Document And Entity Information
v3.3.0.814
Document And Entity Information - shares
3 Months Ended
Mar. 31, 2016
May. 01, 2016
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2016  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2016  
Entity Registrant Name COMMUNICATIONS SYSTEMS INC  
Entity Central Index Key 0000022701  
Current Fiscal Year End Date --12-31  
Entity Filer Category Accelerated Filer  
Entity Common Stock, Shares Outstanding   8,832,854

Condensed Consolidated Balance Sheets
v3.3.0.814
Condensed Consolidated Balance Sheets - USD ($)
Mar. 31, 2016
Dec. 31, 2015
CURRENT ASSETS:    
Cash and cash equivalents $ 7,459,316 $ 9,812,737
Investments 7,931,517 5,228,668
Trade accounts receivable, less allowance for doubtful accounts of $112,000 and $123,000, respectively 18,479,882 17,849,207
Inventories 24,923,332 24,985,560
Prepaid income taxes 2,794,112 2,972,271
Other current assets 1,218,296 1,041,303
TOTAL CURRENT ASSETS 62,806,455 61,889,746
PROPERTY, PLANT AND EQUIPMENT, net 17,131,316 17,468,420
OTHER ASSETS:    
Investments 2,370,335 6,293,505
Goodwill 1,462,503 1,462,503
Other assets 943,411 802,056
TOTAL OTHER ASSETS 4,776,249 8,558,064
TOTAL ASSETS 84,714,020 87,916,230
CURRENT LIABILITIES:    
Current portion of long-term debt   103,603
Line of credit borrowings 1,500,000  
Accounts payable 7,132,645 8,373,292
Accrued compensation and benefits 2,740,705 3,050,822
Accrued consideration 142,234 442,234
Other accrued liabilities 2,275,601 1,996,609
Dividends payable 1,495,544 1,474,892
TOTAL CURRENT LIABILITIES 15,286,729 15,441,452
LONG TERM LIABILITIES:    
Long-term compensation plans 36,436  
Uncertain tax positions 111,952 102,633
Deferred income taxes 31,482 61,453
Pension liabilities   126,001
TOTAL LONG-TERM LIABILITIES $ 179,870 $ 290,087
COMMITMENTS AND CONTINGENCIES (Footnote 8)
STOCKHOLDERS' EQUITY    
Preferred stock, par value $1.00 per share;3,000,000 shares authorized; none issued
Common stock, par value $.05 per share; 30,000,000 shares authorized; 8,832,854 and 8,754,550 shares issued and outstanding, respectively $ 441,643 $ 437,727
Additional paid-in capital 40,887,062 40,129,285
Retained earnings 28,370,965 32,284,061
Accumulated other comprehensive loss (452,249) (666,382)
TOTAL STOCKHOLDERS' EQUITY 69,247,421 72,184,691
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 84,714,020 $ 87,916,230

Condensed Consolidated Balance Sheets (Parenthetical)
v3.3.0.814
Condensed Consolidated Balance Sheets (Parenthetical) - USD ($)
$ in Thousands
Mar. 31, 2016
Dec. 31, 2015
Condensed Consolidated Balance Sheets [Abstract]    
Trade accounts receivable, allowance for doubtful accounts $ 112 $ 123
Preferred stock, par value $ 1.00 $ 1.00
Preferred stock, shares authorized 3,000,000 3,000,000
Preferred stock, shares issued 0 0
Common stock, par value $ 0.05 $ 0.05
Common stock, shares authorized 30,000,000 30,000,000
Common stock, shares issued 8,832,854 8,754,550
Common stock, shares outstanding 8,832,854 8,754,550

Condensed Consolidated Statements Of Loss And Comprehensive Loss
v3.3.0.814
Condensed Consolidated Statements Of Loss And Comprehensive Loss - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
Condensed Consolidated Statements Of Loss And Comprehensive Loss [Abstract]    
Sales $ 24,666,444 $ 19,544,936
Costs and expenses:    
Cost of sales 17,897,426 14,657,998
Selling, general and administrative expenses 9,637,061 10,578,176
Pension liability adjustment gains (4,147,836)  
Total costs and expenses 23,386,651 25,236,174
Operating income (loss) 1,279,793 (5,691,238)
Other income (expenses):    
Investment and other income 27,652 62,963
Gain on sale of assets 808,322 4,285
Interest and other expense (9,071) (13,218)
Foreign currency translation loss (4,238,497)  
Other income, net (3,411,594) 54,030
Loss from operations before income taxes (2,131,801) (5,637,208)
Income tax expense (benefit) 334,866 (1,473,732)
Net loss (2,466,667) (4,163,476)
Other comprehensive income (loss), net of tax:    
Additional minimum pension liability adjustments (4,147,836) (12,646)
Unrealized gain on available-for-sale securities 37,003 55,120
Foreign currency translation adjustment 4,324,966 (130,317)
Total other comprehensive income (loss) 214,133 (87,843)
Comprehensive loss $ (2,252,534) $ (4,251,319)
Basic net loss per share: $ (0.28) $ (0.48)
Diluted net loss per share: $ (0.28) $ (0.48)
Weighted Average Basic Shares Outstanding 8,859,865 8,660,819
Weighted Average Dilutive Shares Outstanding 8,859,865 8,660,819
Dividends declared per share $ 0.16 $ 0.16

