Document And Entity Information
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Document And Entity Information
3 Months Ended
Mar. 31, 2015
May 01, 2015
Document And Entity Information [Abstract]    
Document Type 10-Q  
Amendment Flag false  
Document Period End Date Mar. 31, 2015  
Document Fiscal Period Focus Q1  
Document Fiscal Year Focus 2015  
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   8,712,330

Condensed Consolidated Balance Sheets
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Condensed Consolidated Balance Sheets (USD $)
Mar. 31, 2015
Dec. 31, 2014
CURRENT ASSETS:    
Cash and cash equivalents $ 9,149,624 $ 13,736,857
Investments 4,878,321 4,602,717
Trade accounts receivable, less allowance for doubtful accounts of $145,000 and $22,000, respectively 10,877,375 13,839,662
Inventories 32,478,501 31,109,653
Prepaid income taxes 3,814,609 2,317,688
Other current assets 1,318,797 1,050,000
Deferred income taxes 3,250,106 3,249,164
TOTAL CURRENT ASSETS 65,767,333 69,905,741
PROPERTY, PLANT AND EQUIPMENT, net 18,437,556 18,153,152
OTHER ASSETS:    
Investments 10,585,239 11,540,261
Funded pension assets 152,010 172,405
Other assets 857,794 514,676
TOTAL OTHER ASSETS 11,595,043 12,227,342
TOTAL ASSETS 95,799,932 100,286,235
CURRENT LIABILITIES:    
Current portion of long-term debt 500,096 524,220
Accounts payable 6,462,791 5,180,631
Accrued compensation and benefits 2,935,454 3,696,930
Other accrued liabilities 2,391,084 2,146,582
Dividends payable 1,463,075 1,446,498
TOTAL CURRENT LIABILITIES 13,752,500 12,994,861
LONG TERM LIABILITIES:    
Uncertain tax positions 77,823 77,279
Deferred income taxes 1,001,688 1,089,994
Long term debt - mortgage payable   103,603
TOTAL LONG-TERM LIABILITIES 1,079,511 1,270,876
COMMITMENTS AND CONTINGENCIES (Footnote 7)      
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 8,707,564 and 8,654,756 shares issued and outstanding, respectively 435,378 432,738
Additional paid-in capital 39,232,052 38,593,230
Retained earnings 42,083,492 47,689,688
Accumulated other comprehensive loss (783,001) (695,158)
TOTAL STOCKHOLDERS' EQUITY 80,967,921 86,020,498
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 95,799,932 $ 100,286,235

Condensed Consolidated Balance Sheets (Parenthetical)
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Condensed Consolidated Balance Sheets (Parenthetical) (USD $)
In Thousands, except Share data, unless otherwise specified
Mar. 31, 2015
Dec. 31, 2014
Condensed Consolidated Balance Sheets [Abstract]    
Trade accounts receivable, allowance for doubtful accounts $ 145 $ 22
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 8,707,564 8,654,756
Common stock, shares outstanding 8,707,564 8,654,756

Condensed Consolidated Statements Of Loss And Comprehensive Loss
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Condensed Consolidated Statements Of Loss And Comprehensive Loss (USD $)
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
Condensed Consolidated Statements Of Loss And Comprehensive Loss [Abstract]    
Sales $ 19,544,936 $ 25,198,406
Costs and expenses:    
Cost of sales 14,657,998 16,210,390
Selling, general and administrative expenses 10,578,176 9,002,112
Restructuring expense 0 237,838
Total costs and expenses 25,236,174 25,450,340
Operating loss (5,691,238) (251,934)
Other income and (expenses):    
Investment and other income 62,963 5,960
Gain on sale of assets 4,285 5,740
Interest and other expense (13,218) (24,655)
Other income (expense), net 54,030 (12,955)
Loss from operations before income taxes (5,637,208) (264,889)
Income tax benefit (1,473,732) (124,306)
Net loss (4,163,476) (140,583)
Other comprehensive loss, net of tax:    
Additional minimum pension liability adjustments (12,646) (87,343)
Unrealized gain(loss) on available-for-sale securities 55,120 (22,890)
Foreign currency translation adjustment (130,317) 26,550
Total other comprehensive loss (87,843) (83,683)
Comprehensive loss $ (4,251,319) $ (224,266)
Basic net loss per share: $ (0.48) $ (0.02)
Diluted net loss per share: $ (0.48) $ (0.02)
Weighted Average Basic Shares Outstanding 8,660,819 8,565,426
Weighted Average Dilutive Shares Outstanding 8,660,819 8,565,426
Dividends declared per share $ 0.16 $ 0.16

