Comdial Reports Second Quarter Results, Acquires Internet Telephony Software Producer - Array Telecom Inc.

CHARLOTTESVILLE, Va.--(BUSINESS WIRE)--July 14, 1998--Comdial Corporation (Nasdaq NM: CMDL) today announced results for the second quarter ended June 28, 1998 and simultaneously announced the acquisition of Array Telecom Inc. Toronto-based Array is a designer and producer of gateway software for transmitting voice over the Internet using Internet Protocol (IP). This release discusses both second quarter results and the recent acquisition.

Net Income and Net Sales 

Net income of $1.9 million or $0.21 per share increased 63 percent from the $1.1 million or $0.13 per share reported in the year-ago period. Net income for the first half was $3.4 million or $0.38 per share, a gain of 111 percent over the $1.6 million or $0.18 per share reported in 1997. First-half net income and earnings per share exclude tax benefits of $0.04 and $0.03, respectively, in 1998 and 1997.

Net sales for the quarter were $31.3 million, up 7 percent over the $29.4 million reported for the second quarter of 1997. For the first six months, net sales were $60.6 million, an increase of 8 percent over the $56.2 million achieved during the same period in 1997.

Comdial Chairman, President and Chief Executive Officer William G. Mustain said, "We continue to track on plan with our earnings performance. This is a result of the actions we have taken to increase sales, maintain favorable margins, reduce fixed costs, and improve productivity."

Gross Margin

Gross margin for the second quarter was 39 percent, compared with 40 percent for the second quarter of 1997. Gross margin was 40 percent for the first half of 1998 and approximately 41 percent for the first half of 1997.

Operating & Other Expenses

Second quarter Interest expense declined 39 percent to $273,000 as a result of lower debt, while goodwill decreased $176,000 or 21 percent to $683,000. For the first half, interest expense was $548,000, a decline of $328,000 or 37 percent. Goodwill for the same six-month period was $1.3 million, a decline of $550,000 from the comparable 1997 period.

Income Tax Expense

In the second quarter, income tax expense was $350,000 or 16 percent of pretax income. This is an increase of $246,000 over the second quarter of 1997 when Comdial paid income tax at the rate of 8 percent of pretax net income. The Company took actions in the second quarter of 1998 to extend utilization of prior-years' tax loss carry-forwards (NOLs) beyond the then-current expiration dates, which ranged from 1999 to 2010. These actions had the consequent effect of increasing the Alternative Minimum Tax payable by Comdial in the second quarter and increase tax expense in subsequent quarters.

Acquisition of Array Telecom, Inc.

Comdial Corporation announced that it has acquired privately held Array Telecom, a Toronto, Ontario-based designer and producer of Internet Protocol telephony gateway software, effective today. Comdial agreed to pay cash in the amount of C$8.7 million to Array Systems Computing Inc. and Array Telecom Inc. Concurrently, Comdial entered into a Technical Services Agreement to continue ongoing product development programs with Array Systems Computing Inc. Comdial expects to take a one-time charge against earnings in the amount of approximately $C6.5 million for goodwill for the portion associated with in-process research and development.

Comdial gains ownership of all intellectual property associated with Array's Internet telephony products and related assets. Certain key design engineers have signed employment contracts and will be relocating to new Comdial offices to be established in Northern Virginia' s high technology corridor in 1999.

Formed in 1996, Array produces and markets VoIPgate IP telephony gateway software to Internet Service Providers (ISPs) in Europe and Canada. More information about Array Telecom can be found on the World Wide Web at http://www.telecom.array.ca.

William G. Mustain, Comdial President and CEO, said "This acquisition squarely positions Comdial in the fastest growing segments of the IP telephony market - enterprise voice and fax over Intranets and gateway software for next generation telephone companies. But that's just the beginning of the story. The enduring user benefits of IP telephony will come from Comdial software applications such as unified messaging, collaborative work-groups, and e-commerce. It is the Company's belief that IP telephony holds significant promise for future growth and it is in the interest of the shareholders that Comdial control development of this core technology."