Condensed Consolidated Statement Of Changes In Stockholders' Equity
v3.3.0.814
Condensed Consolidated Statement Of Changes In Stockholders' Equity - 3 months ended Mar. 31, 2016 - USD ($)
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Loss [Member]
Total
BALANCE at Dec. 31, 2015 $ 437,727 $ 40,129,285 $ 32,284,061 $ (666,382) $ 72,184,691
BALANCE, Shares at Dec. 31, 2015 8,754,550        
Net loss     (2,466,667)   (2,466,667)
Issuance of common stock under Employee Stock Purchase Plan $ 324 49,794     50,118
Issuance of common stock under Employee Stock Purchase Plan, Shares 6,450        
Issuance of common stock to Employee Stock Ownership Plan $ 3,014 465,346     468,360
Issuance of common stock to Employee Stock Ownership Plan, Shares 60,278        
Issuance of common stock under Executive Stock Plan $ 731 0     731
Issuance of common stock under Executive Stock Plan, Shares 14,626        
Tax benefit from stock based payments   (22,874)     (22,874)
Share-based compensation   279,642     279,642
Purchase of common stock $ (153) (14,131) (7,036)   (21,320)
Purchase of common stock, Shares (3,050)        
Shareholder dividends     (1,439,393)   (1,439,393)
Other comprehensive income       214,133 214,133
BALANCE at Mar. 31, 2016 $ 441,643 $ 40,887,062 $ 28,370,965 $ (452,249) $ 69,247,421
BALANCE, Shares at Mar. 31, 2016 8,832,854        

Condensed Consolidated Statements Of Cash Flows
v3.3.0.814
Condensed Consolidated Statements Of Cash Flows - USD ($)
3 Months Ended
Mar. 31, 2016
Mar. 31, 2015
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (2,466,667) $ (4,163,476)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 890,411 780,477
Share based compensation 279,642 238,349
Deferred taxes (29,972) (89,248)
Gain on sale of assets (808,322) (4,285)
Excess tax benefit from share-based payments 22,874 5,712
Changes in assets and liabilities:    
Trade receivables (633,822) 2,956,932
Inventories 45,478 (1,398,048)
Prepaid income taxes 178,159 (1,496,921)
Other assets (350,173) (657,485)
Accounts payable (1,119,113) 1,071,831
Accrued compensation and benefits 196,909 (371,707)
Other accrued liabilities 283,666 256,330
Income taxes payable (13,555) (5,168)
Other 49,103  
Net cash used in operating activities (3,475,382) (2,876,707)
CASH FLOWS FROM INVESTING ACTIVITIES:    
Capital expenditures (806,970) (853,074)
Proceeds from the sale of fixed assets 969,114 22,853
Proceeds from the sale of investments 1,257,324 734,537
Net cash provided by (used in) investing activities 1,419,468 (95,684)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Borrowings on line of credit 1,500,000  
Cash dividends paid (1,418,741) (1,395,200)
Mortgage principal payments (103,603) (127,727)
Proceeds from issuance of common stock, net of shares withheld 29,529 (7,541)
Excess tax benefit from stock-based payments (22,874) (5,712)
Payment of deferred consideration related to acquisition (300,000)  
Net cash used in financing activities (315,689) (1,536,180)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH 18,182 (78,662)
NET DECREASE IN CASH AND CASH EQUIVALENTS (2,353,421) (4,587,233)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 9,812,737 13,736,857
CASH AND CASH EQUIVALENTS AT END OF PERIOD 7,459,316 9,149,624
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:    
Income taxes paid 198,418 500
Interest paid 8,058 13,121
Dividends declared not paid 1,495,544 1,463,075
Capital expenditures in accounts payable 81,700 $ 218,019
Acquisition costs in accrued consideration $ 142,234  

