SOURCE: TII Network Technologies, Inc.

November 15, 2006 10:45 ET

TII Network Technologies Reports 2006 First Nine Months and Third Quarter Results;

Sales and Margins Benefit From Sales of Broadband Deployment Related Products

COPIAGUE, NY -- (MARKET WIRE) -- November 15, 2006 -- TII Network Technologies, Inc. (NASDAQ: TIII), a leading provider of telecommunications network protection and management products, today announced its results of operations for the three months and nine months ended September 30, 2006.

Effective December 31, 2005, TII Network Technologies, Inc. changed its fiscal year end from the last Friday in June to December 31. As a result, the three months ended September 30, 2006 and September 30, 2005 contained 13 weeks and 14 weeks, respectively due to this change. The nine months ended September 30, 2006 and September 30, 2005 each contained 39 weeks.

Net sales for the three months ended September 30, 2006 were $10.5 million compared to $11.0 million for the comparative prior year period, a decrease of approximately $538,000 or 4.9%. Net sales for the nine months ended September 30, 2006 were $31.1 million compared to $23.8 million for the similar prior year period, an increase of $7.3 million or 30.7%. The decrease over the prior year three month comparative period was primarily due to an additional week sales in the three months ended September 30, 2005. The increase over the prior year nine month comparative period was due to the expanded territories and products covered under the general supply agreement received from the Company's largest customer in July 2005, and increased sales to existing and new customers of recently developed products related to the deployment of broadband services, including DSL and VoIP products.

Selling, general and administrative expenses for the three months ended September 30, 2006 were $2.9 million compared to $1.9 million for the similar prior year period, an increase of approximately $1.1 million or 58.0%. Selling, general and administrative expenses for the nine months ended September 30, 2006 were $7.7 million compared to $4.6 million for the similar prior year period, an increase of approximately $3.1 million or 68.5%. The increase for the three and nine month periods primarily relates to (i) increased sales and marketing expenses of $700,000 and $1.7 million, respectively associated with general business development efforts, including the Company's introduction of its new multi-service residential gateway ("OutRigger™") product line, (ii) aggregate charges of $560,000 in connection with the departure of two executives during the three month period and (iii) incremental share-based payment expenses of $158,000 and $497,000, respectively. Additionally, the Company has experienced a general increase in consulting and professional fees.

Net earnings for the three months ended September 30, 2006 were $399,000 or $0.03 per diluted share including non-recurring expense of $410,000, compared to net earnings of $1.5 million or $0.12 per diluted share in the similar prior year period. Net earnings for the nine months ended September 30, 2006 were $1.2 million or $0.09 per diluted share, compared to net earnings of $2.1 million or $0.16 per diluted share in the similar prior year period.

Kenneth A. Paladino, President and Chief Executive Officer, stated: "I am pleased to report further revenue growth in the first nine months of 2006, driven by increased sales of our core products to our largest customers and increased sales of newly developed Triple-Play centric products that support our customers' broadband growth strategies in the areas of voice, data and TV.

"Our focus on both the development of broadband related products and their distribution channels continues to show solid returns and growth.

"We are also extremely pleased that our new OutRigger™ Media Access Portal -- our first outside the home gateway product that enables Triple-Play services -- is gaining acceptance in the marketplace. Select customer trials have begun and we are very encouraged by the initial responses we are getting from potential customers. Field trial candidates will be expanded in Q4 2006 to satisfy customer demand and interest.

"Our focus for the remainder of fiscal 2006 and going forward into 2007 will be the continued development of copper and fiber related products that support ongoing network rehabilitation and new deployment strategies of our customers. We will continue aggressive development of intelligent broadband devices for the Telco and Cable markets as we believe these products will enable our customers to capitalize on the explosive growth in Triple-Play services -- digital telephone, broadband data, and video over broadband."

About TII Network Technologies, Inc.

TII Network Technologies, Inc., designs, produces and markets network protection and management products, including lightning and surge protection products, network interface devices ("NIDs"), DSL, VoIP and other station electronics products and a multi-service residential gateway system.

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: 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 the limited ability of the Company to raise the selling prices of its products; 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; dependence on, and ability to retain, its "as-ordered" general supply agreements with its largest three customers and win new contracts; 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 and competition from multi-system operators; the effect of rising interest rates on new housing starts which account for a large percentage of NID sales; the level of inventories maintained by the Company's customers; the ability to market and sell products to new markets beyond its principal market -- the copper-based Telco market; the ability to timely develop products and adapt its existing products to address technological changes, including changes in its principal market; 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; competition in the Company's traditional Telco market and in the new markets the Company is seeking to penetrate; potential changes in customers' spending and purchasing policies and practices; general economic and business conditions, especially as they pertain to the Telco industry; dependence on third parties for certain product development; risks inherent in new product development and sales, such as start-up delays and uncertainty of customer acceptance; the ability to attract and retain technologically qualified personnel; and the availability of financing on satisfactory terms.

