UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
_____________
FORM 10-Q
(Mark One)
For the quarterly period ended September 30, 2016 or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
Commission File Number 1-36117
inTEST Corporation
(Exact Name of Registrant as Specified in its Charter)
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Delaware |
22-2370659 |
804 East Gate Drive, Suite 200
Mt. Laurel, New Jersey 08054
Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.
YES X NO ____
Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (SS 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files).
YES X NO ____
Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act.
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Large accelerated filer ___ |
Accelerated filer ___ |
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Non-accelerated filer ___ (Do not check if a smaller reporting company) |
Smaller reporting company X |
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).
YES ___ NO X
Number of shares of Common Stock, $.01 par value, outstanding as of the close of business on October 31, 2016:
10,376,770
____________________________
inTEST CORPORATION
INDEX
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PART I. |
FINANCIAL INFORMATION |
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Page |
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Item 1. |
Financial Statements |
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Consolidated Balance Sheets as of September 30, 2016 (Unaudited) and December 31, 2015 |
1 |
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Unaudited Consolidated Statements of Operations for the three months and nine months ended |
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Unaudited Consolidated Statements of Comprehensive Earnings for the three months and nine months |
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Unaudited Consolidated Statement of Stockholders' Equity for the nine months ended |
3 |
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Unaudited Consolidated Statements of Cash Flows for the nine months ended |
4 |
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Notes to Consolidated Financial Statements |
5 - 14 |
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Item 2. |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
15 - 22 |
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Item 3. |
Quantitative and Qualitative Disclosures About Market Risk |
22 |
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Item 4. |
Controls and Procedures |
22 - 23 |
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PART II. |
OTHER INFORMATION |
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Item 1. |
Legal Proceedings |
23 |
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Item 1A. |
Risk Factors |
23 |
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Item 2. |
Unregistered Sales of Equity Securities and Use of Proceeds |
23 - 24 |
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Item 3. |
Defaults Upon Senior Securities |
24 |
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Item 4. |
Mine Safety Disclosures |
24 |
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Item 5. |
Other Information |
24 |
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Item 6. |
Exhibits |
24 |
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Signatures |
24 |
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Index to Exhibits |
25 |
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PART I. FINANCIAL INFORMATION
Item 1. FINANCIAL STATEMENTS
inTEST CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
Sept. 30, Dec. 31,
2016 2015
--------- --------
ASSETS: (Unaudited)
Current assets:
Cash and cash equivalents $26,345 $25,710
Trade accounts receivable, net of allowance for doubtful
accounts of $146 and $146, respectively 6,663 4,395
Inventories 3,397 3,520
Prepaid expenses and other current assets 457 639
Total current assets 36,862 34,264
Property and equipment:
Machinery and equipment 4,411 4,377
Leasehold improvements 604 603
Gross property and equipment 5,015 4,980
Less: accumulated depreciation (4,020) (3,868)
Net property and equipment 995 1,112
Deferred tax assets 1,104 1,245
Goodwill 1,706 1,706
Intangible assets, net 931 1,104
Restricted certificates of deposit 225 350
Other assets 209 203
Total assets $42,032 $39,984
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Accounts payable $ 1,252 $ 909
Accrued wages and benefits 1,522 1,466
Accrued rent 557 657
Accrued professional fees 427 363
Accrued sales commissions 371 297
Domestic and foreign income taxes payable 549 26
Other current liabilities 356 341
Total current liabilities 5,034 4,059
Commitments and contingencies
Stockholders' equity:
Preferred stock, $0.01 par value; 5,000,000 shares authorized;
no shares issued or outstanding - -
Common stock, $0.01 par value; 20,000,000 shares authorized;
10,426,552 and 10,549,423 shares issued, respectively 104 105
Additional paid-in capital 25,668 26,286
Retained earnings 10,670 9,013
Accumulated other comprehensive earnings 760 725
Treasury stock, at cost; 33,077 and 33,077 shares, respectively (204) (204)
Total stockholders' equity 36,998 35,925
Total liabilities and stockholders' equity $42,032 $39,984
======= =======
See accompanying Notes to Consolidated Financial Statements.
- 1 -
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
(Unaudited)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
------------------ ------------------
2016 2015 2016 2015
------- ------- ------- -------
Net revenues $10,823 $ 9,203 $29,955 $30,950
Cost of revenues 5,246 4,880 14,982 15,863
------- ------- ------- -------
Gross margin 5,577 4,323 14,973 15,087
------- ------- ------- -------
Operating expenses:
Selling expense 1,394 1,370 4,200 4,449
Engineering and product development
expense 905 1,041 2,878 3,030
General and administrative expense 1,574 1,511 5,364 4,887
------- ------- ------- -------
Total operating expenses 3,873 3,922 12,442 12,366
------- ------- ------- -------
Operating income 1,704 401 2,531 2,721
Other income 17 6 63 16
------- ------- ------- -------
Earnings before income tax expense 1,721 407 2,594 2,737
Income tax expense 631 97 937 909
------- ------- ------- -------
Net earnings $ 1,090 $ 310 $ 1,657 $ 1,828
======= ======= ======= =======
Net earnings per common share - basic $0.11 $0.03 $0.16 $0.17
Weighted average common shares
outstanding - basic 10,295,447 10,473,928 10,327,095 10,470,410
Net earnings per common share - diluted $0.11 $0.03 $0.16 $0.17
Weighted average common shares and common
share equivalents outstanding - diluted 10,318,715 10,498,911 10,344,747 10,492,317
See accompanying Notes to Consolidated Financial Statements.
- 2 -
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
(Unaudited)
Three Months Ended Nine Months Ended
Sept. 30, Sept. 30,
------------------ -----------------
2016 2015 2016 2015
------- ------- ------- -------
Net earnings $ 1,090 $ 310 $ 1,657 $ 1,828
Foreign currency translation adjustments (6) 14 35 (211)
------- ------- ------- -------
Comprehensive earnings $ 1,084 $ 324 $ 1,692 $ 1,617
======= ======= ======= =======
See accompanying Notes to Consolidated Financial Statements.
inTEST CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share data)
(Unaudited)
Accumulated
Common Stock Additional Other Total
----------------- Paid-In Retained Comprehensive Treasury Stockholders'
Shares Amount Capital Earnings Earnings Stock Equity
---------- ------ ---------- -------- ------------- -------- -------------
Balance, January 1, 2016 10,549,423 $ 105 $26,286 $ 9,013 $ 725 $(204) $35,925
Net earnings - - - 1,657 - - 1,657
Other comprehensive income - - - - 35 - 35
Amortization of deferred
compensation related to
stock-based awards - - 222 - - - 222
Issuance of unvested shares
of restricted stock 86,400 1 (1) - - - -
Repurchase and retirement
of common stock (209,271) (2) (839) - - - (841)
---------- ----- ------- ------- ------ ----- -------
Balance, Sept. 30, 2016 10,426,552 $ 104 $25,668 $10,670 $ 760 $(204) $36,998
========== ===== ======= ======= ====== ===== =======
See accompanying Notes to Consolidated Financial Statements.
- 3 -
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
(Unaudited)
Nine Months Ended
Sept. 30,
------------------
2016 2015
------- -------
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 1,657 $ 1,828
Adjustments to reconcile net earnings to net cash provided by
operating activities:
Depreciation and amortization 451 575
Provision for excess and obsolete inventory 184 232
Foreign exchange (gain) loss (7) 21
Amortization of deferred compensation related to stock-based awards 222 91
Loss on sale of property and equipment 3 13
Proceeds from sale of demonstration equipment, net of gain 128 208
Deferred income tax expense 141 169
Changes in assets and liabilities:
Trade accounts receivable (2,252) (553)
Inventories (57) (282)
Prepaid expenses and other current assets 183 67
Restricted certificates of deposit 125 -
Accounts payable 343 312
Accrued wages and benefits 47 101
Accrued rent (100) (10)
Accrued professional fees 64 (11)
Accrued sales commissions 74 26
Domestic and foreign income taxes payable 523 (10)
Other current liabilities 12 142
------- -------
Net cash provided by operating activities 1,741 2,919
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment (282) (545)
------- -------
Net cash used in investing activities (282) (545)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Repurchases of common stock (841) -
------- -------
Net cash used in financing activities (841) -
------- -------
Effects of exchange rates on cash 17 (117)
------- -------
Net cash provided by all activities 635 2,257
Cash and cash equivalents at beginning of period 25,710 23,126
------- -------
Cash and cash equivalents at end of period $26,345 $25,383
======= =======
Cash payments for:
Domestic and foreign income taxes $ 25 $ 749
- 4 -
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
(1) NATURE OF OPERATIONS
We are an independent designer, manufacturer and marketer of thermal, mechanical and electrical products that are primarily used by semiconductor manufacturers in conjunction with automatic test equipment ("ATE") in the testing of integrated circuits ("ICs" or "semiconductors"). We also market our thermal products in markets outside the ATE market, such as the automotive, consumer electronics, defense/aerospace, energy, industrial and telecommunications markets.
The consolidated entity is comprised of inTEST Corporation (parent) and our wholly-owned subsidiaries. We have three reportable segments, which are also our reporting units: Thermal Products, Mechanical Products and Electrical Products. We manufacture our products in the U.S. Marketing and support activities are conducted worldwide from our facilities in the U.S., Germany and Singapore.
The semiconductor market in which we operate is characterized by rapid technological change, competitive pricing pressures and cyclical as well as seasonal market patterns. This market is subject to significant economic downturns at various times. Our financial results are affected by a wide variety of factors, including, but not limited to, general economic conditions worldwide and in the markets in which we operate, economic conditions specific to the semiconductor market and the other markets we serve, our ability to safeguard patented technology and intellectual property in a rapidly evolving market, downward pricing pressures from customers, and our reliance on a relatively few number of customers for a significant portion of our sales. In addition, we are exposed to the risk of obsolescence of our inventory depending on the mix of future business and technological changes within the markets that we serve. In January 2016, we implemented a workforce reduction, as discussed further in Note 3, which is a key element in restructuring our Mechanical Products segment with the goal of returning this segment to profitability. These efforts could cause us to incur substantial costs and may not be successful. We also continue to implement an acquisition strategy that may cause us to incur substantial expense in reviewing and evaluating potential transactions. We may or may not be successful in locating suitable businesses to acquire. In addition, if we are able to complete an acquisition, we may not be able to successfully integrate the acquired business with our existing business and we may not be able to operate the acquired business profitably. As a result of these or other factors, we may experience significant period-to-period fluctuations in future operating results.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires us 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. Actual results could differ from those estimates. Certain of our accounts, including inventories, long-lived assets, goodwill, identifiable intangibles and deferred tax assets and liabilities are particularly impacted by estimates.
In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations, and changes in cash flows for the interim periods presented. Certain footnote information has been condensed or omitted from these consolidated financial statements. Therefore, these consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission on March 29, 2016 (the "2015 Form 10-K").
Reclassification
Certain prior period amounts have been reclassified to be comparable with the current period's presentation.
- 5 -
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Inventories
Inventories are valued at cost on a first-in, first-out basis, not in excess of market value. Cash flows from the sale of inventories are recorded in operating cash flows. On a quarterly basis, we review our inventories and record excess and obsolete inventory charges based upon our established objective excess and obsolete inventory criteria. These criteria identify material that has not been used in a work order during the prior twelve months and the quantity of material on hand that is greater than the average annual usage of that material over the prior three years. In certain cases, additional excess and obsolete inventory charges are recorded based upon current market conditions, anticipated product life cycles, new product introductions and expected future use of the inventory. The excess and obsolete inventory charges we record establish a new cost basis for the related inventories. We incurred excess and obsolete inventory charges of $184 and $232 for the nine months ended September 30, 2016 and 2015, respectively.
Goodwill, Intangible and Long-Lived Assets
We account for goodwill and intangible assets in accordance with Accounting Standards Codification ("ASC") 350 (Intangibles - Goodwill and Other). Finite-lived intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment annually in the fourth quarter on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. As a part of the goodwill impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If we determine this is the case, we are required to perform a two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. The two-step test is discussed below. If we determine that it is more-likely-than-not that the fair value of the reporting unit is greater than its carrying amounts, the two-step goodwill impairment test is not required.
If we determine it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a result of our qualitative assessment, we will perform a quantitative two-step goodwill impairment test. In the Step I test, the fair value of a reporting unit is computed and compared with its book value. If the book value of a reporting unit exceeds its fair value, a Step II test is performed in which the implied fair value of goodwill is compared with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recorded in an amount equal to that excess. The two-step goodwill impairment assessment is based upon a combination of the income approach, which estimates the fair value of our reporting units based upon a discounted cash flow approach, and the market approach which estimates the fair value of our reporting units based upon comparable market multiples. This fair value is then reconciled to our market capitalization at year end with an appropriate control premium. The determination of the fair value of our reporting units requires management to make significant estimates and assumptions including the selection of appropriate peer group companies, control premiums, discount rate, terminal growth rates, forecasts of revenue and expense growth rates, changes in working capital, depreciation, amortization and capital expenditures. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charge.
Indefinite-lived intangible assets are assessed for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. As a part of the impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If, as a result of our qualitative assessment, we determine that it is more-likely-than-not that the fair value of the indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The quantitative impairment test consists of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess.
- 6 -
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Long-lived assets, which consist of finite-lived intangible assets and property and equipment, are assessed for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. The cash flow estimates used to determine the impairment, if any, contain management's best estimates using appropriate assumptions and projections at that time.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC Topic 718 (Compensation - Stock Compensation), which requires that employee share-based equity awards be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value of stock options granted, which is then amortized to expense over the service periods. See further disclosures related to our stock-based compensation plan in Note 8.
