Larscom Incorporated Reports Second Quarter 2002 Results; Results Include Deferrals of Sales and Reserves Related to WorldCom and a Corporate Restructuring Announced May 22, 2002

Business Wire, July 22, 2002

Business Editors

MILPITAS, Calif.--(BUSINESS WIRE)--July 22, 2002

Larscom Incorporated (Nasdaq:LARS), a leading provider of integrated WAN and Internet access solutions, today announced second-quarter financial results for the period ended June 30, 2002.

The Company reported revenues of $5,829,000 compared to $11,272,000 for the second quarter of 2001. Sales of $582,000 made to WorldCom during the second quarter of 2002, which remained unpaid at quarter-end, were deferred. The Company's net loss for the second quarter of 2002 was $(2,499,000) or $(0.13) per share, which included $582,000 in sales deferrals and associated inventory charges and $248,000 in non-cash reserves for special inventory and accounts receivable related to WorldCom as well as a net restructuring charge of $253,000. This restructuring charge is a result of the May 2002 15% reduction in workforce. That compares to a net loss of $(26,462,000) or $(1.41) per share for the second quarter of 2001, when the Company reported restructuring charges of $4,761,000, non-cash inventory reserves and asset impairment charges of $3,005,000 and a non-cash reserve against tax deferred assets of $16,450,000.

For the full six months, the Company reported revenues of $13,545,000 and a net loss of $(1,136,000) or $(0.06) per share. That compares to $23,486,000 in revenues and a net loss of $(27,958,000) or $(1.49) per share for the first six months of 2001.

"The industry continues to experience difficult conditions as evidenced by recent events at service providers like WorldCom and Qwest," said Daniel Scharre, Larscom's president and CEO. "Because of the current uncertainty at WorldCom, we have chosen to record sales as WorldCom pays. In addition, we have fully reserved for any WorldCom accounts receivable from prior quarters and for inventories specific to WorldCom. We believe that the Chapter 11 filing yesterday is a major step in stabilizing our business relationship with WorldCom moving forward."

Scharre added, "Because of the economic uncertainty, Larscom continues to manage its expenses carefully. We ended the quarter with no debt and a cash and short-term investment balance of $20,657,000."

Highlights for the second quarter and current Larscom announcements:

-- Expanded the Larscom Orion 5000 product family to include the new Orion 5001, allowing consolidation of up to 28 low speed T1 circuits into a high speed DS3 circuit in a fully-redundant M13 multiplexer delivered in a compact, energy efficient, 19-inch, 1RU chassis;

-- Secured new enterprise customers, including one of the nation's largest privately-held agribusiness companies, J.R. Simplot, as well as a number of major U.S. retailers;

-- Recruited a seasoned new Vice President of Worldwide Sales, Len Eisenstein, who will lead the sales team at Larscom. Mr. Eisenstein has experience leading and building the sales teams at Trillium, Ariel Corporation, Integrated Network Corporation, and Telco Systems;

-- Previous GM of Cisco Systems Broadband Telephony Business Unit, Allen R. Adams, an experienced executive with over 28 years in the industry, joined Larscom's Board.

About Larscom

Larscom Incorporated develops, manufactures and markets high-speed wide area network (WAN) and Internet access equipment. The Company's customers include major carriers, Internet service providers, Fortune 500 companies and government agencies worldwide. Larscom's headquarters are at 1845 McCandless Drive, Milpitas, California 95035. Additional information can be found at www.larscom.com.

Safe Harbor Statement

Any forward-looking statements in this news release are based on our current expectations and beliefs and are subject to known and unknown risks and uncertainties that could cause the actual results to differ materially from those suggested. Factors that could cause actual results to differ materially include (but are not limited to) risks associated with customer concentration that include WorldCom, the effect of the general downturn in the telecommunications equipment industry, the ability to develop successful new products, dependence on recently introduced new products and products under development, dependence on component availability from key suppliers, rapid technological change and fluctuations in quarterly operating results, as well as additional risk factors as discussed in the "Risk Factors" section of our annual report on Form 10-K and quarterly reports on Form 10-Q filed with the U.S. Securities and Exchange Commission. These forward-looking statements represent our judgment as of the date of this news release. We disclaim, however, any intent or obligation to update these forward-looking statements.

(Financial tables attached)

CONDENSED CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited)
(In thousands except for per share data)
----------------------------------------------------------------------
                            Three months ended      Six months ended
                                 June 30,               June 30,
                          ---------------------  ---------------------
                             2002       2001       2002        2001
-----------------------------------------------  ---------------------
Revenues                  $  5,829   $  11,272   $ 13,545   $  23,486
Cost of revenues             2,872       9,178      5,919      15,772
-----------------------------------------------  ---------------------
Gross profit                 2,957       2,094      7,626       7,714
-----------------------------------------------  ---------------------
Operating expenses:
     Research and
      development            1,058       2,021      2,037       4,117
     Selling, general and
      administrative         4,259       5,633      8,546      11,697
     Restructuring             253       4,761        253       4,761
-----------------------------------------------  ---------------------
Total operating expenses     5,570      12,415     10,836      20,575
-----------------------------------------------  ---------------------
Loss from operations        (2,613)    (10,321)    (3,210)    (12,861)
Interest and other income,
 net of expense                132         364        218         773
-----------------------------------------------  ---------------------
Loss before income taxes    (2,481)     (9,957)    (2,992)    (12,088)
Income tax provision
 (benefit)                      18      16,505     (1,856)     15,870
-----------------------------------------------  ---------------------
Net loss                  $ (2,499)  $ (26,462)  $ (1,136)  $ (27,958)
-----------------------------------------------  ---------------------

Basic & diluted loss per
 share                    $  (0.13)  $   (1.41)  $  (0.06)  $   (1.49)
-----------------------------------------------  ---------------------

Basic & diluted weighted
 average shares             18,852      18,804     18,849      18,789
                          ---------------------  ---------------------

CONDENSED CONSOLIDATED BALANCE SHEETS (Unaudited)
(In thousands)
--------------------------------------------------------------------
                                                June 30, December 31,
                                                  2002       2001
--------------------------------------------------------------------
Assets
Current assets:
     Cash, cash equivalents and short-term
      investments                               $ 20,657   $ 21,005
     Accounts receivable, net                      2,372      4,227
     Inventories                                   3,577      3,575
     Due from Axel Johnson                           779        574
     Other current assets                          3,289      1,657
--------------------------------------------------------------------
          Total current assets                    30,674     31,038
--------------------------------------------------------------------
Property and equipment                             2,465      3,135
Other non-current assets                             292          -
--------------------------------------------------------------------
          Total assets                          $ 33,431   $ 34,173
--------------------------------------------------------------------
Liabilities and Stockholders' Equity
Current liabilities:
     Accounts payable                           $  2,133   $  2,115
     Accrued expenses and other current
      liabilities                                  7,868      7,120
--------------------------------------------------------------------
          Total current liabilities               10,001      9,235
Other non-current liabilities                      1,757      2,162
--------------------------------------------------------------------
          Total liabilities                       11,758     11,397
--------------------------------------------------------------------
Stockholders' equity                              21,673     22,776
--------------------------------------------------------------------
          Total liabilities and stockholders'
           equity                               $ 33,431   $ 34,173