EX-10 3 ex99_1-f8k11132007.htm EXHIBIT 10.1

TII Network Technologies reports Third quarter 2007 Results

Sales Increase 21 percent

EDGEWOOD, NY – November 1 4, 2007 – TII Network Technologies, Inc. (Nasdaq: TIII), a company that helps bridge service provider technologies to consumer communication needs, today announced its results of operations for the three and nine months ended September 30, 2007.

Net sales for the three months ended September 30, 2007 were $12.7 million compared to $10.5 million for the comparable prior year period, an increase of $2.2 million or 21.1%. The growth reflects increased sales of station electronics, connectivity, VoIP and home networking products, offset, in part, by a decrease in sales of the Company’s traditional network interface protection devices.
 

GAAP net income was $372,000, or $0.03 per diluted share, for the three months ended September 30, 2007 compared to GAAP net income of $399,000, or $0.03 per diluted share, for the similar prior year period. Non-GAAP net income, which excludes restructuring charges related to the closing of the Company’s Puerto Rico facility, was $672,000, or $0.05 per diluted share, for the three months ended September 30, 2007 compared to non-GAAP net income of $399,000, or $0.03 per diluted share,for the similar prior year period.
 

Net sales for the nine months ended September 30, 2007 were $34.9 million compared to $31.1 million for the similar prior year period, an increase of $3.8 million or 12.0%. The growth reflects increased sales of station electronics and home networking products, offset, in part, by a decrease in sales of the Company’s traditional network interface protection devices.
 

GAAP net income was $383,000, or $0.03 per diluted share, for the nine months ended September 30, 2007 compared to GAAP net income of $1,179,000, or $0.09 per diluted share, for the similarprior year period.  Non-GAAP net income, which excludes restructuring charges related to the closing of the Puerto Rico facility, was $1,004,000, or $0.07 per diluted share, for the nine months ended September 30, 2007 compared to non-GAAP net income of $1,179,000 or $0.09 per diluted share, for the similarprior year period.

Kenneth A. Paladino, President and Chief Executive Officer, in commenting on the quarter stated: “The increase in our sales reflects the broadening strength of our new product lines which more than offset a reduction in sales of our traditional network interface protection business.
 

Looking forward, we like our position in the marketplace and see improved financial results. Certain items particularly noteworthy for the three and nine months ended September 30, 2007 are:
 

·     

In consolidating our Puerto Rico operations into our new facility, we have incurred restructuring costs, included in cost of sales, of $484,000 and $1,030,000 for the three and nine months ended September 30, 2007, respectively. As previously disclosed, we believe this consolidation, though negatively impacting our margins through the third quarter, will improve our operating efficiencies beginning in the fourth quarter and result in annual cost savings of approximately $1.3 million.

·     

The Company’s tax provision for book purposes is significantly higher than the taxes expected to be paid, principally due to the availability of net operating loss carryforwards.

·     

Stock-based compensation expense for the three months ended September 30, 2007 and 2006 was $302,000 and $158,000, respectively. Stock-based compensation expense for the nine months ended September 30, 2007 and 2006 was $823,000 and $497,000, respectively.

·     

Cash provided by operating activities for the nine months ended September 30, 2007 and 2006 was $3.2 million and $4.3 million, respectively.”

About TII Network Technologies, Inc.

TII Network Technologies, Inc. (NASDAQ: TIII) headquartered in Edgewood, New York, is a leader in developing and manufacturing advanced network technology solutions for the telecommunications industry. Products include: IPTV, VoIP, network interface devices, surge protection products and residential gateway systems that give service providers the technology to deliver their services more efficiently. Additional information about the company can be found at www.tiinettech.com.

Forward Looking Statement:

Certain statements in this Report are "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. When used in this Report, words such as "may," "should," "seek," "believe," "expect," "anticipate," "estimate," "project," "intend," "strategy" and similar expressions are intended to identify forward-looking statements regarding events, conditions and financial trends that may affect the Company's future plans, operations, business strategies, operating results and financial position. Forward-looking statements are subject to a number of known and unknown risks and uncertainties that could cause the Company's actual results, performance or achievements to differ materially from those described or implied in the forward-looking statements. These factors include, but are not limited to: (i) exposure to increases in the cost of the Company’s products, including increases in the cost of the Company’s petroleum-based plastic products and precious metals; (ii) dependence for products and product components from Pacific Rim contract manufacturers, including on-time delivery that could be interrupted as a result of third party labor disputes, political factors or shipping disruptions, quality control and exposure to changes in costs and changes in the valuation of the Chinese Yuan; (iii) dependence on, and ability to retain, the Company’s “as-ordered” general supply agreements with its largest customer and ability to win new contracts; (iv) continued dependence on the traditional copper-based telephone operating company (“Telco”) market which has been declining over the last several years due principally to the impact of alternate technologies; (v) the level of inventories maintained by the Company’s customers; (vi) the ability to market and sell products to new markets beyond its principal copper-based Telco market; (vii) the ability to timely develop products and adapt the Company’s existing products to address technological changes, including changes in its principal market; (viii) weather and similar conditions, particularly the effect of hurricanes or typhoons on the Company's manufacturing, assembly and warehouse facilities in Puerto Rico and the Pacific Rim; (ix) competition in the Company’s traditional Telco market and new markets the Company is seeking to penetrate; (x) potential changes in customers’ spending and purchasing policies and practices; (xi) general economic and business conditions, especially as they pertain to the Telco industry; (xii) dependence on third parties for certain product development; (xiii) risks inherent in new product development and sales, such as start-up delays and uncertainty of customer acceptance; (xiv) the ability to attract and retain technologically qualified personnel (see “Business-Product Development”); and (xv) the availability of financing on satisfactory terms.

