Document And Entity Information
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Document And Entity Information (USD $)
 12 Months Ended
Dec. 31, 2011
Mar. 01, 2012
Jun. 30, 2011
Document And Entity Information [Abstract]      
Document Type 10-K    
Amendment Flag false    
Document Period End Date Dec. 31, 2011    
Document Fiscal Period Focus FY    
Document Fiscal Year Focus 2011    
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   8,470,015  
Entity Current Reporting Status Yes    
Entity Voluntary Filers No    
Entity Well-known Seasoned Issuer No    
Entity Public Float     $ 119,701,000

Consolidated Balance Sheets
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Consolidated Balance Sheets (USD $)
Dec. 31, 2011
Dec. 31, 2010
ASSETS    
Cash and cash equivalents $ 22,515,710 $ 16,787,558
Investments 18,635,601 21,698,905
Trade accounts receivable, less allowance for doubtful accounts of $175,000 and $500,000, respectively 14,461,168 17,544,136
Inventories 25,986,003 24,498,935
Prepaid income taxes 3,893,003 296,586
Other current assets 999,863 908,102
Deferred income taxes 3,455,047 4,469,941
TOTAL CURRENT ASSETS 89,946,395 86,204,163
PROPERTY, PLANT AND EQUIPMENT, net 14,019,019 13,214,067
OTHER ASSETS:    
Investments 4,883,510 4,588,267
Goodwill 5,990,571 4,560,217
Funded pension assets 905,552 349,575
Other assets 913,869 153,938
TOTAL OTHER ASSETS 12,693,502 9,651,997
TOTAL ASSETS 116,658,916 109,070,227
LIABILITIES AND STOCKHOLDERS' EQUITY    
Current portion of long-term debt 427,345 399,209
Accounts payable 4,398,848 5,385,558
Accrued compensation and benefits 5,870,000 3,951,401
Accrued consideration 1,002,623  
Other accrued liabilities 2,388,867 1,669,776
Dividends payable 1,299,963 1,263,434
TOTAL CURRENT LIABILITIES 15,387,646 12,669,378
LONG TERM LIABILITIES:    
Long-term compensation plans 283,075 1,738,105
Uncertain tax positions 405,673 678,395
Deferred income taxes 1,476,969 585,317
Long term debt - mortgage payable 1,574,993 2,002,339
TOTAL LONG-TERM LIABILITIES 3,740,710 5,004,156
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 authorized; 8,466,774 and 8,422,890 shares issued and outstanding, respectively 423,339 421,144
Additional paid-in capital 35,533,273 34,491,370
Retained earnings 61,466,342 56,769,816
Accumulated other comprehensive income 107,606 (285,637)
TOTAL STOCKHOLDERS' EQUITY 97,530,560 91,396,693
TOTAL LIABILITIES AND STOCKHOLDERS' EQUITY $ 116,658,916 $ 109,070,227

Consolidated Balance Sheets (Parenthetical)
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Consolidated Balance Sheets (Parenthetical) (USD $)
Dec. 31, 2011
Dec. 31, 2010
Consolidated Balance Sheets [Abstract]    
Trade accounts receivable, allowance for doubtful accounts $ 175,000 $ 505,000
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 8,466,774 8,422,890
Common stock, shares outstanding 8,466,774 8,422,890

Consolidated Statements Of Income And Comprehensive Income
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Consolidated Statements Of Income And Comprehensive Income (USD $)
 12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
Consolidated Statements Of Income And Comprehensive Income [Abstract]      
Sales $ 143,775,051 $ 120,072,310 $ 109,792,207
Costs and expenses:      
Cost of sales 84,879,924 68,871,678 67,943,557
Selling, general and administrative expenses 40,108,221 35,586,248 31,434,097
Impairment loss 1,271,986   196,020
Total costs and expenses 126,260,131 104,457,926 99,573,674
Operating income 17,514,920 15,614,384 10,218,533
Other income and (expenses):      
Investment and other income 313,544 251,002 810,039
(Loss)/gain on sale of assets (27,081) (9,238) 39,919
Interest and other expense (181,393) (221,611) (269,151)
Other income, net 105,070 20,153 580,807
Income from operations before income taxes 17,619,990 15,634,537 10,799,340
Income tax expense 7,822,124 5,919,104 4,755,695
Net income 9,797,866 9,715,433 6,043,645
Other comprehensive income (loss):      
Additional minimum pension liability adjustments (525,000) 43,999 285,000
Unrealized (losses)/gains on available-for-sale securities (16,691) (19,744) 33,802
Foreign currency translation adjustment 934,934 (182,770) (237,386)
Total other comprehensive income (loss) 393,243 (158,515) 81,416
Comprehensive income $ 10,191,109 $ 9,556,918 $ 6,125,061
Basic net income per share: $ 1.16 $ 1.16 $ 0.72
Diluted net income per share: $ 1.15 $ 1.15 $ 0.72
Weighted Average Basic Shares Outstanding 8,448,612 8,384,242 8,339,566
Weighted Average Dilutive Shares Outstanding 8,495,873 8,414,566 8,352,084
Dividends declared per share $ 0.60 $ 0.59 $ 0.52

Consolidated Statements Of Changes In Stockholders' Equity
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Consolidated Statements Of Changes In Stockholders' Equity (USD $)
Common Stock [Member]
Additional Paid-In Capital [Member]
Retained Earnings [Member]
Cumulative Other Comprehensive Income (Loss) [Member]
Total
Balance at Dec. 31, 2008 $ 414,117 $ 33,019,154 $ 50,503,410 $ (208,538) $ 83,728,143
Balance, shares at Dec. 31, 2008 8,282,349        
Net income     6,043,645   6,043,645
Issuance of common stock under Employee Stock Purchase Plan 616 101,450     102,066
Issuance of common stock under Employee Stock Purchase Plan, shares 12,327        
Issuance of common stock to Employee Stock Ownership Plan 2,847 441,231     444,078
Issuance of common stock to Employee Stock Ownership Plan, shares 56,933        
Issuance of common stock under Employee Stock Option Plan 320 68,240     68,560
Issuance of common stock under Employee Stock Option Plan , shares 6,400        
Tax benefit from non-qualified stock options   467     467
Share based compensation   31,571     31,571
Purchase of common stock (256) (20,603) (32,258)   (53,117)
Purchase of common stock , shares (5,126)        
Shareholder dividends     (4,507,536)   (4,507,536)
Other comprehensive income       81,416 81,416
Balance at Dec. 31, 2009 417,644 33,641,510 52,007,261 (127,122) 85,939,293
Balance, shares at Dec. 31, 2009 8,352,883        
Net income     9,715,433   9,715,433
Issuance of common stock under Employee Stock Purchase Plan 555 124,579     125,134
Issuance of common stock under Employee Stock Purchase Plan, shares 11,107        
Issuance of common stock to Employee Stock Ownership Plan 1,895 469,581     471,476
Issuance of common stock to Employee Stock Ownership Plan, shares 37,900        
Issuance of common stock under Non-Employee Stock Option Plan 1,050 181,626     182,676
Issuance of common stock under Non-Employee Stock Option Plan, shares 21,000        
Tax benefit from non-qualified stock options   34,981     34,981
Share based compensation   39,093     39,093
Shareholder dividends     (4,952,878)   (4,952,878)
Other comprehensive income       (158,515) (158,515)
Balance at Dec. 31, 2010 421,144 34,491,370 56,769,816 (285,637) 91,396,693
Balance, shares at Dec. 31, 2010 8,422,890        
Net income     9,797,866   9,797,866
Issuance of common stock under Employee Stock Purchase Plan 515 151,761     152,276
Issuance of common stock under Employee Stock Purchase Plan, shares 10,308        
Issuance of common stock to Employee Stock Ownership Plan 1,125 314,902     316,027
Issuance of common stock to Employee Stock Ownership Plan, shares 22,493        
Issuance of common stock under Non-Employee Stock Option Plan 450 72,450     72,900
Issuance of common stock under Non-Employee Stock Option Plan, shares 9,000        
Issuance of common stock under Executive Stock Plan 105 31,974     32,079
Issuance of common stock under Executive Stock Plan , shares 2,083        
Tax benefit from non-qualified stock options   21,920     21,920
Share based compensation   448,896     448,896
Shareholder dividends     (5,101,340)   (5,101,340)
Other comprehensive income       393,243 393,243
Balance at Dec. 31, 2011 $ 423,339 $ 35,533,273 $ 61,466,342 $ 107,606 $ 97,530,560
Balance, shares at Dec. 31, 2011 8,466,774        