Subsequent Events
We have made an assessment of our operations and determined that there were no material subsequent events requiring adjustment to, or disclosure in, our consolidated financial statements for the nine months ended September 30, 2016.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection of the related receivable is reasonably assured. Sales of our products are made through our sales employees, third-party sales representatives and distributors. There are no differences in revenue recognition policies based on the sales channel. We do not provide our customers with rights of return or exchanges. Revenue is generally recognized upon product shipment. Our customers' purchase orders do not typically contain any customer-specific acceptance criteria, other than that the product performs within the agreed upon specifications. We test all products manufactured as part of our quality assurance process to determine that they comply with specifications prior to shipment to a customer. To the extent that any customer purchase order contains customer-specific acceptance criteria, revenue recognition is deferred until customer acceptance.
In addition, in our Thermal Products segment, we lease certain of our equipment to customers under non-cancellable operating leases. These leases generally have an initial term of six months. We recognize revenue for these leases on a straight-line basis over the term of the lease.
With respect to sales tax collected from customers and remitted to governmental authorities, we use a net presentation in our consolidated statement of operations. As a result, there are no amounts included in either our net revenues or cost of revenues related to sales tax.
Product Warranties
We generally provide product warranties and record estimated warranty expense at the time of sale based upon historical claims experience. Warranty expense is included in selling expense in our consolidated financial statements.
Income Taxes
The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carryforwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized.
- 7 -
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Net Earnings Per Common Share
Net earnings per common share - basic is computed by dividing net earnings by the weighted average number of common shares outstanding during each period. Net earnings per common share - diluted is computed by dividing net earnings by the weighted average number of common shares and common share equivalents outstanding during each period. Common share equivalents represent unvested shares of restricted stock and stock options and are calculated using the treasury stock method. Common share equivalents are excluded from the calculation if their effect is anti-dilutive.
The table below sets forth, for the periods indicated, a reconciliation of weighted average common shares outstanding - basic to weighted average common shares and common share equivalents outstanding - diluted and the average number of potentially dilutive securities that were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive:
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Three Months Ended |
Nine Months Ended |
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2016 |
2015 |
2016 |
2015 |
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Weighted average common shares outstanding - basic |
10,295,447 |
10,473,928 |
10,327,095 |
10,470,410 |
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Potentially dilutive securities: |
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23,268 |
24,983 |
17,652 |
21,907 |
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Weighted average common shares and common share |
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Average number of potentially dilutive securities excluded |
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Effect of Recently Adopted Amendments to Authoritative Accounting Guidance
- 8 -
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In February 2016, the FASB issued amendments to the current guidance on accounting for lease transactions, which is presented in ASC Topic 842 (Leases). The intent of the updated guidance is to increase transparency and comparability among organizations by requiring lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases and to disclose key information about leasing arrangements. Under the new guidance, a lessee will be required to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The amendments are effective for us as of January 1, 2019. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of the implementation of these amendments on our consolidated financial statements.
In July 2015, the FASB issued amendments to update the current guidance on the subsequent measurement of inventory, which is presented in ASC Topic 330 (Inventory). The purpose of the amendments is to simplify the subsequent measurement of inventory and reduce the number of potential outcomes. It applies to all inventory other than inventory measured using last-in, first-out or the retail inventory method. Current guidance requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less a normal profit margin. The updated guidance amends this to require that an entity measure inventory within the scope of the updated guidance at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments are effective for us as of January 1, 2017. We do not expect the implementation of these amendments to have a material impact on our consolidated financial statements.
In May 2014, the FASB issued new guidance on the recognition of revenue from contracts with customers. Subsequent to May, 2014, the FASB has issued additional clarifying guidance on certain aspects of this new guidance. This guidance is presented in ASC Topic 606 (Revenue from Contracts with Customers). This new guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. Companies can use either the retrospective or cumulative effect transition method. In August 2015, the FASB deferred the effective date of this new guidance for one additional year. As a result, this new guidance is effective for us on January 1, 2018. Early application is only permitted as of the prior effective date, which in our case would be as of January 1, 2017. We have not yet selected a transition method and we are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures.
(3) RESTRUCTURING CHARGES
In recent years, our Mechanical Products segment has experienced significant operating losses. We have undertaken actions at various times over the last few years to address these losses. On January 4, 2016, we implemented a workforce reduction which resulted in our recording a restructuring charge of $99 in the first quarter of 2016. This entire amount was paid out in the first quarter of 2016.
(4) GOODWILL AND INTANGIBLE ASSETS
Goodwill and intangible assets on our balance sheets are the result of our acquisitions of Sigma Systems Corp. ("Sigma") in October 2008 and Thermonics, Inc. ("Thermonics"), a division of Test Enterprises, Inc., in January 2012.
Goodwill
All of our goodwill is allocated to our Thermal Products segment. There was no change in the amount of the carrying value of goodwill for the nine months ended September 30, 2016.
- 9 -
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
(4) GOODWILL AND INTANGIBLE ASSETS (continued)
Intangible Assets
The following tables provide further detail about our intangible assets as of September 30, 2016 and December 31, 2015:
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Sept. 30, 2016 |
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Gross |
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Net |
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Finite-lived intangible assets: |
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Customer relationships |
$1,480 |
$1,288 |
$ 192 |
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Patented technology |
590 |
415 |
175 |
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Software |
270 |
216 |
54 |
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Trade name |
140 |
140 |
- |
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Total finite-lived intangible assets |
2,480 |
2,059 |
421 |
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Indefinite-lived intangible assets: |
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Sigma trademark |
510 |
- |
510 |
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Total intangible assets |
$2,990 |
$2,059 |
$ 931 |
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December 31, 2015 |
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Gross Carrying Amount |
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Net |
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Finite-lived intangible assets: |
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|
|
|
Customer relationships |
$1,480 |
$1,166 |
$ 314 |
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Patented technology |
590 |
386 |
204 |
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Software |
270 |
196 |
74 |
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Trade name |
140 |
138 |
2 |
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Total finite-lived intangible assets |
2,480 |
1,886 |
594 |
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Indefinite-lived intangible assets: |
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|
|
|
Sigma trademark |
510 |
- |
510 |
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Total intangible assets |
$2,990 |
$1,886 |
$1,104 |
We generally amortize our finite-lived intangible assets over their estimated useful lives on a straight-line basis, unless an alternate amortization method can be reliably determined. Any such alternate amortization method would be based on the pattern in which the economic benefits of the intangible asset are expected to be consumed. None of our intangible assets have any residual value.
Total amortization expense for the nine months ended September 30, 2016 and 2015 was $173 and $217, respectively. The following table sets forth the estimated annual amortization expense for our finite-lived intangible assets for each of the next five years:
|
2016 (remainder) |
$ 57 |
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2017 |
$212 |
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2018 |
$ 65 |
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$ 39 |
|
$ 30 |
- 10 -
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
(5) MAJOR CUSTOMERS
During each of the nine months ended September 30, 2016 and 2015, Hakuto Co., Ltd., one of our distributors, accounted for 13% of our consolidated net revenues. These revenues were generated by our Thermal Products segment. During the nine months ended September 30, 2016, Texas Instruments Incorporated accounted for 11% of our consolidated net revenues. While all three of our operating segments sold products to this customer, these revenues were primarily generated by our Mechanical Products and our Electrical Products segments. No other customers accounted for 10% or more of our consolidated net revenues during the nine months ended September 30, 2016 and 2015.
(6) INVENTORIES
Inventories held at September 30, 2016 and December 31, 2015 were comprised of the following:
|
|
Sept. 30, |
Dec. 31, |
|
Raw materials |
$2,490 |
$2,535 |
|
Work in process |
650 |
295 |
|
Inventory consigned to others |
109 |
119 |
|
Finished goods |
148 |
571 |
|
|
|
|
|
Total inventories |
$3,397 |
$3,520 |
(7) DEBT
Letters of Credit
|
|
|
|
|
Letters of Credit |
|
|
|
Original L/C |
Expiration |
Expiration |
Sept. 30, |
Dec. 31, |
|
Mt. Laurel, NJ |
3/29/2010 |
3/31/2017 |
4/30/2021 |
$125 |
$250 |
|
Mansfield, MA |
10/27/2010 |
11/08/2016 |
8/23/2021 |
100 |
100 |
|
|
|
|
|
$225 |
$350 |
(8) STOCK-BASED COMPENSATION
As of September 30, 2016, we have unvested restricted stock awards and stock options granted under employee stock-based compensation plans that are described more fully in Note 12 to the consolidated financial statements in our 2015 Form 10-K.
As of September 30, 2016, total unrecognized compensation expense related to unvested restricted stock awards and stock options was $362. The weighted average period over which this expense is expected to be recognized is 2.5 years. The following table shows the allocation of the compensation expense we recorded during the three and nine months ended September 30, 2016 and 2015, respectively, related to stock-based compensation:
- 11 -
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
(8) STOCK-BASED COMPENSATION (Continued)
|
|
Three Months Ended |
Nine Months Ended |
||
|
|
2016 |
2015 |
2016 |
2015 |
|
Cost of revenues |
$ 2 |
$ 3 |
$ 7 |
$ 8 |
|
Selling expense |
1 |
1 |
4 |
4 |
|
Engineering and product development expense |
3 |
2 |
8 |
7 |
|
General and administrative expense |
38 |
24 |
203 |
72 |
|
|
$ 44 |
$ 30 |
$222 |
$ 91 |
There was no compensation expense capitalized in the nine months ended September 30, 2016 or 2015.
Restricted Stock Awards
We record compensation expense for restricted stock awards based on the quoted market price of our stock at the grant date and amortize the expense over the vesting period. Restricted stock awards generally vest over four years. However, during January 2016, we granted 22,500 shares of restricted stock to three of our independent directors which vested 100% upon the re-election of these directors at our annual meeting of stockholders, which took place on June 29, 2016. The total compensation expense related to these shares was $98, and it was all recorded upon the re-election of these directors.
The following table summarizes the activity related to unvested shares of restricted stock for the nine months ended September 30, 2016:
|
|
|
Weighted |
|
Unvested shares outstanding, January 1, 2016 |
63,750 |
$3.64 |
|
Granted |
86,400 |
4.27 |
|
Vested |
(35,625) |
3.92 |
|
Forfeited |
- |
- |
|
Unvested shares outstanding, September 30, 2016 |
114,525 |
4.03 |
The total fair value of the shares that vested during the nine months ended September 30, 2016 and 2015 was $138 and $59, respectively, as of the vesting dates of these shares.
Stock Options
We record compensation expense for stock options based on the fair market value of the options as of the grant date. No option may be granted with an exercise period in excess of ten years from the date of grant. Generally, stock options will be granted with an exercise price equal to the fair market value of our stock on the date of grant and will vest over four years.
The fair value for stock options granted during the nine months ended September 30, 2016 was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
|
|
|
|
Risk-free interest rate |
1.30% |
|
Dividend yield |
0.00% |
|
Expected common stock market price volatility factor |
.40 |
|
Weighted average expected life of stock options (years) |
4 |
|
|
|
- 12 -
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
(8) STOCK-BASED COMPENSATION (Continued)
The per share weighted average fair value of stock options issued during the nine months ended September 30, 2016 was $1.43.
The following table summarizes the activity related to stock options for the nine months ended September 30, 2016:
|
|
|
Weighted |
|
Options outstanding, January 1, 2016 (none exercisable) |
- |
$ - |
|
Granted |
19,800 |
4.37 |
|
Vested |
- |
- |
|
Forfeited |
- |
- |
|
Options outstanding, September 30, 2016 (none exercisable) |
19,800 |
4.37 |
(9)
STOCK REPURCHASE PLANOn October 27, 2015, our Board of Directors authorized the repurchase of up to $5,000 of our common stock from time to time on the open market, in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, or in privately negotiated transactions (the "2015 Repurchase Plan"). Repurchases may also be made under a Rule 10b5-1 plan entered into with RW Baird & Co., which permits shares to be repurchased when we might otherwise be precluded from doing so under insider trading laws. The timing and amount of any shares repurchased under the 2015 Repurchase Plan is determined by our management, based on our evaluation of market conditions and other factors. The 2015 Repurchase Plan does not obligate us to repurchase any particular amount of common stock and may be suspended or discontinued at any time without prior notice. The 2015 Repurchase Plan is funded using our operating cash flow or available cash.
During the nine months ended September 30, 2016, we repurchased 209,271 shares under this repurchase plan at a cost of $841, which includes fees paid to our broker of $5. As of September 30, 2016, we had repurchased a total of 250,603 shares under this repurchase plan at a cost of $997, which included fees paid to our broker of $6. All of the repurchased shares were retired. The 2015 Repurchase Plan was suspended in May 2016 and resumed in September 2016.
(10) EMPLOYEE BENEFIT PLANS
We have a defined contribution 401(k) plan for our employees who work in the U.S. All permanent employees of inTEST Corporation, Temptronic Corporation and inTEST Silicon Valley Corporation who are at least 18 years of age are eligible to participate in the plan. We match employee contributions dollar for dollar up to 10% of the employee's annual compensation, with a maximum limit of $5. Employer contributions vest ratably over four years. Matching contributions are discretionary. For the nine months ended September 30, 2016 and 2015, we recorded $311 and $297 of expense for matching contributions, respectively.
(11) SEGMENT INFORMATION
We have three reportable segments, which are also our reporting units: Thermal Products, Mechanical Products and Electrical Products.
The Thermal Products segment includes the operations of Temptronic Corporation, Thermonics, Sigma, inTEST Thermal Solutions GmbH (Germany), and inTEST Pte, Limited (Singapore). Sales of this segment consist primarily of temperature management systems, which we design, manufacture and market under our Temptronic, Thermonics and Sigma product lines. In addition, this segment provides post-warranty service and support.
