-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, MIpAiwB04D0ouCp8aKhlIiV/+cMJO7RRNUJwJgkNLN/eNF+EGcGuoN1E6t1OE2Sg suIbleVWUbY3NSkGZE0vXg== 0000910680-01-500079.txt : 20010515 0000910680-01-500079.hdr.sgml : 20010515 ACCESSION NUMBER: 0000910680-01-500079 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 20010330 FILED AS OF DATE: 20010514 FILER: COMPANY DATA: COMPANY CONFORMED NAME: TII INDUSTRIES INC CENTRAL INDEX KEY: 0000277928 STANDARD INDUSTRIAL CLASSIFICATION: SWITCHGEAR & SWITCHBOARD APPARATUS [3613] IRS NUMBER: 660328885 STATE OF INCORPORATION: DE FISCAL YEAR END: 0630 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-08048 FILM NUMBER: 1631827 BUSINESS ADDRESS: STREET 1: 1385 AKRON ST CITY: COPIAGUE STATE: NY ZIP: 11726 BUSINESS PHONE: 5167895000 MAIL ADDRESS: STREET 1: 1385 AKRON STREET CITY: COPIAGUE STATE: NY ZIP: 11726 10-Q 1 f10q331.txt FORM 10Q FOR MARCH 30, 2001 SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 FORM 10-Q QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 30, 2001 Commission file number 1-8048 TII INDUSTRIES, INC. (Exact name of registrant as specified in its charter) State of incorporation: DELAWARE IRS Employer Identification No: 66-0328885 1385 AKRON STREET, COPIAGUE, NEW YORK 11726 (Address and zip code of principal executive office) (631) 789-5000 (Registrant's telephone number, including area code) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO __ The number of shares of the registrant's Common Stock, $.01 par value, outstanding as of May 8, 2001 was 11,682,284 PART I. FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS
TII INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED BALANCE SHEETS (IN THOUSANDS, EXCEPT SHARE DATA) March 30, 2001 June 30, 2000 ----------------- ---------------- (Unaudited) ASSETS Current Assets Cash and cash equivalents $ 435 $ 4,446 Accounts receivable, net 5,856 7,246 Inventories 14,701 12,825 Other 94 268 ----------------- ---------------- Total current assets 21,086 24,785 ----------------- ---------------- Property, plant and equipment, net 8,441 11,223 Other 1,113 1,308 ----------------- ---------------- TOTAL ASSETS $ 30,640 $ 37,316 ================= ================ LIABILITIES AND STOCKHOLDERS' INVESTMENT Current Liabilities Current portion of long-term debt and obligations under capital leases $ 258 $ 300 Accounts payable 4,738 3,685 Accrued liabilities 1,040 1,475 Accrued restructuring expenses 477 202 ----------------- ---------------- Total current liabilities 6,513 5,662 ----------------- ---------------- Long-Term Debt and Obligations Under Capital Leases 553 1,267 ----------------- ---------------- Series C Convertible Redeemable Preferred Stock, 1,626 shares outstanding at March 30, 2001 and June 30, 2000, respectively; liquidation preference of $1,150 per share 1,626 1,626 ----------------- ---------------- Stockholders' Investment Preferred Stock, par value $1.00 per share; 1,000,000 shares authorized; Series C Convertible Redeemable, 1,626 shares outstanding at December 29, 2000 and June 30, 2000, respectively - - Series D Junior Participating, no shares outstanding - - Common Stock, par value $.01 per share; 30,000,000 shares authorized; 11,699,921 and 11,698,121 shares issued; 11,682,284 and 11,680,484 shares outstanding at March 30, 2001 and June 30, 2000, respectively 117 117 Warrants and options outstanding 369 369 Capital in excess of par value 37,123 37,119 Accumulated deficit (15,380) (8,563) ----------------- ---------------- 22,229 29,042 Less - Treasury stock, at cost; 17,637 common shares (281) (281) ----------------- ---------------- Total stockholders' investment 21,948 28,761 ----------------- ---------------- TOTAL LIABILITIES AND STOCKHOLDERS' INVESTMENT $ 30,640 $ 37,316 ================= ================ See Notes to Consolidated Financial Statements 2
TII INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF OPERATIONS (IN THOUSANDS, EXCEPT EARNINGS PER SHARE DATA) Three month period ended Nine month period ended March 30, 2001 March 31, 2000 March 30, 2001 March 31, 2000 ----------------- ---------------- ----------------- -------------- (Unaudited) (Unaudited) Net sales $ 8,228 $ 11,853 $ 29,543 $ 38,015 Cost of sales 6,276 9,320 22,761 31,140 ----------------- ---------------- ----------------- -------------- Gross profit 1,952 2,533 6,782 6,875 ----------------- ---------------- ----------------- -------------- Operating expenses Selling, general and administrative 2,037 1,700 5,507 5,406 Research and development 775 779 2,066 2,345 Realignment of operations charge, net 6,100 - 6,100 - ----------------- ---------------- ----------------- -------------- Total operating expenses 8,912 2,479 13,673 7,751 ----------------- ---------------- ----------------- -------------- Operating income (loss) (6,960) 54 (6,891) (876) Interest expense (19) (46) (70) (175) Interest income 30 8 132 188 Other income 12 16 12 30 ----------------- ---------------- ----------------- -------------- Net (loss) earnings $ (6,937) $ 32 $ (6,817) $ (833) ================= ================ ================= ============= Net (loss) earnings per common share: Basic $ (0.59) $ 0.00 $ (0.58) $ (0.09) ================= ================ ================= ============= Diluted $ (0.59) $ 0.00 $ (0.58) $ (0.09) ================= ================ ================= ============= Weighted average common shares outstanding: Basic 11,682 8,990 11,682 8,885 Diluted 11,682 10,730 11,682 8,885 See Notes to Consolidated Financial Statements 3