Consolidated Statements Of Cash Flows
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Consolidated Statements Of Cash Flows (USD $)
 12 Months Ended
Dec. 31, 2011
Dec. 31, 2010
Dec. 31, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:      
Net income $ 9,797,866 $ 9,715,433 $ 6,043,645
Adjustments to reconcile net income to net cash provided by operating activities:      
Depreciation and amortization 2,100,735 1,858,881 1,698,321
Share based compensation 448,896 39,093 31,571
Deferred taxes 1,695,595 (518,234) 641,574
Impairment loss 1,271,986   196,020
Loss/(gain) on sale of assets 27,081 9,238 (39,919)
Excess tax benefit from share based payments (21,920) (34,981) (467)
Changes in assets and liabilities net of effects from acquisitions:      
Trade receivables 3,273,730 (2,521,012) 2,287,237
Inventories (602,414) 69,693 4,908,760
Prepaid income taxes (3,600,652) 40,688 (337,274)
Other assets (78,349) (52,913) (10,116)
Accounts payable (1,025,703) 407,757 827,562
Accrued compensation and benefits 751,925 417,873 1,791,395
Other accrued expenses 395,133 301,376 (263,369)
Income taxes payable (335,374) (10,158) (21,112)
Other (32,022) 3,092 (116,707)
Net cash provided by operating activities 14,066,513 9,725,826 17,637,121
CASH FLOWS FROM INVESTING ACTIVITIES:      
Capital expenditures (2,755,991) (1,794,422) (3,237,558)
Purchases of investments (20,884,014) (20,339,715) (34,841,042)
Acquisition of business (3,138,367)    
Proceeds from the sale of fixed assets 22,555 27,783 106,672
Proceeds from the sale of investments 23,635,385 12,808,642 16,099,000
Net cash used in investing activities (3,120,432) (9,297,712) (21,872,928)
CASH FLOWS FROM FINANCING ACTIVITIES:      
Cash dividends paid (5,064,811) (4,858,484) (4,332,666)
Mortgage principal payments (399,209) (372,926) (348,373)
Proceeds from issuance of common stock 257,255 307,810 170,626
Excess tax benefit from stock based payments 21,920 34,981 467
Purchase of common stock     (53,117)
Net cash used in financing activities (5,184,845) (4,888,619) (4,563,063)
EFFECT OF FOREIGN EXCHANGE RATE CHANGES ON CASH (33,084) (45,385) 140,757
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 5,728,152 (4,505,890) (8,658,113)
CASH AND CASH EQUIVALENTS AT BEGINNING OF YEAR 16,787,558 21,293,448 29,951,561
CASH AND CASH EQUIVALENTS AT END OF YEAR 22,515,710 16,787,558 21,293,448
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:      
Income taxes paid 10,037,938 6,315,827 4,472,507
Interest paid 165,514 201,191 225,883
Dividends declared not paid 1,270,016 1,263,434 1,169,040
Acquisition costs in accrued expenses $ 1,002,623    

Summary Of Significant Accounting Policies
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Summary Of Significant Accounting Policies
 12 Months Ended
Dec. 31, 2011
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," "our" or the "Company") is a Minnesota corporation organized in 1969 that operates directly and through its subsidiaries located in the United States, Costa Rica, the United Kingdom and China. CSI is principally engaged through its Suttle and Austin Taylor business units in the manufacture and sale of modular connecting and wiring devices for voice and data communications, digital subscriber line filters, and structured wiring systems and through its Transition Networks business unit in the manufacture of media and rate conversion products for telecommunications networks. CSI also provides through its JDL Technologies business unit IT solutions including network design, computer infrastructure installations, IT service management, change management, network security and network operations services.

The Company classifies its businesses into four segments: Suttle, which manufactures U.S. standard modular connecting and wiring devices for voice and data communications; Transition Networks, which designs and markets media conversion products, ethernet switches, and other connectivity and data transmission products; Austin Taylor, which manufactures British standard line jacks, patch panels, metal boxes, distribution and central office frames; and JDL Technologies, (JDL), which provides IT services; non-allocated general and administrative expenses are separately accounted for as "Other" in the Company's segment reporting. There are no material intersegment revenues.

Principles of consolidation: The consolidated financial statements include the accounts of the Company and its subsidiaries. All material intercompany transactions and accounts have been eliminated.

Use of estimates: The presentation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. The Company uses estimates based on the best information available in recording transactions and balances resulting from operations. Actual results could differ from those estimates. The Company's estimates consist principally of reserves for doubtful accounts, sales returns, warranty costs, asset impairment evaluations, accruals for compensation plans, self-insured medical and dental accruals, pension liabilities, lower of cost or market inventory adjustments, provisions for income taxes and deferred taxes and depreciable lives of fixed assets.

Cash equivalents: For purposes of the consolidated statements of cash flows, the Company considers all highly liquid investments with a maturity of three months or less at the time of purchase to be cash equivalents. As of December 31, 2011, the Company had $22.5 million in cash and cash equivalents. Of this amount, $0.8 million was invested in short-term money market funds that are not considered to be bank deposits and are not insured or guaranteed by the federal deposit insurance company (FDIC) or other government agency. These money market funds seek to preserve the value of the investment at $1.00 per share; however, it is possible to lose money investing in these funds. The remainder is operating cash and certificates of deposit which are fully insured through the FDIC.

Investments: Investments consist of certificates of deposit that are traded on the open market and are classified as available-for-sale at December 31, 2011. Available-for-sale investments are reported at fair value with unrealized gains and losses excluded from operations and reported as a separate component of stockholders' equity, net of tax (see Accumulated Comprehensive income below).

Inventories: Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out method. Provision to reduce inventories to the lower of cost or market is made based on a review of excess and obsolete inventories, estimates of future sales, examination of historical consumption rates and the related value of component parts.

Property, plant and equipment: Property, plant and equipment are recorded at cost. Depreciation is computed using the straight-line method. Depreciation included in cost of sales and selling, general and administrative expenses for continuing operations was $2,058,000, $1,859,000 and $1,698,000 for 2011, 2010 and 2009, respectively. Maintenance and repairs are charged to operations and additions or improvements are capitalized. Items of property sold, retired or otherwise disposed of are removed from the asset and accumulated depreciation accounts and any gains or losses on disposal are reflected in operations.

Goodwill and Other Intangible Assets: Goodwill represents the amount by which the purchase prices (including liabilities assumed) of acquired businesses exceed the estimated fair value of the net tangible assets and separately identifiable assets of these businesses. Goodwill and intangible assets with indefinite useful lives are not amortized, but are tested at least annually for impairment. The Company reassesses the value of our reporting units and related goodwill balances at the end of each fiscal year and at other times if events have occurred or circumstances exist that indicate the carrying amount of goodwill may not be recoverable.

Recoverability of long-lived assets: The Company reviews its long-lived assets periodically to determine potential impairment by comparing the carrying value of the assets with expected net cash flows expected to be provided by operating activities of the business or related products. If the sum of the expected future net cash flows is less than the carrying value, an impairment loss would be measured by comparing the amount by which the carrying value exceeds the fair value of the asset.

