Comdial Reports Fourth Quarter and Year End Earnings; Record Net Sales Drive 1998 Earnings.

CHARLOTTESVILLE, Va.--(BUSINESS WIRE)--Feb. 11, 1999--Comdial Corp. (NNM: CMDL) today reported record fourth quarter and fiscal year results for 1998.

Net Income and Net Sales

Net income for 1998 was $7.8 million, or $0.88 per share, compared to net income of $5.5 million or $0.63 per share in 1997, when special charges and tax benefits are excluded. On a comparable basis, net income and earnings per share for 1998 increased approximately 40 percent. In 1998, the Company recognized special charges of $2.1 million for excess inventory, goodwill, and in-process R&D. These charges are included in operating expenses, and explain why operating income in 1998 was slightly lower than 1997, despite higher sales and gross margins.

Exclusive of deferred tax benefits and inclusive of special charges, net income for the year, was $5.7 million or $0.64 per share. On the strength of strong software sales, gross margin for the fourth quarter was 44 percent, and 41 percent for the year. Gross margins for the same periods in 1997 were 38 percent and 40 percent, respectively.

After an additional deferred tax expense of $0.06 per share, net income for the fourth quarter was $0.18. This is down from $0.22 per share in 1997, which is the direct result of the Company recognizing tax expenses associated with its deferred tax assets. Net income for the quarter, excluding deferred tax expense, was $2.1 million or $0.24 per share, compared with $1.9 million or $0.22 per share in 1997.

Fourth quarter 1998 sales were $36.3 million, an increase of 16 percent over the $31.2 million reported for the fourth quarter of 1997. The increase was largely due to strong demand for the Company's newly released Impact FX digital switching platform, better-than-expected sales of voice processing systems by Key Voice Technologies, and shipments of IP (Internet Protocol) gateways by Array Telecom Corp. Sales for the 1998 fiscal year were $129.0 million, a gain of 9 percent over 1997.

Sales Growth

There were three major factors that contributed to the accelerated sales level of the fourth quarter and the year overall. The first was the newly released Impact FX System. Sales of the FX system grew at a steady rate over the course of the year then spiked sharply in December when the Company announced the release of new CTI features and a more scalable architecture. Fourth quarter sales of the new Impact FX system, on a quarter over quarter comparison, increased 75 percent.

Second, the Company's National Accounts program grew 27 percent. A significant portion of that was Comdial's Avalon integrated security communications system for assisted living communities. Avalon sales exceeded expectations, and with eight major assisted living firms either currently buying or in the process of standardization, sales are expected to continue to grow in 1999. Finally, Comdial's subsidiary Key Voice Technologies produced sales above expectations.

During the second half of 1998, Comdial initiated an aggressive campaign to recruit new dealers and expand its geographic presence in larger metropolitan markets. This resulted in the addition of four new Platinum Dealers. On the strength of the industry-leading Impact FX, the Company expects to continue recruiting new Platinum Dealers throughout the year. Platinum Dealers are dealers the Company believes are capable of purchasing $1 million annually.

Comments of William G. Mustain

"1998 was a year of expansion and transition for the Company," commented Comdial President and CEO, William G. Mustain. "During the year, we made great progress in our strategic initiatives. In December, we introduced the newly updated Impact FX series system, which has been in growing demand since its release. The acquisition of Array Telecom solidly positioned Comdial in the rapidly expanding Internet Protocol telephony market. With our prior acquisition of voice processing producer Key Voice Technologies, we believe the Company is now well positioned to take advantage of market opportunities resulting from the convergence of voice switching, voice processing and IP telephony. Comdial is one of a handful of companies that controls these three core technologies, and we are very confident that this significant competitive advantage will help us maintain our sales and earnings growth throughout 1999 and beyond."

Sales, General & Administrative

Operating expenses increased during the quarter, primarily due to increases in personnel for sales and engineering. Productivity, as measured by sales per employee, increased 7 percent to $146,000 for 1998, compared with $137,000 for 1997.

Gross Margin

Gross margin for the quarter was 44 percent, up from 38 percent for the same quarter in 1997. The higher margin reflects a more favorable product mix including software and advanced digital switching products. This increase is due, in large part, to higher sales of CTI products, which are the highest they have ever been. CTI represented 32 percent of the Company's fourth quarter sales and 28 percent of sales for 1998. The Company expects this trend to continue into future quarters reflecting its strategic goal of selling higher margin communications solutions.