TII INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF STOCKHOLDERS' INVESTMENT (DOLLARS IN THOUSANDS) (UNAUDITED) Warrants and Capital in Options excess of Accumulated Treasury Common Stock Outstanding par value Deficit Stock ------------- --------------- ------------- ----------------- ------------ BALANCE, June 30, 2000 $ 117 $ 369 $ 37,119 $ (8,563) $ (281) Exercise of stock options - - 4 - - Net loss for nine month period ended March 30, 2001 - - - (6,817) - ------------- --------------- ------------- ----------------- ------------ BALANCE, March 30, 2001 $ 117 $ 369 $ 37,123 $ (15,380) $ (281) ============= =============== ============= ================= ============ See Notes to Consolidated Financial Statements 4
TII INDUSTRIES, INC. AND SUBSIDIARIES CONSOLIDATED STATEMENTS OF CASH FLOWS (DOLLARS IN THOUSANDS)
For the nine month periods ended March 30, 2001 March 31, 2000 ------------------ ------------------ (Unaudited) Cash Flows from Operating Activities: Net (loss) $ (6,817) $ (833) Adjustments to reconcile net (loss) to net cash used in operating activities: Depreciation and amortization 1,153 1,009 Provision for inventory 198 294 Amortization of other assets 180 180 Realignment of operations charge, net 6,100 Changes in operating assets and liabilities: Decrease (increase) in accounts receivables 1,390 (654) Increase in inventories (4,774) (2,438) Decrease (increase) in other assets and other items 189 (125) Increase (decrease) in accounts payable, accrued liabilities and accrued restructuring expenses 393 (4,688) ------------------ ------------------ Net cash used in operating activities (1,988) (7,255) ------------------ ------------------ CASH FLOWS FROM INVESTING ACTIVITIES: Capital expenditures, net of dispositions (1,271) (1,008) ------------------ ------------------ Net cash used in investing activities (1,271) (1,008) ------------------ ------------------ CASH FLOWS FROM FINANCING ACTIVITIES: Proceeds from exercise of stock options 4 30 (Payments) borrowings of debt and obligations under capital leases (756) 703 ------------------ ------------------ Net cash (used) provided by financing activities (752) 733 ------------------ ------------------ Net decrease in cash and cash equivalents (4,011) (7,530) Cash and cash equivalents, at beginning of period 4,446 8,650 ------------------ ------------------ Cash and cash equivalents, at end of period $ 435 $ 1,120 ================== ================== SUPPLEMENTAL DISCLOSURE OF NON-CASH TRANSACTIONS Conversion of Series C Preferred Stock $ - $ 696 ================== ================== Abandonment of property due to operations re-alignment $ - $ 71 ================== ================== SUPPLEMENTAL DISCLOSURE OF CASH TRANSACTIONS: Cash paid during the period for interest $ 20 $ 175 ================== ================== See Notes to Consolidated Financial Statements
5 TII INDUSTRIES, INC. AND SUBSIDIARIES NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE 1 - INTERIM FINANCIAL STATEMENTS: The unaudited interim consolidated financial statements presented herein have been prepared in accordance with generally accepted accounting principles for interim financial statements and in accordance with the instructions to Form 10-Q and Regulation S-X pertaining to interim financial statements. Accordingly, they do not include all information and footnotes required by generally accepted accounting principles for complete financial statements. The consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments and accruals which, in the opinion of management, are considered necessary for a fair presentation of the Company's financial position and results of operations and cash flows for the interim periods presented. The consolidated financial statements should be read in conjunction with the summary of significant accounting policies and notes to consolidated financial statements included in the Company's Annual Report on Form 10-K for the fiscal year ended June 30, 2000. Results of operations for interim periods are not necessarily indicative of the results that may be expected for the full fiscal year. NOTE 2 - FISCAL YEAR: The Company reports on a 52-53 week fiscal year ending on the last Friday in June, with fiscal quarters ending on the last Friday of each calendar quarter. The Company's fiscal year ending June 29, 2001 will contain 52 weeks. Fiscal 2000 had 53 weeks. NOTE 3 - NET EARNINGS (LOSS) PER COMMON SHARE: Basic net earnings (loss) per common share is computed using the weighted average number of shares outstanding during the period. Diluted net earnings per common share is computed using the weighted average number of shares outstanding adjusted for the dilutive incremental shares attributed to outstanding stock warrants and options to purchase common stock and preferred stock convertible into common stock. The following table sets forth the computation of basic and diluted earnings per share:
For the three month For the nine month period ended period ended Mar 30, Mar 31, Mar 30, Mar 31, 2001 2000 2001 2000 ------------ ----------- ----------- ------------ (in thousands) Numerator for diluted calculation: Net (loss) earnings $ (6,937) $ 32 $ (6,817) $ (833) ============ =========== =========== ============ Denominator: Weighted average common shares outstanding 11,682 8,990 11,682 8,885 Dilutive effect of stock warrants and options - 662 - - Dilutive effect of conversion of Series C Convertible Redeemable Preferred Stock - 1,078 - - ------------ ----------- ----------- ------------ Denominator for diluted calculation 11,682 10,730 11,682 8,885 ============ =========== =========== ============
6 Stock warrants and options to purchase 6.1 million shares of common stock for the three and nine month periods ending March 30, 2001, were outstanding but not included in the computation of diluted net earnings per common share since their inclusion would be antidilutive. In addition, incremental stock equivalent shares of 1.3 million related to the Series C Convertible Redeemable Preferred Stock were not used in the calculation of diluted net earnings per share for the three and nine month periods ended March 31, 2001 since their inclusion would be antidilutive. NOTE 4 - INVENTORIES: Inventories consisted of the following major classifications:
March 30, 2001 June 30, 2000 ------------------- ------------------ (in thousands) Raw materials and subassemblies $ 4,890 $ 8,342 Work in process 3,513 4,387 Finished goods 6,748 3,059 ------------------- ------------------ 15,151 15,788 Less: allowance for inventory (450) (2,963) ------------------- ------------------ $ 14,701 $ 12,825 =================== ==================
During the quarter ended March 30, 2001, the Company evaluated its allowance for inventory and allocated $2.5 million of it to slow moving, scrap and obsolete inventories and charged the allowance accordingly. Since this allowance was previously provided for, this charge did not affect the net inventory amounts or results of operations. NOTE 5 - OPERATIONS REALIGNMENTS: During fiscal 1999, the Company commenced a strategy to improve operating efficiencies and reduce costs. A 1999 realignment plan included outsourcing a significant portion of the Company's component assembly, closing its Dominican Republic facility, the divesting of its injection molding and metal stamping operations, work force reductions and other cost-savings measures. As part of management's strategy to continue to improve margins by finding cost-effective ways of producing its products, and as a result of the successes under the earlier plan, management implemented a new plan in the third quarter of fiscal 2001 to further realign its operations. A key element in the new plan includes the expansion of the Company's outsourcing strategy with contract manufacturers to produce a substantial portion of the remaining components and subassemblies that the Company is currently manufacturing. Included in this plan are additional workforce and production facility reductions, the assessment of future usage and recoverability of certain inventories and manufacturing machinery, equipment and leasehold improvements as certain manufacturing activities are outsourced and products are eliminated, and other cost saving measures. Accordingly, during the third quarter of fiscal 2001, the Company recorded a net realignment of operations charge on the Consolidated Statement of Operations of approximately $6.1 million, net of a reversal of the remaining reserve of $96,000 from the 1999 realignment charge discussed below. The corresponding allowances and reserve balances of this charge are reflected in Inventories, Property, Plant and Equipment and in Accrued Restructuring Expenses in the accompanying Consolidated Balance Sheet. 