8-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549

FORM 8-K

CURRENT REPORT

Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934

Date of Report (Date of earliest event reported): February 7, 2006

TOLLGRADE COMMUNICATIONS, INC.

(Exact Name of Registrant as Specified in Its Charter)

Pennsylvania	000-27312	25-1537134
(State or Other Jurisdiction	(Commission	(IRS Employer
of Incorporation)	File Number)	Identification Number)

493 Nixon Road
Cheswick, Pennsylvania 15024
(Address of Principal Executive Offices) (Zip Code)
Registrant’s telephone number, including area code: (412) 820-1400
N/A
(Former name or former address, if changed since last report.)

Check the appropriate box below if the Form 8-K filing is intended to simultaneously satisfy the filing obligation of the registrant under any of the following provisions:

o Written communications pursuant to Rule 425 under the Securities Act (17 CFR 230.425)

o Soliciting material pursuant to Rule 14a-12 under the Exchange Act (17 CFR 240.14a-12)

o Pre-commencement communications pursuant to Rule 14d-2(b) under the Exchange Act (17 CFR 240.14d-2(b))

o Pre-commencement communications pursuant to Rule 13e-4(c) under the Exchange Act (17 CFR 240.13e-4(c))

TABLE OF CONTENTS

EX-99.1

EX-99.2

Item 1.01 Entry Into a Material Definitive Agreement

On February 7, 2006, Tollgrade Communications, Inc. (the “Company”) entered into an agreement with Emerson Electric Co. (“Emerson”) and Emerson Network Power, Energy Systems, North America, Inc. (the “Seller”), a wholly-owned subsidiary of Emerson, to acquire the assets and assume certain specified liabilities of the Seller’s Test Systems Division (the “Agreement”). The purchase price is approximately $5.5 million, payable in cash and subject to adjustment for working capital and other items. The Agreement contains customary representations, warranties and covenants, as well as indemnification provisions subject to specified limitations. Subject to completion of certain customary closing conditions, the transaction is expected to close no later than March 15, 2006.

Item 2.02 Results of Operations and Financial Condition

On February 8, 2006, the Company issued a press release announcing its results of operations for the fourth quarter and year ended December 31, 2005. A copy of this press release is attached as Exhibit 99.1.

Item 7.01 Regulation FD Disclosure

A copy of the Company’s press release announcing the Agreement is furnished as Exhibit 99.2 to this Report and incorporated by reference into this Item 7.01.

The information furnished pursuant to Items 2.02 and 7.01 of this Current Report on Form 8-K shall not be deemed to be “filed” under Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Section 11 or 12(a)(2) of the Securities Act of 1933, as amended, and are not incorporated by reference into any of the Company’s filings under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, whether made before or after the date of this report and irrespective of any general incorporation language in such filing, unless the Company expressly states in such filing that such information is to be considered or incorporated by reference therein.

Item 9.01 Financial Statements and Exhibits

Exhibit
Number	Description
99.1	Press Release announcing results of operations for fourth quarter and year ended December 31, 2005*
99.2	Press Release announcing entry into agreement with Emerson Electric Co. and Emerson Network Power, Energy Systems, North America, Inc.*

* Exhibits 99.1 and 99.2 furnished with this Current Report on Form 8-K shall not be deemed “filed” under Section 18 of the Securities Exchange Act of 1934, as amended, or otherwise subject to the liabilities of that section or Sections 11 and 12(a)(2) of the Securities Act of 1933, as amended, and are not incorporated by reference into any of the Company’s filing under the Securities Act of 1933, as amended, or under the Securities Exchange Act of 1934, as amended, whether made before or after the date of this report and irrespective of any general incorporation language in such filing, unless the Company expressly states in such filing that such information is to be considered “filed” or incorporated by reference therein.

SIGNATURE

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned hereunto duly authorized.