Income Tax Expense

Income tax expense for the quarter increased to $273,000 versus $38,000 in 1997, due primarily to a 1996 tax refund recognized in the fourth quarter of 1997. In the third quarter, the Company recognized all allowable tax benefits associated with net operating losses and the carryforward of tax credits. It is now recognizing tax expense for book purposes as it generates taxable income.

Balance Sheet

On a year to year comparison, the balance sheet is stronger than at any other time in Comdial's history. At the end of 1998, Shareholders Equity increased 41 percent to $63 million. Long-term debt increased primarily due to the acquisition of Array Telecom in the third quarter.

Other

The company announces Mr. Christian L. Becken, Senior Vice President and Chief Financial Officer, has resigned to pursue other interests.

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, and IP telephony gateways. For more information about Comdial, please visit our web site at http://www.comdial.com.

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 1999 and beyond to differ materially from those expressed in any forward-looking statement made by, or on behalf of, the Company.

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  Consolidated Condensed Statements of Operations - Unaudited

                             Three Months Ended:       Year Ended:
                              Dec. 31,   Dec. 31,   Dec. 31,   Dec. 31,
(In thousands except per
     share amounts)            1998       1997       1998       1997
Net sales                     $36,348    $31,236   $128,977   $118,561
   Cost of goods sold          20,458     19,225     75,597     71,218
     Gross profit              15,890     12,011     53,380     47,343
Operating expenses
   Selling, general
        and administrative     10,292      7,216     34,034     29,069
   Engineering, research
        and development         1,891      1,429      6,813      6,497
   In-process research
        and development (Array)     -          -        529          -
   Goodwill amortization expense  782        816      3,806      3,567
     Operating income           2,925      2,550      8,198      8,210
   Interest expense               347        386      1,216      1,698
   Miscellaneous expense          159        222        565        644
Income before income taxes      2,419      1,942      6,417      5,868
Income tax expense                273         38        762        368
   Net income before tax
        benefit                 2,146      1,904      5,655      5,500
Deferred tax benefit
     (expense)                   (543)         -     11,499        219
   Net income applicable
        to common stock        $1,603     $1,904    $17,154     $5,719

Earnings per common share
and common equivalent share:
   Income before tax benefit    $0.24      $0.22      $0.64      $0.63
   Deferred tax benefit
        (expense)               (0.06)         -       1.30       0.03
     Net income per common share:
                    Basic       $0.18      $0.22      $1.94      $0.66

Weighted average common
     shares outstanding:
   Basic                        8,922      8,735      8,843      8,684

Special charges (1998):
   Excess inventory                                    $700
   Goodwill and other costs related to
        the Aurora acquisition                          891
   In-process research and development
        related to the Array acquisition                529



                 Consolidated Condensed Balance Sheets

                                                 Year Ended:
                                              Dec. 31,     Dec. 31,
(In thousands)                                 1998         1997
Assets
    Cash and cash equivalents                 $1,599       $3,131
    Accounts receivable - net                 23,006       13,820
    Inventory                                 21,434       18,487
    Deferred tax asset - net                   2,821            -
    Other current assets                       1,994        1,669
      Total current assets                    50,854       37,107
    Property - net                            18,023       16,334
    Goodwill                                  14,079       13,142
    Deferred tax asset - net                  17,257        8,164
    Other assets                               8,777        4,517
      Total assets                          $108,990      $79,264
Liabilities and Stockholders' Equity
    Accounts payable                         $11,034       $9,229
    Other accrued liabilities                  8,165        7,501
    Current maturities on debt                     6        3,701
      Total current liabilities               19,205       20,431
    Long-term debt                            22,140        9,922
    Deferred tax liability                     3,123        2,705
    Other long-term liabilities                1,361        1,371
      Total liabilities                       45,829       34,429
    Stockholders' equity                      63,161       44,835
      Total liabilities and stockholders'
          equity                            $108,990      $79,264

                                EBITDA

                                        Year Ended:
                                          Dec. 31,     Dec. 31,
(In thousands)                             1998          1997
Net income applicable to common stock        $17,154       $5,719
    Tax expense (benefit)                    (10,737)         149
    Interest expense                           1,216        1,698
    Depreciation expense                       2,804        2,751
    Goodwill amortization expense              3,806        3,567
    Amortization expense                       2,219        2,316
           Total                             $16,462      $16,200