Paradyne Reports Second Quarter 1999 Results; Revenue Fueled by Broadband Access Product Growth - Company Financial Information

Cambridge Telcom Report, August 9, 1999

Paradyne Networks Inc. (Nasdaq:PDYN), a leader in broadband access systems, has reported strong second quarter performance for the quarter ended June 30, 1999. Sales of broadband products fueled the growth with $37.1 million in revenues, a 63 percent increase over the same period in 1998. Broadband revenues for the first six months of 1999 were $69.5 million, a 58 percent increase over the same period in 1998.

Total company revenues for the second quarter were $52.8 million, a 14 percent increase over the same period of 1998. Total company revenues for the first six months of 1999 increased 17 percent to $104.2 million, excluding $2.6 million of one-time royalty revenue, as compared to $89.3 million for the six-month period ended June 30, 1998.

The company had a net loss for the second quarter of $610,000 or $0.02 per share. This compares to a net loss of $1.4 million or $0.05 per share for the quarter ended June 30, 1998. Excluding the deferred stock compensation charge, net loss was $475,000 or $0.02 per share for the second quarter of 1999. The company had net income for the first six months of 1999 of $1.8 million or $0.06 per diluted share, compared to a net loss of $2.5 million or $0.10 per share for the same period of the prior year. Excluding one-time royalty and patent sales, deferred stock compensation, and restructuring charges, the net loss was $1.4 million or $0.05 per share for the six-month period ended June 30, 1999.

"We are very pleased with our performance," said Andy May, Paradyne's chief executive officer. "Our broadband products had an excellent quarter representing over 70 percent of total product sales. Sales of our digital subscriber line (DSL) systems exceeded our plans and we continued to achieve new customer design wins for both our Hotwire DSL systems and our FrameSaver Service Level Management (SLM) systems. Finally, our narrowband product revenues continued to decline as expected."

Highlights for the quarter include: o Integra Telecom of Minnesota selected Paradyne's Hotwire system for its DSL deployment.

o QuebecTel selected Paradyne's Hotwire system for its DSL deployment.

o GTE announced its FrameWatchSM managed service featuring our FrameSaver system.

o Intermedia Communications announced our FrameSaver system as its standard service level management product for frame relay services.

o New partnerships included Jetstream Communications for an interoperable voice-over-DSL solution; Turnstone Systems to provide a carrier-class loop management solution; and Tollbridge Technologies for a co-marketing and interoperability partnership for delivering IP-based multi-line voice-over-DSL.

o SuperLine Access Systems trials started with GTE, New Paris Telephone and Commonwealth Telephone to provide bundled voice and data services for residences and small businesses.

o The FCC (Federal Communications Commission) approved Paradyne's Hotwire MVL (Multiple Virtual Lines) system as the first DSL product allowed to register under FCC part 68.

o Two new Hotwire DSL products were announced: A 24-port SDSL card and a 12-port MVL card.

o Shipments of Hotwire Digital Subscriber Line Access Multiplexers (DSLAMs) now exceed 2,700 systems.

Headquartered in Tampa Bay, Fla., Paradyne is a leading innovator, developer and manufacturer of broadband network access products and technology. The company is recognized as a market leader in Digital Subscriber Line, T1 and Service Level Management products. Paradyne markets its award-winning Hotwire DSL and FrameSaver Service Level Management systems to network service providers and business customers. Paradyne also licenses ETC2 TM and TripleplayTM technology, and intellectual property incorporated in the ITU modem standards. For more information on Paradyne and its products, call 1-800-PARADYNE (U.S. and Canada), 1-727-530-8623 or visit www.paradyne.com.

Paradyne Networks,  Inc.
Condensed Balance Sheets
(In Thousands)
                                           June 30,    Dec.  31,
                                             1999        1998
                                          (Unaudited)

ASSETS
CURRENT ASSETS:
  Cash and cash equivalents                  $ 3,663     $ 2,356
  Accounts receivable, net                    26,814      29,641
  Income tax receivables                       3,379       4,230
  Inventories, net                            15,849      16,997
  Prepaid & other current assets               3,396       2,529

    Total current assets                      53,101      55,753

Property Plant & Equipment                    15,786      16,103
Other Assets                                   2,846       3,207

    Total assets                             $71,733     $75,063

LIABILITIES AND STOCKHOLDERS' EQUITY
CURRENT LIABILITIES:
  Accounts payable                           $17,911     $17,205
  Current Portion of Debt                      9,284      16,483
  Payroll & benefit related liabilities        4,686       6,263
  Other current liabilities                    7,127       7,420

    Total current liabilities                 39,008      47,371

Long term Liabilities                            362         353

    Total Liabilities                         39,370      47,724

Stockholders' Equity                          32,363      27,339

Total Liabilities and Stockholders' Equity   $71,733     $75,063


Paradyne Networks, Inc.
Condensed Statements of Operations
(Thousands except per share amounts)
(Unaudited)


                   Three months Ended        Six months Ended
                        June 30,                 June 30,
                   1999         1998        1999          1998


Revenues:
Sales          $  52,164    $  45,224    $ 103,133    $  87,879
Service              416          644          891        1,028
Royalty              200          350        2,818          350

Total Revenues    52,780       46,218      106,842       89,257

Total cost of sales30,099      24,004       60,065       46,051

Gross Margin      22,681       22,214       46,777       43,206

Operating expenses:
Research and
 development       9,067        8,728       17,835       17,282
Selling, general &
 administrative   13,800       14,653       27,658       28,063
Amortization of
 deferred stock
 compensation        135            0          135            0
Restructuring charges  0           59            5           59

Total operating
 expenses         23,002       23,440       45,633       45,404

Operating Income
 (Loss)             (321)      (1,226)       1,144       (2,198)

Interest and other
 (income) expenses,
  net                569          586       (1,849)       1,107

Income (Loss) before
 provision for income
 tax                (890)      (1,812)       2,993       (3,305)
Provision (benefit)
 for income tax     (280)        (415)       1,235         (757)

Net Income (Loss)($  610)   ($  1,397)   $   1,758    ($  2,548)

Average shares
 outstanding
  Basic           26,356       25,610       26,124       25,606
  Diluted         26,356       25,610       27,477       25,606

Earnings per common
 share
  Basic        ($   0.02)   ($   0.05)   $    0.07    ($   0.10)
  Diluted      ($   0.02)   ($   0.05)   $    0.06    ($   0.10)

Proforma diluted
 net income (loss)
 per share (1) ($   0.02)   ($   0.05)   ($   0.05)   ($   0.10)
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Paradyne Networks, Inc. Condensed Statements of Operations (Thousands
except per share amounts) (Unaudited)  (1) Proforma diluted net income
(loss) per share calculations exclude  the financial statement impact of
deferred stock compensation and  restructuring charges, the sale and
license of intellectual property  to Telogy Networks, Inc., and royalty
revenues from the termination of the Cooperative Development Agreement
with GlobeSpan Semiconductor  Inc. in the respective periods as follows:

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                           Three months Ended     Six months Ended
                                June 30,              June 30,
                             1998      1999      1998        1999

Royalty Revenues                                2,618
Gross Margin                                    2,618
Selling, general &
 administrative                                   225
Amortization of deferred
 stock compensation           135                 135
Restructuring charges                    59         5         59
Interest and other (income)
 expenses, net                                     (2,975)
Provision (benefit) for taxes           (14)    2,092        (14)
Net Income (Loss)            (135)      (45)    3,136        (45)

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