	TOLLGRADE COMMUNICATIONS, INC.
Dated: February 9, 2006	By:	/s/Sara M. Antol
		Sara M. Antol
		General Counsel and Secretary

Exhibit Index

Exhibit No.	Description of Exhibit
99.1	Press Release announcing results of operations for fourth quarter and year ended December 31, 2005
99.2	Press Release announcing entry into agreement with Emerson Electric Co. and Emerson Network Power, Energy Systems, North America, Inc.

EX-99.1

Exhibit 99.1

Contact: Bob Butter, Communications / Office: 412-820-1347 / Cell: 412-736-6186 / bbutter@tollgrade.com

TOLLGRADE REPORTS FOURTH QUARTER 2005 RESULTS

PITTSBURGH, PA, February 8, 2006 – Tollgrade Communications, Inc. (NASDAQ: TLGD) today reported revenue of $18.2 million and earnings of $0.14 per share for the fourth quarter ended December 31, 2005. In comparison, revenue and earnings per share for the fourth quarter of 2004 were $16.1 million and earnings of $0.04 per share, respectively. The Company recorded revenues of $66.3 million and earnings of $0.27 per share for the twelve month period ended December 31, 2005; revenues were $62.8 million and earnings were $0.07 per share for the prior fiscal year.

“Our fourth quarter was a very good finish for fiscal year 2005 and served as a capstone to our best revenue year since 2001,” said Mark B. Peterson, Tollgrade’s President and Chief Executive Officer. “The 2005 revenue growth came as a result of increased sales from our new broadband products. We experienced growth in our international sales, which in total, accounted for more than 20 percent of our overall revenue in 2005. I’m pleased with the progress we are making in our plans to help customers effect a transition to provide broadband services as we complete development of our new network service assurance solutions for the triple play market,” Peterson added.

Fourth Quarter 2005 Revenue Results

Sales of Tollgrade’s DigiTest ^® system products were $4.7 million in the fourth quarter of 2005, compared to $2.9 million in the same period of 2004. DigiTest system revenues increased by 62.1% in the fourth quarter of 2005 compared to the fourth quarter of 2004, primarily due to deployment of products into South Africa, those related to a triple play network service assurance project rollout with Cincinnati Bell Telephone, and increased sales to existing CLEC customers.

Overall sales of cable hardware and software products were $3.5 million in the fourth quarter of 2005, compared to $3.0 million in the fourth quarter of the prior year. Cable hardware and software revenue increased 16.7% due to strong sales of our Cheetah^TM software and legacy transponder products.

TOLLGRADE COMMUNICATIONS, INC.
493 Nixon Road / Cheswick, PA 15024 / 412-820-1400 / 800-878-3399 / Fax: 412-820-1530
685 Route 202/206 South / Bridgewater, NJ 08807 / 908-243-3900 / Fax: 908-243-3300
7020 Professional Parkway East / Sarasota, FL 34240 / 941-373-6800 / 877-280-0030 / Fax: 941-373-6887
Telco Support: 800-777-5405 / Cable Support (TAC): 941-373-6850 or 888-486-3510
www.tollgrade.com

Overall sales of the Company’s MCU^® products, which extend testability into the POTS network, were $5.2 million in the fourth quarter of 2005 and 2004. Sales of MCU products by our direct sales force were down 17% from the comparable period of the prior year, but these declines were offset by an increase in OEM sales. Although sales levels of MCU products have generally been declining, during the fourth quarter of 2005 this product line experienced increased demand likely due to increased emphasis on DSL rollouts at remote terminal sites by an RBOC customer.

Sales of LoopCare™ software products separate and unrelated to the Company’s DigiTest system products were $1.1 million in the fourth quarter of 2005 compared to sales of $1.7 million in the comparable period of the prior year. The LoopCare software product line typically has long and less predictable sales, purchase approval and acceptance cycles. Consequently, revenue from this product line can fluctuate significantly on a quarter-by-quarter basis. As a result, combined total separate LoopCare software license fees and services revenues decreased to $3.4 million in the fourth quarter of 2005 from $4.1 million in the comparable period of the prior year.