The Mechanical Products segment includes the operations of our Mt. Laurel, New Jersey manufacturing facility. Sales of our Mechanical Products segment consist primarily of manipulator and docking hardware products, which we design, manufacture and market.
- 13 -
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
(In thousands, except share and per share data)
(11) SEGMENT INFORMATION (Continued)
The Electrical Products segment includes the operations of inTEST Silicon Valley Corporation. Sales of this segment consist primarily of tester interface products, which we design, manufacture and market.
We operate our business worldwide, and all three segments sell their products both domestically and internationally. All three segments sell to semiconductor manufacturers, third-party test and assembly houses and ATE manufacturers. Our Thermal Products segment also sells into a variety of markets outside of the ATE market, including the automotive, consumer electronics, defense/aerospace, energy, industrial and telecommunications markets. Intercompany pricing between segments is either a multiple of cost for component parts or list price for finished goods.
|
|
Three Months Ended |
Nine Months Ended |
||||||||||||||||||||||
|
Net revenues: |
2016 |
2015 |
2016 |
2015 |
||||||||||||||||||||
|
Thermal Products |
$ 6,641 |
$6,259 |
$17,429 |
$18,635 |
||||||||||||||||||||
|
Mechanical Products |
2,118 |
1,273 |
6,727 |
6,195 |
||||||||||||||||||||
|
Electrical Products |
2,064 |
1,671 |
5,799 |
6,120 |
||||||||||||||||||||
|
|
$10,823 |
$9,203 |
$29,955 |
$30,950 |
||||||||||||||||||||
|
Earnings (loss) before income tax expense (benefit): |
|
|
|
|
||||||||||||||||||||
|
Thermal Products |
$1,402 |
$1,165 |
$2,709 |
$3,731 |
||||||||||||||||||||
|
Mechanical Products |
63 |
(759) |
4 |
(1,240) |
||||||||||||||||||||
|
Electrical Products |
311 |
79 |
729 |
875 |
||||||||||||||||||||
|
Corporate |
(55 ) |
(78 ) |
(848 ) |
(629 ) |
||||||||||||||||||||
|
|
$1,721 |
$ 407 |
$2,594 |
$2,737 |
||||||||||||||||||||
|
Net earnings (loss): |
|
|
|
|
||||||||||||||||||||
|
Thermal Products |
$ 888 |
$ 886 |
$1,737 |
$2,559 |
||||||||||||||||||||
|
Mechanical Products |
40 |
(577) |
1 |
(891) |
||||||||||||||||||||
|
Electrical Products |
196 |
60 |
468 |
579 |
||||||||||||||||||||
|
Corporate |
(34 ) |
(59 ) |
(549 ) |
(419 ) |
||||||||||||||||||||
|
|
$1,090 |
$ 310 |
$1,657 |
$1,828 |
||||||||||||||||||||
|
|
|
|
||||||||||||||||||||||
|
Identifiable assets: |
Sept. 30, |
Dec. 31, |
||||||||||||||||||||||
|
Thermal Products |
$18,512 |
$16,983 |
||||||||||||||||||||||
|
Mechanical Products |
19,156 |
19,733 |
||||||||||||||||||||||
|
Electrical Products |
4,364 |
3,268 |
||||||||||||||||||||||
|
|
$42,032 |
$39,984 |
||||||||||||||||||||||
The following table provides information about our geographic areas of operation. Net revenues from unaffiliated customers are based on the location to which the goods are shipped.
|
|
Three Months Ended |
Nine Months Ended |
||
|
Net revenues: |
2016 |
2015 |
2016 |
2015 |
|
U.S. |
$ 3,268 |
$ 3,713 |
$ 8,898 |
$11,032 |
|
Foreign |
7,555 |
5,490 |
21,057 |
19,918 |
|
|
$10,823 |
$ 9,203 |
$29,955 |
$30,950 |
|
|
|
|
|
|
|
Property and equipment: |
|
|
Sept. 30, |
Dec. 31, |
|
U.S. |
|
|
$ 725 |
$ 797 |
|
Foreign |
|
|
270 |
315 |
|
|
|
|
$ 995 |
$1,112 |
- 14 -
inTEST CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Risk Factors and Forward-Looking Statements
In addition to historical information, this discussion and analysis contains statements relating to possible future events and results that are considered "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. These statements can often be identified by the use of forward-looking terminology such as "believes," "expects," "intends," "may," "will," "should" or "anticipates" or similar terminology. See Part I, Item 1 - "Business - Cautionary Statement Regarding Forward-Looking Statements" in our 2015 Form 10-K for examples of statements made in this report which may be "forward-looking statements." These statements involve risks and uncertainties and are based on various assumptions. Although we believe that our expectations are based on reasonable assumptions, investors and prospective investors are cautioned that such statements are only projections, and there cannot be any assurance that these events or results will occur.
Information about the primary risks and uncertainties that could cause our actual future results to differ materially from our historic results or the results described in the forward-looking statements made in this report or presented elsewhere by Management from time to time are included in Part I, Item 1A - "Risk Factors" in our 2015 Form 10-K. Material changes to such risk factors may be reported in subsequent Quarterly Reports on Form 10-Q in Part II, Item 1A. There have been no such changes from the risk factors set forth in our 2015 Form 10-K.
Overview
This MD&A should be read in conjunction with the accompanying consolidated financial statements.
Our business and results of operations are substantially dependent upon the demand for ATE by semiconductor manufacturers and companies that specialize in the testing of ICs. Demand for ATE is driven by semiconductor manufacturers that are opening new, or expanding existing, semiconductor fabrication facilities or upgrading existing equipment, which in turn is dependent upon the current and anticipated market demand for semiconductors and products incorporating semiconductors. Such market demand can be the result of market expansion, development of new technologies or redesigned products to incorporate new features, or the replacement of aging equipment. In addition, we continue to focus on design improvements and new approaches for our own products which contribute to our net revenues as our customers adopt these new products.
In the past, the semiconductor industry has been highly cyclical with recurring periods of oversupply, which often have a severe impact on the semiconductor industry's demand for ATE, including the products we manufacture. This can cause wide fluctuations in both our orders and net revenues and, depending on our ability to react quickly to these shifts in demand, can significantly impact our results of operations. ATE market cycles are difficult to predict and in recent years have become more volatile and, in certain cases, shorter in duration. Because the market cycles are generally characterized by sequential periods of growth or declines in orders and net revenues during each cycle, year over year comparisons of operating results may not always be as meaningful as comparisons of periods at similar points in either up or down cycles. In addition, during both downward and upward cycles in our industry, in any given quarter, the trend in both our orders and net revenues can be erratic. This can occur, for example, when orders are canceled or currently scheduled delivery dates are accelerated or postponed by a significant customer or when customer forecasts and general business conditions fluctuate during a quarter. In addition to being cyclical, the ATE market has also developed a seasonal pattern in the last several years, with the second and third quarters being the periods of strong demand and the first and fourth quarters being periods of weakened demand. We believe this change has been driven by the strong demand for consumer products containing semiconductor content sold during the year-end holiday shopping season.
Third-party market share statistics are not available for the products we manufacture and sell into the ATE market; therefore, comparisons of period over period changes in our market share are not easily determined. As a result, it is difficult to ascertain if ATE market volatility in any period is the result of macro-economic or customer-specific factors impacting ATE market demand, or if we have gained or lost market share to a competitor during the period.
- 15 -
inTEST CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
As part of our strategy to reduce the impact of ATE market volatility on our business operations, in 2009, we began to diversify our served markets to address the thermal test requirements of several other markets outside the ATE market. These include the automotive, consumer electronics, defense/aerospace, energy, industrial and telecommunications markets. We believe that these markets usually are less cyclical than the ATE market. While market share statistics exist for some of the markets we serve outside the ATE market, due to the nature of our highly specialized product offerings in these non-ATE markets, we do not expect broad market penetration in many of these markets and, therefore, do not anticipate developing meaningful market shares in these non-ATE markets. In addition, our orders and net revenues in any given period in these markets do not necessarily reflect the overall trends in these non-ATE markets due to our limited market shares. Consequently, we are continuing to evaluate buying patterns and opportunities for growth in these non-ATE markets that may affect our performance. The level of our orders and net revenues from these non-ATE markets has varied in the past, and we expect will vary significantly in the future, as we work to build our presence in these markets and establish new markets for our products.
While the majority of our orders and net revenues are derived from the ATE market, our operating results do not always follow the overall trend in the ATE market in any given period. We believe that these anomalies may be driven by a variety of factors within the ATE market, including, for example, changing product requirements, longer time periods between new product offerings by original equipment manufacturers ("OEMs") and changes in customer buying patterns. In particular, demand for our mechanical and electrical products, which are sold exclusively within the ATE market, and our operating margins in these product segments have been affected by shifts in the competitive landscape, including (i) customers placing heightened emphasis on shorter lead times (which places increased demands on our available engineering and production capacity increasing unit costs) and ordering in smaller quantities (which prevents us from acquiring component materials in larger volumes at lower cost and increasing unit costs), (ii) the practice of OEMs specifying other suppliers as primary vendors, with less frequent opportunities to compete for such designations, (iii) the in-house manufacturing activities of OEMs building certain products we have historically sold to them, including manipulators and docking hardware, which has had the impact of significantly reducing the size of the available market for those certain products (iv) the role of third-party test and assembly houses in the ATE market and their requirement of products with a greater range of use at the lowest cost, (v) customer supply chain management groups demanding lower prices and spreading purchases across multiple vendors, and (vi) certain competitors aggressively reducing their products' sales prices (causing us to either reduce our products' sales price to be successful in obtaining the sale or causing loss of the sale).
In addition, in recent periods we have seen instances where demand for ATE is not consistent for each of our product segments or for any given product within a particular product segment. This inconsistency in demand for ATE can be driven by a number of factors, but in most cases we have found that the primary reason is unique customer-specific changes in demand for certain products driven by the needs of their customers or markets served. These shifts in market practices and customer-specific needs have had, and may continue to have, varying levels of impact on our operating results and are difficult to quantify or predict from period to period. Management has taken, and will continue to take, such actions it deems appropriate to adjust our strategies, products and operations to counter such shifts in market practices as they become evident.
Orders and Backlog
The following table sets forth, for the periods indicated, a breakdown of the orders received by product segment and market.
|
|
Three |
Change |
Three |
Change |
|||
|
|
2016 |
2015 |
$ |
% |
2016 |
$ |
% |
|
Orders: |
|
|
|
|
|
|
|
|
Thermal Products |
$ 7,316 |
$5,634 |
$1,682 |
30% |
$ 8,186 |
$ (870) |
(11)% |
|
Mechanical Products |
1,681 |
1,323 |
358 |
27% |
2,426 |
(745) |
(31)% |
|
Electrical Products |
2,285 |
1,448 |
837 |
58% |
1,987 |
298 |
15 % |
|
|
$11,282 |
$8,405 |
$2,877 |
34% |
$12,599 |
$(1,317) |
(10)% |
|
|
|
|
|
|
|
|
|
|
ATE market |
$ 7,008 |
$5,053 |
$1,955 |
39% |
$ 8,217 |
$(1,209) |
(15)% |
|
Non-ATE market |
4,274 |
3,352 |
922 |
28% |
4,382 |
(108) |
(2)% |
|
|
$11,282 |
$8,405 |
$2,877 |
34% |
$12,599 |
$(1,317) |
(10)% |
- 16 -
inTEST CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
|
Nine |
Change |
|
|
|||
|
|
2016 |
2015 |
$ |
% |
|
|
|
|
Orders: |
|
|
|
|
|
|
|
|
Thermal Products |
$20,618 |
$18,131 |
$2,487 |
14% |
|
|
|
|
Mechanical Products |
6,732 |
5,742 |
990 |
17% |
|
|
|
|
Electrical Products |
6,369 |
6,249 |
120 |
2% |
|
|
|
|
|
$33,719 |
$30,122 |
$3,597 |
12% |
|
|
|
|
|
|
|
|
|
|
|
|
|
ATE market |
$23,072 |
$21,996 |
$1,076 |
5% |
|
|
|
|
Non-ATE market |
10,647 |
8,126 |
2,521 |
31% |
|
|
|
|
$33,719 |
$30,122 |
$3,597 |
12% |
|
|
|
Total consolidated orders for the three months and nine months ended September 30, 2016 increased $2.9 million, or 34%, and $3.6 million, or 12%, respectively, as compared to the same periods in 2015. These increases reflect higher levels of demand from both ATE and non-ATE market customers. The increased demand from the ATE market reflects cyclical strengthening within this market. The increase in demand from non-ATE markets primarily reflects higher levels of orders from certain of our customers in the telecommunications and defense/aerospace markets, which were partially offset by a reduction in orders from certain customers in the automotive and industrial markets.
In contrast, orders for the third quarter of 2016 decreased $1.3 million, or 10%, as compared to the second quarter of 2016, which we attribute primarily to seasonal changes in demand from our ATE market customers.
At September 30, 2016, our backlog of unfilled orders for all products was approximately $6.1 million, compared with approximately $3.0 million at September 30, 2015 and $5.7 million at June 30, 2016. Our backlog includes customer orders which we have accepted, substantially all of which we expect to deliver in 2016. While backlog is calculated on the basis of firm purchase orders, a customer may cancel an order or accelerate or postpone currently scheduled delivery dates. Our backlog may be affected by the tendency of customers to rely on short lead times available from suppliers, including us, in periods of depressed demand. In periods of increased demand, there is a tendency towards longer lead times that has the effect of increasing backlog. As a result, our backlog at a particular date is not necessarily indicative of sales for any future period.
