Comdial Announces Third Quarter Results.

CHARLOTTESVILLE, Va.--(BUSINESS WIRE)--Oct. 27, 1998--Comdial Corporation (Nasdaq: CMDL) today announced results for the third quarter and nine months ended September 27, 1998.

Net Income and Net Sales 

Net income for the third quarter, exclusive of tax benefits and special charges, was $2.3 million or $0.26 per share compared with $2.0 million or $0.23 per share reported in the year-ago period. Net income for the first nine months, also exclusive of tax benefits and special charges, was $5.6 million or $0.64 per share. This is a gain of 57 percent over the $3.6 million and $0.42 per share reported in 1997.

Net sales for the quarter were $32 million, compared with $31.1 million reported for the third quarter of 1997. For the first nine months, net sales were $92.6 million, an increase of 6 percent over the $87.3 million achieved during the same period in 1997.

Special Items

There are four special items included in the third quarter financial reports. First, Comdial claimed a tax benefit of $11.7 million. Additionally, Comdial elected to take three separate charges with an aggregate value of $2.1 million or $0.24 per share. These write-offs include excess inventory of $700,000 associated with the PATI product, $891,000 in goodwill associated with the 1996 acquisition of Aurora Systems, Inc. and $529,000 for in-process research and development associated with the July 1998 acquisition of Array Telecom.

Statement of Comdial President and CEO, William G. Mustain

Comdial Chairman, President and Chief Executive Officer William G. Mustain said, "We continue to track on plan with our earnings performance. Sales for the quarter were less than expected, which we attribute largely to delays in receiving anticipated orders from large end user-level customers and from original equipment manufacturing customers." Mustain added, "This business should return to expected levels in the fourth quarter."

Gross Margin

Gross margin for the third quarter, excluding the non-recurring charge of $700,000 for excess inventory, was 44 percent. This is a significant increase from the 40 percent gross margin reported for the third quarter of 1997, and reflected a favorable product mix and cost savings for certain electrical components and raw circuit boards. Gross margin for the first nine months of 1998, also excluding the non-recurring charge of $700,000 for excess inventory, was 41 percent compared with 40 percent for same period in 1997.

Operating & Other Expenses

Selling, general, and administrative (SG&A) expenses for the third quarter increased by $1.4 million or 19 percent compared with third quarter of 1997. The increase is primarily employment-related, as the Company seeks to expand its sales and marketing organizations to support future growth.

Interest expense for the third quarter of 1998 declined 26 percent to $321,000 as a result of lower debt. For the nine months, interest expense was $869,000, a decline of $443,000 or 34 percent.

Income Tax Expense

In the third quarter, income tax expense was $45,000. This is a decrease of $73,000 from the third quarter of 1997. Tax expense declined primarily due to the recognition of tax refunds for year 1997. Comdial recognized tax benefits for the quarter of $11.7 million or $1.32 per share. The increase of $11.7 million from the third quarter of 1997 is primarily due to the reevaluation of the Company's income tax asset valuation in light of the diminished likelihood of incurring net operating loss limitations as defined by the tax code. Going forward, Comdial will record tax expenses as if it were a full taxpayer.

Comdial Corporation

Comdial is a provider of integrated communications solutions for small and mid-size organizations. The company's broad product line includes digital switches, wired and wireless business telephones, call center hardware and software, voice processing systems, and Internet Protocol telephony gateways. For more information, please visit our web site at http://www.comdial.com. Financial releases and investor information are also available via fax by calling 1-800-COMDIAL.

This release contains forward-looking statements that are subject to risks and uncertainties, including, but not limited to, the impact of competitive products, product demand and market acceptance risks, reliance on key strategic alliances, fluctuations in operating results, delays in development of highly complex products, and other risks detailed from time to time in the Company's filings with the Securities and Exchange Commission. These risks could cause the Company's actual results for 1998 and beyond to differ materially from those expressed in any forward looking statement made by, or on behalf of, the Company. -0-

                          Comdial Corporation
      Consolidated Condensed Statements of Operations - Unaudited

                            Three Months            Nine Months
                               Ended:                 Ended:
                      Sept. 27,    Sept. 28,    Sept. 27,     Sept. 28,
(In thousands            1998         1997         1998         1997
  except per
   share amounts)
Net sales              $32,031      $31,091      $92,629       $87,325
 Cost of goods sold     18,644       18,569       55,139        51,993
  Gross profit          13,387       12,522       37,490        35,332
Operating expenses
 Selling, general and
  administrative         8,582        7,210       23,742        21,853
 Engineering, research
  and development        1,878        1,782        4,922         5,068
 In-process research
  and development
   (Array)                 529          -            529            -
 Goodwill amortization
  expense                1,678         855         3,024         2,751
  Operating income         720       2,675         5,273         5,660
 Interest expense          321         436           869         1,312
 Miscellaneous expense     212         119           406           422
Income before income
 taxes                     187       2,120         3,998         3,926
Income tax expense          45         118           489           330
 Net income before tax
  benefit                  142       2,002         3,509         3,596
Income tax benefit      11,712         -          12,042           219
 Net income applicable
  to common stock      $11,854      $2,002       $15,551        $3,815

Earnings per common
 share and common
  equivalent share:
 Income before tax
  benefit                $0.02       $0.23         $0.40         $0.42
 Income tax benefit       1.32         -            1.36          0.02
  Net income per common
   share:  Basic         $1.34       $0.23         $1.76         $0.44

Weighted average common
 shares outstanding:
    Basic                8,846       8,672         8,814         8,657

Special charges:
 Excess inventory         $700
 Goodwill and other
  costs related to the
   Aurora acquisition      891
 In-process research
  and development related
   to the Array Telecom
    Inc. acquisition       529



                             Consolidated Condensed Balance Sheets
                                     Period Ending
                               Sept. 27,         Dec. 31,
(In thousands)                   1998              1997
Assets
 Cash and cash equivalents       $734             $5,673
 Accounts receivable - net     16,978             11,278
 Inventory                     20,202             18,487
 Deferred tax asset - net       3,781                  -
 Other current assets           1,628              1,669
   Total current assets        43,323             37,107
 Property - net                17,021             16,334
 Goodwill                      14,784             13,142
 Deferred tax asset - net      16,439              8,164
 Other assets                   8,107              4,517
   Total assets               $99,674            $79,264

Liabilities and
 Stockholders' Equity
 Accounts payable             $10,676             $9,229
 Other accrued liabilities      7,912              7,501
 Current maturities on debt    11,473              3,701
   Total current liabilities   30,061             20,431
 Long-term debt                 4,111              9,922
 Deferred tax liability         2,720              2,705
 Other long-term liabilities    1,460              1,371
   Total liabilities           38,352             34,429
 Stockholders' equity          61,322             44,835
   Total liabilities and
    stockholders' equity      $99,674            $79,264

                         EBITDA

                                         Nine Months Ended:
                                  Sept. 27,           Sept. 28,
(In thousands)                      1998                1997
Net income applicable to
 common stock                      $15,551             $3,815
 Taxes                             (11,553)               111
 Interest expense                      869              1,312
 Depreciation expense                2,128              2,073
 Goodwill amortization expense       3,024              2,751
 Amortization expense                1,561              1,886
    Total                          $11,580            $11,948