Paradyne Reports Second Quarter Financial Performance; Exceeds Revenue and EPS Guidance

Paradyne (NASDAQ:PDYN), a leading provider of triple
play broadband loop carriers (BLCs) and Ethernet access equipment,
today announced second quarter financial results for the period ended
June 30, 2005.

   Highlights for the quarter include:

   --  Second quarter revenue of $28 million exceeded guidance and
        Street expectation

   --  Second quarter GAAP EPS is two cents per share; Non-GAAP EPS
        is three cents per share

   --  Paradyne shipped to more than 262 DSL customers in the
        quarter, including 23 new DSL customers
          
   "I am pleased to report that Paradyne had an outstanding second
quarter," said Sean Belanger, president and CEO of Paradyne. "Our
second quarter results reflect new customers, continued innovations in
our products, and the full integration of Net to Net products into our
manufacturing facilities, which has helped to increase our gross
margin as a percent of revenue to over 41 percent."        
   Paradyne reported second quarter net income of $.8 million
representing two cents per diluted share in accordance with generally
accepted accounting principles (GAAP), compared with GAAP results of
one cent per diluted share for the second quarter of 2004.    
   For the second quarter, the Company reported non-GAAP net income
of $1.3 million, representing non-GAAP diluted earnings per share of
three cents, outperforming the non-GAAP one cent loss per diluted
share as reflected in the guidance and Street consensus. The three
cents non-GAAP diluted earnings per share compares with non-GAAP
earnings per diluted share of two cents for the second quarter of
2004. Reconciliations between GAAP and non-GAAP results and earnings
per share are provided in tables immediately following the
Consolidated Statement of Operations.      
   Paradyne's cash position remains healthy at $42.7 million, and the
Company is debt free.

   Product shipment highlights include:

   --  Total DSLAMs shipped exceeded 3,100 units in the second
        quarter of 2005 compared to 2,000 DSLAMs shipped in the second
        quarter of 2004.

   --  Shipments of standards-based ADSL grew to 144,000 ports
        shipped in the second quarter of 2005, up 58 percent from
        approximately 91,500 ports shipped in the second quarter of
        2004. Of the second quarter 2005 ADSL port shipments, 113,000
        ports were ADSL2+.

   --  Standards-based ADSL endpoint shipments exceeded 44,000 units
        in the second quarter of 2005, up from approximately 25,900
        shipped in the same period one year ago.

   --  Shipments of ReachDSL modems and Paradyne's ADSL/R combination
        modems supporting both standards-based ADSL and ReachDSL,
        combined for a total of more than 41,800 units shipped in the
        second quarter of 2005; an increase of 47 percent from the
        second quarter of 2004.

   Second Quarter Results Conference Call and Webcast
         
   As previously announced, Paradyne will host a conference call on
Wednesday, July 20, 2005 at 6:30 p.m. (EDT) to discuss second quarter
2005 results. The call will be broadcast live on the Internet for
investors and the general public. This listen-only webcast can be
accessed through the investor relations page of the Paradyne website,
http://www.paradyne.com. Participants should go to the website at
least ten minutes before this event to download and install any
necessary audio software. Or, participants may dial into the call at
706-634-1225. An audio replay of the call will be available through
July 30, 2005. To access the replay use Conference ID # 7858901.

   About Paradyne

   Paradyne provides a broad family of IP-based broadband access
solutions, including BLCs, DSLAMs, Ethernet in the First Mile bonded
solutions, IADs, and CPE. Paradyne's products support both residential
triple play solutions and business class bonded g.SHDSL, ADSL2+ and
T1/E1 solutions for LAN extension and cell site data backhaul
applications.
   Paradyne's solutions are designed to enhance carrier revenue
streams with full support for Multimedia Traffic Management (MTM) and
to lower carrier operational expenses through Operational Intelligence
(OpIQ).
   As previously announced, Paradyne and Zhone Technologies, Inc.
have entered into a merger agreement. The transaction is subject to
the approvals of both company's stockholders and other closing
conditions and is expected to close in the fall of 2005.
   More information may be obtained by visiting
http://www.paradyne.com or by calling [phone].

