    )Accounts payable
    
    
    (1,276
    )
    
    
    (3,431
    )
    
    
    1,656Accrued warranty
    
    
    (434
    )
    
    
    (218
    )
    
    
    (125
    )Accrued expenses, deferred revenue and salaries and wages
    
    
    (310
    )
    
    
    (417
    )
    
    
    (1,640
    )Accrued royalties payable
    
    
    (152
    )
    
    
    (383
    )
    
    
    488Income taxes payable
    
    
    114
    
    
    
    (287
    )
    
    
    557Net cash provided by discontinued operations:
    
    
    57
    
    
    
    38
    
    
    
    31Net cash provided by operating activities:
    
    
    3,683
    
    
    
    4,607
    
    
    
    10,392Cash flows from investing activities:Proceeds from sale of assets
    
    
    3,074
    
    
    
    265
    
    
    
    892Proceeds from note receivable
    
    
    112
    
    
    
    
    
    
    
    Purchase of Ericsson test business
    
    
    (300
    )
    
    
    
    
    
    
    Purchase of BTD from Teradyne
    
    
    
    
    
    
    
    
    
    
    (11,855
    )Purchase of investments
    
    
    
    
    
    
    (4,266
    )
    
    
    (12,194
    )Redemption/maturity of investments
    
    
    2,416
    
    
    
    2,479
    
    
    
    16,885Capital expenditures, including capitalized software
    
    
    (762
    )
    
    
    (469
    )
    
    
    (2,293
    )Net cash used in investing activities of discontinued operations:
    
    
    (57
    )
    
    
    (38
    )
    
    
    (31
    )Net cash provided by (used in) investing activities:
    
    
    4,483
    
    
    
    (2,029
    )
    
    
    (8,596
    )Cash flows from financing activities:Repurchase of treasury shares
    
    
    (482
    )
    
    
    (2,181
    )
    
    
    (1,109
    )Proceeds from the exercise of stock options
    
    
    54
    
    
    
    
    
    
    
    89Excess tax benefit from share based compensation
    
    
    
    
    
    
    
    
    
    
    10Net cash used in financing activities:
    
    
    (428
    )
    
    
    (2,181
    )
    
    
    (1,010
    )Net increase in cash and cash equivalents
    
    
    7,738
    
    
    
    397
    
    
    
    786Effect of exchange rate change on cash and cash equivalents
    
    
    332
    
    
    
    (643
    )
    
    
    58Cash and cash equivalents at beginning of year
    
    
    57,976
    
    
    
    58,222
    
    
    
    57,378Cash and cash equivalents at end of year
    
    $
    66,046
    
    
    $
    57,976
    
    
    $
    58,222Supplemental disclosure of cash flow information:Cash paid during the year for income taxes
    
    $
    7
    
    
    $
    14
    
    
    $
    3
  - 43 -




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##### Table of Contents



TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES  
 NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
 1. ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
 ORGANIZATION, BUSINESS AND BASIS OF PRESENTATION
    USE OF ESTIMATES
  PRINCIPLES OF CONSOLIDATION
  CASH AND CASH EQUIVALENTS
  INVESTMENTS
  ALLOWANCE FOR DOUBTFUL ACCOUNTS
  INVENTORIES
  PROPERTY AND EQUIPMENT
  VALUATION OF LONG-LIVED ASSETS
  - 44 -




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##### Table of Contents



PRODUCT WARRANTY
  REVENUE RECOGNITION
      COST OF SALES
  - 45 -




---



##### Table of Contents



SHIPPING AND HANDLING COSTS
  INTANGIBLE ASSETS
     RESEARCH AND DEVELOPMENT COSTS
  CAPITALIZED SOFTWARE COSTS
  INCOME TAXES
    - 46 -




---



##### Table of Contents



SEGMENT INFORMATION
  RECLASSIFICATIONS
  RECENT ACCOUNTING PRONOUNCEMENTS
 Fair Value Measurements:
 Factors
used to Determine Useful Life of Intangible Assets:
 Disclosure for Pension and other Postretirement Plan Assets:
 Fair Value Disclosures in Interim and Annual Reports:
 Subsequent Events Disclosure:
 References of Accounting Standards:
 Revenue Recognition for Multiple-Deliverable Arrangements:
 - 47 -




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##### Table of Contents



Revenue Recognition for Certain Arrangements that Include Software Elements:
 2. ACCOUNTING FOR STOCK-BASED COMPENSATION
       Stock-Based Compensation Expense
  Year Ended
    
    Stock Options
Year Ended
    
    Year EndedDecember 31, 2009
    
    December 31, 2008
    
    December 31, 2007|
    
    | |Weighted average grant date fair values
    
    $
    2.60
    
    
    $
    2.68
    
    
    $
    3.69Expected life (in years)
    
    
    5.0
    
    
    
    5.0
    
    
    
    5.0Risk free interest rate
    
    
    1.9
    %
    
    
    2.8
    %
    
    
    3.6
    %Expected Volatility
    
    
    53.8
    %
    
    
    48.1
    %
    
    
    48.6
    %
  - 48 -




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##### Table of Contents



Weighted AverageNumber of Shares
    
    Range of Exercise Price
    
    Exercise PriceOutstanding, December 31, 2006
    
    
    1,358,385
    
    
    $
    7.28 - 159.19
    
    
    $
    30.24Granted
    
    
    160,000
    
    
    
    7.78 - 9.84
    
    
    
    7.91Exercised (A)
    
    
    (10,500
    )
    
    
    7.56 - 9.49
    
    
    
    8.49Cancelled/Forfeited/Expired
    
    
    (67,323
    )
    
    
    8.49 - 159.19
    
    
    
    43.74Outstanding, December 31, 2007
    
    
    1,440,562
    
    
    
    7.28 - 159.19
    
    
    
    27.28Granted
    
    
    684,400
    
    
    
    3.27 - 6.57
    
    
    
    5.97Exercised (A)
    
    
    
    
    
    
    
    
    
    
    Cancelled/Forfeited/Expired
    
    
    (519,472
    )
    
    
    6.57 - 55.90
    
    
    
    12.16Outstanding, December 31, 2008
    
    
    1,605,490
    
    
    
    3.27 - 159.19
    
    
    
    23.08Granted
    
    
    615,500
    
    
    
    5.17 - 5.86
    
    
    
    5.47Exercised (A)
    
    
    (10,000
    )
    
    
    5.87 - 6.48
    
    
    
    6.11Cancelled/Forfeited/Expired
    
    
    (526,195
    )
    
    
    3.27 - 159.19
    
    
    
    19.10Outstanding, December 31, 2009
    
    
    1,684,795
    
    
    $
    3.27 - 159.19
    
    
    $
    27.29
 Number of SharesOptions exercisable at:December 31, 2007
    
    
    1,280,563
    
    
    $
    29.70December 31, 2008
    
    
    937,757
    
    
    $
    35.14December 31, 2009
    
    
    957,353
    
    
    $
    27.29
 
 (A)
    