Fourth quarter 2005 sales from Services, which include installation oversight and project management services provided to RBOCs and fees for software maintenance across all product lines, were $3.7 million, up 12.1% compared to $3.3 million in the fourth quarter of the prior year.

Fourth Quarter 2005 Financial and Operating Data

Gross profit for the fourth quarter of 2005 was $9.9 million, an increase of $0.8 million, or 9.1%, from the fourth quarter of 2004. As a percentage of sales, gross profit for the fourth quarter of 2005 was down slightly from 56.6% in the fourth quarter of 2004 to 54.8% in the fourth quarter of 2005. The decrease in margins was largely a result of lower LoopCare software revenue, offset in part by increased sales of DigiTest products and Cheetah software.

Overall, operating expenses of $7.7 million for the fourth quarter of 2005 decreased by $0.2 million, or 3.4%, from $7.9 million in the fourth quarter of 2004. Selling and marketing expenses in the quarter were $2.3 million, a decrease of $0.1 million, or 5.8%, from the same period in 2004.

The decrease in selling and marketing expense is attributed to lower salaries and wages and commission expense. General and administrative expenses remained relatively flat at $1.9 million for each of the fourth quarter of 2005 and the fourth quarter of 2004. Research and development expenses for the fourth quarter of 2005 were $3.5 million, relatively flat compared to the fourth quarter of 2004.

The effective tax rate for the fourth quarter of 2005 was approximately 34.6%, compared to 57.4% in the prior year quarter. The decrease is directly related to the increase in pretax income and the proportional

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impact of certain permanent items on the calculation, including tax exempt interest and the tax benefits related to international sales.

The Company’s order backlog for firm customer purchase orders and signed software maintenance contracts was $14.7 million as of December 31, 2005, which is the same amount of backlog the Company carried at December 31, 2004. The backlog at December 31, 2005 and December 31, 2004 included approximately $6.2 million and $5.5 million, respectively, related to software maintenance contracts, which is earned and recognized as income on a straight-line basis during the remaining terms of the underlying agreements. As of December 31, 2005, the Company had executed maintenance agreements with three of the four RBOC customers that extend those commitments to December 31, 2006 or beyond. The agreement with the fourth RBOC customer is still being negotiated, but has been extended through the first quarter of 2006.

Management expects that approximately 57% of the current total backlog will be recognized as revenue in the first quarter of 2006.

First Quarter 2006 Outlook

“Regarding our first quarter 2006 outlook, we expect our cable business to be a driver with continuing adoption of the DOCSIS^® standard,” said Peterson. “Although there are other projects on the horizon, several significant projects – including those in Saudi Arabia and South Africa – are substantially completed. Also, the percentage of cable-related revenue during this period, which typically carries lower margins, will have some relative effect on earnings contribution for the period. As a result, we expect revenues in the first quarter, 2006 to range from $ 16.0 to $18.0 million with earnings per share of breakeven to $0.07.”

In a separate release today, the Company announced an agreement to acquire the test system business of Emerson Network Power, Energy Systems, which is expected to close no later than mid-March 2006. The first quarter, 2006 outlook contained herein does not give effect to any factors which may result from the consummation of this transaction.

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Restatement

This release references certain amounts for 2004 that were restated by the Company. Please refer to the Company’s press release on February 1, 2006 for further detail.

Conference Call and Webcast

A conference call to discuss earnings results for the fourth quarter of 2005 will be held on Thursday, February 9, 2006 at 9:00 AM, Eastern Time. The telephone number for U.S. participants is 1-800-860-2442 (international: 412-858-4600). Please reference Tollgrade/Peterson to identify the call. The conference call will also be broadcast live over the Internet. To listen to this conference call via the Internet, simply log on to the following URL address: http://phx.corporate-ir.net/phoenix.zhtml?p=irol-eventDetails&c=80100&eventID=1207499.