Net Revenues
The following table sets forth, for the periods indicated, a breakdown of the net revenues by product segment and market.
|
|
Three |
Change |
Three |
Change |
|||
|
|
2016 |
2015 |
$ |
% |
2016 |
$ |
% |
|
Net revenues: |
|
|
|
|
|
|
|
|
Thermal Products |
$ 6,641 |
$6,259 |
$ 382 |
6 % |
$ 5,594 |
$1,047 |
19 % |
|
Mechanical Products |
2,118 |
1,273 |
845 |
66 % |
2,673 |
(555) |
(21)% |
|
Electrical Products |
2,064 |
1,671 |
393 |
24 % |
2,218 |
(154 ) |
(7)% |
|
|
$10,823 |
$9,203 |
$1,620 |
18 % |
$10,485 |
$ 338 |
3 % |
|
|
|
|
|
|
|
|
|
|
ATE market |
$ 8,039 |
$6,091 |
$1,948 |
32 % |
$ 7,960 |
$ 79 |
1 % |
|
Non-ATE market |
2,784 |
3,112 |
(328 ) |
(11)% |
2,525 |
259 |
10 % |
|
|
$10,823 |
$9,203 |
$1,620 |
18 % |
$10,485 |
$ 338 |
3 % |
- 17 -
inTEST CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
|
|
Nine |
Change |
|
|
|
||
|
|
2016 |
2015 |
$ |
% |
|
|
|
|
Net revenues: |
|
|
|
|
|
|
|
|
Thermal Products |
$17,429 |
$18,635 |
$(1,206) |
(6)% |
|
|
|
|
Mechanical Products |
6,727 |
6,195 |
532 |
9 % |
|
|
|
|
Electrical Products |
5,799 |
6,120 |
(321 ) |
(5)% |
|
|
|
|
|
$29,955 |
$30,950 |
$ (995 ) |
(3)% |
|
|
|
|
|
|
|
|
|
|
|
|
|
ATE market |
$22,068 |
$22,986 |
$ (918) |
(4)% |
|
|
|
|
Non-ATE market |
7,887 |
7,964 |
(77 ) |
(1)% |
|
|
|
|
|
$29,955 |
$30,950 |
$ (995 ) |
(3)% |
|
|
|
Total consolidated net revenues for the quarter ended September 30, 2016 increased $1.6 million, or 18%, as compared to the same period in 2015, reflecting the aforementioned strengthening in demand within the ATE market, primarily for our Mechanical and Electrical Products segments. However, total consolidated net revenues for the nine months ended September 30, 2016 decreased $995,000, or 3%, as compared to the same period in 2015. During the second half of 2015, the ATE market entered a period of weakened demand which persisted throughout the balance of 2015 and into early 2016, and resulted in sequential reductions in the level of our net revenues in both the third and fourth quarters of 2015 and the first quarter of 2016. As a result, for the nine-month period ended September 30, 2016, our consolidated net revenues were below the level achieved for the comparable period in 2015.
Total consolidated net revenues for the third quarter of 2016 increased $338,000, or 3%, as compared to the second quarter of 2016. This increase was comprised of a $1.0 million, or 19%, increase in the net revenues of our Thermal Products segment, partially offset by decreases of $555,000, or 21%, and $154,000, or 7%, respectively, for our Mechanical and Electrical Products segments. We attribute the decreases for our Mechanical and Electrical Products segments primarily to seasonal changes in demand from our ATE market customers. In contrast, we attribute the increase for our Thermal Products segment to both higher ATE and non-ATE market demand. Historically, the impact of shifts in demand within the ATE market for our Thermal Products segment have frequently lagged the impact of such shifts in demand on our Mechanical and Electrical Products segments. We believe this is the case at present and that our Thermal Products segment has not yet experienced the seasonal decline in demand that has begun to impact our other two products segments.
Net revenues from non-ATE market customers declined 11% and 1%, respectively, for the three months and nine months ended September 30, 2016 as compared to the same periods in 2015. The declines were primarily from customers in the industrial, automotive, and defense/aerospace markets and were partially offset by increased demand from certain customers in the telecommunications market.
In contrast, net revenues from non-ATE market customers increased 10% for the third quarter of 2016 as compared to the second quarter of 2016, primarily reflecting increased levels of net revenues from certain of our customers in industrial markets.
Product/Customer Mix
Our three product segments each have multiple products that we design, manufacture and market to our customers. Due to a number of factors, our products have varying levels of gross margin. The mix of products we sell in any period is ultimately determined by our customers' needs. Therefore, the mix of products sold in any given period can change significantly from the prior period. As a result, our consolidated gross margin can be significantly impacted in any given period by a change in the mix of products sold in that period.
We sell most of our products to semiconductor manufacturers and third-party test and assembly houses (end user sales) and to ATE manufacturers (OEM sales) who ultimately resell our equipment with theirs to both semiconductor manufacturers and third-party test and assembly houses. Our Thermal Products segment also sells into a variety of other markets, including the automotive, consumer electronics, defense/aerospace, energy, industrial and telecommunications markets. The mix of customers during any given period will affect our gross margin due to differing sales discounts and commissions. For the nine months ended September 30, 2016 and 2015, our OEM sales as a percentage of net revenues were 5% and 7%, respectively.
- 18 -
inTEST CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
OEM sales generally have a lower gross margin than end user sales, as OEM sales historically have had a more significant discount. Our current net operating margins on most OEM sales, however, are only slightly less than margins on end user sales because of the payment of third party sales commissions on most end user sales. We have also continued to experience demands from our OEM customers' supply chain managers to reduce our sales prices to them. If we cannot further reduce our manufacturing and operating costs, these pricing pressures will negatively affect our gross and operating margins.
Results of Operations
The results of operations for our three product segments are generally affected by the same factors. Separate discussions and analyses for each product segment would be repetitive. The discussion and analysis that follows, therefore, is presented on a consolidated basis and includes discussion of factors unique to each product segment where significant to an understanding of that segment.
Quarter Ended September 30, 2016 Compared to Quarter Ended September 30, 2015
Net Revenues. Net revenues were $10.8 million for the quarter ended September 30, 2016 compared to $9.2 million for the same period in 2015, an increase of $1.6 million, or 18%. We believe the increase in our net revenues during the third quarter of 2016 primarily reflects the factors previously discussed in the Overview.
Gross Margin. Our consolidated gross margin was 52% for the quarter ended September 30, 2016 compared to 47% for the same period in 2015. The improvement in the gross margin was primarily the result of a decrease in our fixed operating costs, which declined $80,000 in absolute dollar terms and represented 13% of our net revenues for the third quarter of 2016 compared to 16% for the same period in 2015. The significant decline in these costs as a percentage of net revenues is primarily a result of the higher net revenues levels recorded in the third quarter of 2016. The $80,000 reduction in the absolute dollar value of these costs primarily reflects lower salary and benefits expense due to a reduction in headcount in our Mechanical Products segment. This headcount reduction was the result of the workforce reduction that we implemented on January 4, 2016, as discussed further in Note 3 to our consolidated financial statements. To a lesser extent, the improvement in gross margin also reflects a reduction in the level of charges for obsolete and excess inventory as a result of the increase in business activity in the third quarter of 2016 as compared to the same period in 2015.
Selling Expense. Selling expense was relatively unchanged at $1.4 million in each of the quarters ended September 30, 2016 and 2015. Increases in commission expense, reflecting the higher net revenue levels, were offset by a reduction in salary and benefits expense in our Mechanical and Electrical Products segments, reflecting reduced headcount.
Engineering and Product Development Expense. Engineering and product development expense was $905,000 for the quarter ended September 30, 2016 compared to $1.0 million for the same period in 2015, a decrease of $136,000, or 13%. The decrease in engineering and product development expense primarily reflects reduced spending on materials used in new product development in our Thermal and Mechanical Products segments and decreased salary and benefits expense in our Mechanical Products segment.
General and Administrative Expense. General and administrative expense was $1.6 million for the quarter ended September 30, 2016 compared to $1.5 million for the same period in 2015, an increase of $63,000, or 4%. The increase primarily reflects higher salary and benefits expense as a result of changes in compensation structure for our executive management team, and higher levels of profit-based bonus accruals. These increases were partially offset by a reduction in the use of certain third-party professionals that assist us with various compliance related matters.
Income Tax Expense. For the quarter ended September 30, 2016, we recorded income tax expense of $631,000 compared to $97,000 for the same period in 2015. Our effective tax rate was 37% for the quarter ended September 30, 2016 compared to 24% for the same period in 2015. On a quarterly basis, we record income tax expense or benefit based on the expected annualized effective tax rate for the various taxing jurisdictions in which we operate our businesses. The lower effective tax rate in the third quarter of 2015 was primarily the result of a reduction in the valuation allowance recorded against the deferred tax assets of our German operation as that operation generated income sufficient to utilize these assets during that period. To a lesser extent, the increase in the effective tax rate was the result of additional tax expense accrued on a $921,000 dividend repatriated from our German subsidiary during the third quarter of 2016.
- 19 -
inTEST CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Nine months Ended September 30, 2016 Compared to Nine Months Ended September 30, 2015
Net Revenues. Net revenues were $30.0 million for the nine months ended September 30, 2016 compared to $31.0 million for the same period in 2015, a decrease of $995,000, or 3%. We believe the decrease in our net revenues primarily reflects the factors previously discussed in the Overview.
Gross Margin. Our consolidated gross margin was 50% for the nine months ended September 30, 2016 compared to 49% for the same period in 2015. The improvement in our gross margin primarily reflects a decline in our fixed operating costs. These costs declined $475,000 in absolute dollar terms, and represented 13% of our net revenues for the first nine months of 2016 compared to 14% for the same period in 2015. The $475,000 decline in these costs primarily reflects lower salary and benefits expense in our Mechanical and Thermal Products segments reflecting reduced headcount. For our Mechanical Products segment, the decline in headcount is a result of the aforementioned workforce reduction. To a lesser extent, there were also reduced levels of facility related costs and lower depreciation expense in our Thermal Products segment in the first nine months of 2016 as compared to the same period in 2015.
Selling Expense. Selling expense was $4.2 million for the nine months ended September 30, 2016 compared to $4.4 million for the same period in 2015, a decrease of $249,000, or 6%. The decrease primarily reflects lower levels of third party commission expense, reflecting the decline in net revenues, along with a reduction in salary and benefits expense in our Mechanical and Electrical Products segment, reflecting reduced headcount.
Engineering and Product Development Expense. Engineering and product development expense was $2.9 million for the nine months ended September 30, 2016 compared to $3.0 million for the same period in 2015, a decrease of $152,000, or 5%. The decrease primarily reflects lower salary and benefits expense in our Mechanical Products segment and reduced spending on materials used in new product development in all of our product segments.
General and Administrative Expense. General and administrative expense was $5.4 million for the nine months ended September 30, 2016 compared to $4.9 million for the same period in 2015, an increase of $477,000, or 10%. Our expenses for the first nine months of 2016 included $479,000 for due diligence and transaction-related costs associated with a potential acquisition which we are no longer pursuing and $99,000 of restructuring charges as a result of the aforementioned workforce reduction implemented on January 4, 2016. Our expenses for the first nine months of 2015 included $329,000 for due diligence and transaction-related costs associated with a potential acquisition which did not close. Adjusted to exclude these costs, our general and administrative expense would have increased $228,000, or 5%, for the first nine months of 2016 as compared to the same period in 2015. The $228,000 increase primarily reflects higher salary and benefits expense as a result of changes in compensation structure for our executive management team, and an increase in stock-based compensation expense as a result of the vesting of restricted stock awards for our independent directors which occurred upon their re-election at our annual meeting of stockholders in June 2016.
Income Tax Expense. For the nine months ended September 30, 2016, we recorded income tax expense of $937,000 compared to $909,000 for the same period in 2015. Our effective tax rate was 36% for the nine months ended September 30, 2016 compared to 33% for the same period in 2015. On a quarterly basis, we record income tax expense or benefit based on the expected annualized effective tax rate for the various taxing jurisdictions in which we operate our businesses. The lower effective tax rate in 2015 primarily reflects the aforementioned reduction in the valuation allowance recorded against the deferred tax assets of our German operation that occurred during the third quarter of 2015.
Liquidity and Capital Resources
As discussed more fully in the Overview, our business and results of operations are substantially dependent upon the demand for ATE by semiconductor manufacturers and companies that specialize in the testing of ICs. The cyclical and volatile nature of demand for ATE makes estimates of future revenues, results of operations and net cash flows difficult.
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inTEST CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Our primary historical source of liquidity and capital resources has been cash flow generated by our operations, and we manage our businesses to maximize operating cash flows as our primary source of liquidity. We use cash to fund growth in our operating assets, for new product research and development, for acquisitions and for stock repurchases.
Liquidity
Our cash and cash equivalents and working capital were as follows:
|
|
Sept. 30, 2016 |
Dec. 31, 2015 |
|
Cash and cash equivalents |
$26,345 |
$25,710 |
|
Working capital |
$31,828 |
$30,205 |
As of September 30, 2016, $1.6 million of our cash and cash equivalents was held by our foreign subsidiaries. When these funds are needed for our operations in the U.S., we may be required to accrue and pay U.S. taxes if we repatriate certain of these funds. On July 26, 2016 we repatriated $921,000 from our German subsidiary. Our estimated annualized effective tax rate for 2016 includes the effect of the additional taxes we expect to incur on these repatriated funds.
We currently expect our cash and cash equivalents and projected future cash flow to be sufficient to support our short term working capital requirements and any future repurchases of shares under the 2015 Repurchase Plan (which is discussed more fully in Note 9 to our consolidated financial statements). However, we may need additional financial resources to consummate a significant acquisition if the consideration in such a transaction would require us to utilize a substantial portion of, or an amount equal to or in excess of, our available cash. We do not currently have any credit facilities under which we can borrow to help fund our working capital or other requirements.