7 The realignment charge includes an inventory writedown of approximately $2.7 million for components and sub-assemblies that will now be outsourced or discontinued, product lines to be eliminated and other slow moving inventories. Further, the Company assessed the future use and recoverability of certain machinery, equipment and leasehold improvements ("Equipment") associated with the production of components and sub-assemblies in Puerto Rico. The Company estimated the net realizable value of the Equipment, utilizing its fair market value assessment adjusted for any estimated costs to dispose or sell the Equipment, resulting in a charge of approximately $2.9 million. Under this new realignment of operations plan, the Company will reduce its workforce from approximately 215 employees as of March 30, 2001 to approximately 145 employees through June 2001, resulting in a charge of approximately $300,000 for employee termination benefits. Additionally, the Company created an accrual of approximately $300,000 for the resulting excess manufacturing space in the leased facilities related to component and sub-assembly production. As previously mentioned, during fiscal 1999 the Company initiated a strategic operations realignment plan in order to enhance operating efficiencies and reduce costs. Under this initial plan, the Company reduced its work force from approximately 1,165 employees as of April 1999 to 255 at June 30, 2000, including reductions resulting from sale of non-core businesses. Additionally, the Company assessed the future use of certain equipment in the Dominican Republic and the Company's injection molding facilities in Puerto Rico. The Company estimated the net realizable value and created an allowance for equipment utilizing a methodology similar to the one described earlier in this note. As a result, during the fourth quarter of 1999, the Company recorded a charge of approximately $6.0 million included in Operations Realignment and Costs to Close Facility on the Consolidated Statement of Operations for the fiscal year ended June 25, 1999. The Company substantially completed this operations realignment by June 30, 2000. The activity during fiscal 2001 in the associated balance sheet accounts for the 1999 charge is as follows:
Reserve for Employee Plant Asset Termination Closure Dispositions Benefits Costs Total ---------------- ---------------- --------------- --------------- Balance, June 30, 2000 $ 435,000 $ 177,000 $ 25,000 $ 637,000 Cash payments during fiscal 2001 - (136,000) (89,000) (225,000) Additional accrual for plant closing costs (23,000) (41,000) 64,000 - Asset writedowns (316,000) (316,000) Reversal of excess reserve (96,000) (96,000) ---------------- ---------------- --------------- --------------- Balance March 30, 2001 $ - $ - $ - $ - ================ ================ =============== ===============
As disclosed in the table shown above, an additional reserve for Plant Closure Costs was needed to account for several miscellaneous costs related to the 1999 operations realignment that were underestimated in the original charge. The effect in operations of this additional reserve was offset by the reversal of excess reserves for asset dispositions and employee termination benefits. In addition, during the quarter ended March 30, 2001, a reversal of an excess reserve for asset dispositions was recognized and classified within the 2001 Realignment of operations charge, net included in the accompanying Consolidated Statements of Operations. 8 NOTE 6 - INCOME TAXES: The Company's policy is to provide for income taxes based on reported income, adjusted for differences that are not expected to enter into the computation of taxes under applicable tax laws. The Company has certain exemptions available until January 2009 for Puerto Rico income tax and Puerto Rico property tax purposes and the Company also has net operating loss carryforwards available through fiscal 2006. There are no limitations on the Company's ability to utilize such net operating loss carryforwards to reduce its Puerto Rico income tax. In addition, the Company, in its US subsidiaries, has net operating loss carryforwards that expire periodically through 2020, and general business tax credit carryforwards that expire periodically through 2012. Temporary differences between income tax and financial reporting assets and liabilities (primarily inventory valuation allowances, property and equipment and accrued employee benefits) and net operating loss carryforwards give rise to deferred tax assets for which a full (100%) offsetting valuation allowance has been provided due to the uncertainty of realizing any benefit in the future. ITEM 2: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following discussion and analysis should be read in conjunction with the foregoing consolidated financial statements and notes thereto. RESULTS OF OPERATIONS Net sales for the fiscal 2001 third quarter were $8.23 million compared to $11.85 million for the comparative prior year period, a decrease of approximately $3.62 million or 30.6%. The decrease for the quarter is primarily due to the industry-wide slowdown in capital