About Tollgrade

Tollgrade Communications, Inc. is a leading provider of network service assurance products and services for centralized test systems around the world. Tollgrade designs, engineers, markets and supports centralized test systems, test access and status monitoring products, and next generation network assurance technologies for the broadband marketplace. Tollgrade’s customers range from the top RBOCs (Regional Bell Operating Companies) and Cable providers, to numerous independent telecom, cable and broadband providers around the world. Tollgrade’s network testing, measurement and monitoring solutions support the infrastructure of cable and telecom companies offering current and emerging triple play services. Tollgrade, headquartered near Pittsburgh in Cheswick, Pa., and its products and customer reach span over 200 million embedded access lines, more than any other test and measurement supplier. For more information, visit Tollgrade’s web site at www.tollgrade.com.

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TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Operations
(In thousands, except per-share data)

	Three Months Ended				Twelve Months Ended
	December 31, 2005		December 31, 2004		December 31, 2005		December 31, 2004
			(Restated)				(Restated)
Revenues:
Products	$	14,596	$	12,810	$	53,007	$	49,770
Services		3,555		3,296		13,312		13,048
		18,151		16,106		66,319		62,818
Cost of sales:
Products		6,117		5,354		24,327		22,191
Services		1,240		965		3,883		3,768
Amortization		856		676		3,003		2,624
Impairment		—		—		424		—
		8,213		6,995		31,637		28,583
Gross profit		9,938		9,111		34,682		34,235
Operating expenses:
Selling and marketing		2,289		2,431		8,882		9,483
General and administrative		1,845		1,901		7,486		7,346
Research and development		3,525		3,596		14,079		15,756
Retirement and severance expenses		—		—		775		269
Total operating expenses		7,659		7,928		31,222		32,854
Income from operations		2,279		1,183		3,460		1,381
Other income		531		180		1,359		447
Income before income taxes		2,810		1,363		4,819		1,828
Provision for income taxes		973		783		1,301		914
Net income	$	1,837	$	580	$	3,518	$	914
Diluted earnings per-share information:
Weighted average shares of common stock and equivalents:		13,275		13,225		13,217		13,253
Net income per common and common equivalent shares	$	0.14	$	0.04	$	0.27	$	0.07

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TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Balance Sheets
(In thousands)

			December
	December		31, 2004
	31, 2005		(Restated)
ASSETS
Current assets:
Cash and cash equivalents	$	49,421	$	32,622
Short-term investments		18,010		18,537
Accounts receivable:
Trade		9,456		10,691
Other		1,406		106
Inventories		9,934		12,941
Prepaid expenses		1,397		2,543
Deferred and refundable tax assets		1,803		2,108
Total current assets		91,427		79,548
Property and equipment, net		6,390		7,860
Deferred tax assets		46		197
Intangibles		39,517		40,518
Goodwill		21,562		22,219
Capitalized software costs, net		4,099		6,453
Other assets		288		350
Total assets	$	163,329	$	157,145
LIABILITIES AND SHAREHOLDERS’ EQUITY
Current liabilities:
Accounts payable	$	1,262	$	1,087
Accrued warranty		2,220		2,081
Accrued expenses		2,579		1,735
Accrued salaries and wages		660		718
Accrued royalties payable		581		451
Income taxes payable		869		169
Deferred income		2,450		2,461
Total current liabilities		10,621		8,702
Deferred tax liabilities		2,447		2,042
Total liabilities		13,068		10,744
Total shareholders’ equity		150,261		146,401
Total liabilities and shareholders’ equity	$	163,329	$	157,145

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TOLLGRADE COMMUNICATIONS, INC. AND SUBSIDIARIES
Unaudited Condensed Consolidated Statements of Cash Flows
(In thousands)