In addition, in recent years, our Mechanical Products segment has experienced significant operating losses. We have undertaken actions at various times over the last few years to address these losses. As previously discussed, on January 4, 2016, we implemented a workforce reduction which resulted in our recording a restructuring charge of $99,000 in the first quarter of 2016. The annualized savings from these actions are estimated to be approximately $690,000. Our review of the operations of this product segment is ongoing with the goal of identifying additional opportunities for cost reduction and revenue growth. We cannot be certain that our efforts to restructure this operation to achieve full-year profitability will be successful. These efforts could require us to utilize additional financial resources to pay severance or fund other costs associated with the restructuring of this operation, which would reduce the amount of our cash and cash equivalents available to fund our short-term working capital requirements.
Cash Flows
Operating Activities. Net cash provided by operations for the nine months ended September 30, 2016 was $1.7 million. During the nine months ended September 30, 2016, we recorded net earnings of $1.7 million, which included non-cash charges of $451,000 for depreciation and amortization, $222,000 for deferred compensation related to stock-based awards and $184,000 as a provision for excess and obsolete inventory. During the nine months ended September 30, 2016, accounts receivable and accounts payable increased $2.3 million and $343,000, respectively, compared to the levels at the end of 2015. These increases primarily reflect increased business activity during the third quarter of 2016 as compared to the fourth quarter of 2015. During the nine months ended September 30, 2016, domestic and foreign income taxes payable increased $523,000, as compared to the level at December 31, 2015 as a result of accruing taxes due on our income for the first nine months of 2016. During the nine months ended September 30, 2016, prepaid expenses and other current assets decreased $183,000, primarily reflecting a lower level refundable taxes at September 30, 2016 as compared to the level at December 31, 2015. In addition, during the second quarter of 2016, we requested and were granted a $125,000 reduction in the amount of the letter of credit that serves as a security deposit under the terms of the lease for our facility in New Jersey. Accordingly, we reduced the amount of the related restricted certificate of deposit which supported this letter of credit by $125,000 during the second quarter of 2016.
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inTEST CORPORATION
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS (Continued)
Investing Activities. During the nine months ended September 30, 2016, purchases of property and equipment were $282,000. We have no significant commitments for capital expenditures for the balance of 2016; however, depending upon changes in market demand or manufacturing and sales strategies, we may make such purchases or investments as we deem necessary and appropriate.
Financing Activities. During the nine months ended September 30, 2016, we utilized $841,000 to repurchase 209,271 shares of our common stock under the 2015 Repurchase Plan.
New or Recently Adopted Accounting Standards
See the Notes to the consolidated financial statements for information concerning the implementation and impact of new or recently adopted accounting standards.
Critical Accounting Policies
The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to inventories, long-lived assets, goodwill, identifiable intangibles and deferred income taxes. We base our estimates on historical experience and on appropriate and customary assumptions that we believe to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Some of these accounting estimates and assumptions are particularly sensitive because of their significance to our consolidated financial statements and because of the possibility that future events affecting them may differ markedly from what had been assumed when the financial statements were prepared. As of September 30, 2016, there have been no significant changes to the accounting policies that we have deemed critical. These policies are more fully described in our 2015 Form 10-K.
Off -Balance Sheet Arrangements
There were no off-balance sheet arrangements during the nine months ended September 30, 2016 that have or are reasonably likely to have a current or future effect on our financial condition, changes in financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources that is material to our interests.
Item 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This disclosure is not required for a smaller reporting company.
Item 4. CONTROLS AND PROCEDURES
Evaluation of Disclosure Controls and Procedures
We maintain disclosure controls and procedures, as such term is defined in Rule 13a-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act"). Because there are inherent limitations in all control systems, a control system, no matter how well conceived and operated, can provide only reasonable, as opposed to absolute, assurance that the objectives of the control system are met. These inherent limitations include the realities that judgments in decision-making can be faulty, and that breakdowns can occur because of simple error or mistake. Additionally, controls can be circumvented by the individual acts of some persons, by collusion of two or more people, or by management override of the control. Further, the design of a control system must reflect the fact that there are resource constraints, and the benefits of controls must be considered relative to their costs. Our management, including our Chief Executive Officer ("CEO") and Chief Financial Officer ("CFO"), does not expect that our disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. Because of the inherent limitations in a cost-effective control system, misstatements due to error or fraud may occur and not be detected. Accordingly, our management has designed the disclosure controls and procedures to provide reasonable assurance that the objectives of the control system were met.
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inTEST CORPORATION
Item 4. CONTROLS AND PROCEDURES (Continued)
CEO/CFO Conclusions about the Effectiveness of the Disclosure Controls and Procedures. As required by Rule 13a-15(b), inTEST management, including our CEO and CFO, conducted an evaluation, as of the end of the period covered by this Report, of the effectiveness of our disclosure controls and procedures. Based on that evaluation, our CEO and CFO concluded that, as of the end of the period covered by this Report, our disclosure controls and procedures were effective at the reasonable assurance level.
Changes in Internal Control Over Financial Reporting
During the period covered by this Report, there has been no change in our internal control over financial reporting (as defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) that occurred during the period covered by this Report that has materially affected, or is reasonably likely to materially affect, our internal control over financial reporting.
___________________________________________________
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
From time to time, we may be a party to legal proceedings occurring in the ordinary course of business. We are not currently involved in any material legal proceedings.
Item 1A. Risk Factors
Information regarding the primary risks and uncertainties that could materially and adversely affect our future performance or could cause actual results to differ materially from those expressed or implied in our forward-looking statements, appears in Part I, Item 1A -- "Risk Factors" of our Annual Report on Form 10-K for the year ended December 31, 2015.
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds
The following table provides information with respect to purchases made by us, or on our behalf, of our common stock during the three months ended September 30, 2016:
|
|
|
Total Number of |
Approximate Dollar |
July 1-31 |
- |
$ - |
- |
$4,081,000 |
August 1-31 |
- |
$ - |
- |
$4,081,000 |
September 1-30 |
18,546 |
$3.85 |
18,546 |
$4,010,000 |
Total |
18,546 |
$3.85 |
18,546 |
|
On October 27, 2015, our Board of Directors authorized the repurchase of up to $5.0 million of our common stock from time to time on the open market, in compliance with Rule 10b-18 under the Exchange Act, or in privately negotiated transactions (the "2015 Repurchase Plan"). Repurchases to date were made under a Rule 10b5-1 plan entered into with RW Baird & Co., which permitted shares to be repurchased when we might otherwise be precluded from doing so under insider trading laws. The timing and amount of any shares repurchased under the 2015 Repurchase Plan was determined by our management, based on our evaluation of market conditions and other factors. The 2015 Repurchase Plan does not obligate us to repurchase any particular amount of common stock and may be suspended or discontinued at any time without prior notice. The 2015 Repurchase Plan is funded using our operating cash flow or available cash.
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inTEST CORPORATION
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds (Continued)
For the three months ended September 30, 2016, we repurchased 18,546 shares under the 2015 Repurchase Plan at a fair market value of $71,000. All of the repurchased shares were retired. Fees paid to our broker related to the repurchase of these shares were less than $1,000. The 2015 Repurchase Plan was suspended in mid-May 2016 because of our work on a potential acquisition, and resumed in September 2016, when we determined we were no longer going to pursue that particular acquisition.
Item 3. Defaults Upon Senior Securities
None.
Item 4. Mine Safety Disclosures
Not applicable.
Item 5. Other Information
None.
Item 6. Exhibits
A list of the Exhibits which are required by Item 601 of Regulation S-K and filed with this Report is set forth in the Index to Exhibits immediately following the signature page, which Index to Exhibits is incorporated herein by reference.
___________________________________________________
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized.
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inTEST Corporation |
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- 24 -
Index to Exhibits
14 Code of Ethics (1)
31.1 Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
31.2 Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
32.1 Certification of Chief Executive Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
32.2 Certification of Chief Financial Officer pursuant to 18 U.S.C. Section 1350, as
adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
(1) Previously filed by the Company as an exhibit to the Company's Form 10-Q for the quarter ended June 30, 2016, File No.
001-36117, filed August 12, 2016, and incorporated herein by reference.
- 25 -
EXHIBIT 31.1
CERTIFICATION
I, Robert E. Matthiessen, certify that:
1. I have reviewed this quarterly report on Form 10-Q of inTEST Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 14, 2016
/s/ Robert E. Matthiessen
Robert E. Matthiessen
President and Chief Executive Officer
EXHIBIT 31.2
CERTIFICATION
I, Hugh T. Regan, Jr., certify that:
1. I have reviewed this quarterly report on Form 10-Q of inTEST Corporation;
2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;
3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;
4. The registrant's other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) and internal control over financial reporting (as defined in Exchange Act Rules 13a-15(f) and 15d-15(f)) for the registrant and have:
(a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;
(b) Designed such internal control over financial reporting, or caused such internal control over financial reporting to be designed under our supervision, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles;
(c) Evaluated the effectiveness of the registrant's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and
(d) Disclosed in this report any change in the registrant's internal control over financial reporting that occurred during the registrant's most recent fiscal quarter (the registrant's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant's internal control over financial reporting; and
5. The registrant's other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant's auditors and the audit committee of the registrant's board of directors (or persons performing the equivalent functions):
(a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant's ability to record, process, summarize and report financial information; and
(b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant's internal control over financial reporting.
Date: November 14, 2016
/s/ Hugh T. Regan, Jr.
Hugh T. Regan, Jr.
Secretary, Treasurer and Chief Financial Officer
EXHIBIT 32.1
inTEST CORPORATION
In connection with the Quarterly Report of inTEST Corporation (the "Company") on Form 10-Q for the period ending September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Robert E. Matthiessen, President and Chief Executive Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 14, 2016
/s/ Robert E. Matthiessen
Robert E. Matthiessen
President and Chief Executive Officer
EXHIBIT 32.2
inTEST CORPORATION
In connection with the Quarterly Report of inTEST Corporation (the "Company") on Form 10-Q for the period ending September 30, 2016 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), I, Hugh T. Regan, Jr., Secretary, Treasurer and Chief Financial Officer of the Company, certify, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that:
(1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.
Date: November 14, 2016
/s/ Hugh T. Regan, Jr.
Hugh T. Regan, Jr.