Summary Of Significant Accounting Policies
v3.3.0.814
Summary Of Significant Accounting Policies
3 Months Ended
Mar. 31, 2016
Summary Of Significant Accounting Policies [Abstract]  
Summary Of Significant Accounting Policies

NOTE 1 – SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES



Description of Business



Communications Systems, Inc. (herein collectively called “CSI” or the “Company”) is a Minnesota corporation organized in 1969 that operates primarily as a holding company conducting its business through four business units having operations in the United States, Costa Rica, and the United Kingdom. Through its Suttle business unit, the Company manufactures and sells copper and fiber connectivity systems, enclosure systems, and active technologies for voice, data and video communications. Through its Transition Networks business unit, the Company manufactures and sells media converters, network interface devices, network interface cards, Ethernet switches and other connectivity products that offer the ability to affordably integrate the benefits of fiber optics into any data network.  Through its JDL Technologies business unit, the Company provides technology solutions including virtualization, managed services, wired and wireless network design and implementation, HIPAA-compliant IT services, and converged infrastructure configuration and deployment. Through its Net2Edge business unit, the Company provides business-critical systems for customers worldwide with a sharp focus on the telecommunications carrier and enables carriers to upgrade from legacy networks to high-speed services.



Financial Statement Presentation



The condensed consolidated balance sheets and condensed consolidated statement of changes in stockholders’ equity as of March 31, 2016 and the related condensed consolidated statements of loss and comprehensive loss, and the condensed consolidated statements of cash flows for the periods ended March 31, 2016 and 2015 have been prepared by Company management.  In the opinion of management, all adjustments (which include only normal recurring adjustments, except where noted) necessary to present fairly the financial position, results of operations, and cash flows at March 31, 2016 and 2015 and for the periods then ended have been made.



Certain information and footnote disclosures normally included in consolidated financial statements prepared in accordance with generally accepted accounting principles in the United States of America have been condensed or omitted.  We recommend these condensed consolidated financial statements be read in conjunction with the financial statements and notes thereto included in the Company’s December 31, 2015 Annual Report to Shareholders on Form 10-K.  The results of operations for the period ended March 31, 2016 are not necessarily indicative of operating results for the entire year.



The presentation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets, liabilities, and disclosure of contingent assets and liabilities at the balance sheet date, and the reported amounts of revenues and expenses during the reporting period.  The estimates and assumptions used in the accompanying condensed consolidated financial statements are based upon management’s evaluation of the relevant facts and circumstances as of the time of the financial statements.  Actual results could differ from those estimates.



Except to the extent updated or described below, the significant accounting policies set forth in Note 1 to the consolidated financial statements in the Company's Annual Report on Form 10-K for the year ended December 31, 2015, appropriately represent, in all material respects, the current status of accounting policies, and are incorporated herein by reference.



Accumulated Other Comprehensive Loss



The components of accumulated other comprehensive loss, net of tax, are as follows:







 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 



 

Foreign Currency Translation

 

Unrealized (loss)/gain on securities

 

Pension liability adjustment

 

Accumulated Other Comprehensive Loss

December 31, 2015

 

$

(4,801,000)

 

$

(13,000)

 

$

4,148,000 

 

$

(666,000)



 

 

 

 

 

 

 

 

 

 

 

 

Net current period change

 

 

87,000 

 

 

37,000 

 

 

 

 

 

124,000 

Reclassification adjustments into income

 

 

4,238,000 

 

 

 

 

 

(4,148,000)

 

 

90,000 



 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016

 

$

(476,000)

 

$

24,000 

 

$

 -

 

$

(452,000)



The Company recognized $4,238,000 in foreign currency translation losses within the income statement during the first quarter due to the substantial liquidation of our Austin Taylor facility in the U.K.  Refer to Note 12 for further information regarding the pension liability adjustment recognized in income in the first quarter of 2016.