    The intrinsic value associated with exercised options which represent the difference
between the strike price and the market value of Tollgrade stock at the time of exercise was less
than $0.1 million in 2009, 2008 and 2007, respectively.  Stock Options Outstanding
    
    Stock Options ExercisableNumberOutstanding
    
    Weighted
    
    Weighted
    
    
    
    
    
    Number
    
    Weightedas of
    
    Average
    
    Average
    
    Aggregate
    
    Exercisable as
    
    Average
    
    AggregateRange of Exercise
    
    December 31,
    
    Remaining
    
    Exercise
    
    Intrinsic
    
    of December
    
    Exercise
    
    IntrinsicPrices
    
    2009
    
    Contractual Life
    
    Price ($)
    
    Value ($)
    
    31, 2009
    
    Price ($)
    
    Value (B) ($)$3.27 - 5.32
    
    
    151,500
    
    
    
    9.14
    
    
    $
    4.28
    
    
    $
    527,285
    
    
    
    61,001
    
    
    $
    4.41
    
    
    $
    131,3065.38 - 5.38
    
    
    311,500
    
    
    
    9.07
    
    
    
    5.38
    
    
    
    
    
    
    
    20,000
    
    
    
    5.385.74 - 6.03
    
    
    148,000
    
    
    
    9.91
    
    
    
    5.96
    
    
    
    
    
    
    
    35,000
    
    
    
    5.746.57 - 6.57
    
    
    357,947
    
    
    
    6.95
    
    
    
    6.57
    
    
    
    
    
    
    
    175,504
    
    
    
    6.577.78 - 8.49
    
    
    248,332
    
    
    
    6.68
    
    
    
    8.06
    
    
    
    
    
    
    
    198,332
    
    
    
    8.139.49 - 28.40
    
    
    251,316
    
    
    
    2.38
    
    
    
    19.27
    
    
    
    
    
    
    
    251,316
    
    
    
    19.2728.70 - 55.90
    
    
    110,950
    
    
    
    1.11
    
    
    
    46.37
    
    
    
    
    
    
    
    110,950
    
    
    
    46.37103.59 - 103.59
    
    
    5,000
    
    
    
    0.75
    
    
    
    103.59
    
    
    
    
    
    
    
    5,000
    
    
    
    103.59117.34 - 117.34
    
    
    88,000
    
    
    
    0.52
    
    
    
    117.34
    
    
    
    
    
    
    
    88,000
    
    
    
    117.34159.19 - 159.19
    
    
    12,250
    
    
    
    0.49
    
    
    
    159.19
    
    
    
    
    
    
    
    12,250
    
    
    
    159.19Total $3.27-159.19
    
    
    1,684,795
    
    
    
    6.29
    
    
    $
    18.01
    
    
    $
    527,285
    
    
    
    957,353
    
    
    $
    27.29
    
    
    $
    131,306
 
 (B)
    
    The aggregate intrinsic value in the preceding table represents the difference between the
strike price and the market value of Tollgrade stock which was $6.04 and $6.33 on December 31, 2009
and December 31, 2008, respectively. The total number of exercisable shares in-the-money was
116,001 and zero shares on December 31, 2009 and December 31, 2008, respectively. Weighted AverageWeighted Average
    
    
    Remaining
    
    
    Aggregate IntrinsicNo. of Shares
    
    
    Exercise Price
    
    
    Contractual Term
    
    
    Value (1)Vested
    
    
    957,353
    
    
    $
    27.29
    
    
    
    4.32
    
    
    $
    131,306Expected to Vest
    
    
    727,442
    
    
    $
    5.50
    
    
    
    9.09
    
    
    $
    395,979Total
    
    
    1,684,795
    
    
    $
    18.01
    
    
    
    6.29
    
    
    $
    527,285
 - 49 -




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##### Table of Contents



(1)
    
    The aggregate intrinsic value in the preceding table
represents the difference between the exercise price and the value of Tollgrade
stock, which was $6.04 and $6.33 on December 31, 2009 and December 31, 2008, respectively.   3. ACQUISITIONS AND DISCONTINUED OPERATIONS
      Twelve Months EndedDecember 31,
    
    
    December 31,
    
    
    December 31,2009
    
    
    2008
    
    
    2007Revenues:Products
    
    $
    2,376
    
    
    $
    6,377
    
    
    $
    12,750Services
    
    
    723
    
    
    
    1,795
    
    
    
    1,978$
    3,099
    
    
    $
    8,172
    
    
    $
    14,728Loss from discontinued operationsLoss from discontinued operations, before tax
    
    $
    (223
    )
    
    $
    (4,089
    )
    
    $
    (6,815
    )Income tax expense
    
    
    
    
    
    
    
    
    
    
    Loss from discontinued operations, net of tax
    
    $
    (223
    )
    
    $
    (4,089
    )
    
    $
    (6,815
    )
 - 50 -




---



##### Table of Contents



December 31, 2008ASSETSAccounts receivable trade, net of allowance for doubtful
accounts
    
    $
    1,168Accounts receivable other
    
    
    36Inventories
    
    
    2,808Prepaid expenses
    
    
    249Property and equipment, net
    
    
    292Intangibles and capitalized software, net
    
    
    174Assets related to discontinued operations
    
    
    4,727LIABILITIESAccounts payable
    
    
    38Accrued warranty
    
    
    663Accrued expenses
    
    
    153Accrued royalties
    
    
    11Deferred revenue
    
    
    259Liabilities related to discontinued operations
    
    $
    1,124
  (In Thousands, Except Per ShareData)Unaudited Pro FormaYear EndedDecember 31, 2007Revenues
    
    $
    62,986Loss from operations
    
    $
    (20,817
    )Net loss
    
    $
    (26,082
    )Pro forma basic and diluted loss per share
    
    $
    (1.97
    )Actual basis and diluted loss per share
    
    $
    (1.98
    )
 4. INTANGIBLES
  - 51 -




---



##### Table of Contents



Useful
    
    
    December 31, 2009Life
    
    
    
    
    
    
    Accumulated(Years)
    
    
    Gross
    
    
    Amortization
    
    
    Impairments
    
    
    NetAmortizing Intangible Assets:Post 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
    
    
    
    
    
    
    
    314Trade names and other
    
    
    0.5-10
    
    
    
    537
    
    
    
    443
    
    
    
    
    
    
    
    94Total Intangible Assets
    
    
    
    
    
    $
    53,243
    
    
    $
    18,982
    
    
    $
    27,151
    
    
    $
    7,110
 Useful
    
    
    December 31, 2008Life
    
    
    
    
    
    
    Accumulated(Years)
    
    
    Gross
    
    
    Amortization
    
    
    Impairments
    
    
    NetAmortizing Intangible Assets:Post Warranty Service Agreements
    
    
    6-50
    
    
    $
    37,563
    
    
    $
    3,752
    
    
    $
    
    
    
    $
    33,811Technology
    
    
    2-10
    
    
    
    13,987
    
    
    
    11,700
    
    
    
