2012 I Annu Al RepoRt
inTEST Corporation
Corporate Headquarters
804 East Gate Drive, Suite 200
Mt. Laurel, NJ 08054 USA
Tel (856) 505-8800
Fax (856) 505-8801
www.intest.com
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company
profile
inTEST Corporation (Nasdaq: INTT) is an independent designer, manufacturer and
marketer of temperature management products and ATE (Automatic Test Equipment)
interface solutions used by semiconductor manufacturers to perform final testing of
integrated circuits (ICs) and electronic assemblies. Our high-performance products
are designed to enable semiconductor manufacturers to improve the speed, reliability,
efficiency and profitability of IC test processes. Our products are also sold into markets
outside the ATE industry, such as the automotive, consumer electronics, defense/
aerospace, energy and telecommunications industries. Specific products include
temperature management systems, test head manipulators and docking hardware
products and customized interface solutions. We have established strong relationships
with our customers globally, which we support through a network of local offices. Our
largest customers include Avago Technologies Limited, Emerson Electric Co., Hakuto Co.,
Intel Corporation, NXP Semiconductors N.V., PDF Solutions, Inc., Raytheon Company,
Samsung Electronics Co., Ltd., Teradyne, Inc., and Texas Instruments Incorporated.
Headquartered in Mt. Laurel, New Jersey, inTEST has approximately 140 highly
skilled and trained technical personnel. We have manufacturing facilities in New
Jersey, Massachusetts and California. We also have sales, service and support offices
in Singapore, the U.K. and Germany, with additional support personnel in other key
semiconductor manufacturing areas around the world.
corporate information
Vice President and General Manager,
Providence, RI 02940-3070
Thermal Products Segment
800-962-4284
Executive Officers
Alyn R. Holt
Executive Chairman
Robert E. Matthiessen
President and Chief Executive Officer
Hugh T. Regan, Jr.
Secretary, Treasurer
and Chief Financial Officer
Daniel J. Graham
Senior Vice President
and General Manager,
Mechanical Products Segment
and Electrical Products Segment
James Pelrin
Board of Directors
Alyn R. Holt
Executive Chairman,
inTEST Corporation
Robert E. Matthiessen
President and CEO,
inTEST Corporation
Steven J. Abrams, Esq.
Partner, Pepper Hamilton LLP
Stuart F. Daniels, Ph.D.
Principal, The Daniels Group,
Technology Assessment, Protection
and Commercialization Consulting
William Kraut
Partner, Newport Board Group LLC
James W. Schwartz, Esq.
Of Counsel, Saul Ewing LLP
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Legal Counsel
Saul Ewing LLP
Centre Square West
1500 Market Street, 38th Floor
Philadelphia, PA 19102-2186
Independent Registered
Public Accounting Firm
McGladrey LLP
751 Arbor Way, Suite 200
Blue Bell, PA 19422-2700
Transfer Agent
Computershare Investor Services
P. O. Box 43070
Investor Relations
Laura Guerrant-Oiye,
Principal
Guerrant Associates
lguerrant@guerrantir.com
808-882-1467
Annual Stockholders’ Meeting
Our 2013 Annual Meeting of
Stockholders will be held at
11:00 A.M. Eastern Daylight Time
on Wednesday, June 26, 2013,
at our offices:
804 East Gate Drive, Suite 200
Mt. Laurel, New Jersey 08054
Availability of Annual Report on Form
10-K A copy of our Annual Report
on Form 10-K for the year ended
December 31, 2012 (excluding
exhibits) as filed with the Securities and
Exchange Commission is available to
any stockholder without charge, upon
written request to Hugh T. Regan,
Jr., Secretary, inTEST Corporation,
804 East Gate Drive, Suite 200, Mt.
Laurel, NJ 08054, or by calling (856)
505-8800. Copies of the exhibits
filed therewith will be provided upon
written request to the Secretary of
the Corporation and payment of a
reasonable fee (which will not exceed
our expense incurred in connection with
providing such copies). In addition,
our Annual Report on Form 10-K and
all exhibits are available at no charge
by accessing the Investor Relations
page of our website, at http://investor.
shareholder.com/intest/index.cfm, or
the SEC’s website, at www.sec.gov.