Secretary, Treasurer and Chief Financial Officer
Document And Entity Information - shares |
9 Months Ended | |
|---|---|---|
Sep. 30, 2016 |
Oct. 31, 2016 |
|
| Document Information [Line Items] | ||
| Entity Registrant Name | INTEST CORP | |
| Entity Central Index Key | 0001036262 | |
| Trading Symbol | intt | |
| Current Fiscal Year End Date | --12-31 | |
| Entity Filer Category | Smaller Reporting Company | |
| Entity Current Reporting Status | Yes | |
| Entity Voluntary Filers | No | |
| Entity Well-known Seasoned Issuer | No | |
| Entity Common Stock, Shares Outstanding (in shares) | 10,376,770 | |
| Document Type | 10-Q | |
| Document Period End Date | Sep. 30, 2016 | |
| Document Fiscal Year Focus | 2016 | |
| Document Fiscal Period Focus | Q3 | |
| Amendment Flag | false |
Consolidated Balance Sheets (Current Period Unaudited) (Parentheticals) - USD ($) $ in Thousands |
Sep. 01, 2016 |
Dec. 31, 2015 |
|---|---|---|
| Allowance for doubtful accounts | $ 146 | $ 146 |
| Preferred stock par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Preferred stock, shares authorized (in shares) | 5,000,000 | 5,000,000 |
| Preferred stock, shares issued (in shares) | 0 | 0 |
| Preferred stock, shares outstanding (in shares) | 0 | 0 |
| Common stock, par value (in dollars per share) | $ 0.01 | $ 0.01 |
| Common stock, shares authorized (in shares) | 20,000,000 | 20,000,000 |
| Common stock, shares issued (in shares) | 10,426,552 | 10,549,423 |
| Treasury stock, at cost, shares (in shares) | 33,077 | 33,077 |
Consolidated Statement of Operations (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| Net revenues | $ 10,823 | $ 9,203 | $ 29,955 | $ 30,950 |
| Cost of revenues | 5,246 | 4,880 | 14,982 | 15,863 |
| Gross margin | 5,577 | 4,323 | 14,973 | 15,087 |
| Operating expenses: | ||||
| Selling expense | 1,394 | 1,370 | 4,200 | 4,449 |
| Engineering and product development expense | 905 | 1,041 | 2,878 | 3,030 |
| General and administrative expense | 1,574 | 1,511 | 5,364 | 4,887 |
| Total operating expenses | 3,873 | 3,922 | 12,442 | 12,366 |
| Operating income | 1,704 | 401 | 2,531 | 2,721 |
| Other income | 17 | 6 | 63 | 16 |
| Earnings before income tax expense | 1,721 | 407 | 2,594 | 2,737 |
| Income tax expense | 631 | 97 | 937 | 909 |
| Net earnings | $ 1,090 | $ 310 | $ 1,657 | $ 1,828 |
| Net earnings per common share - basic (in dollars per share) | $ 0.11 | $ 0.03 | $ 0.16 | $ 0.17 |
| Weighted average common shares outstanding - basic (in shares) | 10,295,447 | 10,473,928 | 10,327,095 | 10,470,410 |
| Net earnings per common share - diluted (in dollars per share) | $ 0.11 | $ 0.03 | $ 0.16 | $ 0.17 |
| Weighted average common shares and common share equivalents outstanding - diluted (in shares) | 10,318,715 | 10,498,911 | 10,344,747 | 10,492,317 |
Consolidated Statements of Comprehensive Earnings (Unaudited) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
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| Net earnings | $ 1,090 | $ 310 | $ 1,657 | $ 1,828 |
| Foreign currency translation adjustments | (6) | 14 | 35 | (211) |
| Comprehensive earnings | $ 1,084 | $ 324 | $ 1,692 | $ 1,617 |
Consolidated Statements of Stockholders' Equity (Unaudited) - 9 months ended Sep. 30, 2016 - USD ($) $ in Thousands |
Common Stock [Member] |
Additional Paid-in Capital [Member] |
Retained Earnings [Member] |
AOCI Attributable to Parent [Member] |
Treasury Stock [Member] |
Total |
|---|---|---|---|---|---|---|
| Balance (in shares) at Dec. 31, 2015 | 10,549,423 | 10,549,423 | ||||
| Balance at Dec. 31, 2015 | $ 105 | $ 26,286 | $ 9,013 | $ 725 | $ (204) | $ 35,925 |
| Net earnings | 1,657 | 1,657 | ||||
| Other comprehensive income | 35 | 35 | ||||
| Amortization of deferred compensation related to stock-based awards | 222 | $ 222 | ||||
| Issuance of unvested shares of restricted stock (in shares) | 86,400 | |||||
| Issuance of unvested shares of restricted stock | $ 1 | (1) | ||||
| Repurchase and retirement of common stock (in shares) | (209,271) | (209,271) | ||||
| Repurchase and retirement of common stock | $ (2) | (839) | $ (841) | |||
| Balance (in shares) at Sep. 30, 2016 | 10,426,552 | |||||
| Balance at Sep. 30, 2016 | $ 104 | $ 25,668 | $ 10,670 | $ 760 | $ (204) | $ 36,998 |
Note 1 - Nature of Operations |
9 Months Ended | |||
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Sep. 30, 2016 | ||||
| Notes to Financial Statements | ||||
| Nature of Operations [Text Block] |
We are an independent designer, manufacturer and marketer of thermal, mechanical and electrical products that are primarily used by semiconductor manufacturers in conjunction with automatic test equipment ("ATE") in the testing of integrated circuits ("ICs" or "semiconductors"). We also market our thermal products in markets outside the ATE market, such as the automotive, consumer electronics, defense/aerospace, energy, industrial and telecommunications markets. The consolidated entity is comprised of inTEST Corporation (parent) and our wholly-owned subsidiaries. We have three reportable segments, which are also our reporting units: Thermal Products, Mechanical Products and Electrical Products. We manufacture our products in the U.S. Marketing and support activities are conducted worldwide from our facilities in the U.S., Germany and Singapore. The semiconductor market in which we operate is characterized by rapid technological change, competitive pricing pressures and cyclical as well as seasonal market patterns. This market is subject to significant economic downturns at various times. Our financial results are affected by a wide variety of factors, including, but not limited to, general economic conditions worldwide and in the markets in which we operate, economic conditions specific to the semiconductor market and the other markets we serve, our ability to safeguard patented technology and intellectual property in a rapidly evolving market, downward pricing pressures from customers, and our reliance on a relatively few number of customers for a significant portion of our sales. In addition, we are exposed to the risk of obsolescence of our inventory depending on the mix of future business and technological changes within the markets that we serve. In January 2016, we implemented a workforce reduction, as discussed further in Note 3, which is a key element in restructuring our Mechanical Products segment with the goal of returning this segment to profitability. These efforts could cause us to incur substantial costs and may not be successful. We also continue to implement an acquisition strategy that may cause us to incur substantial expense in reviewing and evaluating potential transactions. We may or may not be successful in locating suitable businesses to acquire. In addition, if we are able to complete an acquisition, we may not be able to successfully integrate the acquired business with our existing business and we may not be able to operate the acquired business profitably. As a result of these or other factors, we may experience significant period-to-period fluctuations in future operating results. |
Note 2 - Summary of Significant Accounting Policies |
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| Significant Accounting Policies [Text Block] |
Basis of Presentation and Use of Estimates The accompanying consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires us 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. Actual results could differ from those estimates. Certain of our accounts, including inventories, long-lived assets, goodwill, identifiable intangibles and deferred tax assets and liabilities are particularly impacted by estimates. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations, and changes in cash flows for the interim periods presented. Certain footnote information has been condensed or omitted from these consolidated financial statements. Therefore, these consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission on March 29, 2016 (the "2015 Form 10-K"). Reclassification Certain prior period amounts have been reclassified to be comparable with the current period's presentation. Inventories Inventories are valued at cost on a first-in, first-out basis, not in excess of market value. Cash flows from the sale of inventories are recorded in operating cash flows. On a quarterly basis, we review our inventories and record excess and obsolete inventory charges based upon our established objective excess and obsolete inventory criteria. These criteria identify material that has not been used in a work order during the prior twelve months and the quantity of material on hand that is greater than the average annual usage of that material over the prior three years. In certain cases, additional excess and obsolete inventory charges are recorded based upon current market conditions, anticipated product life cycles, new product introductions and expected future use of the inventory. The excess and obsolete inventory charges we record establish a new cost basis for the related inventories. We incurred excess and obsolete inventory charges of $184 and $232 for the nine months ended September 30, 2016 and 2015, respectively. Goodwill, Intangible and Long-Lived Assets We account for goodwill and intangible assets in accordance with Accounting Standards Codification ("ASC") 350 (Intangibles - Goodwill and Other). Finite-lived intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment annually in the fourth quarter on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. As a part of the goodwill impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If we determine this is the case, we are required to perform a two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. The two-step test is discussed below. If we determine that it is more-likely-than-not that the fair value of the reporting unit is greater than its carrying amounts, the two-step goodwill impairment test is not required. If we determine it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a result of our qualitative assessment, we will perform a quantitative two-step goodwill impairment test. In the Step I test, the fair value of a reporting unit is computed and compared with its book value. If the book value of a reporting unit exceeds its fair value, a Step II test is performed in which the implied fair value of goodwill is compared with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recorded in an amount equal to that excess. The two-step goodwill impairment assessment is based upon a combination of the income approach, which estimates the fair value of our reporting units based upon a discounted cash flow approach, and the market approach which estimates the fair value of our reporting units based upon comparable market multiples. This fair value is then reconciled to our market capitalization at year end with an appropriate control premium. The determination of the fair value of our reporting units requires management to make significant estimates and assumptions including the selection of appropriate peer group companies, control premiums, discount rate, terminal growth rates, forecasts of revenue and expense growth rates, changes in working capital, depreciation, amortization and capital expenditures. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charge. Indefinite-lived intangible assets are assessed for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. As a part of the impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If, as a result of our qualitative assessment, we determine that it is more-likely-than-not that the fair value of the indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The quantitative impairment test consists of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Long-lived assets, which consist of finite-lived intangible assets and property and equipment, are assessed for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. The cash flow estimates used to determine the impairment, if any, contain management's best estimates using appropriate assumptions and projections at that time. Stock-Based Compensation We account for stock-based compensation in accordance with ASC Topic 718 (Compensation - Stock Compensation), which requires that employee share-based equity awards be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value of stock options granted, which is then amortized to expense over the service periods. See further disclosures related to our stock-based compensation plan in Note 8. Subsequent Events We have made an assessment of our operations and determined that there were no material subsequent events requiring adjustment to, or disclosure in, our consolidated financial statements for the nine months ended September 30, 2016. Revenue Recognition We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection of the related receivable is reasonably assured. Sales of our products are made through our sales employees, third-party sales representatives and distributors. There are no differences in revenue recognition policies based on the sales channel. We do not provide our customers with rights of return or exchanges. Revenue is generally recognized upon product shipment. Our customers' purchase orders do not typically contain any customer-specific acceptance criteria, other than that the product performs within the agreed upon specifications. We test all products manufactured as part of our quality assurance process to determine that they comply with specifications prior to shipment to a customer. To the extent that any customer purchase order contains customer-specific acceptance criteria, revenue recognition is deferred until customer acceptance. In addition, in our Thermal Products segment, we lease certain of our equipment to customers under non-cancellable operating leases. These leases generally have an initial term of six months. We recognize revenue for these leases on a straight-line basis over the term of the lease. With respect to sales tax collected from customers and remitted to governmental authorities, we use a net presentation in our consolidated statement of operations. As a result, there are no amounts included in either our net revenues or cost of revenues related to sales tax. Product Warranties We generally provide product warranties and record estimated warranty expense at the time of sale based upon historical claims experience. Warranty expense is included in selling expense in our consolidated financial statements. Income Taxes The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carryforwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized. Net Earnings Per Common Share Net earnings per common share - basic is computed by dividing net earnings by the weighted average number of common shares outstanding during each period. Net earnings per common share - diluted is computed by dividing net earnings by the weighted average number of common shares and common share equivalents outstanding during each period. Common share equivalents represent unvested shares of restricted stock and stock options and are calculated using the treasury stock method. Common share equivalents are excluded from the calculation if their effect is anti-dilutive. The table below sets forth, for the periods indicated, a reconciliation of weighted average common shares outstanding - basic to weighted average common shares and common share equivalents outstanding - diluted and the average number of potentially dilutive securities that were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive:
Effect of Recently Adopted Amendments to Authoritative Accounting Guidance Effect of Recently Issued Amendments to Authoritative Accounting Guidance In March 2016, the FASB issued amendments to the current guidance on accounting for stock-based compensation issued to employees which is contained in ASC Topic 718 (Compensation - Stock Compensation). The new guidance simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments are effective for us as of January 1, 2017. Early adoption is permitted. We do not expect the implementation of these amendments to have a material impact on our consolidated financial statements. In February 2016, the FASB issued amendments to the current guidance on accounting for lease transactions, which is presented in ASC Topic 842 (Leases). The intent of the updated guidance is to increase transparency and comparability among organizations by requiring lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases and to disclose key information about leasing arrangements. Under the new guidance, a lessee will be required to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The amendments are effective for us as of January 1, 2019. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of the implementation of these amendments on our consolidated financial statements. In July 2015, the FASB issued amendments to update the current guidance on the subsequent measurement of inventory, which is presented in ASC Topic 330 (Inventory). The purpose of the amendments is to simplify the subsequent measurement of inventory and reduce the number of potential outcomes. It applies to all inventory other than inventory measured using last-in, first-out or the retail inventory method. Current guidance requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less a normal profit margin. The updated guidance amends this to require that an entity measure inventory within the scope of the updated guidance at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments are effective for us as of January 1, 2017. We do not expect the implementation of these amendments to have a material impact on our consolidated financial statements. In May 2014, the FASB issued new guidance on the recognition of revenue from contracts with customers. Subsequent to May, 2014, the FASB has issued additional clarifying guidance on certain aspects of this new guidance. This guidance is presented in ASC Topic 606 (Revenue from Contracts with Customers). This new guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. Companies can use either the retrospective or cumulative effect transition method. In August 2015, the FASB deferred the effective date of this new guidance for one additional year. As a result, this new guidance is effective for us on January 1, 2018. Early application is only permitted as of the prior effective date, which in our case would be as of January 1, 2017. We have not yet selected a transition method and we are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures. |