	Twelve Months Ended
	December 31,			December 31,
	2005			2004
				(Restated)
Cash flows from operating activities:
Net income	$	3,518		$	914
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation and amortization		5,449			5,238
Tax benefit from exercise of stock options		43			65
Deferred income taxes		549			2,194
Provisions for losses on inventory		545			(45	)
Impairment of acquired intangible asset		424			—
Provision for allowance for doubtful accounts		(289	)		(162	)
Cash settlement for Cheetah Acquisition		478			—
Changes in assets and liabilities:
Decrease (increase) in accounts receivable-trade		1,524			(1,274	)
(Increase) decrease in accounts receivable-other		(1,300	)		16
Decrease (increase) in inventory		2,462			(1,741	)
Decrease (increase) in prepaid expenses and other assets		1,208			(1,027	)
Decrease (increase) in refundable taxes		312			(581	)
Decrease in accounts payable		175			79
Increase (decrease) in accrued warranty		139			(69	)
Increase in accrued expenses and deferred income		1,012			3,127
Increase in accrued royalties payable		130			56
Decrease in accrued salaries and wages		(58	)		(194	)
Increase (decrease) in income taxes payable		700			(850	)
Net cash provided by operating activities		17,021			5,746
Cash flows from investing activities:
Purchase of short-term investments		(19,340	)		(15,246	)
Redemption/maturity of short-term investments		19,867			14,333
Capital expenditures, including capitalized software		(1,048	)		(2,826	)
Investments in other assets		—			(715	)
Net cash used in investing activities		(521	)		(4,454	)
Cash flows from financing activities:
Proceeds from exercise of stock options		299			270
Net cash provided by financing activities		299			270
Net increase in cash and cash equivalents		16,799			1,562
Cash and cash equivalents at beginning of period		32,622			31,060
Cash and cash equivalents at end of period	$	49,421		$	32,622

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Forward-Looking Statements

The foregoing release contains “forward looking statements” regarding future events or results within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements concerning the Company’s current expectations regarding revenue and earnings results for the first quarter of 2006, its participation in the fundamental network migration currently underway in the telecommunications industry, its confidence in winning broadband customers and its ability to complete certain key RBOC maintenance negotiations in the first quarter, 2006. The Company cautions readers that such “forward looking statements” are, in fact, predictions that are subject to risks and uncertainties and that actual events or results may differ materially from those anticipated events or results expressed or implied by such forward looking statements. The Company disclaims any current intention to update its “forward looking statements,” and the estimates and assumptions within them, at any time or for any reason.

In particular, the following factors, among others could cause actual results to differ materially from those described in the “forward looking statements:” (a) the unanticipated further decline of the capital budgets allocated to legacy network elements for certain of our major customers; (b) the ability to make changes in business strategy, development plans and product offerings to respond to the needs of the significantly changing telecommunications markets; (c) possible delays in deployment of products under the Saudi Arabian and South African contracts due to project delays, political instability, inability to obtain proper acceptances or other unforeseen delays; (d) possible delays in, or the inability to, complete long term maintenance contracts with certain of our RBOC customers or to complete negotiation and execution of purchase agreements with new customers; (e) lower than expected demand for our cable testing products; (f) pricing pressures affecting our cable-related products as a result of increased competition, consolidation within the cable industry and the adoption of standards-based protocols; (g) our ability to close certain international opportunities, due to numerous risks and uncertainties inherent in international markets; (h) our dependence upon a limited number of third party subcontractors to manufacture certain aspects of the products we sell; (i) the ability to manage the risks associated with and to grow our business; and (j) the uncertain economic and political climate in the United States and throughout the rest of the world and the potential that such climate may deteriorate. Other factors that could cause actual events or results to differ materially from those contained in the “forward looking statements” are included in the Company’s filings with the U.S. Securities and Exchange Commission (the “SEC”) including, but not limited to, the Company’s Form 10-K for the year ended December 31, 2004 and any subsequently filed reports. All documents are also available through the SEC’s Electronic Data Gathering Analysis and Retrieval system at www.sec.gov or from the Company’s website at www.tollgrade.com.