Warranty: The Company 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 following table presents the changes in the Company's warranty liability for the years ended December 31, 2011 and 2010, which relate to normal product warranties and a five-year obligation to provide for potential future liabilities for certain network equipment sales:

 

 

 

 

 

 

 

 

 

 

Year Ended December 31

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

Beginning balance

 

$

616,000

 

$

648,000

 

Amounts charged to expense

 

 

258,000

 

 

162,000

 

Actual warranty costs paid

 

 

(240,000

)

 

(194,000

)

 

 

 

 

Ending balance

 

$

634,000

 

$

616,000

 

 

 

 

 

Accumulated Comprehensive income: The components of accumulated other comprehensive income are as follows:

 

 

 

 

 

 

 

 

 

 

December 31

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

Foreign currency translation

 

$

(337,597

)

$

(1,272,530

)

Unrealized gain on available-for-sale investments

 

 

(2,633

)

 

14,058

 

Minimum pension liability

 

 

447,836

 

 

972,836

 

 

 

 

 

 

 

$

107,606

 

$

(285,636

)

 

 

 

 

The functional currency of Austin Taylor and Patapsco is the British pound. Assets and liabilities denominated in this foreign currency were translated into U.S. dollars at year-end exchange rates. Revenue and expense transactions were translated using average exchange rates. Suttle Costa Rica and Transition China use the U.S. dollar as its functional currency.

Revenue recognition: The Company's manufacturing operations (Suttle, Transition Networks and Austin Taylor) recognize revenue when the earnings process is complete, evidenced by persuasive evidence of an agreement, delivery has occurred or services have been rendered, the price is fixed or determinable, and collectability is reasonably assured. Revenue is recognized for domestic and international sales at the shipping point or delivery to customers, based on the related shipping terms. Risk of loss transfers at the point of shipment or delivery to customers, and the Company has no further obligation after such time. Sales are made directly to customers and through distributors. Payment terms for distributors are consistent with the terms of the Company's direct customers. The Company records a provision for sales returns, sales incentives and warranty costs at the time of the sale based on historical experience and current trends.

JDL Technologies generally records revenue on hardware, software and related equipment sales and installation contracts when the revenue recognition criteria are met and products are installed and accepted by the customer. JDL records revenue on service contracts on a straight-line basis over the contract period, unless evidence suggests the revenue is earned in a different pattern. Each contract is individually reviewed to determine when the earnings process is complete.

Research and development: Research and development costs consist of outside testing services, equipment and supplies associated with enhancing existing products and developing new products. Research and development costs are expensed when incurred and totaled $2,045,000 in 2011, $2,127,000 in 2010 and $1,707,000 in 2009.

Net income per share: Basic net income per common share is based on the weighted average number of common shares outstanding during each year. Diluted net income per common share adjusts for the dilutive effect of potential common shares outstanding. The Company's only potential common shares outstanding are stock options and unvested shares, which resulted in a dilutive effect of 47,261 shares, 30,324 shares and 12,519 shares in 2011, 2010 and 2009, respectively. The Company calculates the dilutive effect of outstanding options and unvested shares using the treasury stock method. The number of shares not included in the computation of diluted earnings per share because the options' exercise price was greater than the average market price of common stock during the year for 2011, 2010, and 2009 was 0, 0 and 81,000, respectively.

Share based compensation: The Company accounts for share based compensation awards on a fair value basis. The estimated grant date fair value of each stock-based award is recognized in income over the requisite service period (generally the vesting period). The estimated fair value of each option is calculated using the Black-Scholes option-pricing model.


Inventories
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Inventories
 12 Months Ended
Dec. 31, 2011
Inventories [Abstract]  
Inventories

NOTE 2 - INVENTORIES

Inventories consist of:

 

 

 

 

 

 

 

 

 

 

December 31

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

Finished goods

 

$

14,010,071

 

$

13,684,884

 

Raw and processed materials

 

 

11,975,932

 

 

10,814,051

 

 

 

 

 

 

 

$

25,986,003

 

$

24,498,935

 

 

 

 

 

Property, Plant And Equipment
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Property, Plant And Equipment
 12 Months Ended
Dec. 31, 2011
Property, Plant And Equipment [Abstract]  
Property, Plant And Equipment

NOTE 3 - PROPERTY, PLANT AND EQUIPMENT

Property, plant and equipment and the estimated useful lives are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31

 

 

 

Estimated
useful life

 

 

 

 

 

2011

 

2010

 

 

 

 

 

 

Land

 

 

 

 

$

3,114,330

 

$

3,099,988

 

Buildings and improvements

 

 

7-40 years

 

 

8,779,969

 

 

8,449,395

 

Machinery and equipment

 

 

3-15 years

 

 

23,266,325

 

 

21,889,116

 

Furniture and fixtures

 

 

5-10 years

 

 

3,966,579

 

 

3,569,720

 

Construction in progress

 

 

 

 

 

515,095

 

 

—

 

 

 

 

 

 

 

 

 

 

 

 

 

 

39,642,298

 

 

37,008,219

 

Less accumulated depreciation

 

 

 

 

 

(25,623,279

)

 

(23,794,152

)

 

 

 

 

 

 

 

 

 

 

 

 

$

14,019,019

 

$

13,214,067

 

 

 

 

 

 

 

 

Acquisition
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Acquisition
 12 Months Ended
Dec. 31, 2011
Acquisition [Abstract]  
Acquisition

NOTE 4 – ACQUISITION

On July 27, 2011, the Company acquired Patapsco Designs Limited of the UK ("Patapsco"). The purchase price totals $5,094,000, with cash acquired totaling $862,000. The purchase price includes initial consideration of $3,271,000, deferred consideration of $466,000 to be paid out no later than 18 months from the acquisition date, $656,000 in working capital adjustments, and $701,000 in contingent consideration. The Company has agreed to pay consideration up to $818,000 contingent upon the Patapsco business meeting gross margin and other non-financial targets, with the consideration to paid out no later than two years from the acquisition date. Although the maximum contingent consideration is $818,000, the Company has recognized $701,000 as the estimated fair value of the contingent consideration at the date of acquisition. This contingent consideration has been calculated based on the exchange rate at the date of acquisition and actual payments may differ based on fluctuations in the exchange rate between the dollar and the pound. At December 31, 2011, the Company had estimated liabilities of $1,003,000 related to outstanding consideration payments.

The assets and liabilities of Patapsco were recorded in the consolidated balance sheet within the Transition Networks' segment as of the acquisition date, at their respective fair values. The purchase price allocation is based on the estimated fair value of assets acquired and liabilities assumed and has been allocated as follows:

 

 

 

 

 

 

 

July 27, 2011

 

Current assets

 

$

2,052,149

 

Property, plant, and equipment

 

 

163,671

 

Intangible assets

 

 

801,488

 

Goodwill

 

 

2,702,340

 

 

 

 

Total assets

 

 

5,719,648

 

 

 

 

 

 

Current liabilities

 

$

414,735

 

Long-term deferred tax liabilities

 

 

210,952

 

 

 

 

Total liabilities

 

 

625,687

 

 

 

 

 

 

Net assets acquired

 

$

5,093,961

 

Identifiable intangible assets are definite-lived assets. These assets include customer relationships, trademarks, and technology intangible assets, and have a weighted average amortization period of 8 years, which matches the weighted average useful life of the assets. Goodwill recorded as part of the purchase price allocation is not tax deductible.