Cash Equivalents And Investments
v3.3.0.814
Cash Equivalents And Investments
3 Months Ended
Mar. 31, 2016
Cash Equivalents And Investments [Abstract]  
Cash Equivalents And Investments

NOTE 2 – CASH EQUIVALENTS AND INVESTMENTS



The following tables show the Company’s cash equivalents and available-for-sale securities’ amortized cost, gross unrealized gains, gross unrealized losses and fair value by significant investment category recorded as cash and cash equivalents or short and long term investments as of March 31, 2016 and December 31, 2015:  







 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2016



Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Fair Value

 

Cash Equivalents

 

Short-Term Investments

 

Long-Term Investments



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market funds

$

2,480,000 

 

$

 -

 

$

 -

 

$

2,480,000 

 

$

2,480,000 

 

$

 

 

$

 

Subtotal

 

2,480,000 

 

 

 -

 

 

 -

 

 

2,480,000 

 

 

2,480,000 

 

 

 -

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

5,251,000 

 

 

11,000 

 

 

(1,000)

 

 

5,261,000 

 

 

 -

 

 

2,891,000 

 

 

2,370,000 

Corporate Notes/Bonds

 

5,040,000 

 

 

2,000 

 

 

(1,000)

 

 

5,041,000 

 

 

 -

 

 

5,041,000 

 

 

 -

Subtotal

 

10,291,000 

 

 

13,000 

 

 

(2,000)

 

 

10,302,000 

 

 

 -

 

 

7,932,000 

 

 

2,370,000 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

12,771,000 

 

$

13,000 

 

$

(2,000)

 

$

12,782,000 

 

$

2,480,000 

 

$

7,932,000 

 

$

2,370,000 









 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2015



Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Fair Value

 

Cash Equivalents

 

Short-Term Investments

 

Long-Term Investments



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market funds

$

1,944,000 

 

$

 -

 

$

 -

 

$

1,944,000 

 

$

1,944,000 

 

$

 

 

$

 

Subtotal

 

1,944,000 

 

 

 -

 

 

 -

 

 

1,944,000 

 

 

1,944,000 

 

 

 -

 

 

 -



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

5,493,000 

 

 

3,000 

 

 

(8,000)

 

 

5,488,000 

 

 

 -

 

 

1,202,000 

 

 

4,286,000 

Corporate Notes/Bonds

 

6,056,000 

 

 

 -

 

 

(22,000)

 

 

6,034,000 

 

 

 -

 

 

4,027,000 

 

 

2,007,000 

Subtotal

 

11,549,000 

 

 

3,000 

 

 

(30,000)

 

 

11,522,000 

 

 

 -

 

 

5,229,000 

 

 

6,293,000 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

13,493,000 

 

$

3,000 

 

$

(30,000)

 

$

13,466,000 

 

$

1,944,000 

 

$

5,229,000 

 

$

6,293,000 



As part of the Company’s amended credit agreement with Wells Fargo Bank, the Company has pledged $5.0 million in long term investments against the line of credit. The Company tests for other-than-temporary losses on a quarterly basis and has considered the unrealized losses shown above to be temporary in nature. The Company intends to hold these investments until it can recover the full principal amount and has the ability to do so based on its other sources of liquidity. The Company expects these recoveries to occur prior to the contractual maturities.  All unrealized losses as of March 31, 2016 were in a continuous unrealized loss position for less than twelve months and are not deemed to be other than temporarily impaired as of March 31, 2016.



The following table summarizes the estimated fair value of our investments, designated as available-for-sale and classified by the contractual maturity date of the securities as of March 31, 2016:  





 

 

 

 

 

 



 

 

 

 

 

 



 

Amortized Cost

 

Estimated Market Value



 

 

 

 

Due within one year

 

$  

7,924,000 

 

$

7,932,000 

Due after one year through five years

 

 

2,367,000 

 

 

2,370,000 



 

10,291,000 

 

$

10,302,000 



The Company did not recognize any gross realized gains, and gross realized losses were immaterial, during the three-month periods ending March 31, 2016 and 2015, respectively. If the Company had realized gains or losses, they would be included within investment and other income in the accompanying consolidated results of operations.


Stock-Based Compensation
v3.3.0.814
Stock-Based Compensation
3 Months Ended
Mar. 31, 2016
Stock-Based Compensation [Abstract]  
Stock-Based Compensation

NOTE 3 - STOCK-BASED COMPENSATION



Employee Stock Purchase Plan



Under the Company’s Employee Stock Purchase Plan (“ESPP”), employees are able to acquire shares of common stock at 85% of the price at the end of each current quarterly plan term.  The most recent term ended March 31, 2016.  The ESPP is considered compensatory under current Internal Revenue Service rules.  At March 31, 2016, after giving effect to the shares issued as of that date, 94,790 shares remain available for purchase under the ESPP. 