    30
    
    
    
    2,257Customer Relationships
    
    
    5-15
    
    
    
    904
    
    
    
    334
    
    
    
    112
    
    
    
    458Trade names and other
    
    
    0.5-10
    
    
    
    534
    
    
    
    322
    
    
    
    59
    
    
    
    152Total Intangible Assets
    
    
    
    
    
    $
    52,988
    
    
    $
    16,108
    
    
    $
    201
    
    
    $
    36,678
    - 52 -




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##### Table of Contents



5. INVENTORIES
  December 31, 2009
    
    December 31, 2008Raw materials
    
    $
    3,584
    
    
    $
    4,621Work in process
    
    
    830
    
    
    
    3,142Finished goods
    
    
    2,352
    
    
    
    1,7826,766
    
    
    
    9,545Reserves for slow moving and obsolete inventory
    
    
    (4,647
    )
    
    
    (1,680
    )$
    2,119
    
    
    $
    7,865
  6. PROPERTY AND EQUIPMENT
  Years
    
    December 31, 2009
    
    December 31, 2008Test equipment and tooling
    
    
    3-5
    
    
    $
    10,747
    
    
    $
    10,215Office equipment and fixtures
    
    
    5-7
    
    
    
    10,187
    
    
    
    9,453Leasehold improvements
    
    
    1-6
    
    
    
    2,777
    
    
    
    2,723Gross Property and Equipment
    
    
    
    
    
    
    23,711
    
    
    
    22,391Less accumulated depreciation and amortization
    
    
    
    
    
    
    (20,610
    )
    
    
    (19,730
    )Net Property and Equipment
    
    
    
    
    
    $
    3,101
    
    
    $
    2,661
  7. PRODUCT WARRANTY
  December 31, 2009
    
    December 31, 2008Balance at the beginning of the year
    
    $
    926
    
    
    $
    1,148Accruals for warranties issued during the year
    
    
    894
    
    
    
    1,682Settlements during the year
    
    
    (1,316
    )
    
    
    (1,904
    )Balance at the end of the year
    
    $
    504
    
    
    $
    926
 8. PENSIONS
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##### Table of Contents



Pension
    
    PensionBenefits
    
    Benefits(in thousands)
    
    2009
    
    2008Change in projected benefit obligation:Projected benefit obligation at January 1,
    
    $
    1,257
    
    
    $
    1,260Curtailments
    
    
    (70
    )
    
    
    Service cost
    
    
    80
    
    
    
    83Interest cost
    
    
    76
    
    
    
    65Plan participants contributions
    
    
    5
    
    
    
    5Actuarial loss(gains)
    
    
    35
    
    
    
    (96
    )Effect of foreign currency
    
    
    41
    
    
    
    (60
    )Projected benefit obligation at December 31,
    
    $
    1,424
    
    
    $
    1,257
 2009
    
    2008Change in fair value of plan assets:Fair value of plan assets at January 1,
    
    $
    368
    
    
    $
    352Employer contributions
    
    
    24
    
    
    
    23Plan participants contributions
    
    
    5
    
    
    
    5Actual return on plan assets (net of cost)
    
    
    32
    
    
    
    5Effect of foreign currency
    
    
    12
    
    
    
    (17
    )Fair value of plan assets at December 31,
    
    $
    441
    
    
    $
    368Unfunded status of plans at December 31,
    
    $
    983
    
    
    $
    889
 2009
    
    2008Amounts recognized in accumulated other comprehensive
income:Prior service cost
    
    
    
    
    
    
    Actuarial gains
    
    $
    106
    
    
    $
    87Total
    
    $
    106
    
    
    $
    87
  Pension
    
    PensionBenefits
    
    Benefits(in thousands)
    
    2009
    
    2008Noncurrent assets
    
    $
    
    
    
    $
    Noncurrent liabilities
    
    
    983
    
    
    
    889Net amount recognized at December 31,
    
    $
    983
    
    
    $
    889
  Curtailments (gain)/loss
    
    $
    (6
    )Current year actuarial (gain)/loss
    
    
    17Amortization of actuarial gain/(loss)
    
    
    5Foreign currency exchange rate change
    
    
    (3
    )Total recognized in other comprehensive income
    
    $
    13
 - 54 -




---



##### Table of Contents



Pension
    
    PensionBenefits
    
    Benefits(in thousands)
    
    2009
    
    2008Projected benefit obligation in excess of plan assets:Projected benefit obligation
    
    $
    1,424
    
    
    $
    1,257Fair value of plan assets
    
    $
    441
    
    
    $
    368Accumulated benefit obligation in excess of plan assets:Accumulated benefit obligation
    
    $
    1,126
    
    
    $
    933Fair value of plan assets
    
    $
    441
    
    
    $
    368
  Pension
    
    PensionBenefits
    
    Benefits(in thousands)
    
    2009
    
    2008Components of net periodic benefit cost:Service cost
    
    $
    80
    
    
    $
    83Interest cost
    
    
    76
    
    
    
    65Actuarial (gain)
    
    
    (4
    )
    
    
    Curtailment (gain)
    
    
    (65
    )
    
    
    Expected return on plan assets
    
    
    (15
    )
    
    
    (15
    )Net periodic benefit cost
    
    $
    72
    
    
    $
    133
  (in thousands)Expected benefit payments:2010  2014
    
    
    2015  2019
    
    $
    310
  2009
    
    2008Weighted-average assumptions used to determine the
benefit obligationDiscount rate
    
    
    5.75
    %
    
    
    6.00
    %Rate of compensation increase
    
    
    3.00
    %
    
    
    3.00
    %
 2009
    
    2008Weighted-average assumptions used to determine the net
benefit costsDiscount rate
    
    
    6.00
    %
    
    
    5.37
    %Rate of compensation increase
    
    
    3.00
    %
    
    
    3.00
    %Expected annual return on plan assets
    
    
    3.80
    %
    
    
    4.00
    %
  9. LICENSE AND ROYALTY FEES
  - 55 -




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##### Table of Contents



10. INCOME TAXES
  2009
    
    2008
    
    2007Current:Federal
    
    $
    (202
    )
    
    $
    (16
    )
    
    $
    (19
    )Foreign
    
    
    482
    
    
    
    777
    
    
    
    742State
    
    
    15
    
    
    
    7
    
    
    
    10295
    
    
    
    768
    
    
    
    733Deferred:Federal
    
    
    (1,105
    )
    
    
    
    
    
    
    648Foreign
    
    
    (32
    )
    
    
    369
    
    
    
    (180
    )State
    
    
    (32
    )
    
    
    
    
    
    
    19(1,169
    )
    
    
    369
    
    
    
    487$
    (874
    )
    
    $
    1,137
    
    
    $
    1,220
   Years Ended December 31,2009
    
    2008
    
    2007Federal statutory tax rate
    
    
    (34
    %)
    
    
    (34
    %)
    
    
    (34
    %)Foreign income taxes
    
    
    
    
    
    
    (1
    %)
    