Goodwill And Other Intangible Assets
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Goodwill And Other Intangible Assets
 12 Months Ended
Dec. 31, 2011
Goodwill And Other Intangible Assets [Abstract]  
Goodwill And Other Intangible Assets

NOTE 5 – GOODWILL AND OTHER INTANGIBLE ASSETS

The changes in the carrying amount of goodwill for the years ended December 31, 2011 and 2010 by segment are as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Suttle

 

Transition
Networks

 

Total

 

 

 

 

 

 

 

 

 

 

 

 

 

 

January 1, 2010

 

$

1,271,986

 

$

3,288,231

 

$

4,560,217

 

 

 

 

 

 

 

 

 

 

—

 

 

 

December 31, 2010

 

 

1,271,986

 

 

3,288,231

 

 

4,560,217

 

 

 

 

 

 

 

 

 

 

 

 

Impairment loss

 

 

(1,271,986

)

 

—

 

 

(1,271,986

)

Acquisition

 

 

—

 

 

2,702,340

 

 

2,702,340

 

 

 

December 31, 2011

 

$

—

 

$

5,990,571

 

$

5,990,571

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross goodwill

 

$

1,271,986

 

$

5,990,571

 

$

7,262,557

 

Accumulated impairment loss

 

$

(1,271,986

)

 

0

 

 

(1,271,986

)

 

 

Balance at December 31, 2011

 

$

—

 

$

5,990,571

 

$

5,990,571

 

 

 

During our fiscal quarter ended June 30, 2011, based on greater than expected decline in actual and forecasted profitability of legacy products in our Suttle business unit, as well as, significant project delays that occurred related to Suttle's new technologies, we concluded that that these events and circumstances were indicators to require us to perform an interim goodwill impairment analysis of our Suttle business unit. This analysis included the determination of the reporting unit's fair value primarily using discounted cash flows modeling. Based on the step one and step two analysis, considering Suttle's reduced earnings and cash flow forecasts, the Company determined that Suttle's goodwill was fully impaired and recorded a goodwill impairment for the Suttle segment of $1,272,000. This non-recurring fair value measurement is a "Level 3" measurement under the fair value hierarchy described in Note 12.

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

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

December 31, 2011

 

 

 

 

 

 

Gross Carrying
Amount

 

Accumulated
Amortization

 

Foreign Currency
Translation

 

Net

 

 

 

 

Trademarks

 

 

81,785

 

 

(4,599

)

 

(4,520

)

 

72,666

 

Customer relationships

 

 

490,707

 

 

(19,316

)

 

(27,114

)

 

444,277

 

Technology

 

 

228,996

 

 

(18,029

)

 

(12,652

)

 

198,315

 

 

 

 

 

 

 

801,488

 

 

(41,944

)

 

(44,286

)

 

715,258

 

 

 

 

Amortization expense on these identifiable intangible assets was $42,000 in 2011. The amortization expense is included in selling, general and administrative expenses.


Employee Retirement Benefits
v0.0.0.0
Employee Retirement Benefits
 12 Months Ended
Dec. 31, 2011
Employee Retirement Benefits [Abstract]  
Employee Retirement Benefits

NOTE 6 - EMPLOYEE RETIREMENT BENEFITS

The Company has an Employee Savings Plan (401(k)) and matches a percentage of employee contributions up to six percent of compensation. Contributions to the plan in 2011, 2010 and 2009 were $479,000, $456,000, and $420,000, respectively.

The Company's U.K.-based subsidiary Austin Taylor maintains defined benefit pension plans that cover approximately seven active employees. The Company does not provide any other post-retirement benefits to its employees. The following table summarizes the balance sheet impact, including benefit obligations, assets and funded status of Austin Taylor's pension plans at December 31, 2011 and 2010:

 

 

 

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

Change in benefit obligation:

 

 

 

 

 

 

 

Benefit obligation at the beginning of the year

 

$

4,919,000

 

$

4,623,000

 

Service cost

 

 

36,000

 

 

46,000

 

Interest cost

 

 

239,000

 

 

257,000

 

Participant contributions

 

 

15,000

 

 

19,000

 

Augmentations

 

 

46,000

 

 

—

 

Actuarial (gains)/losses

 

 

62,000

 

 

254,000

 

Benefits paid

 

 

(162,000

)

 

(147,000

)

Foreign currency gains

 

 

(5,000

)

 

(133,000

)

 

 

 

 

Benefit obligation at the end of the year

 

 

5,150,000

 

 

4,919,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Change in plan assets:

 

 

 

 

 

 

 

Fair value of plan assets at beginning of year

 

 

5,269,000

 

 

5,023,000

 

Actual return on plan assets

 

 

892,000

 

 

464,000

 

Employer contributions

 

 

48,000

 

 

54,000

 

Participant contributions

 

 

15,000

 

 

19,000

 

Benefits paid

 

 

(162,000

)

 

(147,000

)

Foreign currency losses

 

 

(6,000

)

 

(144,000

)

 

 

 

 

Fair value of plan assets at end of year

 

 

6,056,000

 

 

5,269,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Funded status at end of year – net asset /(liability)

 

$

906,000

 

$

350,000

 

 

 

 

 


 

 

 

 

 

Weighted average assumptions used to determine net periodic pension costs:

 

 

 

 

Discount rate

4.7

%

5.5

%

Expected return on assets

4.2

%

5.1

%

The plans are funded through UK government gilts and an insurance contract both recorded in the financial statements at fair value. The related amounts for each of these investments were $3,193,000 and $2,864,000 as of December 31, 2011 and were determined to be level 2 and level 3 investments, respectively. Level 2 investments are valued based on observable inputs such as quoted prices for similar instruments and quoted prices in markets that are not active. Level 3 investments are valued based on significant unobservable inputs.

The Company does not expect any plan assets to be returned to the Company during the twelve months subsequent to December 31, 2011.

The Company expects to make contributions of $48,000 to the plan in 2012.

The Company estimates its future pension benefit payments will be as follows:

 

 

 

 

 

2012

 

$

351,000

 

2013

 

 

280,000

 

2014

 

 

471,000

 

2015

 

 

252,000

 

2016

 

 

227,000

 

2017 thru 2021

 

 

2,043,000

 


Components of the Company's net periodic pension costs are:

 

 

 

 

 

 

 

 

 

 

 

 

 

2011

 

2010

 

2009

 

 

 

 

 

 

Service cost

 

$

36,000

 

$

46,000

 

$

37,000

 

Interest cost

 

 

240,000

 

 

258,000

 

 

261,000

 

Expected return on assets

 

 

(267,000

)

 

(244,000

)

 

(226,000

)

Amortization of prior service cost

 

 

46,000

 

 

—

 

 

—

 

 

 

 

 

 

Net periodic pension cost

 

$

55,000

 

$

60,000

 

$

72,000

 

 

 

 

 

 

Commitments And Contingencies
v0.0.0.0
Commitments And Contingencies
 12 Months Ended
Dec. 31, 2011
Commitments And Contingencies [Abstract]  
Commitments And Contingencies

NOTE 7 – COMMITMENTS AND CONTINGENCIES

Operating leases: The Company leases land, buildings and equipment under operating leases with original terms from 1 to 5 years. Total rent expense was $421,000, $402,000 and $440,000 in 2011, 2010 and 2009 respectively. Sublease income received was $0, $8,000 and $12,000 in 2011, 2010 and 2009 respectively. At December 31, 2011, the Company was obligated under noncancelable operating leases to make minimum annual future lease payments as follows:

 

 

 

 

 

Year Ending December 31:

 

 

 

 

2012

 

$

175,000

 

2013

 

 

7,000

 

Thereafter

 

 

—

 

 

 

 

 

 

$

182,000

 

 

 

 

Long-term debt: The mortgage on the Company's headquarters building is payable in monthly installments and carries an interest rate of 6.83%. The mortgage matures on March 1, 2016. The outstanding balance on the mortgage was $2,002,000 at December 31, 2011. The mortgage is secured by the building.

The annual requirements for principal payments on the mortgage are as follows:

 

 

2012

427,000

2013

457,000

2014

490,000

2015

524,000

2016

104,000

Purchasing obligations: On September 30, 2011, the Company entered into a contract with IFS to implement a new Enterprise Resource Planning (ERP) system. The remaining contract balance at December 31, 2011 was $739,000. The contract includes annual future obligations for the years ending December 31, as follows:

 

 

 

 

 

2012

 

$

532,000

 

2013

 

 

207,000

 

Line of credit: The Company has a $10,000,000 line of credit from Wells Fargo Bank. The Company had no outstanding borrowings against the line of credit at December 31, 2011 and 2010 and the entire credit line is available for use. Interest on borrowings on the credit line is at LIBOR plus 1.1% (1.7% at December 31, 2011). The credit agreement expires October 31, 2013 and is secured by assets of the Company. Our credit agreement contains financial covenants including current ratio, net income, and tangible net worth minimums. The Company was in compliance with all financial covenants as of December 31, 2011.