   Information about Forward-Looking Statements:

   This press release contains forward-looking statements that
involve a number of risks and uncertainties. These forward-looking
statements are made pursuant to the "safe-harbor" provisions of the
Private Securities Litigation Reform Act of 1995 and are made based on
management's current expectations and beliefs as well as on
assumptions made by, and information currently available to,
management. Among the factors that could cause actual future events to
differ materially include: risks associated with the proposed
acquisition of Paradyne by Zhone Technologies, Inc.; the uncertainty
regarding the acceptance of new telecommunications services based on
DSL technology; reduction or discontinuation of purchase of our
products by NSPs; the failure of NSPs to incorporate our products into
their infrastructure; the possibility that Paradyne's competitors may
develop competing products that are superior in terms of quality,
cost, or both. For a detailed discussion of other risk factors that
could affect Paradyne's business, please refer to the risks identified
in Paradyne's Current Report on Form 10-K, dated March 16, 2005, the
Registration Statement of Zhone Technologies, Inc. on Form S-4, dated
July 15, 2005 (which includes a preliminary proxy statement of
Paradyne), and in Paradyne's other filings with the Securities and
Exchange Commission.
   Editors Note: Paradyne and the Paradyne Logo are registered
trademarks of Paradyne Corporation.
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Paradyne Networks, Inc.
Condensed Unaudited Consolidated Statements of Operations
(Thousands except per share amounts)
                                                            
                                 Three months Ended  Six months Ended 
                                      June 30,           June 30,
                                   2005     2004      2005     2004

Revenues:
Sales                             $26,744  $22,757  $52,228  $43,572
Services                            1,247    1,489    2,447    2,971
Royalties                               2        0       12        0
                                 --------- -------- -------- --------

Total Revenues                     27,993   24,246   54,687   46,543

Total cost of sales                16,391   14,246   33,188   27,326
                                 --------- -------- -------- --------

Gross Margin                       11,602   10,000   21,499   19,217

Operating expenses:
Research and development (a)        4,359    3,724    8,629    7,506
Selling, general &
 administrative (a)                 6,263    5,382   12,493   11,203
Amortization of intangible asset      515      305    1,031      609
Business restructuring charges          0        0        0      269
Other operating income, net             0        0     (765)       0
                                 --------- -------- -------- --------

Total operating expenses           11,137    9,411   21,388   19,587
                                 --------- -------- -------- --------

Operating Income (Loss)               465      589      111     (370)

Other (income) expenses:
   Interest, net                     (302)    (135)    (547)    (262)
   Other, net                         (21)      44      (66)      (1)
                                 --------- -------- -------- --------

Income (loss) before provision
 for income tax                       788      680      724     (107)
Provision (benefit) for income
 tax                                    0        0        0        0
                                 --------- -------- -------- --------

Net income (loss)                    $788     $680     $724    ($107)
                                 ========= ======== ======== ========

Average shares outstanding
Basic                              46,790   45,195   46,700   44,998
Diluted                            47,263   49,550   47,842   44,998
Earnings per common share
Basic                                0.02     0.02     0.02    (0.00)
Diluted                              0.02     0.01     0.02    (0.00)

Non-GAAP diluted shares            47,263   49,550   47,842   49,047
Non-GAAP diluted net income
 (loss) per share (1)               $0.03    $0.02    $0.04    $0.02


(a) Amounts include stock-based compensation as follows:

     Research and development         $18      $22      $36      $46
     Selling, general and
      administrative                   15       15       30       30
                                 --------- -------- -------- --------
                                      $33      $37      $66      $76
                                 --------- -------- -------- --------

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

(1)  Reconciliation of Earnings and Earnings Per Share Following
     Generally Accepted Accounting Principles With Non-GAAP Financial 
     Measures (Non-GAAP Earnings and Non-GAAP Earnings Per Share)
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   Management believes that presenting non-GAAP earnings and non-GAAP
earnings per share is useful to investors in addition to the GAAP
measures because the non-GAAP measures help investors understand
operating results and make comparisons with prior periods. Management
believes that excluding each of the below adjustments in calculating
non-GAAP results is helpful to investors in comparing the operations
of the core business between periods. In addition to providing
investors with a helpful comparison, management believes that:

   --  excluding the amortization of deferred stock compensation is
        helpful because it is a non-cash item;
  
   --  excluding the amortization of intangible assets is helpful
        because it is non-cash and the intangible asset is not
        expected to be replaced when fully amortized (as might a
        depreciable asset); and

   --  excluding the business restructuring charges is useful because
        while the category of expense recurs, including such
        expenditures may actually distort the comparability of
        expenses from period to period.