    
    Valuation allowance
    
    
    35
    %
    
    
    49
    %
    
    
    38
    %Tax contingency reserve
    
    
    1
    %
    
    
    5
    %
    
    
    1
    %Intangible write down
    
    
    (3
    %)
    
    
    
    
    
    
    Other
    
    
    (1
    %)
    
    
    
    
    
    
    Effective tax rate
    
    
    (2
    %)
    
    
    19
    %
    
    
    5
    %
 - 56 -




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##### Table of Contents



December 31,
    
    December 31,2009
    
    2008Deferred Tax Assets:Excess of tax basis over book basis for:Property and equipment
    
    $
    295
    
    
    $
    328Goodwill and intangible assets
    
    
    10,233
    
    
    
    9,331Inventory
    
    
    691
    
    
    
    634Reserves recorded for:Warranty
    
    
    44
    
    
    
    602Inventory
    
    
    1,649
    
    
    
    819Allowance for doubtful accounts
    
    
    524
    
    
    
    132Severance
    
    
    138
    
    
    
    34Federal net operating loss carryforward
    
    
    9,737
    
    
    
    3,660State net operating loss carryforward
    
    
    4,152
    
    
    
    3,409Stock based compensation
    
    
    774
    
    
    
    595Unrealized foreign exchange
    
    
    453
    
    
    
    Pension benefit
    
    
    42
    
    
    
    39Other
    
    
    31
    
    
    
    31Gross deferred tax assets
    
    $
    28,763
    
    
    $
    19,614Valuation allowance
    
    
    (28,567
    )
    
    
    (15,848
    )Deferred tax assets
    
    
    196
    
    
    
    3,766Deferred Tax Liabilities:Excess of book basis over tax basis for:Intangible assets
    
    $
    (78
    )
    
    $
    (4,984
    )Property and equipment
    
    
    (154
    )
    
    
    (14
    )Other
    
    
    (117
    )
    
    
    (90
    )Total deferred tax liabilities
    
    
    (349
    )
    
    
    (5,088
    )Net deferred tax liabilities
    
    $
    (153
    )
    
    $
    (1,322
    )Reconciliation to the consolidated
balance sheet:Deferred tax assets current:
    
    $
    18
    
    
    $
    389Deferred tax assets noncurrent:
    
    
    119
    
    
    
    81Deferred tax liabilities noncurrent:
    
    
    (290
    )
    
    
    (1,792
    )Net deferred tax liabilities
    
    $
    (153
    )
    
    $
    (1,322
    )
    - 57 -




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##### Table of Contents



Unrecognized Tax Benefits Tabular Reconciliation (in thousands)
 2009
    
    2008
    
    2007Beginning balance  January 1,
    
    $
    489
    
    
    $
    272
    
    
    $
    96Additional uncertain tax positions
    
    
    285
    
    
    
    244
    
    
    
    201Reductions due to expirations of statute of limitations
    
    
    (36
    )
    
    
    (27
    )
    
    
    (25
    )Ending balance  December 31,
    
    $
    738
    
    
    $
    489
    
    
    $
    272
     11. COMMITMENTS AND CONTINGENCIES
   At December 31, 20092010
    
    $
    9682011
    
    
    6452012
    
    
    3602013
    
    
    252014
    
    
    25Thereafter
    
    
    $
    2,023
    - 58 -




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##### Table of Contents



12. MAJOR CUSTOMERS, REVENUE CONCENTRATION AND DEPENDENCE ON CERTAIN SUPPLIERS
  December 31 ,
    
    December 31 ,
    
    December 31,2009
    
    2008
    
    2007MCU
    
    $
    5.7
    
    
    
    13
    %
    
    $
    8.9
    
    
    
    18
    %
    
    $
    12.7
    
    
    
    24
    %Test Products
    
    
    14.2
    
    
    
    32
    %
    
    
    18.1
    
    
    
    37
    %
    
    
    23.6
    
    
    
    46
    %Other
    
    
    0.1
    
    
    
    0
    %
    
    
    0.0
    
    
    
    0
    %
    
    
    0.0
    
    
    
    0
    %Services
    
    
    24.9
    
    
    
    55
    %
    
    
    22.1
    
    
    
    45
    %
    
    
    15.5
    
    
    
    30
    %Total
    
    $
    44.9
    
    
    
    100
    %
    
    $
    49.1
    
    
    
    100
    %
    
    $
    51.8
    
    
    
    100
    %
   December 31 ,
    
    December 31 ,
    
    December 31,2009
    
    2008
    
    2007Company A
    
    $
    10,262
    
    
    
    23
    %
    
    $
    13,436
    
    
    
    27
    %
    
    $
    16,283
    
    
    
    31
    %Company B
    
    
    5,254
    
    
    
    12
    %
    
    
    
    
    
    
    0
    %
    
    
    
    
    
    
    0
    %Company C
    
    
    4,534
    
    
    
    10
    %
    
    
    3,796
    
    
    
    8
    %
    
    
    2,695
    
    
    
    5
    %Company D
    
    
    4,523
    
    
    
    10
    %
    
    
    4,554
    
    
    
    9
    %
    
    
    3,384
    
    
    
    7
    %Company E
    
    
    3,118
    
    
    
    7
    %
    
    
    7,448
    
    
    
    15
    %
    
    
    3,954
    
    
    
    8
    %Company F
    
    
    
    
    
    
    0
    %
    
    
    1,435
    
    
    
    3
    %
    
    
    7,054
    
    
    
    14
    %Total
    
    $
    27,691
    
    
    
    
    
    
    $
    30,669
    
    
    
    
    
    
    $
    33,370
  December 31 , 2009
    
    
    December 31 , 2008
    
    
    December 31 , 2007Region :Asia
    
    $
    1,079
    
    
    $
    828
    
    
    $
    2,041Americas
    
    
    3,408
    
    
    
    2,390
    
    
    
    3,240EMEA
    
    
    12,479
    
    
    
    18,029
    
    
    
    17,863Total International
    
    
    16,966
    
    
    
    21,247
    
    
    
    23,144Total Domestic
    
    
    27,975
    
    
    
    27,805
    
    
    
    28,688Total Revenue
    
    $
    44,941
    
    
    $
    49,052
    
    
    $
    51,832
  13. SHORT-TERM INVESTMENTS
  December 31, 2009
    
    December 31, 2008Carrying Amount
    
    Fair Value
    
    Carrying Amount
    
    Fair ValueFinancial assets:Cash and cash equivalents
    
    $
    66,046
    
    
    $
    66,046
    
    
    $
    57,976
    
    
    $
    57,976Short-term investments
    
    $
    3
    
    
    $
    3
    
    
    $
    2,419
    
    
    $
    2,419
 - 59 -




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##### Table of Contents



14. PER SHARE INFORMATION
    December 31, 2009
    
    December 31, 2008
    
    December 31, 2007Net loss
    
    $
    (36,205
    )
    
    $
    (7,115
    )
    
    $
    (26,153
    )Weighted average common shares outstanding
    
    
    12,683
    
    
    