As of December 31, 2011, the Company had no other material commitments (either cancelable or non-cancelable) for capital expenditures or other purchase commitments related to ongoing operations.

Long-term compensation plans: The Company has a long term incentive plan. The plan provides long-term competitive compensation to enable the Company to attract and retain qualified executive talent and to reward employees for achieving goals and improving company performance. The plan provides grants of "performance units" made at the beginning of performance periods and paid at the end of the period if performance goals are met. Awards were previously made every other year and are paid following the end of the cycle with annual vesting. Payment in the case of retirement, disability or death will be on a pro rata basis. The Company accrued expense of $286,000, $926,000 and $734,000 in 2011, 2010 and 2009, respectively. Accrual balances for long-term compensation plans at December 31, 2011 and 2010 were $2,024,000 and $1,738,000, respectively. Awards paid were $0 in 2011, $1,332,000 in 2010 and $0 in 2009. Awards for the 2008 to 2011 cycle will be paid out in 2012 in cash, awards for the 2010 to 2013 and the 2011 to 2013 cycles will be paid out 50% in cash and 50% in stock. The stock portion of these awards are treated as equity plans and included within the Stock Compensation footnote below.

Other contingencies: In the ordinary course of business, the Company is exposed to legal actions and claims and incurs costs to defend against such actions and claims. Company management is not aware of any outstanding or pending legal actions or claims that would materially affect the Company's financial position or results of operations.


Stock Compensation
v0.0.0.0
Stock Compensation
 12 Months Ended
Dec. 31, 2011
Stock Compensation [Abstract]  
Stock Compensation

NOTE 8 – STOCK COMPENSATION

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. The 2011 Incentive Plan is administered by the Compensation Committee of the Board of Directors. Through December 31, 2011, the only awards that have been made under the 2011 Incentive Plan are those described in following paragraphs.

The 2011 Incentive Plan permits equity awards to non-employee directors either in the form of restricted stock grants or non-qualified stock option awards, or both. On March 28, 2011, the Compensation Committee and the Board determined that, subject to receiving shareholder approval of the 2011 Incentive Plan, each non-employee director elected or re-elected at the May 19, 2011 Annual Shareholders Meeting (the "2011 Shareholders Meeting") would be issued shares of restricted stock having a value of $40,000 based on the closing price of the Company's common stock on May 19, 2011 and also determined this restricted stock would vest after one year and be subject to restrictions on resale for one additional year. At the 2011 Shareholders Meeting, the Company's shareholders approved the 2011 Incentive Plan and, effective as of that date, the Company awarded 2,226 shares of restricted stock to each of the Company's six non-employee directors for a total of 13,356 shares. In addition, on August 11, 2011, the Company's Board awarded a 2,226 share restricted stock grant to the Company's former chief executive officer, who began service as a non-employee director after retiring as chief executive officer on May 19, 2011.

At December 31, 2011, 984,418 shares remained available to be issued under the 2011 Incentive Plan.

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 3,000 shares of common stock were automatically granted to each non-employee director concurrent with annual meetings of shareholders in 2010 and earlier years and vested immediately. The exercise price of options granted was 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.

The Director Plan was suspended as of May 19, 2011 to prohibit automatic option grants in 2011 in connection with seeking and receiving shareholder approval of the 2011 Incentive Plan, at the 2011 Annual Meeting of Shareholders. As shareholder approval was received, the Board amended the Director Plan to prohibit any future option awards under that plan on August 11, 2011. Stock options were granted to non-employee directors for 0, 18,000, and 18,000 shares in 2011, 2010 and 2009, respectively.

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 Plan. When seeking approval of the 2011 Incentive Plan at the 2011 Shareholders Meeting, 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.

During 2011, prior to amending the Stock Plan to prohibit future awards, stock options were awarded covering 96,250 shares to key executive employees, which options expire seven years from the date of award and vest 25% each year beginning one year after the date of award.

During 2011, prior to amending the Stock Plan to prohibit future awards, key employees were granted deferred stock awards covering 16,092 shares tied to achievement against performance goals in 2010 under the Company's long term incentive plan. To the extent earned, the deferred stock will be paid out in the first quarter of 2014 to key employees still employed by the Company at that time. The Company also granted deferred stock awards covering 77,588 shares to key employees under the Company's long term incentive plan tied to achievement against performance over the 2011 to 2013 period. The actual number of shares of deferred stock earned by the respective employees, if any, will be determined based on achievement against cumulative performance goals for the three years ending December 31, 2013 and the number of shares earned will be paid in the first quarter of 2014 to those key employees still employed by the Company at that time. During 2011, the Company also granted deferred stock awards of up to 12,156 shares to executive employees that could be earned under the Company's short-term incentive plan if actual revenue equaled or exceeded 150% of 2011 quarterly or annual revenue targets. The number of shares earned by the respective executive employees will be paid out no later than the first quarter of 2012.

At December 31, 2011 after reserving for stock options and deferred stock awards described in the two preceding paragraphs and adjusting for forfeitures and issuances during the year, there were 162,243 shares reserved for issuance under the Stock Plan. The Company did not award stock options or deferred stock under this plan in 2010 or 2009.

Stock Options Outstanding

The following table summarizes changes in the number of outstanding stock options under the Director Plan and Stock Plan during the three years ended December 31, 2011.

 

 

 

 

 

 

 

 

 

 

 

 

 

Options

 

Weighted average
exercise price
per share

 

Weighted average
remaining
contractual term

 

 

 

 

 

 

Outstanding – December 31, 2008

 

 

351,350

 

$

9.99

 

 

2.78 years

 

Awarded

 

 

18,000

 

 

9.73

 

 

 

 

Exercised

 

 

(6,400

)

 

10.71

 

 

 

 

Forfeited

 

 

(173,950

)

 

10.18

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding – December 31, 2009

 

 

189,000

 

$

9.77

 

 

4.75 years

 

Awarded

 

 

18,000

 

 

11.82

 

 

 

 

Exercised

 

 

(21,000

)

 

8.70

 

 

 

 

Forfeited

 

 

(24,000

)

 

14.13

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding – December 31, 2010

 

 

162,000

 

$

9.49

 

 

5.33 years

 

Awarded

 

 

96,250

 

 

14.16

 

 

 

 

Exercised

 

 

(9,000

)

 

8.10

 

 

 

 

Forfeited

 

 

(12,430

)

 

11.23

 

 

 

 

 

 

 

 

 

 

 

 

 

Outstanding – December 31, 2011

 

 

236,820

 

 

11.35

 

 

5.18 years

 

 

 

 

 

 

 

 

 

 

 

 

Exercisable at December 31, 2011

 

 

164,635

 

$

10.12

 

 

4.73 years

 

Expected to vest at December 31, 2011

 

 

235,801

 

 

11.34

 

 

5.17 years

 

 

 

 

 

 

 

 

 

 

 

 

The fair value of awards issued under the Company's stock option plan is estimated at grant date using the Black-Scholes option-pricing model. The following table displays the assumptions used in the model.