spending and the actions taken to reduce inventory levels by telecommunications service providers, both of which have negatively impacted equipment providers. Net sales for the nine months of fiscal 2001 were $29.54 million compared to $38.02 million for the comparative prior year period, a decrease of approximately $8.48 million or 22.3%. The decrease for the nine months was due to the industry-wide slowdown, actions taken by customers to reduce inventory levels and reduced orders during the first six months of the year from a significant customer as a result of technical problems that the customer was having with its product, unrelated to the Company's components, which have since been resolved. This slowdown is expected to continue into the fourth quarter of fiscal 2001 but management believes that it will be somewhat mitigated by the recent three year extension and expansion of the Company's agreement to supply network interface devices to a major Regional Bell Operating Company. The Company expects to begin to generate higher comparable quarterly sales beginning in July of 2001, the first quarter of the Company's new fiscal year. Gross profit for the fiscal 2001 third quarter was $1.95 million compared to $2.53 million for the comparative prior year period, a decrease of approximately $581,000 or 22.9%, while gross profit margins were 23.7% compared to 21.4%. Gross profit for the first nine months of fiscal 2001 was $6.78 million compared to $6.88 million for the comparative prior year period, a decrease of approximately $93,000 or 1.4%, while gross profit margins were 23.0% compared to 18.1%. The lower gross profits are due to the lower comparative sales levels, offset somewhat by the improved 9 gross profit margins. The improved gross profit margins are principally due to the success of the recent completion of the Company's operations realignment announced in 1999 and the introduction of technically advanced higher margin versions of certain mature products. Selling, general and administrative expenses for the third quarter of fiscal 2001 were $2.04 million compared to $1.70 million for the comparative prior year period, an increase of approximately $337,000 or 19.8%. Selling, general and administrative expenses for the first nine months of fiscal 2001 were $5.51 million compared to $5.41 million for the comparative prior year period, an increase of approximately $101,000 or 1.9%. The increases for the quarter and nine months were principally due to increased marketing expenses related to a new product introduction and a general increase in marketing expenses. Research and development expenses for the third quarter of fiscal 2001 were $775,000 compared to $779,000 for the comparative prior year period, a decrease of approximately $4,000 or .5%. Research and development expenses for the first nine months of fiscal 2001 decreased by $279,000 or 11.9% to $2.07 million from $2.35 million for the first nine months of fiscal 2000. The reductions occurred as the Company is benefiting from collaborative engineering efforts with its contract manufacturers. As part of management's strategy to continue to improve margins by finding cost-effective ways of producing its products, and also as a result of the successes under the Company's prior year realignment plan, in the third quarter of fiscal 2001 management implemented a plan to further realign its operations. A key element in this new plan includes the expansion of the Company's outsourcing strategy with contract manufacturers to produce a substantial portion of the remaining components and subassemblies that the Company is currently manufacturing. As a result, the Company recorded a "Realignment of operations charge, net" in the third quarter of $6.10 million that is more fully explained in Note 5 to these Consolidated Financial Statements. Interest expense for the third quarter and first nine months of fiscal 2001 decreased by $27,000 to $19,000 from $46,000 and by $105,000 to $70,000 from $175,000, respectively. The declines were due to decreased borrowings under the Company's credit facility. Interest income for the third quarter and first nine months of fiscal 2001 increased by $22,000 to $30,000 from $8,000 and decreased by $56,000 to $132,000 from $188,000, respectively. The increase for the quarter and decrease for the first nine months was primarily due to changes in average cash and cash equivalents balances. The net losses for the third quarter and first nine months of fiscal 2001 were $6.94 million and $6.82 million, respectively, compared to net earnings in the comparative prior year fiscal quarter of $32,000 and to a net loss of $833,000 in the comparative prior year nine month period. LIQUIDITY AND CAPITAL RESOURCES The Company's cash and cash equivalents balance was $435,000 at March 30, 2001 compared to $4.45 million at the end of fiscal 