Comdial Reports Full Year End Results.

Business Editors/Technology Writers

SARASOTA, Fla.--(BUSINESS WIRE)--April 2, 2002

Comdial Corporation (Nasdaq:CMDL), a leading developer and provider of enterprise telecommunications solutions, today reported financial results for the year ended December 31, 2001. Net sales for 2001 were $76.2 million, representing a 15 percent decrease compared with $89.6 million in 2000. The Company's net loss was reduced by 65.6 percent to $21.8 million in 2001, compared with a $63.3 net loss in the prior year. During the first quarter of 2002, the Company restructured the outstanding debt with Bank of America and obtained concessions or restructured payment terms for other liabilities, which together will add approximately $14.6 million to the Company's Shareholders' Equity.

"2001 was a restructuring year for Comdial," said Nick Branica, chief executive officer. "While our financial results were affected by many factors, the fact remains the Company has substantially improved its market and financial position as a result of the restructuring efforts. The Company is now focused on its core competencies. I cannot remember a time when Comdial has had a better focus. We begin 2002 with a restructured bank agreement, significantly reduced debt, an improving balance sheet and a great product offering. In 2001 we concentrated our efforts on restructuring. In 2002 we will concentrate our efforts on increasing sales and improving our gross margins."

Net Sales

Net sales for 2001 were $76.2 million, representing a 15 percent decrease compared with $89.6 million in 2000. The primary factors in the decrease of sales were the market contraction, the product mix change, and the decrease in the sales price of individual products. Switching product sales increased due to the introduction of new key systems that were competitively priced and well accepted in the marketplace, while messaging product sales declined sharply due to discounts offered to remain competitive.

Gross Profit

Gross profit, as a percentage of sales for 2001, was 30 percent compared with 13 percent for 2000. In 2001, gross profit increased by 96 percent to $23.1 million compared with $11.8 million for 2000. This increase was mostly due to lower costs achieved with outsourcing manufacturing, consolidating the Company's product line, and eliminating the following negative factors impacting fiscal 2000 gross profit: 1) reduced efficiency caused by the furloughs that Comdial initiated throughout the year to reduce inventory levels within the plant as well as the supply houses; 2) a larger provision for inventory obsolescence than 2001; 3) pursuant to its restructuring plan, Comdial charged $1.5 million to cost of sales for discontinued product inventory in the fourth quarter of 2000; and 4) due to the outsourcing of its manufacturing operations, Comdial recorded an additional adjustment of $2.4 million to mark down certain of its inventory to the lower of cost or market.

Operating Expenses 

Selling, general and administrative expenses ("SG&A") decreased in 2001 by 18 percent to $29.9 million compared with $36.6 million for 2000. SG&A expenses, as a percentage of sales for 2001, decreased to 39 percent compared with 41 percent for 2000. This decrease resulted from downsizing the work force and relocating the headquarters from Charlottesville to Sarasota. The consolidation of administrative, information technology, finance, and sales and marketing functions created a more efficient use of corporate infrastructure and eliminated redundant costs.

Net Loss

The 2001 net loss amounted to $21.8 million or a loss of $2.37 per share, as compared with a loss of $63.3 million or a loss of $6.89 per share in 2000. Major factors contributing to the loss for 2001 include restructuring costs, asset impairments, and other factors such as increased bad debt reserves and inventory write-offs due to product discontinuance.

Balance Sheet

Accounts receivable decreased from $13.8 million at December 31, 2000 to $10.9 million at December 31, 2001. Inventory decreased by $5.9 million to $9.5 million compared with $15.4 million at December 31, 2000. This reduction was primarily a result of additional reserves for discontinued product lines, provisions for obsolescence of $2.5 million, outsourcing the manufacturing, and restructuring costs. The Company's total debt was reduced by $8.9 million from $38.4 million to $29.5 million by year-end 2001. During the first quarter of 2002, the Company restructured the outstanding debt with Bank of America and reduced other liabilities, which together are expected to add approximately $14.6 million to Shareholders' Equity.

Restructuring Agreement with Bank of America

On March 6, 2002, the Company announced that it had fully executed a definitive agreement with Bank of America to restructure its existing senior debt facility. Under the agreement, Comdial now has an $8 million working capital facility and a $4.9 million term note. Both the working capital facility and term note mature on March 31, 2003. The term note requires payments starting in September 2002 with a 36-month amortization schedule. Bank of America will also convert $10 million of existing debt into Convertible Preferred Stock. The Convertible Preferred Stock is convertible, at the option of the holder, at any time into a maximum of 1.5 million common shares. This conversion ratio will be reduced to as low as 500,000 shares in the event the Company pays down the term note by up to $3 million, under certain circumstances. In addition, the Company has a call option allowing it to buy out this Convertible Preferred Stock at par. The Convertible Preferred Stock carries a 5 percent dividend coupon if paid with cash or 10 percent if paid in the Company's Common Shares, at the election of the Company.

"The Company's performance during 2001 has suffered along with all its competitors as a result of the significant market contraction, but Comdial completely changed its business model at the same time," stated Paul Suijk, chief financial officer. "We ended the year with negative Shareholders' Equity at December 31, 2001, but more than compensated for this deficit during the first quarter of 2002 by restructuring the outstanding debt with Bank of America and other liabilities. We believe the new model will allow Comdial to compete in today's market place with more stable gross margins and a streamlined infrastructure. We look forward to the challenges of 2002. The industry is still in the midst of changing technologies, and the economy has not yet fully recovered in our segment of the market place. The new Comdial however, is positioned well to operate in this environment and expects to start adding shareholder value during 2002."