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fellow stockholders
Our diversified market penetration, along with our fiscal discipline, has resulted in prof-
itability for inTEST, even in the challenging climate experienced in 2012. We believe
that when the semiconductor cycle rebounds and resumes its more normal patterns of
growth, we will be optimally positioned to achieve higher levels of profitablity.
inTEST Corporation: Expanding Business Opportunities
Change drives our business. Our size is a strategic advantage as
2012 was another year of progress for inTEST in which we executed a
we can quickly respond, adapt and customize our solutions as our
number of initiatives and made great strides in capitalizing on the bench
customers’ processes advance. While this is true of all of our customers,
strength that we have been developing to steadily improve our products
it is perhaps most prominent among the customers of our Thermal
and services. Our operating results reinforce the soundness of our
Products segment, as their products, operations and services depend
business model, which is centered on our core market in semiconductor
upon an ever-changing array of sophisticated and precise control
Automated Test Equipment (ATE), balanced with an expanded product
of thermal properties and states. They turn to inTEST for precision-
offering for non-traditional electronics markets that require thermal testing.
engineered products featuring the latest advancements in thermal
The ATE sector had its share of challenging industry conditions this
management and thermal technology for electronics packaging and
year, as a number of capital equipment suppliers and semiconductor
cooling, temperature sensing and control, thermal materials, systems
companies delayed certain capital expenditures; but we built upon
design and management for optimizing thermal properties. This level
our track record of success, further strengthening our operations and
of precision engineering has been a hallmark of the company across
increasing operational efficiencies, while maintaining our fiscal discipline
all of our market segments since our inception.
and cost controls. Most importantly, inTEST maintained profitability—
2012 marked our third consecutive year of profitability, with net income
Thermal Products: Broadening End Market Penetration
of $2.2 million, or $0.21 per share.
Over the past several years, we have steadily rebuilt our cash position
and strengthened our balance sheet, resulting in a strong company with
a solid platform for growth. We carry no debt and ended 2012 with
cash and cash equivalents of $15.6 million, up from $14.0 million at
the end of 2011; and, during the fourth quarter, we paid a special
one-time dividend of $0.08 per share. We currently expect to see
positive cash flow from operations and, as a result, we expect that
cash will continue to increase sequentially throughout 2013.
Driven by Industry Change
With ever-shorter innovation cycles, technology is constantly evolving
and the global marketplace is one of rapid change. Competition
is fiercer than ever, demanding a higher degree of strategic and
conceptual thought in turn. To be successful—to stay ahead of the
industry—it’s not enough to acknowledge change. Adaptation is critical
for business survival and competitiveness. To excel and create value,
We are creating new opportunities in thermal testing, and have
continued to transform inTEST, predominantly through the strategic
diversification of our Thermal Products Segment—our largest, most
profitable and diversified division. In January 2012, we acquired
Sunnyvale, CA-based Thermonics, Inc, a developer of precision
temperature testing systems and supplier of temperature-testing
equipment. In a little over 6 weeks, we relocated the Thermonics
operations to our Mansfield, MA manufacturing facility. Thermonics
products provide a range of precision temperature forcing systems
used in a number of different industries, which we expect to expand
our customer base in both the semiconductor and non-semiconductor
industries. By leveraging Sigma Systems products within our Thermal
Products Segment, we are making significant progress in widening the
breadth of our end market penetration. As a result, we now address
growth markets in both the semiconductor and non-semiconductor
areas, including automotive, consumer electronics, defense/aerospace,
energy and telecommunications.
successful companies must continually adapt putting the wheels of
We have demonstrated that our thermal conditioning technology
change in motion and providing expedient solutions to evolving
can be applied to any kind of industrial test outside of the traditional
customer requirements.
semiconductor market. For example, we have continued to sell a custom
inTEST / 2012 Annual Report / Page ONE
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vision
The Power of Precision Engineering™
High-performance testing success depends on fast test set-ups; secure alignment; accurate,
high fidelity test signals; correct test temperature. It requires inTEST, a single source for
perfectly integrated manipulators, docking, interfaces, and thermal test systems that enable
semiconductor manufacturers to enhance their own profitability by improving the efficiency
of their Integrated Circuit (IC) and wafer test processes.