 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31

 

 

 

 

 

 

2011

 

2010

 

2009

 

 

 

 

 

 

Expected volatility

 

 

27.7

%

 

27.3

%

 

28.3

%

Risk free interest rate

 

 

3.4

%

 

3.7

%

 

3.4

%

Expected holding period

 

 

6 years

 

 

7 years

 

 

7 years

 

Dividend yield

 

 

4.2

%

 

4.7

%

 

4.9

%

Total unrecognized compensation expense was $102,000, $0, and $0 for the years ending December 31, 2011, 2010 and 2009, respectively, which is expected to be recognized over the next 3.2 years. The aggregate intrinsic value of all outstanding options, exercisable options, and options expected to vest (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) was $651,000 based on the Company's stock price at December 31, 2011. The intrinsic value of options exercised during the year was $61,000, $183,000 and $30,000 in 2011, 2010 and 2009, respectively. Net cash proceeds from the exercise of all stock options were $73,000, $0 and $30,000 for 2011, 2010 and 2009, respectively. The following table summarizes the status of stock options outstanding at December 31, 2011:

 

 

 

 

 

 

 

 

 

 

 

Range of Exercise Prices

 

Shares

 

Weighted Average
Remaining
Option Life

 

Weighted
Average
Exercise Price

 

 

 

 

 

$7.13 to $8.64

 

 

45,000

 

 

1.4 years

 

$

7.59

 

$8.65 to $9.99

 

 

33,000

 

 

6.0 years

 

 

9.67

 

$10.00 to $12.00

 

 

69,000

 

 

5.9 years

 

 

10.95

 

$12.01 to $14.50

 

 

89,820

 

 

6.2 years

 

 

14.16

 

The Company receives an income tax benefit related to the gains received by officers and key employees who make disqualifying dispositions of stock received on exercise of qualified incentive stock options and on non-qualified options. The amount of tax benefit received by the Company was $22,000, $35,000 and $0 in 2011, 2010 and 2009 respectively. The tax benefit amounts have been credited to additional paid-in capital.

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, 2010 to December 31, 2011:

 

 

 

 

 

 

 

 

 

 

Shares

 

Weighted Average
Grant Date
Fair Value

 

 

 

 

 

Outstanding – December 31, 2010

 

 

—

 

$

—

 

Granted

 

 

105,836

 

 

15.15

 

Vested

 

 

(2,657

)

 

15.40

 

Forfeited

 

 

(31,330

)

 

15.27

 

 

 

 

 

 

 

Outstanding – December 31, 2011

 

 

71,849

 

 

15.14

 

The grant date fair value is calculated based on the Company's closing stock price as of the grant date. As of December 31, 2011, the total unrecognized compensation expense related to the deferred stock shares was $302,000 and is expected to be recognized over a weighted-average period of 2 years.

Compensation Expense

Share-based compensation expense is recognized based on the fair value of awards granted over the vesting period of the award. Share-based compensation expense recognized for 2011, 2010 and 2009 was $449,000, $39,000 and $32,000 before income taxes and $292,000, $25,000 and $20,000 after income taxes, respectively. Share-based compensation expense is recorded as a part of selling, general and administrative expenses.

Employee Stock Purchase Plan

Under the Company's Employee Stock Purchase Plan ("ESPP") employees are able to acquire shares of common stock at 90% of the price at the end of each current quarterly plan term. The most recent term ended December 31, 2011. The ESPP is considered compensatory under current rules. At December 31, 2011, after giving effect to the shares issued as of that date, 66,413 shares remain available for purchase under the ESPP.

Employee Stock Ownership Plan (ESOP)

All eligible employees of the Company participate in the ESOP after completing one year of service. Contributions are allocated to each participant based on compensation and vest 30% after three years of service and incrementally thereafter, with full vesting after seven years. At December 31, 2011, the ESOP held 531,137 shares of the Company's common stock, all of which have been allocated to the accounts of eligible employees. Contributions to the plan are determined by the Board of Directors and can be made in cash or shares of the Company's stock. The 2011 ESOP contribution was $508,199 for which the Company issued 36,145 shares in March 2012. The 2010 ESOP contribution was $316,027 for which the Company issued 22,493 shares in 2011. The Company's 2009 ESOP contribution was $471,563 for which the Company issued 37,907 shares of common stock to the ESOP in 2010.


Common Stock
v0.0.0.0
Common Stock
 12 Months Ended
Dec. 31, 2011
Common Stock [Abstract]  
Common Stock

NOTE 9 – COMMON STOCK

PURCHASES OF COMMUNICATIONS SYSTEMS, INC. COMMON STOCK

In October 2008, the Company's Board of Directors authorized the repurchase of shares of the Company's stock pursuant to Exchange Act Rule 10b-18 on the open market, in block trades or in private transactions. At December 31, 2011, 481,938 additional shares could be repurchased under outstanding Board authorizations.

SHAREHOLDER RIGHTS PLAN

On December 23, 2009 the Board of Directors adopted a shareholders' rights plan. Under this plan, the Board of Directors declared a distribution of one right per share of common stock. Each right entitles the holder to purchase 1/100th of a share of a new series of Junior Participating Preferred Stock of the Company at an initial exercise price of $41. The rights expire on December 23, 2019. The rights will become exercisable only following the acquisition by a person or group, without the prior consent of the Board of Directors, of 16.5% or more of the Company's voting stock, or following the announcement of a tender offer or exchange offer to acquire an interest of 16.5% or more. If the rights become exercisable, each rightholder will be entitled to purchase, at the exercise price, common stock with a market value equal to twice the exercise price. Should the Company be acquired, each right would entitle the holder to purchase, at the exercise price, common stock of the acquiring company with a market value equal to twice the exercise price. Any rights owned by the acquiring person or group would become void.

Income Taxes
v0.0.0.0
Income Taxes
 12 Months Ended
Dec. 31, 2011
Income Taxes [Abstract]  
Income Taxes

NOTE 10 - INCOME TAXES

Income tax expense from continuing operations consists of the following:

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31

 

 

 

 

 

 

2011

 

2010

 

2009

 

 

 

 

 

 

Currently payable income taxes:

 

 

 

 

 

 

 

 

 

 

Federal

 

$

5,609,000

 

$

5,906,000

 

$

3,766,000

 

State

 

 

414,000

 

 

581,000

 

 

362,000

 

Foreign

 

 

103,000

 

 

(50,000

)

 

(14,000

)

 

 

 

 

 

 

 

 

6,126,000

 

 

6,437,000

 

 

4,114,000

 

 

 

 

 

 

 

 

 

 

 

 

Deferred income taxes (benefit):

 

 

 

 

 

 

 

 

 

 

Federal

 

$

1,204,000

 

$

(522,000

)

$

551,000

 

State

 

 

72,000

 

 

(10,000

)

 

37,000

 

Foreign

 

 

420,000

 

 

14,000

 

 

54,000

 

 

 

 

 

 

 

 

 

1,696,000

 

 

(518,000

)

 

642,000

 

 

 

 

 

 

 

 

 

 

 

 

 

 

$

7,822,000

 

$

5,919,000

 

$

4,756,000

 

 

 

 

 

 

Austin Taylor Communications, Ltd. operates in the United Kingdom (U.K.) and is subject to U.K. rather than U.S. income taxes. Austin Taylor had pretax losses of $1,474,000, $1,119,000 and $1,252,000 in 2011, 2010 and 2009 respectively. At the end of 2011, Austin Taylor's net operating loss carry-forward was $6,986,000. $56,000 of the 2011 pretax loss will provide group relief to Patapsco, a U.K. company acquired by Communications Systems, Inc. during 2011. The Company remains uncertain that it will be able to generate the future income needed to realize the tax benefit of the carry-forward. Accordingly, the Company has continued to maintain its deferred tax valuation allowance against the potential carry-forward benefit.

In 2007, Transition Networks China began operations in China and is subject to Chinese taxes rather than U.S. income taxes. Transition Networks China had pretax income of $24,000 in 2011 and pretax losses of $115,000 and $190,000 in 2010 and 2009 respectively. At the end of 2011, Transition Networks China's net operating loss carry-forward was $1,730,000. Due to the history of losses in China the Company remains uncertain that it will be able to generate the future income needed to realize the tax benefit of the carry-forward. Accordingly, the Company has continued to maintain its deferred tax valuation allowance against the potential carry-forward benefit.