.

CONTACT:

TII Network Technologies, Inc.     

(631) 789-5000     

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-- Statistical Tables Follow --

TII NETWORK TECHNOLOGIES, INC. AND SUBSIDIARIES
UNAUDITED CONDENSED CONSOLIDATED STATEMENTS OF INCOME

(in thousands, except per share data)

   

Three Months Ended

  

Nine Months Ended
   

September 30, 2007

  

September 30, 2006

  

September 30, 2007

  

September 30, 2006

Net sales

$

12,704

$

10,495

$

34,862

$

31,133

Cost of sales (includes restructuring charges of $484 and $1,030 in the three and nine months ended September 30, 2007, respectively)

  

8,715

  

6,531

  

24,533

  

20,221
                 

     Gross profit

  

3,989

  

3,964

  

10,329

  

10,912
                 

Operating expenses:

                

     Selling, general and administrative

  

2,747

  

2,939

  

7,962

  

7,695

     Research and development

  

542

  

446

  

1,553

  

1,425

          Total operating expenses

  

3,289

  

3,385

  

9,515

  

9,120
                 

          Operating income

  

700

  

579

  

814

  

1,792
                 

Interest expense

  

(3)

  

(3)

  

(10)

  

(6)

Interest income

  

39

  

64

  

124

  

170

Other income

  

(13)

  

(3)

  

(13 )

  

(1)
                 
                 

Income before income taxes

  

723

  

637

  

915

  

1,955
                 

Income tax provision

  

351

  

238

  

532

  

776
                 

Net income

$

372

$

399

$

383

$

1,179
                 

Net income per common share:

                

     Basic

$

0.03

$

0.03

$

0.03

$

0.10

     Diluted

$

0.03

$

0.03

$

0.03

$

0.09
                 

Weighted average common shares outstanding:

                

     Basic

  

13,113

  

12,387

  

12,819

  

12,370

     Diluted

  

14,599

  

13,585

  

14,605

  

13,452

TII NETWORK TECHNOLOGIES, INC. AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS

(in thousands, except share and per share data)
 

     

September 30, 2007

(Unaudited)

    

December 31,
2006

ASSETS

            

Current assets:

            

     Cash and cash equivalents

  

$

5,838

  

$

5,362

     Accounts receivable, net of allowance of $87 at
          September 30, 2007 and $30 at December 31, 2006

    

5,769

    

3,068

     Inventories

    

6,738

    

8,364

     Deferred tax assets, net

    

887

    

1,251

     Other current assets

    

493

    

277

               Total current assets

    

19,725

    

18,322
             

Property, plant and equipment, net

    

9,483

    

7,119

Deferred tax assets, net

    

3,780

    

3,899

Other assets, net

    

113

    

125

Total assets

  

$

33,101

  

$

29,465
             

     LIABILITIES AND STOCKHOLDERS’ EQUITY

            
             

Current liabilities:

            

     Accounts payable

  

$

2,254

  

$

718

     Accrued liabilities

    

1,901

    

1,914

               Total current liabilities

    

4,155

    

2,632

           

          Total liabilities

    

4,155

    

2,632
             

Commitments and contingencies

            
             

Stockholders’ equity:

            

     Preferred stock, par value $1.00 per share; 1,000,000 shares
         authorized, including 30,000 shares of series D  junior
         participating; no shares outstanding 

  

-

    

-

     Common stock, par value $.01 per share; 30,000,000 shares
          authorized; 13,345,391 shares issued and 13,327,754 shares
          outstanding as of September 30, 2007, and 12,550,306 shares
          issued and 12,532,669 shares outstanding as of
          December 31, 2006

    

134

    

126

     Additional paid-in capital

    

40,868

    

39,146

     Accumulated deficit

    

(11,7 75)

    

(12,158)
     

29,227

    

27,114

     Less: Treasury shares, at cost, 17,637 common shares at
            June 30, 2007 and December 31, 2006

    

(281)

    

(281)

            Total stockholders’ equity

    

28,946

    

26,833

Total liabilities and stockholders’ equity

  

$

33,101

  

$

29,465

 

 

TII NETWORK TECHNOLOGIES, INC. AND SUBSIDIARIES

Reconciliation of Non-GAAP Financial Measures to GAAP Financial Measures

(in thousands, except per share data)
(Unaudited)
 
 

 

Three Months Ended September 30,

  

Nine Months Ended September 30,
 

2007

  

2006

  

2007

  

2006

Reconciliation of Non-GAAP Net Income to

              

GAAP Net Income (1) :

              

Non-GAAP net income

$672

  

$399

  

$1, 004

  

$1,179

Restructuring c harges

(484)

  

-

  

(1,030)

  

-

Tax effect of restructuring charges

184

  

-

  

409

  

-
               

GAAP Net Income

$372

  

$399

  

$383

  

$1,179

 

Three Months Ended September 30,

  

Nine Months Ended September 30,
 

2007

  

2006

  

2007

  

2006

Reconciliation of Non-GAAP Diluted

              

Earnings Per Share to GAAP Diluted
Earnings Per Share (1) :

              

Non-GAAP diluted earnings per share

$0.05

  

$0.03

  

$0.07

  

$0.09

Restructuring c harges

(0.03)

  

-

  

(0.07)

  

-

Tax effect of restructuring charges

0.01

  

-

  

0.03

  

-
               

GAAP Diluted Earnings Per Share

$0.03

  

$0.03

  

$0.03

  

$0.09

(1)     

Non-GAAP net income is used by management in assessing the Company’s operating results. The Company believes that investors and analysts may use non-GAAP measures that exclude non-routine transactions, along with other information contained in its SEC filings, in assessing the Company’s operating results.

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