Condensed Consolidated Statements Of Changes In Stockholders' Equity
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Condensed Consolidated Statements Of Changes In Stockholders' Equity (USD $)
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Accumulated Other Comprehensive Income (Loss) [Member]
Total
BALANCE at Dec. 31, 2014 $ 432,738 $ 38,593,230 $ 47,689,688 $ (695,158) $ 86,020,498
BALANCE, Shares at Dec. 31, 2014 8,654,756        
Net loss     (4,163,476)   (4,163,476)
Issuance of common stock under Employee Stock Purchase Plan 201 42,093     42,294
Issuance of common stock under Employee Stock Purchase Plan, Shares 4,028        
Issuance of common stock to Employee Stock Ownership Plan 1,835 383,588     385,423
Issuance of common stock to Employee Stock Ownership Plan, Shares 36,707        
Issuance of common stock under Executive Stock Plan 822 0     822
Issuance of common stock under Executive Stock Plan, Shares 16,440        
Tax benefit from stock based payments   (5,712)     (5,712)
Share-based compensation   238,349     238,349
Purchase of common stock (218) (19,496) (30,943)   (50,657)
Purchase of common stock, Shares (4,367)        
Shareholder dividends     (1,411,777)   (1,411,777)
Other comprehensive loss       (87,843) (87,843)
BALANCE at Mar. 31, 2015 $ 435,378 $ 39,232,052 $ 42,083,492 $ (783,001) $ 80,967,921
BALANCE, Shares at Mar. 31, 2015 8,707,564        

Condensed Consolidated Statements Of Cash Flows
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Condensed Consolidated Statements Of Cash Flows (USD $)
3 Months Ended
Mar. 31, 2015
Mar. 31, 2014
CASH FLOWS FROM OPERATING ACTIVITIES:    
Net loss $ (4,163,476) $ (140,583)
Adjustments to reconcile net loss to net cash provided by operating activities:    
Depreciation and amortization 780,477 560,622
Share based compensation 238,349 48,281
Deferred taxes (89,248) 91,364
Gain on sale of assets (4,285) (5,740)
Excess tax benefit from share-based payments 5,712 9,067
Changes in assets and liabilities:    
Trade receivables 2,956,932 6,686,463
Inventories (1,398,048) (733,914)
Prepaid income taxes (1,496,921) (225,644)
Other assets (657,485) 14,645
Accounts payable 1,071,831 617,539
Accrued compensation and benefits (371,707) (996,144)
Other accrued liabilities 256,330 (98,905)
Income taxes payable (5,168) (3,663)
Net cash (used in) provided by operating activities (2,876,707) 5,823,388
CASH FLOWS FROM INVESTING ACTIVITIES:    
Capital expenditures (853,074) (823,633)
Purchases of investments   (6,539,789)
Proceeds from the sale of fixed assets 22,853 5,740
Proceeds from the sale of investments 734,537 1,380,000
Net cash used in investing activities (95,684) (5,977,682)
CASH FLOWS FROM FINANCING ACTIVITIES:    
Cash dividends paid (1,395,200) (1,368,532)
Mortgage principal payments (127,727) (119,318)
Proceeds from issuance of common stock, net of shares withheld (7,541) 35,686
Excess tax benefit from stock-based payments (5,712) (9,067)
Payment of contingent consideration related to acquisition   (565,647)
Net cash used in financing activities (1,536,180) (2,026,878)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (78,662) 9,368
NET DECREASE IN CASH AND CASH EQUIVALENTS (4,587,233) (2,171,804)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 13,736,857 20,059,120
CASH AND CASH EQUIVALENTS AT END OF PERIOD 9,149,624 17,887,316
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:    
Income taxes paid 500 14,613
Interest paid 13,121 18,405
Dividends declared not paid 1,463,075 1,454,417
Capital expenditures in accounts payable $ 218,019 $ 237,330

Summary Of Significant Accounting Policies
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Summary Of Significant Accounting Policies
3 Months Ended
Mar. 31, 2015
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 three business units having operations in the United States, Costa Rica, and the United Kingdom. Through its Suttle business unit, the Company is principally engaged in the manufacture and sale of copper and fiber connectivity systems, enclosure systems, and active technologies for voice, data and video communications. Through its Transition Networks business unit, the Company is engaged in the manufacture of 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.