Suttle Costa Rica, S.A. operates in Costa Rica and is subject to Costa Rica income taxes. In 2005, the Board of Directors of Suttle Costa Rica S. A. declared a dividend in the amount of $3,500,000 payable to the Company. The dividend and related "dividend reinvestment plan" qualify under Internal Revenue Code Sec. 965, which allows the Company to receive an 85% dividend received deduction if the amount of the dividend is reinvested in the United States pursuant to a domestic reinvestment plan. The Company made the required qualified capital expenditures in 2006. It is the Company's intention to maintain the remaining undistributed earnings in its Costa Rica subsidiary to support continued operations there. No deferred taxes have been provided for the undistributed earnings.

Suttle Costa Rica had pretax income of $155,000 and $80,000 in 2011 and 2010 respectively and pretax loss of $519,000 in 2009. At the end of 2011, Suttle Costa Rica's net operating loss carry-forward was $519,000. The Costa Rican tax authorities may allow losses to be carried forward to future periods at their discretion. The Company believes that it is unlikely that the Costa Rican tax authorities would grant the request to defer the prior years' net operating losses to future periods. Therefore, the Company has placed a deferred tax valuation allowance against the potential carry-forward benefit.

The provision for income taxes for continuing operations varied from the federal statutory tax rate as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

Year Ended December 31

 

 

 

 

 

 

2011

 

2010

 

2009

 

 

 

 

 

 

Tax at U.S. statutory rate

 

 

35.0

%

 

35.0

%

 

35.0

%

Surtax exemption

 

 

(0.3

)

 

(0.6

)

 

(0.9

)

State income taxes, net of federal benefit

 

 

1.9

 

 

2.4

 

 

2.5

 

Foreign income taxes, net of foreign tax credits

 

 

4.7

 

 

2.7

 

 

4.9

 

Impairment of goodwill

 

 

2.5

 

 

—

 

 

—

 

Other

 

 

.6

 

 

(1.6

)

 

2.5

 

 

 

 

 

 

Effective tax rate

 

 

44.4

%

 

37.9

%

 

44.0

%

 

 

 

 

 


Deferred tax assets and liabilities as of December 31 related to the following:

 

 

 

 

 

 

 

 

 

 

2011

 

2010

 

 

 

 

 

Deferred tax assets:

 

 

 

 

 

 

 

Allowance for doubtful accounts

 

$

58,000

 

$

184,000

 

Inventory

 

 

2,611,000

 

 

3,347,000

 

Accrued and prepaid expenses

 

 

762,000

 

 

939,000

 

Domestic net operating loss carry-forward

 

 

186,000

 

 

265,000

 

Long-term compensation plans

 

 

298,000

 

 

338,000

 

Nonemployee director stock compensation

 

 

128,000

 

 

71,000

 

Other stock compensation

 

 

122,000

 

 

—

 

State income taxes

 

 

63,000

 

 

58,000

 

Foreign net operating loss carry-forwards and credits

 

 

2,625,000

 

 

2,660,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Gross deferred tax assets

 

 

6,853,000

 

 

7,862,000

 

Valuation allowance

 

 

(2,624,000

)

 

(2,216,000

)

 

 

 

 

 

 

 

 

 

 

 

 

Net deferred tax assets

 

 

4,229,000

 

 

5,646,000

 

 

 

 

 

 

 

 

 

 

 

 

 

Deferred tax liabilities

 

 

 

 

 

 

 

Depreciation

 

 

(1,577,000

)

 

(1,373,000

)

Intangible assets

 

 

(674,000

)

 

(388,000

)

 

 

 

 

 

 

 

 

 

 

 

 

Gross deferred tax liability

 

 

(2,251,000

)

 

(1,761,000

)

 

 

 

 

 

 

 

 

 

 

 

 

Total net deferred tax asset

 

$

1,978,000

 

$

3,885,000

 

 

 

 

 


As part of previous acquisitions, the Company purchased net operating loss carry-forwards in the amount of $3,790,000. At December 31, 2011, the Company had $531,000 remaining net operating loss carry-forwards for income tax purposes which expire in 2014. Utilization of net operating loss carry-forwards is limited to $228,000 per year in future years.

The Company assesses uncertain tax positions in accordance with ASC 740. Under this method, the Company must recognize the tax benefit from an uncertain tax position only if it is more likely than not that the tax position will be sustained on examination by the taxing authorities, based on the technical merits of the position. The tax benefits recognized in the financial statements from such uncertain tax positions are measured based on the largest benefit that has a greater than fifty percent likelihood of being realized upon ultimate resolution. The Company's practice is to recognize interest and penalties related to income tax matters in income tax expense.

Changes in the Company's unrecognized tax benefits are summarized as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

2011

 

2010

 

2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Unrecognized tax benefits – January 1

 

$

270,000

 

$

349,000

 

$

380,000

 

Gross increases - tax positions in prior period

 

 

0

 

 

0

 

 

0

 

Gross decreases - tax positions in prior period

 

 

 

 

 

 

 

 

 

 

Gross increases - current period tax positions

 

 

7,000

 

 

7,000

 

 

66,000

 

Expiration of statute of limitations

 

 

(43,000

)

 

(86,000

)

 

(97,000

)

 

 

 

 

 

Unrecognized tax benefits – December 31, 2011

 

$

234,000

 

$

270,000

 

$

349,000

 

 

 

 

 

 

Included in the balance of unrecognized tax benefits at December 31, 2011 are $342,000 of tax benefits that if recognized would affect the tax rate. The Company's unrecognized tax benefits could be reduced by $81,000 in the next twelve months due to statute of limitations expirations. The Company's income tax liability accounts included accruals for interest and penalties of $172,000 at December 31, 2011. The Company's 2011 income tax expense was decreased by $236,000 due to net decreases for accrued interest and penalties.

The Company's federal and state tax returns and tax returns it has filed in Costa Rica and the United Kingdom are open for review going back to the 2008 tax year. Puerto Rico has no statute of limitations on tax returns.

Information Concerning Industry Segments And Major Customers
v0.0.0.0
Information Concerning Industry Segments And Major Customers
 12 Months Ended
Dec. 31, 2011
Information Concerning Industry Segments And Major Customers [Abstract]  
Information Concerning Industry Segments And Major Customers

NOTE 11- INFORMATION CONCERNING INDUSTRY SEGMENTS AND MAJOR CUSTOMERS

The Company classifies its businesses into four segments: Suttle, which manufactures U.S. standard modular connecting and wiring devices for voice and data communications; Transition Networks, which designs and markets data transmission, computer network and media conversion products and print servers; JDL Technologies, (JDL), which provides IT services; and Austin Taylor which manufactures British standard telephone equipment and equipment enclosures for the U.K and international markets. Non-allocated corporate general and administrative expenses are categorized as "Other" in the Company's segment reporting. Management has chosen to organize the enterprise and disclose reportable segments based on products and services. There are no material intersegment revenues.

Suttle products are sold principally to U.S. customers. Suttle operates manufacturing facilities in the U.S. and Costa Rica. Net long-lived assets held in foreign countries were approximately $831,000 and $506,000 at December 31, 2011 and 2010, respectively. Transition Networks manufactures its products in the United States and makes sales in both the U.S. and international markets. JDL Technologies operates in the U.S. and makes sales in the U.S. Austin Taylor operates a manufacturing facility in the U.K. and makes sales in the U.K. and internationally. Consolidated sales to U.S. customers were approximately 85%, 81% and 82% of sales from continuing operations in 2011, 2010 and 2009 respectively. In 2011, sales to one of Transition Networks' customers accounted for 22.8% of consolidated sales. In 2010, sales to two of Transition Networks' customers accounted for 15.1% and 12.0% of consolidated sales and one of JDL Technologies' customers accounted for 10.3% of consolidated sales. In 2009, sales to one of Transition Networks' customers accounted for 16.7% of consolidated sales and one of Suttle's customers accounted for 12.2% of consolidated sales.