                  (In thousands, except per share data)

                              Three months ended      Nine months ended
                            ----------------------  ----------------------
                            September   September   September   September
                                30,         30,         30,         30,
                               2006        2005        2006        2005
                            ==========  ==========  ==========  ==========
Net sales                   $   10,495  $   11,033  $   31,133  $   23,824
Cost of sales                    6,531       7,259      20,221      16,364
                            ----------  ----------  ----------  ----------

      Gross profit               3,964       3,774      10,912       7,460
                            ----------  ----------  ----------  ----------

Operating expenses:
   Selling, general and
    administrative               2,939       1,860       7,695       4,568
   Research and development        446         378       1,425       1,114
                            ----------  ----------  ----------  ----------
      Total operating
       expenses                  3,385       2,238       9,120       5,682
                            ----------  ----------  ----------  ----------

      Operating income             579       1,536       1,792       1,778

Interest expense                    (3)         (2)         (6)         (5)
Interest income                     64          33         170          83
Other (expense) income              (3)         (1)         (1)        263
                            ----------  ----------  ----------  ----------
Earnings before income
 taxes                             637       1,566       1,955       2,119

Provision for income taxes         238          49         776          61
                            ----------  ----------  ----------  ----------

Net earnings                $      399  $    1,517  $    1,179  $    2,058
                            ==========  ==========  ==========  ==========

Net earnings per common
    Basic                   $     0.03  $     0.12  $     0.10  $     0.17
                            ==========  ==========  ==========  ==========

    Diluted                 $     0.03  $     0.12  $     0.09  $     0.16
                            ==========  ==========  ==========  ==========

Weighted average common
 shares outstanding:
    Basic                       12,387      12,196      12,370      12,084
    Diluted                     13,585      12,688      13,452      12,678

              (In thousands, except share and per share data)

                                                September 30,  December 31,
                                                     2006         2005
                                                  ===========  ===========
Current Assets:
  Cash and cash equivalents                       $     5,734  $     5,326
  Accounts receivable, net of allowance for
   doubtful accounts of $100 at September 30,
   2006 and December 31, 2005                           4,598        3,506
  Inventories                                           7,750        8,482
  Deferred tax assets                                     623          578
  Prepaid expenses and other current assets               329          252
                                                  ===========  ===========
    Total current assets                               19,034       18,144
                                                  -----------  -----------

Property, plant and equipment, net                      7,034        4,031
Deferred tax assets                                     3,930        4,644
Other assets, net                                         104          167
                                                  -----------  -----------
TOTAL ASSETS                                      $    30,102  $    26,986
                                                  ===========  ===========

Current Liabilities:
  Accounts payable                                $     2,298  $     1,438
  Accrued liabilities                                   2,069        1,511
                                                  -----------  -----------

    Total current liabilities                           4,367        2,949
                                                  ===========  ===========

   Long term obligation                                   103           96
   Deferred tax liabilities                               770          822
                                                  -----------  -----------
Total Liabilities                                 $     5,240  $     3,867
                                                  -----------  -----------
Commitments and contingencies

Stockholders' Equity:
   Preferred stock, par value $1.00 per
    share; 1,000,000 shares authorized;
    Series D Junior Participating, no shares
    issued or outstanding                                   -            -
   Common stock, par value $.01 per share;
    30,000,000 shares authorized; 12,493,080
    shares issued and 12,475,443 shares
    outstanding as of September 30, 2006; and
    12,361,956 shares issued and 12,344,319
    shares outstanding as of December 31, 2005            125          124
   Additional paid-in capital                          38,840       38,277
   Accumulated deficit                                (13,822)     (15,001)
                                                  -----------  -----------
                                                       25,143       23,400
   Less:  Treasury shares, at cost, 17,637
    common shares at September 30, 2006 and
    December 31, 2005                                    (281)        (281)
                                                  -----------  -----------
Total stockholders' equity                             24,862       23,119
                                                  -----------  -----------

TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY        $    30,102  $    26,986
                                                  ===========  ===========

Contact Information

    Van Negris / Lexi Terrero
    Van Negris & Company, Inc.
    (212) 759-0290