2011 Executive Incentive Compensation Plan



On March 28, 2011 the Board adopted and on May 19, 2011 the Company’s shareholders approved the Company’s 2011 Executive Incentive Compensation Plan (“2011 Incentive Plan”).  The 2011 Incentive Plan authorizes incentive awards to officers, key employees and non-employee directors in the form of options (incentive and non-qualified), stock appreciation rights, restricted stock, restricted stock units, performance stock units (“deferred stock”), performance cash units, and other awards in stock, cash, or a combination of stock and cash.  The 2011 Incentive Plan, as amended, allows the issuance of up to 2,000,000 shares of common stock. 



During 2016, stock options covering 187,989 shares have been awarded to key executive employees and directors. These options expire seven years from the date of award and vest 25% each year beginning one year after the date of award.  The Company also granted deferred stock awards of 93,828 shares to key employees during the first quarter of 2016 under the Company’s long-term incentive plan for performance over the 2016 to 2018 period. The actual number of shares of deferred stock, if any, that are ultimately earned by the respective employees will be determined based on achievement against performance goals at the end of the three year period ending December 31, 2018 and any shares earned will be issued in the first quarter of 2019 to those key employees still with the Company at that time. 



At March 31, 2016, 110,091 shares have been issued under the 2011 Incentive Plan, 1,037,577 shares are subject to currently outstanding options, deferred stock awards, and unvested restricted stock units, and 852,332 shares are eligible for grant under future awards.





Stock Option Plan for Directors



Shares of common stock are reserved for issuance to non-employee directors under options granted by the Company prior to 2011 under its Stock Option Plan for Non-Employee Directors (the “Director Plan”).  Under the Director Plan nonqualified stock options to acquire shares of common stock were automatically granted to each non-employee director concurrent with annual meetings of shareholders in 2010 and earlier years, with the exercise price of options granted being the fair market value of the common stock on the date of the respective shareholder meetings.  Options granted under the Director Plan expire 10 years from date of grant. No options were granted under the Director Plan in 2014 or 2015The Company amended the Director Plan in May 2011 to prohibit future option grants.  As of March 31, 2016, there were 75,000 shares subject to outstanding options under the Director Plan.



1992 Stock Plan



Under the Company’s 1992 Stock Plan (“the Stock Plan”), shares of common stock may be issued pursuant to stock options, restricted stock or deferred stock grants to officers and key employees.  Exercise prices of stock options under the Stock Plan cannot be less than fair market value of the stock on the date of grant.  Rules and conditions governing awards of stock options, restricted stock and deferred stock are determined by the Compensation Committee of the Board of Directors, subject to limitations in the Stock PlanThe Company amended the Stock Plan in 2011 to prohibit future stock options or other equity awards.



At March 31, 2016, after reserving for stock options and deferred stock awards granted in prior years and adjusting for forfeitures and issuances during the year, there were 22,008 shares reserved for issuance under the Stock Plan. The Company has not awarded stock options or deferred stock under the Stock Plan since 2011.



Changes in Stock Options Outstanding



The following table summarizes changes in the number of outstanding stock options under the 2011 Incentive Plan, the Director Plan and Stock Plan over the period December 31, 2015 to March 31, 2016:  





 

 

 

 

 

 

 



 

 

 

 

 

 

 



 

 

Weighted average

 

Weighted average



 

 

exercise price

 

remaining



Options

 

per share

 

contractual term

Outstanding – December 31, 2015

721,924 

 

$

 

11.70 

 

4.89 

Awarded

187,989 

 

 

 

6.93 

 

 

Exercised

 -

 

 

 

 -

 

 

Forfeited

 -

 

 

 

 -

 

 

Outstanding – March 31, 2016

909,913 

 

 

 

10.72 

 

5.11 



 

 

 

 

 

 

 

Exercisable at March 31, 2016

345,042 

 

$

 

11.80 

 

3.55 

Expected to vest March 31, 2016

909,913 

 

 

 

10.72 

 

5.11 



The aggregate intrinsic value of all options (the amount by which the market price of the stock on the last day of the period exceeded the market price of the stock on the date of grant) outstanding at March 31, 2016 was $78,000.  The intrinsic value of all options exercised during the three months ended March 31, 2016 was $0. Net cash proceeds from the exercise of all stock options were $0 for the three months ended March 31, 2016 and 2015.