Information concerning the Company's operations in the various segments for the twelve-month periods ended December 31, 2011, 2010 and 2009 is as follows:

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Suttle

 

Transition
Networks

 

JDL
Technologies

 

Austin
Taylor

 

 

Other

 

 

Total

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

36,636,915

 

$

91,450,014

 

$

12,400,553

 

$

3,287,569

 

$

—

 

$

143,775,051

 

Cost of sales

 

 

27,365,489

 

 

46,825,149

 

 

7,262,006

 

 

3,427,280

 

 

—

 

 

84,879,924

 

 

 

Gross profit

 

 

9,271,426

 

 

44,624,865

 

 

5,138,547

 

 

(139,711

)

 

—

 

 

58,895,127

 

Selling, general and administrative expenses

 

 

6,897,672

 

 

23,730,729

 

 

1,982,353

 

 

1,320,094

 

 

6,177,373

 

 

40,108,221

 

Impairment

 

 

1,271,986

 

 

 

 

 

—

 

 

—

 

 

 

 

 

1,271,986

 

 

 

Operating income (loss)

 

$

1,101,768

 

$

20,894,136

 

$

3,156,194

 

$

(1,459,805

)

$

(6,177,373

)

$

17,514,920

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

906,004

 

$

755,789

 

$

106,622

 

$

40,252

 

$

292,068

 

$

2,100,735

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

935,030

 

$

1,028,941

 

$

51,789

 

$

—

 

$

740,231

 

$

2,755,991

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

$

25,512,978

 

$

33,589,083

 

$

1,844,572

 

$

2,401,323

 

$

53,310,960

 

$

116,658,916

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Suttle

 

Transition
Networks

 

JDL
Technologies

 

Austin
Taylor

 

 

Other

 

 

Total

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

36,561,669

 

$

67,782,482

 

$

12,712,244

 

$

3,015,915

 

$

—

 

$

120,072,310

 

Cost of sales

 

 

26,880,667

 

 

31,826,169

 

 

7,132,263

 

 

3,032,579

 

 

—

 

 

68,871,678

 

 

 

Gross profit

 

 

9,681,002

 

 

35,956,313

 

 

5,579,981

 

 

(16,664

)

 

—

 

 

51,200,632

 

Selling, general and administrative expenses

 

 

6,638,163

 

 

21,459,214

 

 

1,470,086

 

 

1,084,345

 

 

4,934,440

 

 

35,586,248

 

Impairment

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

—

 

 

 

Operating income (loss)

 

$

3,042,839

 

$

14,497,099

 

$

4,109,895

 

$

(1,101,009

)

$

(4,934,440

)

$

15,614,384

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

830,986

 

$

604,873

 

$

102,850

 

$

25,194

 

$

294,978

 

$

1,858,881

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

741,820

 

$

680,819

 

$

197,784

 

$

9,854

 

$

164,145

 

$

1,794,422

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

$

19,357,569

 

$

32,383,709

 

$

3,493,717

 

$

2,406,939

 

$

51,428,293

 

$

109,070,227

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Suttle

 

Transition
Networks

 

JDL
Technologies

 

Austin
Taylor

 

 

Other

 

 

Total

 

2009

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

42,866,947

 

$

55,098,346

 

$

8,765,415

 

$

3,061,499

 

$

—

 

$

109,792,207

 

Cost of sales

 

 

33,095,673

 

 

25,768,865

 

 

6,011,918

 

 

3,067,101

 

 

—

 

 

67,943,557

 

 

 

Gross profit

 

 

9,771,274

 

 

29,329,481

 

 

2,753,497

 

 

(5,602

)

 

—

 

 

41,848,650

 

Selling, general and administrative expenses

 

 

6,054,170

 

 

19,371,120

 

 

1,298,790

 

 

1,012,194

 

 

3,697,823

 

 

31,434,097

 

Impairment

 

 

 

 

 

 

 

 

 

 

 

196,020

 

 

 

 

 

196,020

 

 

 

Operating income (loss)

 

$

3,717,104

 

$

9,958,361

 

$

1,454,707

 

$

(1,213,816

)

$

(3,697,823

)

$

10,218,533

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Depreciation and amortization

 

$

651,407

 

$

579,816

 

$

155,744

 

$

76,495

 

$

234,859

 

$

1,698,321

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Capital expenditures

 

$

2,667,916

 

$

355,129

 

$

37,026

 

$

114,153

 

$

63,334

 

$

3,237,558

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Assets

 

$

21,110,624

 

$

29,640,360

 

$

1,548,930

 

$

4,044,746

 

$

46,569,034

 

$

102,913,694

 

 

 

Fair Value Measurements
v0.0.0.0
Fair Value Measurements
 12 Months Ended
Dec. 31, 2011
Fair Value Measurements [Abstract]  
Fair Value Measurements

NOTE 12 – FAIR VALUE MEASUREMENTS

Fair value is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Assets and liabilities measured at fair value are classified using the following hierarchy, which is based upon the transparency of inputs to the valuation as of the measurement date:

Level 1 – Observable inputs that reflect unadjusted quoted prices for identical assets or liabilities in active markets that the Company has the ability to access at the measurement date.

Level 2 – Observable inputs such as quoted prices for similar instruments and quoted prices in markets that are not active, and inputs that are directly observable or can be corroborated by observable market data. The types of assets and liabilities included in Level 2 are typically either comparable to actively traded securities or contracts, such as treasury securities with pricing interpolated from recent trades of similar securities, or priced with models using highly observable inputs, such as commodity options priced using observable forward prices and volatilities.

Level 3 – Significant inputs to pricing that have little or no observability as of the reporting date. The types of assets and liabilities included in Level 3 are those with inputs requiring significant management judgment or estimation, such as the complex and subjective models and forecasts used to determine the fair value of financial instruments.

The Company's assets and liabilities that are measured at fair value on a recurring basis as of December 31, 2011 and December 31, 2010, respectively, include money market funds within cash equivalents of $830,000 and $9,624,000 classified as level one within the hierarchy and certificate of deposits within investments of $23,519,000 and $26,287,000 classified as level two. The Company does not have any assets or liabilities classified as level three within the hierarchy, other than the pension assets already discussed in Note 6.

Subsequent Events
v0.0.0.0
Subsequent Events
 12 Months Ended
Dec. 31, 2011
Subsequent Events [Abstract]  
Subsequent Events

NOTE 13 – SUBSEQUENT EVENTS

The Company has evaluated subsequent events through the date of this filing. We do not believe there are any material subsequent events which would require further disclosure.

(b) SUPPLEMENTAL FINANCIAL INFORMATION

Quarterly Operating Results
(in thousands except per share amounts)
Unaudited

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Quarter Ended

 

 

 

 

 

March 31

 

June 30

 

Sept 30

 

Dec 31

 

2011

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

31,023

 

$

45,430

 

$

41,985

 

$

25,337

 

Gross margins

 

 

13,328

 

 

18,456

 

 

16,555

 

 

10,556

 

Operating income

 

 

4,141

 

 

7,253

 

 

6,484

 

 

(363

)

Net income

 

 

2,558

 

 

4,085

 

 

3,730

 

 

(575

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

0.30

 

$

0.48

 

$

0.44

 

$

(0.07

)

Diluted net income per share

 

$

0.30

 

$

0.48

 

$

0.44

 

$

(0.07

)

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2010

 

 

 

 

 

 

 

 

 

 

 

 

 

Sales

 

$

25,882

 

$

30,659

 

$

33,324

 

$

30,207

 

Gross margins

 

 

10,515

 

 

13,284

 

 

15,310

 

 

12,092

 

Operating income

 

 

2,120

 

 

4,192

 

 

6,304

 

 

2,998

 

Net income

 

 

1,331

 

 

2,415

 

 

3,999

 

 

1,970

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Basic net income per share

 

$

0.16

 

$

0.29

 

$

0.48

 

$

0.23

 

Diluted net income per share

 

$

0.16

 

$

0.29

 

$

0.48

 

$

0.22