 

Financial Statement Presentation

 

The condensed consolidated balance sheets and condensed consolidated statement of changes in stockholders’ equity as of March 31, 2015 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, 2015 and 2014 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, 2015 and 2014 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, 2014 Annual Report to Shareholders on Form 10-K.  The results of operations for the period ended March 31, 2015 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, 2014, 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:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31

 

 

December 31

 

 

 

2015

 

 

2014

Foreign currency translation

 

$

(2,735,000)

 

$

(2,605,000)

Unrealized gain/(loss) on available-for-sale investments

 

 

14,000 

 

 

(41,000)

Pension liability adjustment

 

 

1,938,000 

 

 

1,951,000 

 

 

$

(783,000)

 

$

(695,000)

 


Cash Equivalents And Investments
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Cash Equivalents And Investments
3 Months Ended
Mar. 31, 2015
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, 2015 and December 31, 2014:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 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

$

442,000 

 

$

 -

 

$

 -

 

$

442,000 

 

$

442,000 

 

$

 

 

$

 

Subtotal

 

442,000 

 

 

 -

 

 

 -

 

 

442,000 

 

 

442,000 

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

6,693,000 

 

 

9,000 

 

 

(3,000)

 

 

6,699,000 

 

 

 -

 

 

1,683,000 

 

 

5,016,000 

Corporate Notes/Bonds

 

8,763,000 

 

 

7,000 

 

 

(6,000)

 

 

8,764,000 

 

 

 -

 

 

3,195,000 

 

 

5,569,000 

Subtotal

 

15,456,000 

 

 

16,000 

 

 

(9,000)

 

 

15,463,000 

 

 

 -

 

 

4,878,000 

 

 

10,585,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

15,898,000 

 

$

16,000 

 

$

(9,000)

 

$

15,905,000 

 

$

442,000 

 

$

4,878,000 

 

$

10,585,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

Amortized Cost

 

Gross Unrealized Gains

 

Gross Unrealized Losses

 

Fair Value

 

Cash Equivalents

 

Short-Term Investments

 

Long-Term Investments

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Cash equivalents:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Money Market funds

$

1,073,000 

 

$

 -

 

$

 -

 

$

1,073,000 

 

$

1,073,000 

 

$

 

 

$

 

Subtotal

 

1,073,000 

 

 

 -

 

 

 -

 

 

1,073,000 

 

 

1,073,000 

 

 

 -

 

 

 -

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Investments:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Certificates of deposit

 

7,414,000 

 

 

1,000 

 

 

(32,000)

 

 

7,383,000 

 

 

 -

 

 

1,920,000 

 

 

5,463,000 

Corporate Notes/Bonds

 

8,777,000 

 

 

6,000 

 

 

(23,000)

 

 

8,760,000 

 

 

 -

 

 

2,683,000 

 

 

6,077,000 

Subtotal

 

16,191,000 

 

 

7,000 

 

 

(55,000)

 

 

16,143,000 

 

 

 -

 

 

4,603,000 

 

 

11,540,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Total

$

17,264,000 

 

$

7,000 

 

$

(55,000)

 

$

17,216,000 

 

$

1,073,000 

 

$

4,603,000 

 

$

11,540,000 

 

The Company tests for other than temporary losses on a quarterly basis and has considered the unrealized losses indicated above to be temporary in nature. The Company intends to hold the investments until it can recover the full principal amount and has the ability to do so based on other sources of liquidity. The Company expects these recoveries to occur prior to the contractual maturities.  All unrealized losses as of March 31, 2015 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, 2015.

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, 2015:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Amortized Cost

 

Estimated Market Value

 

 

 

 

 

Due within one year

 

$  

4,634,000 

 

$

4,878,000 

Due after one year through five years

 

 

10,582,000 

 

 

10,585,000 

 

 

15,216,000 

 

$

15,463,000 

 

The Company did not recognize any gross realized gains, and gross realized losses were immaterial, during the three-month periods ending March 31, 2015 and 2014, 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
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Stock-Based Compensation
3 Months Ended
Mar. 31, 2015
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, 2015.  The ESPP is considered compensatory under current Internal Revenue Service rules.  At March 31, 2015, after giving effect to the shares issued as of that date, 17,455 shares remain available for purchase under the ESPP. On April 3, 2015, the Company’s Board of Directors amended the ESPP to increase the authorized shares by 100,000 to 600,000, subject to approval at the Company’s Annual Meeting of Shareholders to be held on May 21, 2015.