Changes in Deferred Stock Outstanding



The following table summarizes the changes in the number of deferred stock shares under the Stock Plan and 2011 Incentive Plan over the period December 31, 2015 to March 31, 2016:





 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

Weighted Average



 

 

 

 

Grant Date



 

 

Shares

 

Fair Value

Outstanding – December 31, 2015

 

 

126,427 

 

$

11.73 

Granted

 

 

102,161 

 

 

7.28 

Vested

 

 

(14,626)

 

 

12.55 

Forfeited

 

 

(22,106)

 

 

11.59 

Outstanding – March 31, 2016

 

 

191,856 

 

 

9.32 



Changes in Restricted Stock Units Outstanding



The following table summarizes the changes in the number of restricted stock units under the 2011 Incentive Plan over the period December 31, 2015 to March 31, 2016:





 

 

 

 

 

 



 

 

 

 

 

 



 

 

 

 

Weighted Average



 

 

 

 

Grant Date



 

 

Shares

 

Fair Value

Outstanding – December 31, 2015

 

 

32,816 

 

$

11.41 

Granted

 

 

 -

 

 

 -

Issued

 

 

 -

 

 

 -

Forfeited

 

 

 -

 

 

 -

Outstanding – March 31, 2016

 

 

32,816 

 

 

11.41 



Compensation Expense



Share-based compensation expense recognized for the three-month period ended March 31, 2016 was $280,000 before income taxes and $182,000 after income taxes. Share-based compensation expense recognized for the three-month period ended March 31,  2015 was $238,000 before income taxes and $155,000 after income taxes.  Unrecognized compensation expense for the Company’s plans was $1,152,000 at March 31, 2016 and is expected to be recognized over a weighted-average period of 2.3 years.  Excess tax benefits from the exercise of stock options and issuance of stock included in financing cash flows for the three month periods ended March 31, 2016 and 2015 were $(23,000) and $ (6,000), respectively. Share-based compensation expense is recorded as a part of selling, general and administrative expenses.


Inventories
v3.3.0.814
Inventories
3 Months Ended
Mar. 31, 2016
Inventories [Abstract]  
Inventories

NOTE 4 - INVENTORIES



Inventories summarized below are priced at the lower of first-in, first-out cost or market:





 

 

 

 

 

 



 

 

 

 

 

 



 

March 31

 

December 31



 

2016

 

2015

Finished goods

 

$         

14,215,000 

 

$

14,112,000 

Raw and processed materials

 

 

10,708,000 

 

 

10,874,000 



 

$

24,923,000 

 

$

24,986,000 




Acquisition
v3.3.0.814
Acquisition
3 Months Ended
Mar. 31, 2016
Acquisition [Abstract]  
Acquisition

NOTE 5 – ACQUISITION



On June 1, 2015, the Company acquired all of the shares of Twisted Technologies, Inc. (“Twisted Technologies”). The purchase price was $1,463,000, with cash acquired totaling $83,000. The purchase price includes initial consideration of $1,000,000, deferred consideration of $300,000 paid out on March 31, 2016, and $163,000 in estimated contingent consideration. The Company has agreed to pay consideration contingent upon the Twisted Technologies business meeting revenue targets over a three-year period, with the consideration to be paid after each annual period has lapsed.  The Company has recognized $163,000 as the estimated fair value of the contingent consideration at the date of acquisition. The maximum payout is not limited. At March 31, 2016, the Company had estimated liabilities of $142,000 related to these outstanding contingent consideration payments.



The assets and liabilities of Twisted Technologies were recorded in the consolidated balance sheet within the JDL Technologies segment at March 31, 2016. The purchase price allocation was based on estimates of the fair value of assets acquired and liabilities assumed and included total assets of $1,591,000, including goodwill of $1,463,000, and total liabilities of $128,000.  The entire goodwill balance is deductible for tax purposes. 


Goodwill And Intangible Assets
v3.3.0.814
Goodwill And Intangible Assets
3 Months Ended
Mar. 31, 2016
Goodwill And Intangible Assets [Abstract]  
Goodwill And Intangible Assets

NOTE 6  –GOODWILL AND INTANGIBLE ASSETS



The changes in the carrying amount of goodwill for the three months ended March 31, 2016 by segment are as follows: 





 

 

 



 

 

 



 

JDL



 

 

 

January 1, 2016

 

$

1,463,000 



 

 

 

Goodwill acquired

 

 

 -



 

 

 

March 31, 2016

 

$

1,463,000 



 

 

 

Gross goodwill

 

 

1,463,000 

Accumulated impairment loss

 

 

 

Balance at March 31, 2016

 

$

1,463,000 





The Company’s identifiable intangible assets with finite lives are being amortized over their estimated useful lives and were as follows:





 

 

 

 

 



 

 

 

 

 



 

March 31, 2016



 

Gross Carrying Amount

Accumulated Amortization

Foreign Currency Translation

Net



 

 

 

 

 

Trademarks

 