Our goals are to increase penetration in electronics test markets, establish Original Equipment
Manufacturers (OEM) business based on existing product and technical knowledge, and
develop business in other markets by leveraging our core competencies. We aim to be a
recognized authority on extreme temperature environments and provide highly engineered,
application-specific thermal solutions with timely delivery, and superior quality and reliability.
profitable
niche
position
• Design, develop, manufacture & sell mission-critical test equipment to many industries
• Provide customer yield improvement, which drives revenue growth
• IP portfolio supports strong margins
• Generating profits & cash and have no debt
• Positioned for growth
historical
markets
• Semiconductor manufacturers–End Users
• Production Floor/Test Facilities/Laboratories
• ATE equipment suppliers–OEM
growth
opportunities
• Expand our customer base in both the semiconductor and non-semiconductor industries
• Specialize in delivering custom thermal test solutions, which can be readily adapted to
industries outside of the semiconductor industry
• By leveraging Sigma Systems products within our Thermal Products Segment, we are
making significant progress in widening the breadth of our end market penetration
• Address growth markets in the semiconductor and non-semiconductor areas, including
automotive, consumer electronics, defense/aerospace, energy and telecommunications
249172_SSD_4pg.indd 2
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investment
highlights
• Diversification out of semiconductor markets with thermal technology
• Sheer volume of IC production drives growth
• Highly leveraged P&L with no debt
• Generate profits & cash even during cyclical semi downturns
• Test solutions drive higher profits
• Lean operating structure
• Operational efficiencies drive higher gross margin
• As semi market rebounds and resumes normal growth patterns, optimally positioned to
achieve significantly higher levels of profitability
market
segments
Thermal
inTEST’s Thermal Solutions Group, which include its Temptronic, Sigma and Thermonics
brands, is located in Mansfield, MA, with additional sales and service facilities in
Germany and Singapore. Products are used to bring electronics to the correct temperature
for thermal testing. They are used in a variety of applications, from high-precision thermal
device characterization, wafer probing, and Mil Spec thermal cycling to complete thermal
test system integration.
Mechanical
inTEST’s test head manipulators and docking hardware for the semiconductor industry are
designed and manufactured in Mount Laurel, NJ. Most of these products accommodate
a wide variety of ATE manufacturers’ test heads, which, in turn, interface with numerous
wafer probers and device handlers. Semiconductor and ATE manufacturers use inTEST
manipulators and docking hardware to help reduce the cost of testing. On the semiconductor
test floor, our products improve ATE utilization rates, increase ATE flexibility, improve the
accuracy and integrity of test results by providing repeatable, dependable performance,
and reduce ATE maintenance costs by protecting delicate test interface components.
Electrical
Tester interfaces optimize the signal environment between the tester and the particular type
of device under test. inTEST is a world leader in this technology, with products that provide
super-high-fidelity round-trip signal paths. By delivering more-reliable test results, these
advanced interfaces help to reduce customers’ IC production costs. inTEST Silicon Valley
designs and builds tester interfaces in a state-of-the-art facility in Fremont, CA. We offer
over 200 different types of tester interface models to match the wide variety of customer
applications, including wafer-probing interfaces, custom electro-mechanical assemblies,
and test head adapters.
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thermal source for missile testing to a major defense contractor, with
customized electronic bridge between the tester and the specific type of
cumulative sales since the program’s inception reaching $1.6 million
IC being tested. Our tester interface products are purchased primarily for
dollars in 2012. During the year we booked our first order for our new
manufacturing capacity expansion.
300°C ThermoStream to a large military/aerospace semiconductor
manufacturer. A leading oilfield services company supplying technology,
information solutions and integrated project management approached
us with a need for mechanical refrigeration chambers capable of
operating at temperatures above 200°C (the high temperature limit for
conventional mechanical refrigeration). In addition, we developed an
innovative mechanical refrigeration design and delivered a chamber
rated for service up to 300°C. We believe we are the only manufacturer
offering mechanical refrigeration chambers of this type.
Mechanical Products Segment
Our mechanical products consist of test head manipulators and docking
hardware. inTEST’s manipulators hold the test head portion of a tester
and allow the test floor personnel to move it into and out of the test
position quickly and safely, which increases the speed and efficiency
of the testing process. inTEST docking equipment speeds up this process,
as well, guiding the tester into its final test position quickly and holding it
in position securely and accurately as it tests the integrated circuits (ICs).
In the Mechanical Products Segment, we continue to develop and refine
our manipulator and docking hardware products, which positions us
with a well targeted product offering.