 

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.  Up to 1,000,000 shares of our common stock may be issued pursuant to awards under the 2011 Incentive Plan. 

 

During 2015, stock options covering 105,279 shares were awarded to key executive employees and directors, which 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 100,017 shares to key employees during the first quarter under the Company’s long-term incentive plan for performance over the 2015 to 2017 period. The actual number of shares of deferred stock, if any, that are earned by the respective employees will be determined based on achievement against performance goals for each of the three years ending December 31, 2017 and the shares earned will be issued in the first quarter of 2018 to those key employees still with the Company at that time. 

 

At March 31, 2015, 65,651 shares have been issued under the 2011 Incentive Plan, 801,293 shares are subject to currently outstanding options, deferred stock awards, and unvested restricted stock units, and 133,056 shares are eligible for grant under future awards. On April 3, 2015, the Company’s Board of Directors amended the 2011 Stock Incentive plan to increase the authorized shares by 1,000,000 to 2,000,000, subject to approval at the Company’s Annual Meeting of Shareholders to be held on May 21, 2015.

 

 

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 2015.  The Director Plan was amended as of May 19, 2011 to prohibit option grants in 2011 and future years.

 

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 certain limitations in the Stock PlanWhen seeking approval of the 2011 Incentive Plan at the 2011 Annual Meeting of Shareholders, the Company committed to amending the Stock Plan to prohibit the issuance of future equity awards if such approval was given. Effective August 11, 2011, the amendment to prohibit future stock options or other equity awards was approved by the Board.

 

At March 31, 2015, 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 this plan in 2015.

 

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, 2014 to March 31, 2015:  

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted average

 

Weighted average

 

 

 

exercise price

 

remaining

 

Options

 

per share

 

contractual term

Outstanding – December 31, 2014

540,404 

 

$

 

11.90 

 

5.13 

Awarded

105,279 

 

 

 

11.65 

 

 

Exercised

 -

 

 

 

 -

 

 

Forfeited

(10,433)

 

 

 

11.97 

 

 

Outstanding – March 31, 2015

635,250 

 

 

 

11.86 

 

5.22 

 

 

 

 

 

 

 

 

Exercisable at March 31, 2015

237,409 

 

$

 

11.64 

 

3.49 

Expected to vest March 31, 2015

635,250 

 

 

 

11.86 

 

5.22 

 

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, 2015 was $158,000.  The intrinsic value of all options exercised during the three months ended March 31, 2015 was $0. Net cash proceeds from the exercise of all stock options were $0 for the three months ended March 31, 2015 and 2014.

 

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, 2014 to March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

Grant Date

 

 

 

Shares

 

Fair Value

Outstanding – December 31, 2014

 

 

161,314 

 

$

10.87 

Granted

 

 

100,017 

 

 

11.59 

Vested

 

 

(16,440)

 

 

12.55 

Forfeited

 

 

(5,991)

 

 

10.26 

Outstanding – March 31, 2015

 

 

238,900 

 

 

11.07 

 

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, 2014 to March 31, 2015:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Weighted Average

 

 

 

 

 

Grant Date

 

 

 

Shares

 

Fair Value

Outstanding – December 31, 2014

 

 

39,151 

 

$

10.67 

Granted

 

 

 -

 

 

 -

Vested

 

 

 -

 

 

 -

Forfeited

 

 

 -

 

 

 -

Outstanding – March 31, 2015

 

 

39,151 

 

 

10.67 

 

Compensation Expense

 

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. Share-based compensation expense recognized for the three-month period ended March 31,  2014 was $48,000 before income taxes and $31,000 after income taxes.  Unrecognized compensation expense for the Company’s plans was $1,204,000 at March 31, 2015 and is expected to be recognized over a weighted-average period of 2.7 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, 2015 and 2014 were $ (6,000) and $ (9,000), respectively. Share-based compensation expense is recorded as a part of selling, general and administrative expenses.


