MINNETONKA, Minn., Aug. 11 /PRNewswire-FirstCall/ -- Communications Systems, Inc. today reported results for the three month and six month periods ended June 30, 2008. Sales in the 2008 second quarter decreased 6 % to $31,291,000 compared to $33,256,000 in 2007, and net income in the second quarter was $2,261,000, or $.26 per diluted share, compared $3,720,000, or $.42 per diluted share, in the comparable 2007. As discussed below, 2007 second quarter results included recognition of $3,298,000 in sales attributable to work performed in 2006 and the first quarter of 2007, which represented approximately $1,641,000, or $.19 per diluted share, of the Company's net, after tax income in the 2007 second quarter.
For the six months ended June 30, 2008 sales increased 3% to $61,612,000 from $59,701,000 in 2007, and net income was $2,447,000 or $.28 per diluted share, compared to $4,257,000, or $.48 per diluted share, in the same period of 2007. As discussed below, net income for the 2008 six month period includes an impairment charge of $2,999,000 related to termination by a Company subsidiary of its operations in the US Virgin Islands which reduced net, after tax income approximately $2,129,000 or $.25 per diluted share.
The Company revenues grew in the first six months of 2008 due to a $5.6 million increase in sales by its Transition Networks subsidiary, which represented a 23% increase compared to 2007. This strong revenue increase resulted in Transition posting operating income of $4,302,000, an 80% increase over 2007. Transition's strong performance was fueled by significant increases in sales both in the United States and internationally. Reflecting challenging conditions in the telecommunications sector due to a general economic slowdown and weakness in new construction, the Company's other primary subsidiary, Suttle experienced a 4 % decline in sales to $22,601,000, yet remained solidly profitable, contributing $2,090,000 in operating income in the first six months of 2008
The Company's second quarter and six month results for 2008 and 2007 reflect the impact of revenue recognition policies adopted to account for federal government funding of services that were provided under successive one year contracts by the Company's JDL Technologies, Inc. subsidiary (JDL) to the Virgin Islands Department of Education (VIDE) over the last several years. For reasons discussed in earlier press releases and filings with the SEC the Company adopted a revenue recognition policy in early 2007 that it would not recognize income for its work under contracts with VIDE until a funding commitment was issued under the federal government's E-Rate program. In the second quarter of 2007 funding commitments for several contracts were received for work performed in earlier periods. As a result, in its second quarter 2007 financial statements the Company recognized $2,555,000 of revenue for services performed in 2006 and $748,000 of revenue for services performed in the first quarter of 2007, which increased the Company's after tax net income for the 2007 second quarter by $1,641,000 or $.19 per diluted share. In addition, in the first quarter of 2008 funding commitments for contracts with VIDE for work performed in 2007 were received, and the Company recognized $1,300,000 of revenue in the 2008 first quarter, which increased the Company's after tax net income in the 2008 first quarter by approximately $680,000 or $.08 per diluted share.
The $2,999,000 non-cash impairment charge reflected in 2008 six month results stems from the decision by VIDE in January 2008 to select another vendor to provide wireless network services for the contract year beginning July 1, 2008, rather than JDL. After unsuccessfully attempting to reverse VIDE's decision, the Company decided to wind up its operations in the Virgin Islands effective June 30, 2008. While the process of winding up JDL's Virgin Islands operations is now largely complete, the Company continues to explore all options for selling VIDE related assets, which may enable the Company to recover some of the impaired value in future periods.
Jeffrey Berg, CSI's President and CEO, commented, "Although our consolidated results for the first six months of 2008 were severely affected by impairment charges resulting from ending our operations in the Virgin Islands, we are very encouraged by the performance of our primary business units, Transition Networks and Suttle, over the last six months and believe they provide a solid foundation for increasing CSI's revenues and profitability in future periods."
About Communications Systems
Communications Systems, Inc. provides physical connectivity infrastructure and services for cost-effective broadband solutions and is a leading supplier of voice-grade connecting devices and wiring systems. CSI serves the broadband network market as the world's leading supplier of media conversion technology, that permits networks to deploy fiber optic technology while retaining the copper-based infrastructure already embedded in the network. In addition, CSI supplies copper wire and fiber optic structured wiring systems for broadband networks, as well as line filters for digital subscriber line service. CSI also provides network design, training and management services.
Cautionary Statement
From time to time, in reports filed with the Securities and Exchange Commission, in press releases, and in other communications to shareholders or the investing public, the Communications Systems, Inc. may make forward- looking statements concerning possible or anticipated future financial performance, business activities or plans which are typically preceded by the words "believes," "expects," "anticipates," "intends" or similar expressions. For these forward-looking statements, the Company claims the protection of the safe harbor for forward-looking statements contained in federal securities laws. Shareholders and the investing public should understand that these forward-looking statements are subject to risks and uncertainties which could cause actual performance, activities or plans after the date the statements are made to differ significantly from those indicated in the forward-looking statements when made.
CSI CONSOLIDATED SUMMARY OF EARNINGS Selected Income Statement Data Three Months Three Months Six Months Six Months Ended Ended Ended Ended June 30, June 30, June 30, June 30, 2008 2007 2008 2007 Sales $31,291,042 $33,255,998 $61,612,277 $59,701,166 Gross margin 11,261,700 13,577,876 22,712,254 22,421,680 Operating income 2,929,732 5,440,363 3,128,375 6,056,076 Income before income taxes 3,089,585 5,700,255 3,446,077 6,521,548 Income taxes 829,000 1,980,000 999,000 2,265,000 Net income $2,260,585 $3,720,255 $2,447,077 $4,256,548 Basic net income per share $0.26 $0.42 $0.28 $0.48 Diluted net income per share $0.26 $0.42 $0.28 $0.48 Cash dividends per share $0.12 $0.10 $0.24 $0.20 Average basic shares outstanding 8,609,628 8,857,720 8,593,851 8,833,452 Average dilutive shares outstanding 8,652,053 8,926,387 8,635,834 8,905,370 Selected Balance Sheet Data June 30, 2008 December 31, 2007 Total assets $101,643,781 $100,760,313 Cash 27,564,030 29,427,879 Property, plant and equipment, net 12,847,149 13,944,597 Long-term liabilities 3,807,097 4,044,905 Stockholders' equity 85,835,207 84,930,582