We’ve had a number of successes in 2012 with new and existing
customers. Most notably, we received the Supplier Excellence Award
given by Texas Instruments (TI). The annual award honors firms whose
dedication and commitment in supplying products and services meet
TI’s high standards for excellence, and recognizes those suppliers who
exemplify the highest levels of excellence and emphasize continuous
improvement efforts to achieve greater customer results. In addition,
we successfully proliferated Prober Interface Board direct docking. We
started with one customer; and by the end of 2012 we were installed
with four customers at a total of 10 sites in the United States, Europe
and Asia. On another front, we recently shipped the first set of inTEST
docking hardware to implement single board direct probing on the
Ultra Flex tester. We also secured design wins at a major Integrated
Device Manufacturer (IDM) on various test platforms, and we’re working
with a major IDM on manipulator, docking and interface products for
a new internal test system scheduled for release in the third quarter of
During 2012, our electrical segment relocated to a new facility in
Fremont, CA. We also developed a new wafer probe interface at the
request of a major IDM, which has been field tested and approved,
with orders expected in 2013. We are now the OEM supplier of wafer
probe interfaces to a major tester company for their discrete component
tester. And we entered into a joint development agreement with a major
tester company of super high density, 10,000-pin wafer sort interface
and corresponding hardware.
Positioned for Growth ~ Creating Long-Term Value
The diversification of our served markets outside of our traditional
semiconductor markets helps to mitigate the cyclicality that is so closely
tied to the semiconductor industry and affords us several exciting new
opportunities with multiple new customers. This is a strength we will
continue to leverage as non-semiconductor related products will play
a substantial role in our growth strategy and success. Our long-term
objective is to grow and evolve inTEST Corporation from our origins
as an ATE company with a primary focus on semiconductors into a
multi-faceted industrial-test company that serves an expanding number
of related growth markets.
We have transformed inTEST largely through acquisitions, most notably
in our Thermal Products Segment. While many of our peers are looking
to M&A as a means of survival, our core semiconductor business
provides a solid business platform from which we can grow. We have
added five companies to our operations in the last 15 years—a very
successful track record of acquisitions, which have bolstered our growth
opportunities. We enter 2013 with a diversified product portfolio,
serving growth markets, and we are well positioned to meet the needs
of our customers who continue to strategically increase their overall test
capacity as they seek to meet end market demand for a broad range
of products. Our diversified market penetration, along with our
fiscal discipline, has resulted in profitability for inTEST, even in the
challenging climate experienced in 2012. We believe that when the
semiconductor cycle rebounds and resumes its more normal patterns
of growth, we will be optimally positioned to achieve higher levels
of profitablity.
2013. On the Cobal front, we achieved our first Cobal 500 installs
We extend our sincere appreciation and thanks to our customers,
in Thailand, the Cobal 250 manipulator is now available for over
employees, stockholders, and suppliers for their continued trust,
20 test systems, and the Cobal 500 manipulator is now available for
confidence and support during the past year. We remain committed
10 different test systems. And, among other design initiatives we are
to maintaining the highest ethical standards in our relationships with
working on, we are developing new docking hardware for higher-end
employees, customers, stockholders and the public at large, and to
applications offering sophisticated automation.
exceeding our customers’ expectations while protecting stockholder value.
Electrical Products Segment
Any given tester model is designed to test a wide variety of different ICs.
Because each type of IC has different circuit configurations, adaption
is needed between the “generic” tester and the particular kind of IC
being tested. inTEST tester interfaces are used to do this, providing a
Sincerely,
Robert E. Matthiessen
President & CEO
May 2, 2013
Page FOUR / inTEST / 2012 Annual Report
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INTEST CORPORATION I FORM 10K
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UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(Mark One)
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 2012
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 0-22529
inTEST Corporation
(Exact name of registrant as specified in its charter)
DELAWARE
(State or Other Jurisdiction of Incorporation or Organization)
22-2370659
(I.R.S. Employer Identification Number)
804 EAST GATE DRIVE, SUITE 200
MT. LAUREL, NEW JERSEY
(Address of Principal Executive Offices)
08054
(Zip Code)
Registrant's telephone number, including area code: (856) 505-8800
Securities registered pursuant to Section 12(b) of the Act:
Title of Each Class
Common Stock, par value $0.01 per share
Name of Each Exchange on Which Registered
NASDAQ
Securities registered pursuant to Section 12(g) of the Act: None
Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act. Yes
No
Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes
No
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
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 during the preceding 12 months (or
for such shorter period that the registrant was required to submit and post such files). Yes
No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not
be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III
of this Form 10-K or any amendment to this Form 10-K.