    13,102
    
    
    
    13,219Effect of dilutive securities  stock options
    
    
    
    
    
    
    
    
    
    
    12,683
    
    
    
    13,102
    
    
    
    13,219Loss per common share:Basic
    
    $
    (2.85
    )
    
    $
    (0.54
    )
    
    $
    (1.98
    )Diluted
    
    $
    (2.85
    )
    
    $
    (0.54
    )
    
    $
    (1.98
    )Loss per common share from continuing
operations:Basic
    
    $
    (2.83
    )
    
    $
    (0.23
    )
    
    $
    (1.46
    )Diluted
    
    $
    (2.83
    )
    
    $
    (0.23
    )
    
    $
    (1.46
    )Loss per common share from
discontinued operations:Basic
    
    $
    (0.02
    )
    
    $
    (0.31
    )
    
    $
    (0.52
    )Diluted
    
    $
    (0.02
    )
    
    $
    (0.31
    )
    
    $
    (0.52
    )
 15. EMPLOYEE DEFINED CONTRIBUTION PLANS
  16. SEVERANCE EXPENSE
   - 60 -




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##### Table of Contents



17. QUARTERLY FINANCIAL DATA (Unaudited)
  March 28,
    
    June 27,
    
    September 26,
    
    December 31,2009
    
    2009
    
    2009
    
    2009Revenue
    
    $
    10,317
    
    
    $
    10,643
    
    
    $
    11,326
    
    
    $
    12,655Gross profit
    
    
    5,284
    
    
    
    5,197
    
    
    
    2,230
    
    
    
    (20,300
    )Net (loss)
    
    $
    (1,223
    )
    
    $
    (1,509
    )
    
    $
    (7,082
    )
    
    $
    (26,391
    )(Loss) Per Share InformationWeighted average sharesBasic
    
    
    12,679
    
    
    
    12,681
    
    
    
    12,682
    
    
    
    12,690Diluted
    
    
    12,679
    
    
    
    12,681
    
    
    
    12,682
    
    
    
    12,690Basic
    
    $
    (0.09
    )
    
    $
    (0.12
    )
    
    $
    (0.56
    )
    
    $
    (2.08
    )Diluted
    
    $
    (0.09
    )
    
    $
    (0.12
    )
    
    $
    (0.56
    )
    
    $
    (2.08
    )
 March 29,
    
    June 28,
    
    September 29,
    
    December 31,2008
    
    2008
    
    2008
    
    2008Revenue
    
    $
    11,189
    
    
    $
    12,114
    
    
    $
    12,898
    
    
    $
    12,851Gross profit
    
    
    4,795
    
    
    
    6,323
    
    
    
    7,096
    
    
    
    6,466Net (loss) income
    
    $
    (6,504
    )
    
    $
    (255
    )
    
    $
    918
    
    
    $
    (1,274
    )(Loss) Earnings Per Share InformationWeighted average sharesBasic
    
    
    13,158
    
    
    
    13,158
    
    
    
    13,173
    
    
    
    12,908Diluted
    
    
    13,158
    
    
    
    13,158
    
    
    
    13,173
    
    
    
    12,908Basic
    
    $
    (0.49
    )
    
    $
    (0.02
    )
    
    $
    0.07
    
    
    $
    (0.10
    )Diluted
    
    $
    (0.49
    )
    
    $
    (0.02
    )
    
    $
    0.07
    
    
    $
    (0.10
    )
 - 61 -




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##### Table of Contents



Col. A
    
    Col. B
    
    Col C.
    
    Col. D
    
    Col. EBalance at
    
    Additions
    
    
    
    
    
    Balance atBeginning
    
    Charged to
    
    Charged to
    
    
    
    
    
    Endof Year
    
    Expense
    
    Other Accounts
    
    Deductions
    
    of YearAllowance for doubtful
accounts:Year ended December 31, 2009
    
    $
    222
    
    
    
    1,274
    
    
    
    
    
    
    
    
    
    
    $
    1,496Year ended December 31, 2008
    
    $
    309
    
    
    
    100
    
    
    
    
    
    
    
    (187
    )
    
    $
    222Year ended December 31, 2007
    
    $
    355
    
    
    
    86
    
    
    
    
    
    
    
    (132
    )
    
    $
    309Inventory reserve:Year ended December 31, 2009
    
    $
    1,680
    
    
    
    2,967
    
    
    
    
    
    
    
    
    
    
    $
    4,647Year ended December 31, 2008
    
    $
    1,306
    
    
    
    953
    
    
    
    
    
    
    
    (579
    )
    
    $
    1,680Year ended December 31, 2007
    
    $
    1,247
    
    
    
    277
    
    
    
    
    
    
    
    (218
    )
    
    $
    1,306Warranty reserve:Year ended December 31, 2009
    
    $
    926
    
    
    
    894
    
    
    
    
    
    
    
    (1,316
    )
    
    $
    504Year ended December 31, 2008
    
    $
    1,148
    
    
    
    1,682
    
    
    
    
    
    
    
    (1,904
    )
    
    $
    926Year ended December 31, 2007
    
    $
    1,273
    
    
    
    1,588
    
    
    
    
    
    
    
    (1,713
    )
    
    $
    1,148Valuation allowance on net
deferred tax assets:Year ended December 31, 2009
    
    $
    15,848
    
    
    
    
    
    
    
    12,719
    
    
    
    
    
    
    $
    28,567Year ended December 31, 2008
    
    $
    12,655
    
    
    
    123
    
    
    
    3,070
    
    
    
    
    
    
    $
    15,848Year ended December 31, 2007
    
    $
    2,733
    
    
    
    9,922
    
    
    
    
    
    
    
    
    
    
    $
    12,655
 - 62 -




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##### Table of Contents



Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure.
  
 Item 9A. Controls and Procedures.
 Evaluation of Disclosure Controls and Procedures
  Managements Report on Internal Control over Financial Reporting
     Evaluation of Changes in Internal Controls over Financial Reporting
  
 Item 9B. Other Information.
  - 63 -




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##### Table of Contents



PART III
 
 Item 10. Directors, Executive Officers and Corporate Governance.
   
 Item 11. Executive Compensation.
  
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder
Matters.
  Securities Authorized for Issuance Under Equity Compensation Plans
  No. of securities remainingavailable for future issuanceunder equity compensation plansNo. of securities to be
    
    Weighted average exercise
    
    (excluding securities to be issuedissued upon exercise of
    
    price of outstanding
    
    upon exercise of outstandingoutstanding options
    
    options
    
    options)Equity compensation
plans approved by
security holders1995 Long-Term
Incentive
Compensation Plan
(1)
    
    
    430,732
    
    
    $
    45.36
    
    
    
    2006 Long-Term
Incentive
Compensation Plan
    
    
    1,128,947
    
    
    $
    6.04
    
    
    
    1,577,557Equity compensation
plans not approved
by security holders1998 Employee
Incentive
Compensation Plan
(1)
    
    
    125,116
    
    
    $
    31.81
    
    
    
    Total:
    
    
    1,684,795
    
    
    
    
    
    
    
    1,577,557
 
 (1)
    
    No further grants may be made under these plans.  - 64 -




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##### Table of Contents



Item 13. Certain Relationships and Related Transactions and Director Independence.
  