Inventories
v0.0.0.0
Inventories
3 Months Ended
Mar. 31, 2015
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

 

 

2015

 

2014

Finished goods

 

$         

19,661,000 

 

$

19,208,000 

Raw and processed materials

 

 

12,818,000 

 

 

11,902,000 

 

 

$

32,479,000 

 

$

31,110,000 

 


Intangible Assets
v0.0.0.0
Intangible Assets
3 Months Ended
Mar. 31, 2015
Intangible Assets [Abstract]  
Intangible Assets

NOTE 5 –INTANGIBLE ASSETS

 

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

March 31, 2015

 

 

Gross Carrying Amount

Accumulated Amortization

Foreign Currency Translation

Net

 

 

 

 

 

 

Trademarks

 

91,000 
(39,000)
(8,000)
44,000 

Customer relationships

 

491,000 
(163,000)
(46,000)
282,000 

Technology

 

229,000 
(152,000)
(21,000)
56,000 

 

 

811,000 
(354,000)
(75,000)
382,000 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2014

 

 

Gross Carrying Amount

Accumulated Amortization

Foreign Currency Translation

Net

 

 

 

 

 

 

Trademarks

 

91,000 
(38,000)
(4,000)
49,000 

Customer relationships

 

491,000 
(159,000)
(26,000)
306,000 

Technology

 

229,000 
(149,000)
(11,000)
69,000 

 

 

811,000 
(346,000)
(41,000)
424,000 

 

Amortization expense on these identifiable intangible assets was $24,000 and $27,000 for the three months ended 2015 and 2014, respectively. The amortization expense is included in selling, general and administrative expenses. At March 31, 2015, the estimated future amortization expense for definite-lived intangible assets for the remainder of 2015 and all of the following four fiscal years is as follows:

 

 

 

 

 

 

 

 

 

Year Ending December 31:

 

 

 

2015

 

$  

75,000 

2016

 

 

83,000 

2017

 

 

58,000 

2018

 

 

53,000 

2019

 

 

46,000 

 


Warranty
v0.0.0.0
Warranty
3 Months Ended
Mar. 31, 2015
Warranty [Abstract]  
Warranty

 

NOTE 6 – 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, 2015 and 2014, respectively, the majority of which relates to a five-year obligation to provide for potential future liabilities for network equipment sales.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2015

 

 

2014

Beginning balance

 

$

434,000 

 

$

564,000 

Amounts charged to expense

 

 

142,000 

 

 

12,000 

Actual warranty costs paid

 

 

(22,000)

 

 

(50,000)

Ending balance

 

$

554,000 

 

$

526,000 

 


Contingencies
v0.0.0.0
Contingencies
3 Months Ended
Mar. 31, 2015
Contingencies [Abstract]  
Contingencies

NOTE 7 – 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.


Income Taxes
v0.0.0.0
Income Taxes
3 Months Ended
Mar. 31, 2015
Income Taxes [Abstract]  
Income Taxes

NOTE 8 – 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.

  

At March 31, 2015 there was $76,000 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 2011-2013 remain open to examination by the Internal Revenue Service and the years 2010-2013 remain open to examination by various state tax departments. The tax years from 2011-2013 remain open in Costa Rica.

 

The Company’s effective income tax rate was 26.1% for the first three months of 2015. 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 and expenses not deductible for tax purposes. 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 increase of approximately 4.2% for the three months ended March 31, 2015.  There were no additional uncertain tax positions identified in the first three months of 2015The Company's effective income tax rate for the three months ended March 31, 2014 was 46.9%, 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
v0.0.0.0
Segment Information
3 Months Ended
Mar. 31, 2015
Segment Information [Abstract]  
Segment Information

NOTE 9 – SEGMENT INFORMATION

 

The Company classifies its businesses into three segments as follows:

 

·

Suttle manufactures and markets copper and fiber connectivity systems, enclosure systems, xDSL filters and splitters, and active technologies for voice, data and video communications;

·

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

·

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.

 

Management has chosen to organize the enterprise and disclose reportable segments based on our products and services. There are no material inter-segment revenues.

 

Information concerning the Company’s continuing operations in the various segments for the three month periods ended March 31, 2015 and 2014 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Transition

 

JDL

 

 

 

 

 

 

Suttle

 

Networks

 

Technologies

 

Other

 

Total

Three Months Ended March 31, 2015

 

 

 

 

 

 

 

 

 

 

Sales

$

10,590,000 

$

8,090,000 

$

865,000 

$

 -

$

19,545,000 

Cost of sales

 

9,149,000 

 

4,685,000 

 

824,000 

 

 -

 

14,658,000 

Gross profit

 

1,441,000 

 

3,405,000 

 

41,000 

 

 -

 

4,887,000 

Selling, general and

 

 

 

 

 

 

 

 

 

 

 administrative expenses

 

4,306,000 

 

5,462,000 

 

810,000 

 

 -

 

10,578,000 

Operating loss

$

(2,865,000)

$

(2,057,000)

$

(769,000)

$

 -

$

(5,691,000)