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 definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of
the Exchange Act. (Check One):
Large accelerated filer
Non-accelerated filer (Do not check if a smaller reporting company)
Accelerated filer
Smaller reporting company
Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes
No
The aggregate market value of the voting and non-voting common equity held by non-affiliates computed by reference to the price at
which the common equity was last sold on June 30, 2012 (the last business day of the registrant's most recently completed second
fiscal quarter), was: $26,606,021.
The number of shares outstanding of the registrant's Common Stock, as of March 15, 2013, was 10,450,178.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement of the registrant for the registrant's 2013 Annual Meeting of Stockholders, to be filed with
the Securities and Exchange Commission within 120 days after the end of the fiscal year covered by this Report, are incorporated by
reference into Part III of this Report.
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
INDEX
PART I
Item 1.
Business .......................................................................................................................................................................
Item 1A. Risk Factors .................................................................................................................................................................
Item 1B. Unresolved Staff Comments ........................................................................................................................................
Properties .....................................................................................................................................................................
Item 2.
Legal Proceedings .......................................................................................................................................................
Item 3.
Mine Safety Disclosures ..............................................................................................................................................
Item 4.
PART II
Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity Securities ...
Item 5.
Selected Financial Data ...............................................................................................................................................
Item 6.
Item 7.
Management's Discussion and Analysis of Financial Condition and Results of Operations .......................................
Item 7A. Quantitative and Qualitative Disclosures About Market Risk .....................................................................................
Financial Statements and Supplementary Data ...........................................................................................................
Item 8.
Item 9.
Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ......................................
Item 9A. Controls and Procedures ..............................................................................................................................................
Item 9B. Other Information ........................................................................................................................................................
PART III
Item 10.
Item 11.
Item 12.
Item 13.
Item 14.
Directors, Executive Officers and Corporate Governance...........................................................................................
Executive Compensation .............................................................................................................................................
Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ....................
Certain Relationships and Related Transactions, and Director Independence.............................................................
Principal Accounting Fees and Services ......................................................................................................................
PART IV
Item 15.
Exhibits, Financial Statement Schedules .....................................................................................................................
Signatures ....................................................................................................................................................................
Index to Exhibits ..........................................................................................................................................................
Index to Consolidated Financial Statements and Financial Statement Schedule .........................................................
Page
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inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
PART I
Item 1. BUSINESS
Cautionary Statement Regarding Forward-Looking Statements
From time to time, we make written or oral "forward-looking statements" within the meaning of the Private Securities Litigation
Reform Act of 1995, including statements contained in our filings with the Securities and Exchange Commission, or SEC,
(including this Report on Form 10-K), our annual report to stockholders and in other communications. These statements do not
convey historical information, but relate to predicted or potential future events, such as statements of our plans, strategies and
intentions, or our future performance or goals. Our forward-looking 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, and
include, but are not limited to, statements made in this Report regarding:
•
•
the sufficiency of cash balances, lines of credit and net cash from operations;
indications of a change in the industry cycles in the integrated circuit, or IC, and automatic test equipment, or ATE,
industries or other industries we serve;
• developments and trends in the IC and ATE industries;
•
the success of our strategy to diversify our business by entering markets outside the IC and ATE industries,
including the automotive, consumer electronics, defense/aerospace, energy and telecommunications industries;
the possibility of future acquisitions or dispositions;
costs associated with the implementation of new SEC regulations;
the development of new products and technologies by us or our competitors;
the availability of materials used to manufacture our products;
the availability of and retention of key personnel;
•
•
•
•
•
• general economic conditions both domestically and globally;
• net revenues generated by foreign subsidiaries;
•
• variable product warranty costs;
• pressure on prices from OEM customer supply line managers;
•
•
• other projections of net revenues, taxable earnings (loss), net earnings (loss), net earnings (loss) per share, capital
stock price fluctuations;
the anticipated market for our products; and
effects of exchange rate fluctuations;
expenditures and other financial items.
Investors and prospective investors are cautioned that such forward-looking statements are only projections based on current
estimations. These statements involve risks and uncertainties and are based upon various assumptions. We discuss many of these
risks and uncertainties under Item 1A "Risk Factors," below, and elsewhere in this Report. These risks and uncertainties, among
others, could cause our actual future results to differ materially from those described in our forward-looking statements or from
our prior results. We are not obligated to update these forward-looking statements, even though our situation may change in the
future.
