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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.

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·     

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 --

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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

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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

 

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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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