91,000  (50,000) (8,000) 33,000 

Customer relationships

 

491,000  (202,000) (59,000) 230,000 

Technology

 

229,000  (188,000) (27,000) 14,000 



 

811,000  (440,000) (94,000) 277,000 







 

 

 

 

 



 

 

 

 

 



 

December 31, 2015



 

Gross Carrying Amount

Accumulated Amortization

Foreign Currency Translation

Net



 

 

 

 

 

Trademarks

 

91,000  (48,000) (8,000) 35,000 

Customer relationships

 

491,000  (197,000) (46,000) 248,000 

Technology

 

229,000  (183,000) (22,000) 24,000 



 

811,000  (428,000) (76,000) 307,000 



Amortization expense on these identifiable intangible assets was $24,000 and $24,000 in 2016 and 2015,  respectively. The amortization expense is included in selling, general and administrative expenses. At March 31, 2016, the estimated future amortization expense for definite-lived intangible assets for the remainder of 2016 and all of the following four fiscal years is as follows:





 

 

 



 

 

 

Year Ending December 31:

 

 

 

2016

 

$  

64,000 

2017

 

 

54,000 

2018

 

 

50,000 

2019

 

 

43,000 

2020

 

 

43,000 




Warranty
v3.3.0.814
Warranty
3 Months Ended
Mar. 31, 2016
Warranty [Abstract]  
Warranty



NOTE 7 – WARRANTY



We provide reserves for the estimated cost of product warranties at the time revenue is recognized.  We estimate the costs of our warranty obligations based on our warranty policy or applicable contractual warranty, historical experience of known product failure rates, and use of materials and service delivery costs incurred in correcting product failures.  Management reviews the estimated warranty liability on a quarterly basis to determine its adequacy.  The actual warranty expense could differ from the estimates made by the Company based on product performance.



The following table presents the changes in the Company’s warranty liability for the three-month periods ended March 31, 2016 and 2015, respectively, the majority of which relates to a five-year obligation to provide for potential future liabilities for network equipment sales.





 

 

 

 

 

 



 

 

 

 

 



 

 

2016

 

 

2015

Beginning balance

 

$

554,000 

 

$

434,000 

Amounts charged to expense

 

 

19,000 

 

 

142,000 

Actual warranty costs paid

 

 

(34,000)

 

 

(22,000)

Ending balance

 

$

539,000 

 

$

554,000 




Contingencies
v3.3.0.814
Contingencies
3 Months Ended
Mar. 31, 2016
Contingencies [Abstract]  
Contingencies

NOTE 8 – CONTINGENCIES



In the ordinary course of business, the Company is exposed to legal actions and claims and incurs costs to defend against these actions and claims. Company management is not aware of any outstanding or pending legal actions or claims that could materially affect the Company’s financial position or results of operations.


Debt
v3.3.0.814
Debt
3 Months Ended
Mar. 31, 2016
Debt [Abstract]  
Debt

NOTE 9 – DEBT



Long-term Debt

The mortgage on the Company’s headquarters building was payable in monthly installments and carried an interest rate of 6.83%.  The mortgage matured on March 1, 2016 and the Company made payments totaling $104,000 in the first quarter of 2016 to fully settle the liabilityThe mortgage was secured by the building.



Line of Credit

The Company has a $10,000,000 line of credit from Wells Fargo Bank.  The Company had $1,500,000 in outstanding borrowings against the line of credit at March 31, 2016 and no borrowings at March 31,  2015. Due to the revolving nature of loans under our credit facility, additional borrowings and periodic repayments and re-borrowings may be made until the maturity date. The total amount available for borrowings under our credit facility at March 31, 2016 was $8,500,000. Interest on borrowings on the credit line is at LIBOR plus 1.75%  (1.9% at March 31, 2016). The credit agreement expires October 31, 2016 and is secured by assets of the Company.  The Company has pledged $5.0 million in long term investments against the line of credit. Our credit agreement contains financial covenants including tangible net worth minimums and a minimum cash balance. The Company was in compliance with its financial covenants at March 31, 2016.  




Income Taxes
v3.3.0.814
Income Taxes
3 Months Ended
Mar. 31, 2016
Income Taxes [Abstract]  
Income Taxes

NOTE 10 – INCOME TAXES

 

In the preparation of the Company’s consolidated financial statements, management calculates income taxes based upon the estimated effective rate applicable to operating results for the full fiscal year. This includes estimating the current tax liability as well as assessing differences resulting from different treatment of items for tax and book accounting purposes. These differences result in deferred tax assets and liabilities, which are recorded on the balance sheet. These assets and liabilities are analyzed regularly and management assesses the likelihood that deferred tax assets will be recovered from future taxable income. In April 2016, we received notification from the Internal Revenue Service that they would be performing an examination of our 2012 and 2013 federal consolidated income tax returns. We do not expect that any settlement or payment that may result from the examination will have a material effect on our results of operations.