INTRODUCTION
We are an independent designer, manufacturer and marketer of mechanical, thermal and electrical products that are used by
semiconductor manufacturers in conjunction with ATE, in the testing of ICs. In addition, in recent years we have marketed our
thermal products in industries outside the ATE industry, such as the automotive, aerospace and telecommunications industries.
Our high performance products are designed to enable our customers to improve the efficiency of their test processes and,
consequently, their profitability. We sell our products worldwide. Within the ATE industry, we sell our products both directly to
major semiconductor manufacturers and semiconductor test subcontractors and through leading ATE manufacturers. In industries
outside the ATE industry, we sell our products directly to the end user of the product. Our largest customers include Avago
Technologies Limited, Emerson Electric Co., Hakuto Co. Ltd., Intel Corporation, NXP Semiconductors N.V., PDF Solutions,
Inc., Raytheon Company, Samsung Electronics Co., Ltd., Teradyne, Inc. and Texas Instruments Incorporated.
- 3 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 1. BUSINESS (Continued)
The consolidated entity is comprised of inTEST Corporation (parent) and our wholly-owned subsidiaries. inTEST Corporation
was incorporated in New Jersey in 1981 and reincorporated in Delaware in April 1997. We manage our business as three product
segments, as more fully discussed under "Our Segments" below, which consist of our Thermal Products, Mechanical Products and
Electrical Products segments.
INDUSTRY
Overview
Historically, the semiconductor market has been characterized by rapid technological change, wide fluctuations in demand and
shortening product life cycles. Designers and manufacturers of a variety of electronic and industrial products, such as cell phones,
telecom and datacom systems, Internet access devices, computers, transportation and consumer electronics, require increasingly
complex ICs to provide improved end-product performance demanded by their customers. Semiconductor manufacturers
generally compete based on product performance and price. We believe that testing costs represent a significant portion of the
total cost of manufacturing ICs. Semiconductor manufacturers remain under pressure to maximize production yields and reduce
testing costs. At the same time, the growing complexity of ICs has increased the difficulty of maximizing test yields. In order to
address these market trends, semiconductor manufacturers strive for more effective utilization of ATE, smaller test areas and
increased wafer level testing.
Demand for new ATE and related equipment depends upon several factors, including the demand for products that incorporate
ICs, the increasing complexity of ICs and the emergence of new IC design, production and packaging technologies. Some of the
evolutionary changes in IC technologies included the shift to 300 mm wafers in production, system-on-a-chip, or SOC, where
digital, analog and memory functions are combined on a single IC, and chip scale packaging. As a result of these and other
advances, semiconductor manufacturers may require additional ATE not only to handle increases in production but also to handle
the more sophisticated testing requirements of ICs.
IC Test Process
Semiconductor manufacturers typically produce ICs in multiples of several hundred on a silicon wafer which is later separated or
"diced" into individual ICs. Extended leads are then attached to the individual ICs, for later connection to other electrical
components. In most cases, the ICs are then encapsulated in a plastic, ceramic or other protective housing. These process steps are
called "packaging."
Wafers are tested before being diced and packaged, to ensure that only properly functioning ICs are packaged. This testing step
has several names, including "front-end test," "wafer test," "wafer probe" or "wafer sort." In front-end test, an electronic handling
device known as a wafer prober automatically positions the wafer under a probe card which is electronically connected to a "test
head," which connects electrically to a test system. During front-end testing there is a growing trend of thermally conditioning the
wafer during test, especially in the memory and automotive markets. Once the good ICs have been identified, they are packaged.
The packaged ICs also require testing, called "back-end test" or "final test," to determine if they meet design and performance
specifications. Packaged ICs are tested after loading into another type of electronic handling device called a "package handler" or
"handler," which then transfers the packaged ICs into a test socket which is attached to the test head. These handlers may be
temperature controlled for testing. "Wafer probers" and "handlers" are sometimes referred to in this Report collectively as
"electronic device handlers."
Testers range in price from approximately $100,000 to over $2.0 million each, depending primarily on the complexity of the IC to
be tested and the number of test heads (typically one or two) with which each tester is configured. Probers and handlers range in
price from approximately $50,000 to $500,000. A typical test floor of a large semiconductor manufacturer may have 100 test
heads and 100 probers or 250 handlers supplied by various vendors for use at any one time.