 Item 14. Principal Accountant Fees and Services.
  
 PART IV
 
 Item 15. Exhibits and Financial Statement Schedules.
 (a)
    
    The following documents have been filed as part of this report or, where noted, incorporated by
reference:
 (1)
    
    Financial Statements

The financial statements of the Company are listed in the Index to Consolidated Financial
Statements on Page 46.(2)
    
    Financial Statement Schedule
The financial statement schedule filed in response to Item 8 and Item 15(d) of Form
10-K, Schedule II (Valuation and Qualifying Accounts), is listed in the Index to
Consolidated Financial Statements on Page 46.(3)
    
    The following exhibits are included herewith and made a part hereof:
 ExhibitNumber
    
    Description3.1
    
    Amended and Restated Articles of Incorporation of the Company (the Articles) as amended
through May 6, 1998 (conformed copy), incorporated herein by reference to Exhibit 3.1 to the
Annual Report of Tollgrade Communications, Inc. (the Company) on Form 10-K, filed with the
Securities and Exchange Commission (the SEC) on March 24, 1999 (the 1998 Form 10-K).3.1a
    
    Statement with Respect to Shares dated July 23, 1996 (conformed copy), incorporated herein by
reference to Exhibit 3.1a to the 1998 Form 10-K.3.1b
    
    Amendment to Articles incorporated herein by reference, filed on the Companys Current Report
on Form 8-K filed with the SEC on May 21, 2007.3.2
    
    Amended and Restated Bylaws of the Company filed as Exhibit 3.2 to the Companys Current
Report on Form 8-K filed with the SEC on May 21, 2007.10.1*
    
    1995 Long-Term Incentive Compensation Plan, amended and restated as of January 24, 2002,
incorporated herein by reference to Exhibit B to the 2002 Proxy Statement of the Company,
filed with the SEC on March 22, 2002.10.2*
    
    Form of Stock Option Agreement dated December 14, 1995 and December 29, 1995 for
Non-Statutory Stock Options granted under the 1995 Long-Term Incentive Compensation Plan,
incorporated herein by reference to Exhibit 10.15 to the Companys Form 10-K, filed with the
SEC on March 19, 1997 (the 1996 Form 10-K).10.3*
    
    Form of Stock Option Agreement for Non-Statutory Stock Options granted under the 1995
Long-Term Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.2 to the
Companys Form 10-Q, filed with the SEC on November 12, 1996.10.4*
    
    Form of Non-employee Director Stock Option Agreement with respect to the Companys 1995
Long-Term Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.25 to
the Companys Form 10-K filed with the SEC on March 25, 1998 (the 1997 Form 10-K).10.5*
    
    1998 Employee Incentive Compensation Plan, amended and restated as of January 24, 2002,
incorporated herein by reference to Exhibit 10.25 to the Companys Form 10-K, filed with the
SEC on March 22, 2002 (the 2001 Form 10-K).10.6
    
    Lease and License for Alterations dated October 18, 2007 among Tollgrade UK Limited,
Tollgrade Communications, Inc., Bedell Corporate Trustees Limited and Atrium Trustees (as
Trustees of the Park One Unit Trust), filed as Exhibit 10.2 to the Companys Form 10-Q filed
with the SEC on November 8, 2007.10.7
    
    Agreement dated November 27, 2006 by and between Knightsbridge Realty L.L.C. and Tollgrade
Communications, Inc., filed as Exhibit 10.1 to the Companys Current Report on Form 8-K filed
with the SEC on November 30, 2006.
 - 65 -




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##### Table of Contents



ExhibitNumber
    
    Description10.8
    
    Lease Agreement, dated as of August 31, 2005, between Regional Industrial Development
Corporation of Southwestern Pennsylvania and the Company, incorporated herein by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the SEC on September 7,
2005.10.9
    
    Amendment of Lease, dated May 22, 2009, between the Regional Industrial Development
Corporation of Southwestern Pennsylvania and Tollgrade Communications, Inc., filed as Exhibit
10.3 to the Quarterly Report on Form 10-Q filed with the SEC on August 6, 2009.10.10___
    
    Amendment of Lease, dated September 14, 2009, between the Regional Industrial Development
Corporation of Southwestern Pennsylvania and Tollgrade Communications, Inc., filed herewith.10.11*
    
    Management Incentive Compensation Plan, as amended, filed as Exhibit 10.1 to the Companys
Form 10-Q filed with the SEC on April 27, 2007.10.12*
    
    Tollgrade Communications, Inc. 2006 Long-Term Incentive Compensation Plan as amended and
restated as of August 5, 2009, filed herewith.10.13*
    
    Form of Stock Option Agreement for Non-Statutory Stock Options granted under the 2006
Long-Term Incentive Compensation Plan, filed as Exhibit 10.1 to the Companys Form 10-Q filed
with the SEC on October 27, 2006.10.14*
    
    Form of Employee Restricted Share Agreement for restricted share grants pursuant to the 2006
Long-Term Incentive Compensation Plan, filed as Exhibit 10.37 to the Companys Form 10-K filed
with the SEC on March 17, 2008 (the 2007 Form 10-K).10.15*
    
    Form of Director Restricted Share Agreement for restricted share grants pursuant to the 2006
Long-Term Incentive Compensation Plan, filed as Exhibit 10.38 to the 2007 Form 10-K.10.16*
    
    Amendment dated December 13, 2007 to the Management Incentive Compensation Plan, filed as
Exhibit 10.39 to the 2007 Form 10-K.10.17*
    
    Amendment dated December 13, 2007 to the 1995 Long-Term Incentive Compensation Plan, filed
as Exhibit 10.40 to the 2007 Form 10-K.10.18*
    
    Amendment dated December 13, 2007 to the 1998 Long-Term Incentive Compensation Plan, filed
as Exhibit 10.41 to the 2007 Form 10-K.10.19*
    
    Severance Policy, filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC
on January 31, 2008.10.20*
    
    Employment Agreement, dated April 10, 2008 between the Company and Joseph A. Ferrara, filed
as Exhibit 10.1 to the Current Report on Form 8-K/A filed with the SEC on April 16, 2008.10.21*
    
    Severance and Retention Agreement dated October 14, 2008 between the Company and Kenneth J.
Shebek, filed as Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on October
22, 2008.10.22*
    
    Severance Agreement dated October 14, 2008 between the Company and David L. Blakeney, filed
as Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on October 22, 2008.10.23*
    
    Severance Agreement dated October 14, 2008 between the Company and Gary W. Bogatay, Jr.,
filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on October 22,
2008.10.24*
    
    Agreement dated November 21, 2008 between the Company and Samuel C. Knoch, filed as Exhibit
10.1 to the Current Report on Form 8-K/A filed with the SEC on November 26, 2008.10.25*
    