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Note 3 - Restructuring Charges |
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Sep. 30, 2016 | |||
| Notes to Financial Statements | |||
| Restructuring and Related Activities Disclosure [Text Block] |
In recent years, our Mechanical Products segment has experienced significant operating losses. We have undertaken actions at various times over the last few years to address these losses. On January 4, 2016, we implemented a workforce reduction which resulted in our recording a restructuring charge of $99 in the first quarter of 2016. This entire amount was paid out in the first quarter of 2016. |
Note 4 - Goodwill and Intangible Assets |
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| Goodwill and Intangible Assets Disclosure [Text Block] |
Goodwill and intangible assets on our balance sheets are the result of our acquisitions of Sigma Systems Corp. ("Sigma") in October 2008 and Thermonics, Inc. ("Thermonics"), a division of Test Enterprises, Inc., in January 2012. Goodwill All of our goodwill is allocated to our Thermal Products segment. There was no change in the amount of the carrying value of goodwill for the nine months ended September 30, 2016. Intangible Assets The following tables provide further detail about our intangible assets as of September 30, 2016 and December 31, 2015:
We generally amortize our finite-lived intangible assets over their estimated useful lives on a straight-line basis, unless an alternate amortization method can be reliably determined. Any such alternate amortization method would be based on the pattern in which the economic benefits of the intangible asset are expected to be consumed. None of our intangible assets have any residual value. Total amortization expense for the nine months ended September 30, 2016 and 2015 was $173 and $217, respectively. The following table sets forth the estimated annual amortization expense for our finite-lived intangible assets for each of the next five years:
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Note 5 - Major Customers |
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| Notes to Financial Statements | |||
| Concentration Risk Disclosure [Text Block] |
During each of the nine months ended September 30, 2016 and 2015, Hakuto Co., Ltd., one of our distributors, accounted for 13% of our consolidated net revenues. These revenues were generated by our Thermal Products segment. During the nine months ended September 30, 2016, Texas Instruments Incorporated accounted for 11% of our consolidated net revenues. While all three of our operating segments sold products to this customer, these revenues were primarily generated by our Mechanical Products and our Electrical Products segments. No other customers accounted for 10% or more of our consolidated net revenues during the nine months ended September 30, 2016 and 2015. |
Note 6 - Inventories |
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| Inventory Disclosure [Text Block] |
Inventories held at September 30, 2016 and December 31, 2015 were comprised of the following:
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Note 7 - Debt |
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| Debt Disclosure [Text Block] |
Letters of Credit
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Note 8 - Stock-based Compensation |
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| Disclosure of Compensation Related Costs, Share-based Payments [Text Block] |
As of September 30, 2016, we have unvested restricted stock awards and stock options granted under employee stock-based compensation plans that are described more fully in Note 12 to the consolidated financial statements in our 2015 Form 10-K. As of September 30, 2016, total unrecognized compensation expense related to unvested restricted stock awards and stock options was $362. The weighted average period over which this expense is expected to be recognized is 2.5 years. The following table shows the allocation of the compensation expense we recorded during the three and nine months ended September 30, 2016 and 2015, respectively, related to stock-based compensation:
There was no compensation expense capitalized in the nine months ended September 30, 2016 or 2015. Restricted Stock Awards We record compensation expense for restricted stock awards based on the quoted market price of our stock at the grant date and amortize the expense over the vesting period. Restricted stock awards generally vest over four years. However, during January 2016, we granted 22,500 shares of restricted stock to three of our independent directors which vested 100% upon the re-election of these directors at our annual meeting of stockholders, which took place on June 29, 2016. The total compensation expense related to these shares was $98, and it was all recorded upon the re-election of these directors. The following table summarizes the activity related to unvested shares of restricted stock for the nine months ended September 30, 2016:
The total fair value of the shares that vested during the nine months ended September 30, 2016 and 2015 was $138 and $59, respectively, as of the vesting dates of these shares. Stock Options We record compensation expense for stock options based on the fair market value of the options as of the grant date. No option may be granted with an exercise period in excess of ten years from the date of grant. Generally, stock options will be granted with an exercise price equal to the fair market value of our stock on the date of grant and will vest over four years. The fair value for stock options granted during the nine months ended September 30, 2016 was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions:
The per share weighted average fair value of stock options issued during the nine months ended September 30, 2016 was $1.43. The following table summarizes the activity related to stock options for the nine months ended September 30, 2016:
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Note 9 - Stock Repurchase Plan |
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| Notes to Financial Statements | |||
| Stock Repurchase Plan [Text Block] |
On October 27, 2015, our Board of Directors authorized the repurchase of up to $5,000 of our common stock from time to time on the open market, in compliance with Rule 10b-18 under the Securities Exchange Act of 1934, or in privately negotiated transactions (the "2015 Repurchase Plan"). Repurchases may also be made under a Rule 10b5-1 plan entered into with RW Baird & Co., which permits shares to be repurchased when we might otherwise be precluded from doing so under insider trading laws. The timing and amount of any shares repurchased under the 2015 Repurchase Plan is determined by our management, based on our evaluation of market conditions and other factors. The 2015 Repurchase Plan does not obligate us to repurchase any particular amount of common stock and may be suspended or discontinued at any time without prior notice. The 2015 Repurchase Plan is funded using our operating cash flow or available cash. During the nine months ended September 30, 2016, we repurchased 209,271 shares under this repurchase plan at a cost of $841, which includes fees paid to our broker of $5. As of September 30, 2016, we had repurchased a total of 250,603 shares under this repurchase plan at a cost of $997, which included fees paid to our broker of $6. All of the repurchased shares were retired. The 2015 Repurchase Plan was suspended in May 2016 and resumed in September 2016. |
Note 10 - Employee Benefit Plans |
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| Pension and Other Postretirement Benefits Disclosure [Text Block] |
We have a defined contribution 401(k) plan for our employees who work in the U.S. All permanent employees of inTEST Corporation, Temptronic Corporation and inTEST Silicon Valley Corporation who are at least 18 years of age are eligible to participate in the plan. We match employee contributions dollar for dollar up to 10% of the employee's annual compensation, with a maximum limit of $5. Employer contributions vest ratably over four years. Matching contributions are discretionary. For the nine months ended September 30, 2016 and 2015, we recorded $311 and $297 of expense for matching contributions, respectively. |
Note 11 - Segment Information |
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| Segment Reporting Disclosure [Text Block] |
We have three reportable segments, which are also our reporting units: Thermal Products, Mechanical Products and Electrical Products. The Thermal Products segment includes the operations of Temptronic Corporation, Thermonics, Sigma, inTEST Thermal Solutions GmbH (Germany), and inTEST Pte, Limited (Singapore). Sales of this segment consist primarily of temperature management systems, which we design, manufacture and market under our Temptronic, Thermonics and Sigma product lines. In addition, this segment provides post-warranty service and support. The Mechanical Products segment includes the operations of our Mt. Laurel, New Jersey manufacturing facility. Sales of our Mechanical Products segment consist primarily of manipulator and docking hardware products, which we design, manufacture and market. The Electrical Products segment includes the operations of inTEST Silicon Valley Corporation. Sales of this segment consist primarily of tester interface products, which we design, manufacture and market. We operate our business worldwide, and all three segments sell their products both domestically and internationally. All three segments sell to semiconductor manufacturers, third-party test and assembly houses and ATE manufacturers. Our Thermal Products segment also sells into a variety of markets outside of the ATE market, including the automotive, consumer electronics, defense/aerospace, energy, industrial and telecommunications markets. Intercompany pricing between segments is either a multiple of cost for component parts or list price for finished goods.
The following table provides information about our geographic areas of operation. Net revenues from unaffiliated customers are based on the location to which the goods are shipped.
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Significant Accounting Policies (Policies) |
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| Accounting Policies [Abstract] | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Basis Of Presentation And Use Of Estimates [Policy Text Block] | Basis of Presentation and Use of Estimates The accompanying consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires us 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. Actual results could differ from those estimates. Certain of our accounts, including inventories, long-lived assets, goodwill, identifiable intangibles and deferred tax assets and liabilities are particularly impacted by estimates. In the opinion of management, the accompanying unaudited consolidated financial statements include all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the financial position, results of operations, and changes in cash flows for the interim periods presented. Certain footnote information has been condensed or omitted from these consolidated financial statements. Therefore, these consolidated financial statements should be read in conjunction with the consolidated financial statements and accompanying footnotes included in our Annual Report on Form 10-K for the year ended December 31, 2015 filed with the Securities and Exchange Commission on March 29, 2016 (the "2015 Form 10-K"). |
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| Reclassification, Policy [Policy Text Block] | Reclassification Certain prior period amounts have been reclassified to be comparable with the current period's presentation. |
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| Inventory, Policy [Policy Text Block] | Inventories Inventories are valued at cost on a first-in, first-out basis, not in excess of market value. Cash flows from the sale of inventories are recorded in operating cash flows. On a quarterly basis, we review our inventories and record excess and obsolete inventory charges based upon our established objective excess and obsolete inventory criteria. These criteria identify material that has not been used in a work order during the prior twelve months and the quantity of material on hand that is greater than the average annual usage of that material over the prior three years. In certain cases, additional excess and obsolete inventory charges are recorded based upon current market conditions, anticipated product life cycles, new product introductions and expected future use of the inventory. The excess and obsolete inventory charges we record establish a new cost basis for the related inventories. We incurred excess and obsolete inventory charges of $184 and $232 for the nine months ended September 30, 2016 and 2015, respectively. |
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| Goodwill Intangible And Long Lived Assets [Policy Text Block] | Goodwill, Intangible and Long-Lived Assets We account for goodwill and intangible assets in accordance with Accounting Standards Codification ("ASC") 350 (Intangibles - Goodwill and Other). Finite-lived intangible assets are amortized over their estimated useful economic life and are carried at cost less accumulated amortization. Goodwill is assessed for impairment annually in the fourth quarter on a reporting unit basis, or more frequently when events and circumstances occur indicating that the recorded goodwill may be impaired. As a part of the goodwill impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount. If we determine this is the case, we are required to perform a two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of goodwill impairment loss to be recognized. The two-step test is discussed below. If we determine that it is more-likely-than-not that the fair value of the reporting unit is greater than its carrying amounts, the two-step goodwill impairment test is not required. If we determine it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a result of our qualitative assessment, we will perform a quantitative two-step goodwill impairment test. In the Step I test, the fair value of a reporting unit is computed and compared with its book value. If the book value of a reporting unit exceeds its fair value, a Step II test is performed in which the implied fair value of goodwill is compared with the carrying amount of goodwill. If the carrying amount of goodwill exceeds the implied fair value, an impairment loss is recorded in an amount equal to that excess. The two-step goodwill impairment assessment is based upon a combination of the income approach, which estimates the fair value of our reporting units based upon a discounted cash flow approach, and the market approach which estimates the fair value of our reporting units based upon comparable market multiples. This fair value is then reconciled to our market capitalization at year end with an appropriate control premium. The determination of the fair value of our reporting units requires management to make significant estimates and assumptions including the selection of appropriate peer group companies, control premiums, discount rate, terminal growth rates, forecasts of revenue and expense growth rates, changes in working capital, depreciation, amortization and capital expenditures. Changes in assumptions concerning future financial results or other underlying assumptions could have a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charge. Indefinite-lived intangible assets are assessed for impairment annually in the fourth quarter, or more frequently if events or changes in circumstances indicate that the asset might be impaired. As a part of the impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is impaired. If, as a result of our qualitative assessment, we determine that it is more-likely-than-not that the fair value of the indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further testing is required. The quantitative impairment test consists of a comparison of the fair value of the intangible asset with its carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an amount equal to that excess. Long-lived assets, which consist of finite-lived intangible assets and property and equipment, are assessed for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated fair value. The cash flow estimates used to determine the impairment, if any, contain management's best estimates using appropriate assumptions and projections at that time. |
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| Share-based Compensation, Option and Incentive Plans Policy [Policy Text Block] | Stock-Based Compensation We account for stock-based compensation in accordance with ASC Topic 718 (Compensation - Stock Compensation), which requires that employee share-based equity awards be accounted for under the fair value method and requires the use of an option pricing model for estimating fair value of stock options granted, which is then amortized to expense over the service periods. See further disclosures related to our stock-based compensation plan in Note 8. |
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| Subsequent Events, Policy [Policy Text Block] | Subsequent Events We have made an assessment of our operations and determined that there were no material subsequent events requiring adjustment to, or disclosure in, our consolidated financial statements for the nine months ended September 30, 2016. |
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| Revenue Recognition, Policy [Policy Text Block] | Revenue Recognition We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered, the price is fixed or determinable, and collection of the related receivable is reasonably assured. Sales of our products are made through our sales employees, third-party sales representatives and distributors. There are no differences in revenue recognition policies based on the sales channel. We do not provide our customers with rights of return or exchanges. Revenue is generally recognized upon product shipment. Our customers' purchase orders do not typically contain any customer-specific acceptance criteria, other than that the product performs within the agreed upon specifications. We test all products manufactured as part of our quality assurance process to determine that they comply with specifications prior to shipment to a customer. To the extent that any customer purchase order contains customer-specific acceptance criteria, revenue recognition is deferred until customer acceptance. In addition, in our Thermal Products segment, we lease certain of our equipment to customers under non-cancellable operating leases. These leases generally have an initial term of six months. We recognize revenue for these leases on a straight-line basis over the term of the lease. With respect to sales tax collected from customers and remitted to governmental authorities, we use a net presentation in our consolidated statement of operations. As a result, there are no amounts included in either our net revenues or cost of revenues related to sales tax. |