- 4 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 1. BUSINESS (Continued)
Test head manipulators, also referred to as positioners, facilitate the movement of the test head to the electronic device handler.
Docking hardware mechanically connects the test head to the wafer prober or handler. Tester interface products provide the
electrical connection between the test head and the wafer or packaged IC. Traditionally, temperature management products are
used in back-end test to allow a manufacturer to test packaged ICs under the extreme temperature conditions in which the IC may
be required to operate. However, we believe that temperature-controlled testing will be an increasingly important part of front-end
wafer testing as more parameters traditionally tested in back end-test are moved to front-end test.
Trends in IC Testing
ATE is used to identify unacceptable packaged ICs and bad die on wafers. ATE assists IC manufacturers in controlling test costs
by performing IC testing in an efficient and cost-effective manner. In order to provide testing equipment that can help IC
manufacturers meet these goals, we believe the ATE industry must address the following issues:
Change in Technology. End-user applications are demanding ICs with increasingly higher performance, greater speeds, and
smaller sizes. ICs that meet these higher standards, including SOC designs, are more complex and dense. These technology trends
have significant implications for the IC testing process, including:
the need for test heads of higher complexity;
•
• higher signal densities;
•
•
increasing test speeds; and
a new generation of testers for SOC and other technologies.
Need for Plug-Compatibility and Integration. Semiconductor manufacturers need test methodologies that will perform
increasingly complex tests while lowering the overall cost of testing. This can require combining ATE manufactured by various
companies into optimally performing systems. Semiconductor manufacturers have to work closely with various test hardware,
software, interface and component vendors to resolve design and compatibility issues in order to make these vendors' products
plug-compatible with test equipment manufactured by other vendors.
Testing Under Extreme Conditions. ICs will have to perform across a wider spectrum of temperature and environmental
conditions than ever before because of the growing complexity of products in which they are deployed. In recent years,
temperature testing has found an increasing role in front-end, wafer level testing. Creating a uniform thermal profile over much
larger wafer areas represents a significant engineering and design challenge for ATE manufacturers.
Demand for Higher Levels of Technical Support. As IC testing becomes more complex, semiconductor manufacturers demand
higher levels of technical support on a routine basis. ATE manufacturers must commit appropriate resources to technical support
in order to develop close working relationships with their customers. This level of support also requires close proximity of service
and support personnel to customers' facilities.
Cost Reduction Through Increased Front-End Testing. As the cost of testing ICs increases, semiconductor manufacturers will
continue to look for ways to streamline the testing process to make it more cost-effective, such as the trend to use massive parallel
test, in which semiconductor manufacturers test multiple ICs on the wafer simultaneously. We believe that this factor will lead to
more front-end, wafer-level testing.
OUR SOLUTIONS
Historically, we have focused our development efforts on designing and producing high quality products that provide superior
performance and cost-effectiveness. We have sought to address each manufacturer's individual needs through innovative and
customized designs, use of the best materials available, quality manufacturing practices and personalized service. We have
designed solutions to overcome the evolving challenges facing the ATE industry, which we believe provide the following
advantages:
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inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 1. BUSINESS (Continued)
Temperature-Controlled Testing. Our Thermostream (R) products are used by manufacturers in a number of industries to stress
test a variety of semiconductor and electronic components, PC boards and sub-assemblies. Our Thermochuck (R) products are
used by semiconductor manufacturers for front-end temperature stress screening at the wafer level. Factors motivating
manufacturers to use temperature testing include design characterization, failure analysis and quality control as well as
determining performance under extreme operating temperatures, all of which contribute to manufacturing cost savings. Our
acquisitions of Sigma Systems Corporation ("Sigma"), in October 2008, and Thermonics, Inc. ("Thermonics"), in January 2012,
have significantly increased our product offerings in the area of temperature-controlled testing. Sigma's thermal platforms and
temperature chambers can accommodate large thermal masses and are found in both laboratory and production environments.
Thermonics products provide a range of precision temperature forcing systems used throughout various industries to verify the
performance of products at a range of temperatures.