    Agreement dated November 28, 2008 between the Company and Matthew J. Rosgone, filed as
Exhibit 10.1 to the Current Report on Form 8-K/A filed with the SEC on December 3, 2008.10.26*
    
    Summary of Compensatory Arrangement with Robert H. King, as described in the Current Report
on Form 8-K filed with the SEC on February 20, 2009.10.27*
    
    Agreement dated March 17, 2009 between Tollgrade Communications, Inc. and Sara M. Antol,
filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March 19, 2009
(the March 19, 2009 8-K).10.28*
    
    Agreement dated March 17, 2009 between Tollgrade Communications, Inc. and Gary W. Bogatay,
Jr. filed as Exhibit 10.2 to the March 19, 2009 8-K.10.29*
    
    Severance Agreement dated March 17, 2009 between Tollgrade Communications, Inc. and Joe
OBrien, filed as Exhibit 10.3 to the March 19, 2009 8-K.10.30*
    
    Severance Agreement dated March 17, 2009 between Tollgrade Communications, Inc. and Robert
King, filed as Exhibit 10.4 to the March 19, 2009 8-K.10.31*
    
    Severance Agreement dated March 17, 2009 between Tollgrade Communications, Inc. and Grant
Cushny, filed as Exhibit 10.5 to the March 19, 2009 8-K.10.32*
    
    Severance Agreement dated March 17, 2009 between Tollgrade Communications, Inc. and David L.
Blakeney, filed as Exhibit 10.6 to the March 19, 2009 8-K.
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##### Table of Contents



ExhibitNumber
    
    Description10.33*
    
    Severance and Retention Agreement dated March 17, 2009 between Tollgrade Communications,
Inc. and Kenneth J. Shebek, filed as Exhibit 10.7 to the March 19, 2009 8-K.10.34
    
    Asset Purchase Agreement by and among Tollgrade Communications, Inc. (PA), Tollgrade
Communications, Inc. (DE) and Cheetah Technologies, L.P., dated May 1, 2009, filed as Exhibit
10.1 to the Current Report on Form 8-K filed with the SEC on May 5, 2009.10.35*
    
    Agreement dated September 17, 2009 by and between Tollgrade Communications, Inc. and Gary W.
Bogatay, Jr., filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
September 22, 2009.10.36*
    
    Summary of compensation program for non-employee directors, filed as Exhibit 10.3 to the
Quarterly Report on Form 10-Q filed with the SEC on November 3, 2010.10.37*
    
    Separation and Release Agreement dated November 5, 2009 between Tollgrade Communications,
Inc. and Sara M. Antol, filed herewith.10.38*
    
    Severance Agreement dated November 19, 2009 between Tollgrade Communications, Inc. and
Jennifer M. Reinke, filed herewith.10.39*
    
    Severance Agreement dated November 24, 2009 between Tollgrade Communications, Inc. and
Michael D. Bornak, filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC
on November 30, 2009.21.1
    
    List of subsidiaries of the Company, filed as Exhibit 21.1 to the 2007 Form 10-K.23.1
    
    Consent of PricewaterhouseCoopers LLP, 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.
 
 *
    
    Management contract or compensatory plan, contract or arrangement required to be filed by Item
601(b)(10)(iii) of Regulation S-K.  ®  ®  ®  ®  ®  ®
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##### Table of Contents



SIGNATURES
  TOLLGRADE COMMUNICATIONS, INC.By

/s/ Joseph A. FerraraJoseph A. FerraraChief Executive Officer and President  Signature
    
    Title/s/ Joseph A. Ferrara

Joseph A. Ferrara
    
    Chairman, Chief Executive Officer and President
(Principal Executive Officer)/s/
Scott C. Chandler

Scott C. Chandler
    
    Director/s/
Richard H. Heibel

Richard H. Heibel
    
    Director/s/ Charles E. Hoffman

Charles E. Hoffman
    
    Director/s/ Robert W. Kampmeinert

Robert W. Kampmeinert
    
    Director/s/ Edward H. Kennedy

Edward H. Kennedy
    
    Director/s/ Edward B. Meyercord

Edward B. Meyercord, III
    
    Director/s/
Jeffrey M. Solomon

Jeffrey M. Solomon
    
    Director/s/ Michael D. Bornak

Michael D. Bornak
    
    Chief Financial Officer and Treasurer
(Principal Financial Officer)/s/ Mark C. Lang

Mark C. Lang
    
    Corporate Controller
(Principal Accounting Officer)
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##### Table of Contents



EXHIBIT INDEX
 ExhibitNumber
    
    Description3.1
    
    Amended and Restated Articles of Incorporation of the Company (the Articles) as amended
through May 6, 1998 (conformed copy), incorporated herein by reference to Exhibit 3.1 to the
Annual Report of Tollgrade Communications, Inc. (the Company) on Form 10-K, filed with the
Securities and Exchange Commission (the SEC) on March 24, 1999 (the 1998 Form 10-K).3.1a
    
    Statement with Respect to Shares dated July 23, 1996 (conformed copy), incorporated herein by
reference to Exhibit 3.1a to the 1998 Form 10-K.3.1b
    
    Amendment to Articles incorporated herein by reference, filed on the Companys Current Report
on Form 8-K filed with the SEC on May 21, 2007.3.2
    
    Amended and Restated Bylaws of the Company filed as Exhibit 3.2 to the Companys Current
Report on Form 8-K filed with the SEC on May 21, 2007.10.1
    
    1995 Long-Term Incentive Compensation Plan, amended and restated as of January 24, 2002,
incorporated herein by reference to Exhibit B to the 2002 Proxy Statement of the Company,
filed with the SEC on March 22, 2002.10.2
    
    Form of Stock Option Agreement dated December 14, 1995 and December 29, 1995 for
Non-Statutory Stock Options granted under the 1995 Long-Term Incentive Compensation Plan,
incorporated herein by reference to Exhibit 10.15 to the Companys Form 10-K, filed with the
SEC on March 19, 1997 (the 1996 Form 10-K).10.3
    
    Form of Stock Option Agreement for Non-Statutory Stock Options granted under the 1995
Long-Term Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.2 to the
Companys Form 10-Q, filed with the SEC on November 12, 1996.10.4
    
    Form of Non-employee Director Stock Option Agreement with respect to the Companys 1995
Long-Term Incentive Compensation Plan, incorporated herein by reference to Exhibit 10.25 to
the Companys Form 10-K filed with the SEC on March 25, 1998 (the 1997 Form 10-K).10.5
    
    1998 Employee Incentive Compensation Plan, amended and restated as of January 24, 2002,
incorporated herein by reference to Exhibit 10.25 to the Companys Form 10-K, filed with the
SEC on March 22, 2002 (the 2001 Form 10-K).10.6
    
