Mail Stop 0407
July 25, 2005
Mr. Samuel C. Knoch
Chief Financial Officer
Tollgrade Communications, Inc.
493 Nixon Road
Cheswick, PA 15024
Re: Tollgrade Communications, Inc.
Form 10-K for Fiscal Year Ended December 31, 2004
Filed March 3, 2005
Form 10-Q for Fiscal Quarter Ended March 26, 2005
File No. 0-27312
Dear Mr. Knoch:
We have reviewed your filing and have the following
comments.
We have limited our review to only your financial statements and
related disclosures and do not intend to expand our review to
other
portions of your documents. Please address the following comments
in
future filings. If you disagree, we will consider your
explanation
as to why our comment is inapplicable or a future revision is
unnecessary. Please be as detailed as necessary in your
explanation.
In some of our comments, we may ask you to provide us with
information so we may better understand your disclosure. After
reviewing this information, we may or may not raise additional
comments.
Please understand that the purpose of our review process is
to
assist you in your compliance with the applicable disclosure
requirements and to enhance the overall disclosure in your filing.
We look forward to working with you in these respects. We welcome
any questions you may have about our comments or on any other
aspect
of our review. Feel free to call us at the telephone numbers
listed
at the end of this letter.
Form 10-K for Fiscal Year Ended December 31, 2004
Revenue Recognition, page 25
1. Please tell us and give specific examples of when revenue
recognition for hardware sales may require your judgment. Also,
disclose these critical judgments that may impact your revenue
recognition.
Intangible Assets and Goodwill, page 26
2. Please revise your disclosure to specifically discuss the
estimates made in testing for impairment of your goodwill and
other
intangibles assets. Also discuss how you test for impairment.
Results of Operations, page 28
3. Please revise to discuss your cost of sales for the applicable
periods.
Consolidated Statements of Operations, page 39
4. If the caption "gross profit" excludes depreciation and
amortization for property and equipment directly attributed to the
generation of revenue, we believe that this presentation
inappropriately reports a figure for income before depreciation
and
amortization. As required by SAB 11:B, please revise your
presentation to either reclassify the applicable depreciation to
"cost of sales" or remove the caption "gross profit" and indicate
the
amount of applicable depreciation that is excluded from "cost of
sales."
Note 1. Goodwill and Purchased and Other Intangibles, page 43
5. Please disclose how you perform the impairment test for
goodwill
and indefinite lived assets. Also tell us how you considered the
trend of declining revenues of your MCU product line in your
impairment analysis.
Note 1. Revenue Recognition, page 43
6. Please tell us the circumstances that you recognize revenue
other
than FOB shipping point.
Note 2. Acquisitions, page 45
7. Tell us the basis for assigning a ten year life to the Cheetah
base software.
8. Please tell us why your adjustments to the 2002 pro forma
information are appropriate under paragraph 58 of FAS 141.
Note 3. Intangible Assets, page 46
9. Please tell us in detail how you concluded that the LoopCare
base
software, post warranty maintenance service agreements, and
Cheetah
customer base are indefinite-lived intangible assets under
paragraph
11 of FAS 142.
Note 8. Income Taxes, page 51
10. Please tell us in more detail why you initially recorded
certain
tax contingency reserves and why they were reduced by $0.8
million.
Form 10-Q for the Fiscal Quarter Ended March 26, 2005
11. Revise as applicable for comments issued regarding Form 10-K.
* * * * *
Please respond to these comments within 10 business days or
tell us when you will provide us with a response. Please furnish
a
letter that keys your responses to our comments and provides any
requested information. Detail letters greatly facilitate our
review.
Please file your response letter via EDGAR. Please understand
that
we may have additional comments after reviewing your responses to
our
comments.
We urge all persons who are responsible for the accuracy and
adequacy of the disclosure in the filings to be certain that the
filing includes all information required under the Securities
Exchange Act of 1934 and that they have provided all information
investors require for an informed investment decision. Since the
company and its management are in possession of all facts relating
to
a company`s disclosure, they are responsible for the accuracy and
adequacy of the disclosures they have made.
In connection with responding to our comments, please
provide,
in writing, a statement from the company acknowledging that
* the company is responsible for the adequacy and accuracy of the
disclosure in the filings;
* staff comments or changes to disclosure in response to staff
comments do not foreclose the Commission from taking any action
with
respect to the filings; and
* the company may not assert staff comments as a defense in any
proceeding initiated by the Commission or any person under the
federal securities laws of the United States.
In addition, please be advised that the Division of
Enforcement
has access to all information you provide to the staff of the
Division of Corporation Finance in our review of your filings or
in
response to our comments on your filings.
You may contact Bob Carroll, Staff Accountant, at (202) 551-
3362 or Dean Suehiro, Senior Staff Accountant, at (202) 551-3384
if
you have questions regarding comments on the financial statements
and
related matters. Please contact me at (202) 551-3810 with any
other
questions.
Sincerely,
/s/ Kyle Moffatt for
Larry Spirgel
Assistant Director
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Mr. Samuel C. Knoch
Tollgrade Communications, Inc.
July 25, 2005
Page 4
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
DIVISION OF
CORPORATION FINANCE