äLoopCare is a trademark of Tollgrade Communications, Inc.
äCheetah is a trademark of Tollgrade Communications, Inc.
^Ò DigiTest is a registered trademark of Tollgrade Communications, Inc.
^Ò MCU is a registered trademark of Tollgrade Communications, Inc.
All other trademarks are the property of their respective owners.

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EX-99.2

Exhibit 99.2

Contact: Bob Butter of Tollgrade @ (412) 820-1347
bbutter@tollgrade.com

TOLLGRADE TO ACQUIRE WIRELINE TEST SYSTEM UNIT OF EMERSON NETWORK POWER

Expands Tollgrade’s Global Base of Centralized Network Customers

PITTSBURGH, February 8, 2006 – Tollgrade Communications, Inc. (NASDAQ: TLGD) today announced it has reached a definitive agreement to purchase the test system business unit of Emerson Network Power, Energy Systems, North America, Inc., a subsidiary of Emerson (NYSE: EMR).

The Emerson Test System business (formerly a part of RelTec and later, Marconi) will add a largely international portfolio of customers for which Emerson currently provides wireline testing software and hardware products for DSL and traditional POTS applications. Tollgrade will acquire substantially all the assets of this business and assume certain specified liabilities in a cash transaction valued at approximately $5.5 million, subject to adjustment for working capital and other items. Tollgrade preliminarily expects that the acquisition may be initially dilutive to GAAP earnings per share, but accretive by the end of fiscal year 2006, and could add to 2006 revenues in the range of $7 million to $8 million. The closing is subject to customary closing conditions, and is currently expected to be completed no later than mid-March, 2006.

“With nearly one-half of the world’s communications systems still untested, the addition of Emerson’s Test System business and team will expand our global footprint and will add to our solid position of embedded access lines,” said Mark B. Peterson, Tollgrade’s President and Chief Executive Officer. “This aggregation of systems and customers is a strategic move to strengthen our base as we evolve and deliver our next generation network assurance technology to a larger addressable global market of telecom and cable customers offering voice, data and video services, “ he added.

Tollgrade, recognized for its customer responsiveness, is a market leader in creating and supporting centralized test systems for telecom and cable companies around the world. It currently deploys test systems in about one-third of the world’s existing access lines; the Emerson acquisition would increase Tollgrade’s embedded base of access lines by approximately 25%, largely in the international market.

(more)

TOLLGRADE COMMUNICATIONS, INC.
493 Nixon Road / Cheswick, PA 15024 / 412-820-1400 / 800-878-3399 / Fax: 412-820-1530
685 Route 202/206 South / Bridgewater, NJ 08807 / 908-243-3900 / Fax: 908-243-3300
7020 Professional Parkway East / Sarasota, FL 34240 / 941-373-6800 / 877-280-0030 / Fax: 941-373-6887
Telco Support: 800-777-5405 / Cable Support (TAC): 941-373-6850 or 888-486-3510
www.tollgrade.com

This acquisition will support two strategic initiatives for Tollgrade – first, to protect its leadership position in the core network assurance markets as the access network evolves to support triple play services; secondly, to expand its global reach.

Thirteen Emerson engineers and system test staff, located in Warrenville, Illinois and Ft. Worth, Texas are expected to remain with the test system business and join Tollgrade upon completion of the transaction.

About Tollgrade

Tollgrade Communications, Inc. is a leading provider of network service assurance products and services for centralized test systems around the world. Tollgrade designs, engineers, markets and supports centralized test systems, test access and status monitoring products, and next generation network assurance technologies for the broadband marketplace. Tollgrade’s customers range from the top RBOCs (Regional Bell Operating Companies) and Cable providers, to numerous independent telecom, cable and broadband providers around the world. Tollgrade’s network testing, measurement and monitoring solutions support the infrastructure of cable and telecom companies offering current and emerging triple play services. Tollgrade, headquartered near Pittsburgh in Cheswick, Pa., and its products and customer reach span over 200 million embedded access lines, more than any other test and measurement supplier. For more information, visit Tollgrade’s web site at www.tollgrade.com.