    Lease and License for Alterations dated October 18, 2007 among Tollgrade UK Limited,
Tollgrade Communications, Inc., Bedell Corporate Trustees Limited and Atrium Trustees (as
Trustees of the Park One Unit Trust), filed as Exhibit 10.2 to the Companys Form 10-Q filed
with the SEC on November 8, 2007.10.7
    
    Agreement dated November 27, 2006 by and between Knightsbridge Realty L.L.C. and Tollgrade
Communications, Inc., filed as Exhibit 10.1 to the Companys Current Report on Form 8-K filed
with the SEC on November 30, 2006.10.8
    
    Lease Agreement, dated as of August 31, 2005, between Regional Industrial Development
Corporation of Southwestern Pennsylvania and the Company, incorporated herein by reference to
Exhibit 10.1 to the Companys Current Report on Form 8-K filed with the SEC on September 7,
2005.10.9
    
    Amendment of Lease, dated May 22, 2009, between the Regional Industrial Development
Corporation of Southwestern Pennsylvania and Tollgrade Communications, Inc., filed as Exhibit
10.3 to the Quarterly Report on Form 10-Q filed with the SEC on August 6, 2009.10.10
    
    Amendment of Lease, dated September 14, 2009, between the Regional Industrial Development
Corporation of Southwestern Pennsylvania and Tollgrade Communications, Inc., filed herewith.10.11
    
    Management Incentive Compensation Plan, as amended, filed as Exhibit 10.1 to the Companys
Form 10-Q filed with the SEC on April 27, 2007.10.12
    
    Tollgrade Communications, Inc. 2006 Long-Term Incentive Compensation Plan as amended and
restated as of August 5, 2009, filed herewith.10.13
    
    Form of Stock Option Agreement for Non-Statutory Stock Options granted under the 2006
Long-Term Incentive Compensation Plan, filed as Exhibit 10.1 to the Companys Form 10-Q filed
with the SEC on October 27, 2006.10.14
    
    Form of Employee Restricted Share Agreement for restricted share grants pursuant to the 2006
Long-Term Incentive Compensation Plan, filed as Exhibit 10.37 to the Companys Form 10-K filed
with the SEC on March 17, 2008 (the 2007 Form 10-K).10.15
    
    Form of Director Restricted Share Agreement for restricted share grants pursuant to the 2006
Long-Term Incentive Compensation Plan, filed as Exhibit 10.38 to the 2007 Form 10-K.10.16
    
    Amendment dated December 13, 2007 to the Management Incentive Compensation Plan, filed as
Exhibit 10.39 to the 2007 Form 10-K.
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##### Table of Contents



ExhibitNumber
    
    Description10.17
    
    Amendment dated December 13, 2007 to the 1995 Long-Term Incentive Compensation Plan, filed
as Exhibit 10.40 to the 2007 Form 10-K.10.18
    
    Amendment dated December 13, 2007 to the 1998 Long-Term Incentive Compensation Plan, filed
as Exhibit 10.41 to the 2007 Form 10-K.10.19
    
    Severance Policy, filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC
on January 31, 2008.10.20
    
    Employment Agreement, dated April 10, 2008 between the Company and Joseph A. Ferrara, filed
as Exhibit 10.1 to the Current Report on Form 8-K/A filed with the SEC on April 16, 2008.10.21
    
    Severance and Retention Agreement dated October 14, 2008 between the Company and Kenneth J.
Shebek, filed as Exhibit 10.3 to the Current Report on Form 8-K filed with the SEC on October
22, 2008.10.22
    
    Severance Agreement dated October 14, 2008 between the Company and David L. Blakeney, filed
as Exhibit 10.2 to the Current Report on Form 8-K filed with the SEC on October 22, 2008.10.23
    
    Severance Agreement dated October 14, 2008 between the Company and Gary W. Bogatay, Jr.,
filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on October 22,
2008.10.24
    
    Agreement dated November 21, 2008 between the Company and Samuel C. Knoch, filed as Exhibit
10.1 to the Current Report on Form 8-K/A filed with the SEC on November 26, 2008.10.25
    
    Agreement dated November 28, 2008 between the Company and Matthew J. Rosgone, filed as
Exhibit 10.1 to the Current Report on Form 8-K/A filed with the SEC on December 3, 2008.10.26
    
    Summary of Compensatory Arrangement with Robert H. King, as described in the Current Report
on Form 8-K filed with the SEC on February 20, 2009.10.27
    
    Agreement dated March 17, 2009 between Tollgrade Communications, Inc. and Sara M. Antol,
filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on March 19, 2009
(the March 19, 2009 8-K).10.28
    
    Agreement dated March 17, 2009 between Tollgrade Communications, Inc. and Gary W. Bogatay,
Jr. filed as Exhibit 10.2 to the March 19, 2009 8-K.10.29
    
    Severance Agreement dated March 17, 2009 between Tollgrade Communications, Inc. and Joe
OBrien, filed as Exhibit 10.3 to the March 19, 2009 8-K.10.30
    
    Severance Agreement dated March 17, 2009 between Tollgrade Communications, Inc. and Robert
King, filed as Exhibit 10.4 to the March 19, 2009 8-K.10.31
    
    Severance Agreement dated March 17, 2009 between Tollgrade Communications, Inc. and Grant
Cushny, filed as Exhibit 10.5 to the March 19, 2009 8-K.10.32
    
    Severance Agreement dated March 17, 2009 between Tollgrade Communications, Inc. and David L.
Blakeney, filed as Exhibit 10.6 to the March 19, 2009 8-K.10.33
    
    Severance and Retention Agreement dated March 17, 2009 between Tollgrade Communications,
Inc. and Kenneth J. Shebek, filed as Exhibit 10.7 to the March 19, 2009 8-K.10.34
    
    Asset Purchase Agreement by and among Tollgrade Communications, Inc. (PA), Tollgrade
Communications, Inc. (DE) and Cheetah Technologies, L.P., dated May 1, 2009, filed as Exhibit
10.1 to the Current Report on Form 8-K filed with the SEC on May 5, 2009.10.35
    
    Agreement dated September 17, 2009 by and between Tollgrade Communications, Inc. and Gary W.
Bogatay, Jr., filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC on
September 22, 2009.10.36
    
    Summary of compensation program for non-employee directors, filed as Exhibit 10.3 to the
Quarterly Report on Form 10-Q filed with the SEC on November 3, 2010.10.37
    
    Separation and Release Agreement dated November 5, 2009 between Tollgrade Communications,
Inc. and Sara M. Antol, filed herewith.10.38
    
    Severance Agreement dated November 19, 2009 between Tollgrade Communications, Inc. and
Jennifer M. Reinke, filed herewith.10.39
    
    Severance Agreement dated November 24, 2009 between Tollgrade Communications, Inc. and
Michael D. Bornak, filed as Exhibit 10.1 to the Current Report on Form 8-K filed with the SEC
on November 30, 2009.21.1
    
    List of subsidiaries of the Company, filed as Exhibit 21.1 to the 2007 Form 10-K.23.1
    
    Consent of PricewaterhouseCoopers LLP, 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.
 - 70 -