   Paradyne's management uses non-GAAP measures internally to
evaluate the Company's net income and operating performance of the
core business on a period-over-period basis, and for planning and
forecasting future periods. Management does not consider the
amortization of deferred stock compensation and intangible assets in
its review of the business. Additionally, while management constantly
reviews the structure of the business to assure it is properly and
efficiently operating, once changes are made, there is no value in
comparing restructuring costs from period to period. The value is only
in reviewing the expected operating results after making a
restructuring change.
   In order to calculate non-GAAP earnings per share, the Company may
also need to calculate non-GAAP diluted shares. Whenever the Company
has a net loss, both basic and diluted shares will be the same because
the effect of increasing the number of shares for dilution would be to
decrease the loss per share (which would be anti-dilutive), since the
calculation is net loss divided by the number of shares. When
transactions are excluded in computing non-GAAP earnings, in some
cases, the exclusion can result in changing a net loss to net income.
When this happens, increasing the share count will reduce earnings per
share. Therefore, when the Company excludes transactions from its GAAP
net loss resulting in non-GAAP net income, the Company calculates
non-GAAP diluted shares by increasing the share count by the dilutive
effect of stock options.
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Reconciliation of GAAP Earnings to Non-GAAP Earnings

                                  Three months Ended  Six months Ended
                                        June 30,          June 30,
                                     2005     2004     2005    2004

Net income (loss), as reported         $788     $680    $724    $(107)

Increase to net income:
 Exclusion of amortization of
  deferred stock compensation and
  intangible assets                     548      342   1,097      685
 Exclusion of business
  restructuring charges                   -        -       -      269
                                    -------- -------- ------- --------
  Adjustment to net income (loss)       548      342   1,097      954

                                    -------- -------- ------- --------
Non-GAAP net income                  $1,336   $1,022  $1,821     $847
                                    ======== ======== ======= ========


Reconciliation of GAAP Earnings Per Share to Non-GAAP Earnings Per
 Share

                                  Three months Ended  Six months Ended
                                        June 30,          June 30,
                                     2005     2004     2005    2004


Diluted net income (loss) per
 share, as reported                   $0.02    $0.01   $0.02   $(0.00)

 Exclusion of amortization of
  deferred stock compensation & 
  intangible asset                     0.01     0.01    0.02     0.01
 Exclusion of business
  restructuring charges                   -        -       -     0.01
                                    -------- ---------------- --------
  Adjustment to net income (loss)      0.01     0.01    0.02     0.02

                                    -------- -------- ------- --------
Non-GAAP diluted net income per
 share                                $0.03    $0.02   $0.04    $0.02
                                    ======== ======== ======= ========


Reconciliation of Average Shares Outstanding with Non-GAAP Diluted
 Shares (Thousands of Shares)

                                  Three months Ended  Six months Ended
                                        June 30,          June 30,
                                     2005     2004     2005    2004

Average shares outstanding           46,790   45,195  46,700   44,998

Dilutive effect of stock options        473    4,355   1,142    4,049

                                    -------- -------------------------
Non-GAAP diluted shares              47,263   49,550  47,842   49,047
                                    ======== =========================


Paradyne Networks,  Inc.
Condensed Unaudited Consolidated Balance Sheets
(In Thousands)


                                           June 30,     December 31,
ASSETS                                       2005          2004
                                        -------------- --------------
CURRENT ASSETS:
  Cash and cash equivalents                   $42,714        $43,832
  Accounts receivables, net                    16,239         16,904
  Inventories, net                             20,067         17,193
  Prepaid & other current assets                1,699          1,246
                                        -------------- --------------

    Total current assets                       80,719         79,175

Property, plant & equipment, net                2,644          3,495
Intangible assets, net                          6,130          7,160
Other assets                                      463            471
                                        -------------- --------------

    Total assets                              $89,956        $90,301
                                        ============== ==============

Research and development (a)
Selling, general & administrative (a)
  Accounts payable                             $6,640         $7,296
  Payroll & benefit related liabilities         1,454          2,214
  Other current liabilities                     6,609          6,826
                                        -------------- --------------

    Total current liabilities                  14,703         16,336

                                        -------------- --------------

    Total liabilities                          14,703         16,336

Stockholders' equity                           75,253         73,965
                                        -------------- --------------

    Total  liabilities  and
     stockholders' equity                     $89,956        $90,301
                                        ============== ==============
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