  

At March 31, 2016 there was $226,000 of net uncertain tax benefit positions that would reduce the effective income tax rate if recognized.  The Company records interest and penalties related to income taxes as income tax expense in the Condensed Consolidated Statements of Income.



The Company is subject to U.S. federal income tax as well as income tax of multiple state and foreign jurisdictions. The tax years 2012-2015 remain open to examination by the Internal Revenue Service and the years 2011-2015 remain open to examination by various state tax departments. The tax years from 2012-2015 remain open in Costa Rica.

 

The Company’s effective income tax rate was (15.7%) for the first three months of 2016. The effective tax rate differs from the federal tax rate of 35% due to state income taxes, foreign tax rate differences, foreign losses not deductible for U.S. income tax purposes, provisions for interest charges for uncertain income tax positions, and changes in valuation allowances related to deferred tax assets. The foreign operating losses may ultimately be deductible in the countries in which they occurred; however the Company has not recorded a deferred tax asset for these losses due to uncertainty regarding the eventual realization of the benefit.  The effect of the foreign operations was an overall rate decrease of approximately (24.9%) for the three months ended March 31, 2016.   The Company's effective income tax rate for the three months ended March 31, 2015 was 26.1%, and differed from the federal tax rate due to state income taxes, foreign losses not deductible for U.S. income tax purposes and provisions for interest charges. 




Segment Information
v3.3.0.814
Segment Information
3 Months Ended
Mar. 31, 2016
Segments Information [Abstract]  
Segment Information

NOTE 11 – SEGMENT INFORMATION



Effective January 1, 2016, the Company realigned its business operations. As a result of the realignment, the Company has segregated its Transition Networks subsidiary TN EMEA (now renamed Net2Edge) as a separate operating segment. Following this realignment,  the Company classifies its businesses into four segments as follows:



·

Suttle manufactures  and markets connectivity infrastructure products for broadband and voice communications;  

·

Transition Networks manufactures media converters, NIDs, NICs, Ethernet switches and other connectivity products that offer the ability to affordably integrate the benefits of fiber optics into any data network;  

·

JDL Technologies provides technology solutions including virtualization, managed services, wired and wireless network design and implementation, HIPAA-compliant IT services, and converged infrastructure configuration and deployment; and

·

Net2Edge provides business-critical systems for customers worldwide with a sharp focus on the telecommunications carrier and enables carriers to upgrade from legacy networks to high-speed services.



Management has chosen to organize the enterprise and disclose reportable segments based on our products and services. Intersegment revenues are eliminated upon consolidation. To conform to the 2016 presentation, the Company has reclassified 2015 segment information to present the Net2Edge business unit as a separate segment.



Information concerning the Company’s continuing operations in the various segments for the three month periods ended March 31, 2016 and 2015 is as follows:









 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

 

 

Transition

 

JDL

 

 

 

 

 

Intersegment

 

 



 

Suttle

 

Networks

 

Technologies

 

Net2Edge

 

Other

 

Eliminations

 

Total

Three Months Ended March 31, 2016

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

$

11,789,000 

$

8,330,000 

$

4,312,000 

$

569,000 

$

 -

$

(334,000)

$

24,666,000 

Cost of sales

 

9,744,000 

 

5,147,000 

 

2,858,000 

 

241,000 

 

 -

 

(93,000)

 

17,897,000 

Gross profit

 

2,045,000 

 

3,183,000 

 

1,454,000 

 

328,000 

 

 -

 

(241,000)

 

6,769,000 

Selling, general and

 

 

 

 

 

 

 

 

 

 

 

 

 

 

  administrative expenses

 

3,487,000 

 

4,638,000 

 

1,006,000 

 

731,000 

 

 

 

(225,000)

 

9,637,000 

Pension liability adjustment gains

 

 

 

 

 

 -

 

 

 

(4,148,000)

 

 

 

(4,148,000)

Operating (loss) income

$

(1,442,000)

$

(1,455,000)

$

448,000 

$

(403,000)

$

4,148,000 

$

(16,000)

$

1,280,000 



 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

$

576,000 

$

221,000 

$

61,000 

$

33,000 

$

 -

$

 -