2000, a reduction of approximately $4.01 million, while working capital was $14.57 million at March 30, 2001 compared to $19.12 million at June 30, 2000, a reduction of $4.55 million. During the first nine months of fiscal 2001, $1.99 million of cash was used in operations, primarily due to an increase in inventories of $4.77 million, partially offset by a decrease in accounts 10 receivable of $1.39 million and depreciation and amortization of $1.15 million. The increase in inventories was due to the lower comparative sales levels and the building of inventory in anticipation of the recently announced award from a major RBOC. Investing activities used $1.27 million for capital expenditures and financing activities used $752,000 due to $756,000 of debt repayments, partially offset by $4,000 received from the exercise of stock options. The Company has a credit facility ("Credit Facility"), consisting of a $6.0 million revolving credit facility and a term loan. The revolving credit facility enables the Company to have up to $6.0 million of revolving credit loans outstanding at any one time, limited by a borrowing base equal to 85% of the eligible accounts receivable and 50% of the eligible inventory, subject to certain reserves. Subject to extension in certain instances, the scheduled maturity date of revolving credit loans is April 30, 2003, while the term loan is to be repaid through March 31, 2003, subject to mandatory repayments from asset disposition proceeds and insurance proceeds in certain circumstances. As of March 30, 2001, $603,000 was outstanding under the term loan and no amount was outstanding under the revolving credit facility. The Credit Facility requires the Company to maintain a minimum tangible net worth of $21.0 million. As of March 30, 2001 the Company's tangible net worth was approximately $21.4 million. If losses continue, the Company may cease to be in compliance with the tangible net worth covenant. In that event, if the Company is unable to obtain a waiver or amendment of the covenant, the Company may be unable to borrow under the Credit Facility and may have to repay all loans then outstanding under the Credit Facility. Funds anticipated to be generated from operations, together with available cash and borrowings under the Credit Facility, are considered to be adequate to finance the Company's operational and capital needs for the foreseeable future. FORWARD-LOOKING This Report contains and, from time to time, other reports and oral or written statements issued by the Company or on its behalf by its officers may contain forward-looking statements concerning, among other things, the Company's future plans and objectives that are or may be deemed to be forward-looking statements. Such 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, general economic and business conditions, including the regulatory environment applicable to the communications industry; weather and similar conditions (including the effects of hurricanes in the Caribbean where the Company's principal manufacturing facilities are located); competition; potential technological changes, including the Company's ability to timely develop new products and adapt its existing products to technological changes; potential changes in customer spending and purchasing policies and practices; loss or disruption of sales to major customers as a result of, among other things, third party labor disputes and shipping disruptions from countries in which the Company's contract manufacturers produce the Company's products; Company's ability to market its existing, recently developed and new products and retain and win contracts; risks inherent in new product introductions, such as start-up delays and uncertainty of customer acceptance; dependence on third parties for products and product components; the Company's ability to attract and retain technologically qualified personnel; the Company's ability to fulfill its growth strategies; the 11 availability of financing on satisfactory terms to support the Company's growth; and other factors discussed elsewhere in this Report and in other Company reports hereafter filed with the Securities and Exchange Commission. ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK The Company is exposed to market risks, including changes in U.S. dollar interest rates. The interest payable under the Company's Credit Agreement is principally between 250 and 275 basis points above the London Interbank Offered Rate ("LIBOR") and, therefore, affected by changes in market interest rates. Historically, the effects of movements in the market interest rates have been immaterial to the consolidated operating results of the Company. The Company requires foreign sales to be paid for in U.S. currency, and generally requires such payments to be made in advance, by letter of credit or by U.S. affiliates of the customer. PART II. OTHER INFORMATION ITEM 5. OTHER INFORMATION On May 14, 2001, the Company issued the press release attached to this report as Exhibit 99.1 concerning the extension and expansion of the Company's current agreement to supply a major Regional Bell Operating Company with network interface devices. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K (a) Exhibits 99.1 TII Industries, Inc. Press Release dated May 14, 2001 (b) Reports on Form 8-K No reports on Form 8-K have been filed by the Company during the quarter for which this report is filed. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. TII INDUSTRIES, INC. Date: May 14, 2001 By: /s/ Kenneth A. Paladino ----------------------------- Kenneth A. Paladino Vice President-Finance and Chief Financial Officer 12 EXHIBIT INDEX ------------- Exhibit No. Desription ----------- ---------- 99.1 TII Industries, Inc. Press Release dated May 14, 2001 13 EX-99 2 ex99_1.txt EXHIBIT 99.1 - PRESS RELEASE MAY 14, 2001 Exhibit 99.1 ------------ CONTACTS: Kenneth A. Paladino, CFO Van Negris / Philip J. Denning TII Industries, Inc. Kehoe, White, Van Negris & Company, Inc. (631) 789-5000 (212) 396-0606 FOR IMMEDIATE RELEASE: - ---------------------- TII INDUSTRIES, INC. ANNOUNCES THE AWARD OF A MULTI-YEAR CONTRACT EXTENSION AND EXPANSION WITH A MAJOR REGIONAL BELL OPERATING COMPANY THE AGREEMENT IS ESTIMATED AT $100 MILLION OVER ITS THREE YEAR TERM COPIAGUE, NY, - May 14, 2001 - TII Industries, Inc. (NASDAQ: TIII), a leading producer of over-voltage and lightning surge protection products and systems for the communications industry, announced today a multi-year contract award extending and expanding its current agreement with a major Regional Bell Operating Company ("RBOC"). This award, which has an estimated value of $100 million over its three-year term, represents an estimated thirty percent annual increase over the Company's prior supply agreement with this RBOC. As a result, the Company expects to generate higher comparable quarterly sales beginning in July of 2001, the first quarter of the Company's new fiscal year. Timothy J. Roach, President and Chief Executive Officer, stated: "This RBOC has been a long and valued customer of our Company. We are honored by its commitment to TII's technology in this highly competitive bid. We are particularly pleased that the award significantly expands the territory that our products will be deployed within this RBOC. We believe that key factors in the selection of TII were our advanced product designs, our history of customer service, our focus on quality, and our ongoing investments in new product developments and enhancements." Under the terms of this agreement TII will be providing advanced Network Interface Devices ("NIDs"), containing TII's proprietary sealed station protection and customer bridge modules, in addition to various station electronic products. A NID is the FCC mandated interface enclosure installed between telephone owned and customer owned property. Virtually all telephone access lines require a NID. Mr. Roach also stated, "Critical to winning this award were the successes we have had realigning our operations. Our overall strategy to improve operating efficiencies and reduce costs should continue to improve our operating margins. These actions will position us to more efficiently serve all our customers." Founded in 1964, TII designs, produces and markets over-voltage and lightning and surge protection products and systems, network interface devices and station electronic products and systems for use in the communications industry. Statements in this release that are not strictly historical are "forward-looking" statements which should be considered as subject to the many risks and uncertainties that exist in the Company's operations and business environment. These factors include, but are not limited to, general economic and business conditions, weather and similar conditions, competition; potential technological changes, potential changes in customer spending and purchasing policies and practices; the loss or disruption of sales to major customers as a result of, among other things, third party labor disputes and shipping interruptions from countries in which the Company's contract manufacturers produce the Company's products; the Company's ability to market its existing, recently developed and new products; dependence on third parties for its products and product components; the Company's ability to attract and retain technologically qualified personnel; the retention of the tax benefits provided by its Puerto Rico operations; the Company's ability to fulfill its growth strategies; the availability of financing on satisfactory terms to support the Company's growth; and other factors from time to time discussed in TII's SEC reports. # # # -----END PRIVACY-ENHANCED MESSAGE-----