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 phones, call center hardware and software, voice processing, 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-

      Consolidated Condensed Statements of Operations - Unaudited

                                        Three Months Ended:
                                     June 28,       June 29,
(In thousands except per share
 amounts)                               1998          1997

Net sales                             $31,317       $29,400
    Cost of goods sold                 19,101        17,628
       Gross profit                    12,216        11,772
Operating expenses
    Selling, general and
     administrative                     7,545         7,445
    Engineering, research and
      development                       1,493         1,683
       Operating income                 3,178         2,644
    Interest expense                      273           449
    Goodwill amortization
     expense                              683           859
    Miscellaneous expense                  14            90
Income before income taxes              2,208         1,246
Income tax expense                        350           104
    Net income applicable to
     common stock before tax
      benefit                           1,858         1,142
Income tax benefit                        --            --
    Net income applicable to
     common stock                     $ 1,858       $ 1,142

Earnings per common
 and common equivalent
  share:
    Income before tax benefit         $  0.21       $  0.13
    Income tax benefit                    --            --
       Net income per common
        share:  Basic                 $  0.21       $  0.13


Weighted average common shares
 Basic:                                 8,810         8,656


                                           Six Months Ended:
                                   June 28, 1998         June 29, 1997
(In thousands except per share
 amounts)
Net sales                          $60,598                $56,234
    Cost of goods sold              36,495                 33,424
       Gross profit                 24,103                 22,810
Operating expenses
    Selling, general and
     administrative                 15,160                 14,643
    Engineering, research and
      development                    3,044                  3,286
       Operating income              5,899                  4,881
    Interest expense                   548                    876
    Goodwill amortization
     expense                         1,346                  1,896
    Miscellaneous expense              194                    303
Income before income taxes           3,811                  1,806
Income tax expense                     444                    212
    Net income applicable to
     common stock before tax
      benefit                        3,367                  1,594
Income tax benefit                     330                    219
    Net income applicable to
     common stock                  $ 3,697                $ 1,813

   Earnings per common share
      and common equivalent
       share:
    Income before tax benefit      $  0.38                $  0.18
    Income tax benefit                0.04                   0.03
       Net income per common
        share:  Basic              $  0.42                $  0.21


Weighted average common shares
 outstanding:  Basic                 8,762                  8,620



                    Consolidated Condensed Balance Sheets
                                              Period Ending
                                         June 28,    December 31,
(In thousands)                            1998           1997
Assets
      Cash and cash equivalents                $336         $5,673
      Accounts receivable - net              16,581         11,278
      Inventory                              17,279         18,487
      Other current assets                    1,942          1,669
          Total current assets               36,138         37,107
      Property - net                         16,353         16,334
      Goodwill                               12,294         13,142
      Deferred tax asset - net                8,247          8,164
      Other assets                            5,697          4,517
          Total assets                      $78,729        $79,264
Liabilities and Stockholders' Equity
      Accounts payable                       $7,934         $9,229
      Other accrued liabilities               7,286          7,501
      Current maturities on debt              5,651          3,701
          Total current liabilities          20,871         20,431
      Long-term debt                          4,544          9,922
      Deferred tax liability                  2,459          2,705
      Other long-term liabilities             1,430          1,371
          Total liabilities                  29,304         34,429
      Stockholders' equity                   49,425         44,835
          Total liabilities and             $78,729        $79,264
          stockholders' equity
 EBITDA
                                           Six Months Ended:
                                         June 28,      June 29,
(In                                       1998           1997
thousands)
Net income applicable to common
 stock                                       $3,697        $1,813
      Taxes                                     114            (7)
      Interest expense                          548            876
      Depreciation expense                    1,402          1,352
      Goodwill amortization expense           1,346          1,896
      Amortization expense                      991          1,185
             Total                           $8,098         $7,115

CONTACT: Comdial

Dick Bucci, 804/978-2525

[e-mail]