About Emerson Network Power

Emerson Network Power, an Emerson business, serves the needs of telecommunications networks, data centers, health care, and industrial facilities worldwide with a full spectrum of reliable power solutions, including inbound power, connectivity, power supplies, power systems, and precision cooling – all backed by the largest global services organization in the power industry. Sales in fiscal 2005 were $3.3 billion. For more information, visit www.emersonnetworkpower.com.

About Emerson

Emerson (NYSE:EMR), based in St. Louis, is a global leader in bringing technology and engineering together to provide innovative solutions to customers through its network power, process management, industrial automation, climate technologies, and appliance and tools businesses. Sales in fiscal 2005 were $17.3 billion. For more information, visit www.gotoemerson.com.

Forward-Looking Statements

The foregoing release contains “forward looking statements” regarding future events or results within the meaning of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the Securities Exchange Act of 1934, as amended, including statements concerning the Company’s current expectations regarding revenue and earnings results for the fourth quarter of 2005, the Company’s available capital and its ability to execute its strategy and estimated adjustments to and the impact on historical financial statements of the Company. The Company cautions readers that such “forward looking statements” are, in fact, predictions that are subject to risks and uncertainties and that actual events or results may differ materially from those anticipated events or results expressed or implied by such forward looking statements. The Company disclaims any current intention to update its “forward looking statements,” and the estimates and assumptions within them, at any time or for any reason. In particular, the following factors, among others could cause actual results to differ materially from those described in the “forward looking statements:” (a) the ability to complete and satisfy all pre-closing conditions and consummate the transactions described above; (b) the ability to secure key relationships with key suppliers, customers and employees of the Emerson Test Business; (c) the ability to successfully integrate the Emerson Test Business and to effectuate the synergies and achieving revenues and targets necessary to make the acquisition accretive during 2006; (d) market acceptance of our products in the new international customer base; (e) the unanticipated further decline of the capital budgets allocated to legacy network elements for certain of our major customers; (f) possible charges to income as a result of

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goodwill impairment, asset impairment or other matters in conjunction with our strategic focus as we shift spending away from legacy products toward growth initiatives; (g) the ability to make changes in business strategy, development plans and product offerings to respond to the needs of the significantly changing telecommunications markets; (h) possible delays in deployment of products under the Saudi Arabian and South African contracts due to project delays, political instability, inability to obtain proper acceptances or other unforeseen delays; (i) possible delays in, or the inability to, complete long term maintenance contracts with certain of our RBOC customers or to complete negotiation and execution of purchase agreements with new customers; (j) lower than expected demand for our cable testing products; (k) pricing pressures affecting our cable-related products as a result of increased competition, consolidation within the cable industry and the adoption of standards-based protocols; (l) our ability to close certain international opportunities, due to numerous risks and uncertainties inherent in international markets; (m) our dependence upon a limited number of third party subcontractors to manufacture certain aspects of the products we sell; (n) the ability to manage the risks associated with and to grow our business; and (o) the uncertain economic and political climate in the United States and throughout the rest of the world and the potential that such climate may deteriorate.

Other factors that could cause actual events or results to differ materially from those contained in the “forward looking statements” are included in the Company’s filings with the U.S. Securities and Exchange Commission (the “SEC”) including, but not limited to, the Company’s Form 10-K for the year ended December 31, 2004 and any subsequently filed reports. All documents are also available through the SEC’s Electronic Data Gathering Analysis and Retrieval system at www.sec.gov or from the Company’s website at www.tollgrade.com.

####

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