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| Standard Product Warranty, Policy [Policy Text Block] | Product Warranties We generally provide product warranties and record estimated warranty expense at the time of sale based upon historical claims experience. Warranty expense is included in selling expense in our consolidated financial statements. |
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| Income Tax, Policy [Policy Text Block] | Income Taxes The asset and liability method is used in accounting for income taxes. Under this method, deferred tax assets and liabilities are recognized for operating loss and tax credit carryforwards and for the future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates expected to apply to taxable income in the years in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in the results of operations in the period that includes the enactment date. A valuation allowance is recorded to reduce the carrying amounts of deferred tax assets if it is more likely than not that such assets will not be realized. |
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| Earnings Per Share, Policy [Policy Text Block] | Net Earnings Per Common Share Net earnings per common share - basic is computed by dividing net earnings by the weighted average number of common shares outstanding during each period. Net earnings per common share - diluted is computed by dividing net earnings by the weighted average number of common shares and common share equivalents outstanding during each period. Common share equivalents represent unvested shares of restricted stock and stock options and are calculated using the treasury stock method. Common share equivalents are excluded from the calculation if their effect is anti-dilutive. The table below sets forth, for the periods indicated, a reconciliation of weighted average common shares outstanding - basic to weighted average common shares and common share equivalents outstanding - diluted and the average number of potentially dilutive securities that were excluded from the calculation of diluted earnings per share because their effect was anti-dilutive:
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| New Accounting Pronouncements, Policy [Policy Text Block] | Effect of Recently Adopted Amendments to Authoritative Accounting Guidance Effect of Recently Issued Amendments to Authoritative Accounting Guidance In March 2016, the FASB issued amendments to the current guidance on accounting for stock-based compensation issued to employees which is contained in ASC Topic 718 (Compensation - Stock Compensation). The new guidance simplifies several aspects of the accounting for share-based payment transactions, including the income tax consequences, classification of awards as either equity or liabilities, and classification on the statement of cash flows. The amendments are effective for us as of January 1, 2017. Early adoption is permitted. We do not expect the implementation of these amendments to have a material impact on our consolidated financial statements. In February 2016, the FASB issued amendments to the current guidance on accounting for lease transactions, which is presented in ASC Topic 842 (Leases). The intent of the updated guidance is to increase transparency and comparability among organizations by requiring lessees to recognize assets and liabilities on the balance sheet for the rights and obligations created by leases and to disclose key information about leasing arrangements. Under the new guidance, a lessee will be required to record a right-of-use asset and a lease liability on the balance sheet for all leases with terms longer than 12 months. Leases will be classified as either finance or operating, with classification affecting the pattern of expense recognition in the income statement. The amendments are effective for us as of January 1, 2019. A modified retrospective transition approach is required for lessees for capital and operating leases existing at, or entered into after, the beginning of the earliest comparative period presented in the financial statements, with certain practical expedients available. We are currently evaluating the impact of the implementation of these amendments on our consolidated financial statements. In July 2015, the FASB issued amendments to update the current guidance on the subsequent measurement of inventory, which is presented in ASC Topic 330 (Inventory). The purpose of the amendments is to simplify the subsequent measurement of inventory and reduce the number of potential outcomes. It applies to all inventory other than inventory measured using last-in, first-out or the retail inventory method. Current guidance requires an entity to measure inventory at the lower of cost or market. Market could be replacement cost, net realizable value, or net realizable value less a normal profit margin. The updated guidance amends this to require that an entity measure inventory within the scope of the updated guidance at the lower of cost and net realizable value. Net realizable value is the estimated selling price in the ordinary course of business, less reasonably predictable costs of completion, disposal, and transportation. The amendments are effective for us as of January 1, 2017. We do not expect the implementation of these amendments to have a material impact on our consolidated financial statements. In May 2014, the FASB issued new guidance on the recognition of revenue from contracts with customers. Subsequent to May, 2014, the FASB has issued additional clarifying guidance on certain aspects of this new guidance. This guidance is presented in ASC Topic 606 (Revenue from Contracts with Customers). This new guidance will replace most existing revenue recognition guidance in U.S. GAAP when it becomes effective. Companies can use either the retrospective or cumulative effect transition method. In August 2015, the FASB deferred the effective date of this new guidance for one additional year. As a result, this new guidance is effective for us on January 1, 2018. Early application is only permitted as of the prior effective date, which in our case would be as of January 1, 2017. We have not yet selected a transition method and we are still evaluating the effect that this guidance will have on our consolidated financial statements and related disclosures. |
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Note 2 - Summary of Significant Accounting Policies (Tables) |
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| Schedule of Weighted Average Number of Shares [Table Text Block] |
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Note 4 - Goodwill and Intangible Assets (Tables) |
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Intangible Assets [Table Text Block] |
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| Schedule of Finite-Lived Intangible Assets, Future Amortization Expense [Table Text Block] |
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Note 6 - Inventories (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Schedule of Inventory, Current [Table Text Block] |
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Note 7 - Debt (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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Sep. 30, 2016 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule Of Outstanding Letters Of Credit [Table Text Block] |
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Note 8 - Stock-based Compensation (Tables) |
9 Months Ended | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes Tables | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Employee Service Share-based Compensation, Allocation of Recognized Period Costs [Table Text Block] |
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| Schedule of Nonvested Share Activity [Table Text Block] |
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| Schedule of Share-based Payment Award, Stock Options, Valuation Assumptions [Table Text Block] |
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| Schedule of Share-based Compensation, Stock Options, Activity [Table Text Block] |
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Note 11 - Segment Information (Tables) |
9 Months Ended | ||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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| Notes Tables | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
| Schedule of Segment Reporting Information, by Segment [Table Text Block] |
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| Schedule of Segment Reporting Information, by Segment [Table Text Block] |
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| Revenue from External Customers by Geographic Areas [Table Text Block] |
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| Long-lived Assets by Geographic Areas [Table Text Block] |
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Note 1 - Nature of Operations (Details Textual) |
9 Months Ended |
|---|---|
Sep. 30, 2016 | |
| Number of Reportable Segments | 3 |
Note 2 - Summary of Significant Accounting Policies (Details Textual) - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| Thermal Products and Mechanical Products [Member] | ||
| Equipment Leased To Customers Initial Term | 180 days | |
| Inventory Write-down | $ 184 | $ 232 |
Note 2 - Summary of Significant Accounting Policies - Weighted Average Common Shares (Details) - shares |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| Weighted average common shares outstanding - basic (in shares) | 10,295,447 | 10,473,928 | 10,327,095 | 10,470,410 |
| Potentially dilutive securities: | ||||
| Unvested shares of restricted stock and stock options (in shares) | 23,268 | 24,983 | 17,652 | 21,907 |
| Weighted average common shares and common share equivalents outstanding - diluted (in shares) | 10,318,715 | 10,498,911 | 10,344,747 | 10,492,317 |
| Average number of potentially dilutive securities excluded from calculation (in shares) | 19,800 | 18,277 | ||
Note 3 - Restructuring Charges (Details Textual) $ in Thousands |
3 Months Ended |
|---|---|
|
Mar. 31, 2016
USD ($)
| |
| Restructuring Costs | $ 99 |
Note 4 - Goodwill and Intangible Assets (Details Textual) - USD ($) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| Goodwill, Period Increase (Decrease) | $ 0 | |
| Amortization of Intangible Assets | $ 173,000 | $ 217,000 |
Note 4 - Goodwill and Intangible Assets - Future Amortization Expense (Details) $ in Thousands |
Sep. 30, 2016
USD ($)
|
|---|---|
| 2016 (remainder) | $ 57 |
| 2017 | 212 |
| 2018 | 65 |
| 2019 | 39 |
| 2020 | $ 30 |
Note 5 - Major Customers (Details Textual) |
9 Months Ended | |
|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | Hakuto Co Ltd [Member] | ||
| Concentration Risk, Percentage | 13.00% | 13.00% |
| Sales Revenue, Net [Member] | Customer Concentration Risk [Member] | Texas Instruments Incorporated [Member] | ||
| Concentration Risk, Percentage | 11.00% | |
| Number of Operating Segments | 3 | |
Note 6 - Inventories - Inventories Held (Details) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Sep. 01, 2016 |
Dec. 31, 2015 |
|---|---|---|---|
| Raw materials | $ 2,490 | $ 2,535 | |
| Work in process | 650 | 295 | |
| Inventory consigned to others | 109 | 119 | |
| Finished goods | 148 | 571 | |
| Total inventories | $ 3,397 | $ 3,397 | $ 3,520 |
Note 7 - Debt - Outstanding Letters of Credit (Details) - Letter of Credit [Member] - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Sep. 30, 2016 |
Dec. 31, 2015 |
|
| Mt Laurel [Member] | ||
| Line of Credit, Issue Date | Mar. 29, 2010 | |
| Line of Credit, ExpirationDate | Mar. 31, 2017 | |
| Lease Expiration Date | Apr. 30, 2021 | |
| Letters of Credit Amount Outstanding | $ 125 | $ 250 |
| Mansfield [Member] | ||
| Line of Credit, Issue Date | Oct. 27, 2010 | |
| Line of Credit, ExpirationDate | Nov. 08, 2016 | |
| Lease Expiration Date | Aug. 23, 2021 | |
| Letters of Credit Amount Outstanding | $ 100 | 100 |
| Letters of Credit Amount Outstanding | $ 225 | $ 350 |
Note 8 - Stock-based Compensation - Allocation of Share-based Compensation Expense (Details) - Restricted Stock [Member] - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| Cost of Sales [Member] | ||||
| Allocation of Share-Based Compensation Expense | $ 2 | $ 3 | $ 7 | $ 8 |
| Selling and Marketing Expense [Member] | ||||
| Allocation of Share-Based Compensation Expense | 1 | 1 | 4 | 4 |
| Research and Development Expense [Member] | ||||
| Allocation of Share-Based Compensation Expense | 3 | 2 | 8 | 7 |
| General and Administrative Expense [Member] | ||||
| Allocation of Share-Based Compensation Expense | 38 | 24 | 203 | 72 |
| Allocation of Share-Based Compensation Expense | $ 44 | $ 30 | $ 222 | $ 91 |
Note 8 - Stock-based Compensation - Nonvested Shares (Details) - Restricted Stock [Member] |
9 Months Ended |
|---|---|
|
Sep. 30, 2016
$ / shares
shares
| |
| Unvested shares outstanding (in shares) | shares | 63,750 |
| Unvested shares outstanding (in dollars per share) | $ / shares | $ 3.64 |
| Granted (in shares) | shares | 86,400 |
| Granted (in dollars per share) | $ / shares | $ 4.27 |
| Vested (in shares) | shares | (35,625) |
| Vested (in dollars per share) | $ / shares | $ 3.92 |
| Forfeited (in shares) | shares | |
| Forfeited (in dollars per share) | $ / shares | |
| Unvested shares outstanding (in shares) | shares | 114,525 |
| Unvested shares outstanding (in dollars per share) | $ / shares | $ 4.03 |
Note 8 - Stock-based Compensation - Stock Options Valuation Assumptions (Details) - Employee Stock Option [Member] |
9 Months Ended |
|---|---|
Sep. 30, 2016 | |
| Risk-free interest rate | 1.30% |
| Dividend yield | 0.00% |
| Expected common stock market price volatility factor | 0.40% |
| Weighted average expected life of stock options (years) | 4 years |
Note 8 - Stock-based Compensation - Stock Option Activity (Details) |
9 Months Ended |
|---|---|
|
Sep. 30, 2016
$ / shares
shares
| |
| Options outstanding, (none exercisable) (in shares) | shares | |
| Options outstanding, (none exercisable) (in dollars per share) | $ / shares | |
| Granted (in shares) | shares | 19,800 |
| Granted (in dollars per share) | $ / shares | $ 4.37 |
| Options outstanding, (none exercisable) (in shares) | shares | 19,800 |
| Options outstanding, (none exercisable) (in dollars per share) | $ / shares | $ 4.37 |
Note 9 - Stock Repurchase Plan (Details Textual) - USD ($) $ in Thousands |
9 Months Ended | ||
|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2016 |
Oct. 27, 2015 |
|
| Stock Repurchase Program, Authorized Amount | $ 5,000 | ||
| Stock Repurchased and Retired During Period, Shares | 250,603 | 209,271 | |
| Stock Repurchased and Retired During Period, Value | $ 997 | $ 841 | |
| Payments for Brokerage Fees | $ 6 | $ 5 |
Note 10 - Employee Benefit Plans (Details Textual) - USD ($) $ in Thousands |
9 Months Ended | |
|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| Defined Contribution Plan, Employer Matching Contribution, Percent of Employees' Gross Pay | 10.00% | |
| Defined Contribution Plan Maximum Annual Employer Matching Contribution Per Emplyee Amount | $ 5 | |
| Defined Contribution Plan Employer Matching Contribution Vesting Period | 4 years | |
| Defined Contribution Plan, Employer Discretionary Contribution Amount | $ 311 | $ 297 |
Note 11 - Segment Information (Details Textual) |
9 Months Ended |
|---|---|
Sep. 30, 2016 | |
| Number of Reportable Segments | 3 |
Note 11 - Segment Information - Segment Information (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| Thermal Products [Member] | ||||
| Revenues | $ 6,641 | $ 6,259 | $ 17,429 | $ 18,635 |
| Income (Loss) From Continuing Operations | 1,402 | 1,165 | 2,709 | 3,731 |
| Net Income (Loss) | 888 | 886 | 1,737 | 2,559 |
| Mechanical Products [Member] | ||||
| Revenues | 2,118 | 1,273 | 6,727 | 6,195 |
| Income (Loss) From Continuing Operations | 63 | (759) | 4 | (1,240) |
| Net Income (Loss) | 40 | (577) | 1 | (891) |
| Electrical Products [Member] | ||||
| Revenues | 2,064 | 1,671 | 5,799 | 6,120 |
| Income (Loss) From Continuing Operations | 311 | 79 | 729 | 875 |
| Net Income (Loss) | 196 | 60 | 468 | 579 |
| Corporate Segment [Member] | ||||
| Income (Loss) From Continuing Operations | (55) | (78) | (848) | (629) |
| Net Income (Loss) | (34) | (59) | (549) | (419) |
| Revenues | 10,823 | 9,203 | 29,955 | 30,950 |
| Income (Loss) From Continuing Operations | 1,721 | 407 | 2,594 | 2,737 |
| Net Income (Loss) | $ 1,090 | $ 310 | $ 1,657 | $ 1,828 |
Note 11 - Segment Information - Identifiable Assets (Details) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Sep. 01, 2016 |
Dec. 31, 2015 |
|---|---|---|---|
| Thermal Products [Member] | |||
| Identifiable Assets | $ 18,512 | $ 16,983 | |
| Mechanical Products [Member] | |||
| Identifiable Assets | 19,156 | 19,733 | |
| Electrical Products [Member] | |||
| Identifiable Assets | 4,364 | 3,268 | |
| Identifiable Assets | $ 42,032 | $ 42,032 | $ 39,984 |
Note 11 - Segment Information - Net Revenue from Unaffiliated Customers (Details) - USD ($) $ in Thousands |
3 Months Ended | 9 Months Ended | ||
|---|---|---|---|---|
Sep. 30, 2016 |
Sep. 30, 2015 |
Sep. 30, 2016 |
Sep. 30, 2015 |
|
| UNITED STATES | ||||
| Revenues | $ 3,268 | $ 3,713 | $ 8,898 | $ 11,032 |
| Foreign [Member] | ||||
| Revenues | 7,555 | 5,490 | 21,057 | 19,918 |
| Revenues | $ 10,823 | $ 9,203 | $ 29,955 | $ 30,950 |
Note 11 - Segment Information - Long-lived Assets by Geographical Area (Details) - USD ($) $ in Thousands |
Sep. 30, 2016 |
Sep. 01, 2016 |
Dec. 31, 2015 |
|---|---|---|---|
| UNITED STATES | |||
| Property and Equipment | $ 725 | $ 797 | |
| Foreign [Member] | |||
| Property and Equipment | 270 | 315 | |
| Property and Equipment | $ 995 | $ 995 | $ 1,112 |