First quarter revenue grew to $27,990,002 from $22,417,535 in 2000. Net income increased 10.2% to $5,755,169, from $5,224,614 in the prior-year quarter. Diluted earnings per share rose to $.43 per share from $.39 per share in the year-ago quarter.

Increased sales of core MCU products to Verizon, SBC and BellSouth. The increase in sales to Verizon and BellSouth related primarily to special incentive programs within their regional networks to improve testability rates system-wide. The increase in sales to SBC related primarily to Project Pronto, its program to roll out DSL service. Sales of MCU technology represented 65.4% of total revenue for the quarter.

Higher sales of Tollgrade’s DigiTest system products to Nortel Networks. Overall sales of DigiTest Products represented 18.1% of total revenue for the quarter.

Initial sales of the company’s new DigiTest Access Unit (DAU), a test access device, to Sprint USA. Overall sales of test access products represented 5% of total revenue for the quarter.

Sales of Tollgrade’s Lighthouse Cable Status Monitoring system represented 5% of first quarter revenue.

Shipment of a one-time order of our Broadcast Program Channel Units, for use at the Salt Lake City Winter Olympic Games, which represented $1,300,000 in revenue.

Gross profit increased 11.9% to $15,715,719 from $14,045,875 in the first quarter of 2000.

As a percentage of sales, gross profit was 56.1% versus 62.7% a year ago, primarily due to product costs associated with the introduction of the new DAU product; lower margins associated with the sale of the Broadcast Program Channel Units; and an increase in allocated unit costs arising from lower production volume. Income from operations rose 8.9% to $8,376,202 from $7,693,801 in the first quarter of 2000.

Selling and marketing expenses increased 2.8% to $2,449,824, reflecting primarily the hiring of additional sales, marketing and customer support personnel over the past year. This was offset in part by reduced spending on general advertising, promotion and related marketing activities.

General and administrative expenses increased 11.1% to $1,530,152 primarily associated with an increase in the contingency provision for potential bad debts and an increase in proxy solicitation and distribution-related costs.

Research and development expenses increased 29.7% to $3,359,541, due to the addition of personnel and related costs associated with developing new products and new technologies, and enhancing features of existing products.

Order backlog, which consists of firm customer purchase orders, was $5,605,349 as of March 31, 2001. This compares to $8,224,460 at December 31, 2000. Approximately 60% of current backlog is currently scheduled for shipment in the second quarter of 2001.

Tollgrade Chairman and Chief Executive Officer Chris Allison said today: After unprecedented growth last year, Tollgrade has entered a period where we believe the key to future growth will be to build on our strong foundation of core technologies, products and people, and to manage costs prudently. In the first quarter, we took significant steps to control discretionary costs, and we gave our markets every opportunity to rebound. Today Tollgrade is announcing a realignment initiative to streamline our operations and maintain a healthy margin level, while controlling costs. Our goal is to become a more nimble, focused and efficient company that is better positioned to achieve sustainable growth and meet our customers’ needs.

The realignment will reduce Tollgrade’s work force by approximately 80 positions, primarily in general, administrative, research and development and support areas. After the realignment, Tollgrade expects to employ 296, which is about the size of the company’s work force at the beginning of 2000. Tollgrade announced that it expects recurring annual pre-tax savings of approximately $4,300,000. This equates to a savings of approximately $.20 per share on an annual basis. The company expects to record a charge for severance, outplacement and other related costs of approximately $400,000 or $.02 per share in the second quarter of 2001.

Tollgrade also reported that Allison asked the Board of Directors to reduce his salary by 20% immediately and eliminate any bonuses that would be payable to him for fiscal 2001.

SOURCE: COMPANY PRESS RELEASE