MINNEAPOLIS, Jan. 27 /PRNewswire/ -- Digi International Inc. (Nasdaq: DGII) today announced financial results for its fiscal first quarter, ended December 31, 1998.

Sales for the first quarter were $51.4 million compared to $42.6 million for the year-ago period. Net income was $1.4 million compared to $3.8 million reported for the fiscal first quarter of the previous year. Diluted earnings per share for the fiscal first quarter of l999 were $.09 compared to diluted earnings per share of $.27 for the year-ago period. Operating income was $2.9 million compared to $5.7 million for the fiscal first quarter of l998.

As the company indicated earlier, several factors impacted first quarter earnings. The company's current effective tax rate of 49 percent is significantly higher than the statutory tax rate, due primarily to the non-deductibility of the amortization of intangible assets and goodwill of approximately $1.25 million per quarter, associated with the acquisitions of Central Data Corporation and ITK International, Inc. in the fourth quarter of l998. In addition, operating expenses for the quarter were higher than expected because the process of reducing expenses associated with the acquisitions is taking longer than the company originally expected.

"While we are disappointed with our earnings performance for the first quarter of l999," said Jerry A. Dusa, president and chief executive officer of Digi International, "with deliberate and conscious effort we plan to reduce operating expenses going forward. However, we do not expect to see the benefit of these actions until the second half of our fiscal year."

The company also announced that it received further questions today from the staff of the Securities and Exchange Commission (SEC) about the company's write-offs of acquired in-process research and development in connection with the Central Data and ITK acquisitions. These comments were a follow-up to the company's earlier responses to a previously received first round of questions from the SEC staff on this subject. The company has not yet had an opportunity to evaluate the SEC's latest round of comments with its independent auditors and accordingly is not now in a position to comment further.

Digi International Inc. First Quarter 1999 Results

    Three Months Ended December 31             1998                   1997

    Net sales                              $51,395,021            $42,590,059
    Cost of sales                           24,904,314             21,221,314
    Gross margin                            26,490,707             21,368,745

    Operating expenses:
      Sales & marketing                     11,974,080              8,259,494
      Research & development                 6,476,216              3,810,900
      General & administrative               5,152,291              3,610,125
    Total operating expenses                23,602,587             15,680,519

    Operating income                         2,888,120              5,688,226
    Other (expense) income,
     principally interest                     (209,786)               268,885

    Income before income taxes               2,678,334              5,957,111
    Provision for income taxes               1,312,385              2,114,775

    Net income                              $1,365,949             $3,842,336

    Net income per common share                  $0.09                  $0.28

    Net income per common share,
     assuming dilution                           $0.09                  $0.27

    Weighted average common shares          14,572,022             13,480,656

    Weighted average common shares,
     assuming dilution                      14,701,519             14,043,273

About Digi International

Digi International, based in Minneapolis, Minn., is a leading provider of data communications hardware and software that delivers seamless connectivity solutions for open systems, server-based remote access, Internet telephony, and LAN markets. The company markets its products through an international network of distributors and resellers, system integrators and original equipment manufacturers (OEMs). For more information, visit Digi's Web site at http://www.dgii.com or call 800-344-4273 (U.S) or 612-912-3444 (International).

Forward-Looking Statements:
This press release contains certain forward-looking statements that involve risks and uncertainties. Factors that could cause actual results to differ include but are not limited to the following:
-- The expectation that the company plans to reduce operating expenses
-- This expectation may be impacted by presently unanticipated expenses, delays in the integration and consolidation of the two acquisitions, general market or competitive conditions that may be encountered.
-- The expectation that the company's l999 effective tax rate will be 49 percent
-- This expectation may be impacted by the changes in the company's level of profitability.

SOURCE Digi International Inc. -0- 1/27/99 /CONTACT: Sven Wehrwein, 612-912-3550, sven_wehrwein@dgii.com, or Donna Burke, 612-912-3124, donna_burke@dgii.com, both of Digi International Inc./ /Web site: http://www.dgii.com/ (DGII) CO: Digi International Inc. ST: Minnesota IN: CPR SU: ERN