Corporate Restructuring

The Company began executing restructuring plans in the fourth quarter of 2000. The restructuring plans included outsourcing the manufacturing operations, reducing headcount, selling the Virginia headquarters and manufacturing facility, and refocusing the Company on its core competencies. As of December 31, 2001, 57 percent of the Company's previous workforce or a total of 342 employees had been released, bringing total employment to 258 employees. The Company has a remaining obligation of $0.5 million related to severance and related benefits, which have been accrued in 2001 and will be paid in 2002.

Financial Statements

Consolidated Statements of Operations

In thousands, except
per share amounts         Three Months Ended          Years Ended
                             December 31,             December 31,
                          2001         2000         2001       2000
                          -----------------         ---------------

Net sales                $ 14,909    $ 16,743    $ 76,167    $ 89,564
Cost of goods sold         14,853      22,560      53,053      77,715
                         --------    --------    --------    --------
Gross profit                   56      (5,817)     23,114      11,849
                         --------    --------    --------    --------
Operating Expenses
 Selling, general &
  administrative            7,925       8,910      29,892      36,621
 Engineering, research
  & development             1,836       1,480       7,603       6,283
 Goodwill amortization        423         799       1,942       3,195
 Restructuring                 90       2,355         486       2,355
 Impairments of long
  lived assets              3,224       7,425       3,224       7,425
                         --------    --------    --------    --------
   Operating loss         (13,442)    (26,786)    (20,033)    (44,030)
                         --------    --------    --------    --------
Other expense
 Interest expense             637         934       2,759       2,902
 Loss (gain) on
  disposal of assets          652          --      (1,447)         --
 Miscellaneous expense -
  net                         213         704         454         932
                         --------    --------    --------    --------
Loss before income
 taxes                    (14,944)    (28,424)    (21,799)    (47,864)
Income tax expense             --      22,522          --      15,400
                         --------    --------    --------    --------
   Net loss              ($14,944)   ($50,946)   ($21,799)   ($63,264)
                         ========    ========    ========    ========

Loss per share:
 Basic                   ($  1.62)   ($  5.53)   ($  2.37)   ($  6.89)
                         ========    ========    ========    ========
 Diluted                 ($  1.62)   ($  5.53)   ($  2.37)   ($  6.89)
                         ========    ========    ========    ========

Weighted average shares
 outstanding:
  Basic                     9,211       9,188       9,211       9,188
  Diluted                   9,211       9,188       9,211       9,188


Consolidated Balance Sheets
                                                     December 31,
    In thousands, except par value                2001        2000
                                                  ----        ----
Assets
 Current assets
  Cash and cash equivalents                   $   1,239    $   2,428
  Accounts receivable (less allowance
   for doubtful accounts: 2001 -
   $3,533; 2000 - $2,834)                        10,915       13,829
  Inventories                                     9,527       15,431
  Prepaid expenses and other current assets         759        1,464
    Total current assets                         22,440       33,152
                                              ---------    ---------

  Property and equipment - net                    5,839       18,753
  Goodwill                                        3,375        6,149
  Capitalized software development costs - net    7,790        9,448
    Other assets                                  3,648        3,676
                                              ---------    ---------
       Total assets                           $  43,092    $  71,178
                                              =========    =========

Liabilities and Stockholders' Equity (Deficit)
 Current liabilities
  Accounts payable                            $  11,266    $   7,522
  Accrued payroll and related expenses            1,778        4,391
  Accrued promotional allowances                  2,336        1,324
  Other accrued liabilities                       2,658        3,060
  Current maturities of debt                      2,596       24,848
                                              ---------    ---------
    Total current liabilities                    20,634       41,145
                                              ---------    ---------
Long-term debt                                   26,912       13,561
Other long-term liabilities                       5,830        4,957
                                              ---------    ---------
      Total liabilities                          53,376       59,663

Stockholders' equity (deficit)
Common stock, $0.01 par value (Authorized
30,000 shares; issued and outstanding:
2001 - 9,337; 2000 - 9,329)                          93           93
Paid-in capital                                 123,427      123,427
Treasury stock, 132 shares, at cost              (1,296)      (1,296)
Accumulated deficit                            (132,508)    (110,709)
                                              ---------    ---------
Total stockholders' equity (deficit)            (10,284)      11,515
Total liabilities and stockholders'
 equity (deficit)                             $  43,092    $  71,178
                                              =========    =========

Conference Call

Comdial will hold a conference call on Thursday, April 4, 2002 at 11:00 AM EST. The access telephone number for the conference call is 877-276-2596 and ask for the Comdial Year End 2001 Earnings Conference Call. Please call in 5 minutes prior to the scheduled start of the call.

About Comdial

Comdial Corporation, headquartered in Sarasota, Florida, develops and markets sophisticated communications solutions for small to mid-sized offices, government, and other organizations. Comdial offers a broad range of solutions to enhance the productivity of businesses, including voice switching systems, voice over IP (VoIP), voice processing and computer telephony integration solutions. For more information about Comdial and its communications solutions, please visit our web site at http://www.comdial.com.

Forward-Looking Statements 

This press release contains statements that may constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Investors and prospective investors are cautioned that any such forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and that actual results may differ materially from those projected in the forward-looking statements as a result of various factors, including Comdial Corporation's ability to obtain continued funding for its business, its ability to maintain its listing with Nasdaq, the risks associated with the outsourcing of its manufacturing requirements, including international risk factors, its ability to develop and market competitive products, its ability to meets its obligations to its suppliers and its principal lender, its ability to achieve its operational goals and to generate positive cash flow, unfavorable outcomes of pending litigation and the various other factors set forth from time to time in Comdial's filings with the SEC, including but not limited to Comdial's most recent Form 10-K. Comdial Corporation undertakes no obligation to publicly update or revise the forward-looking statements made in this press release to reflect events or circumstances after the date of this press release or to reflect the occurrence of unanticipated events.