Scalable, Universal, High Performance Interface Technology. Our universal test head manipulators provide a high degree of
positioning flexibility with a minimum amount of effort. As a result, our products can be used in virtually any test setting. Our
manipulator products are designed to accommodate the increased size of test heads. Our docking hardware offers precise control
over the connection to test sockets, probing assemblies and interface boards, reducing downtime and minimizing costly damage to
fragile components. Our tester interface products optimize the integrity of the signals transmitted between the test head and the
device under test by being virtually transparent to the test signals. This results in increased accuracy of the test data and may thus
enable improved test yields. We believe that these characteristics will gain even more significance as testing becomes even more
demanding.
Compatibility and Integration. A hallmark of our products has been, and continues to be, compatibility with a wide variety of
ATE. Our mechanical products are all designed to be used with otherwise incompatible ATE. We believe this integrated approach
to ATE facilitates smooth changeover from one tester to another, longer lives for interface components, better test results,
increased ATE utilization and lower overall test costs.
Worldwide Customer Service and Support. We have long recognized the need to maintain a physical presence near our customers'
facilities. As of December 31, 2012, we had domestic manufacturing facilities in New Jersey, Massachusetts and California and
provided service to our customers from sales and service offices in the U.S., U.K., Germany and Singapore. Our engineers are
easily accessible to, and can work directly with, most of our customers from the time we begin developing our initial proposal,
through the delivery, installation and use of the product by our customer. In this way, we are able to develop and maintain close
relationships with our customers.
OUR STRATEGIES
In the last several years we have had to balance our actions to achieve appropriate adjustments to our operating structure and yet
meet the needs of our customers in the changing business environment. In addition, we remain committed to our goals of being
recognized in our markets as the designer and manufacturer of the highest quality and most cost effective products and becoming
the key supplier of all of our customers' product testing needs, other than probers, handlers and testers. Our strategies to achieve
these goals include the following:
Pursuing Revenue Growth Opportunities Outside the Semiconductor ATE Market. Another element of our growth strategy is to
pursue revenue growth opportunities in markets we have not traditionally served, such as the automotive, consumer electronics,
defense/aerospace, energy and telecommunications industries. We believe that we may be able to reduce some of the cyclicality
that we have historically experienced by further diversifying our revenue streams outside the semiconductor ATE market. We see
the most potential for this within our Thermal Products segment. For the years ended December 31, 2012 and 2011 approximately
$6.6 million or 15% and $12.6 million or 27%, respectively, of our consolidated net revenues were derived from markets outside
semiconductor test. These revenues were all generated by our Thermal Products segment. We cannot determine at this time
whether we will be successful in building our sales in these non-traditional markets or what the growth rate of our sales in these
markets will be in future periods.
Providing Technologically Advanced Solutions. We are committed to designing and producing only the highest quality products
which incorporate innovative designs to achieve optimal cost-effectiveness and functionality for each customer's particular
situation. Our engineering and design staff is continually engaged in developing new and improved products and manufacturing
processes.
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inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 1. BUSINESS (Continued)
Pursuing Synergistic Acquisitions. A key element of our growth strategy has been to acquire businesses, technologies or products
that are complementary to our current product offerings. Since our initial public offering in 1997, we have acquired several
businesses which have enabled us to expand our line of product offerings and have given us the opportunity to market a broader
range of products to our customer base. In particular, the acquisitions of Temptronic in 2000, Sigma acquisition in 2008, and
Thermonics acquisition in 2012, provided access to markets that are less sensitive to cyclicality than the ATE market. We seek to
make acquisitions that will further expand our product lines as well as increase our exposure to markets outside of the ATE
market.
Leveraging Our Strong Customer Relationships. Our technical personnel work closely with ATE manufacturers to design tester
interface and docking hardware that are compatible with their ATE. As a result, we are often privy to proprietary technical data
and information about these manufacturers' products. We believe that because we do not compete with ATE manufacturers in the
prober, handler and tester markets, we have been able to establish strong collaborative relationships with these manufacturers that
enable us to develop ancillary ATE products on an accelerated basis.
Maintaining Our International Presence. Our existing and potential customers are concentrated in certain regions throughout the
world. We believe that we must maintain a presence in the markets in which our customers operate. We currently have offices in
the U.S., U.K., Germany and Singapore.
Controlling costs. At the same time as we are pursuing growth opportunities, we will seek ways to more aggressively streamline
our cost structure, so that we are positioned to offer products at prices that provide the margin for a reasonable profit as well as
the resources for continual product development.
OUR SEGMENTS
Our business is managed as three segments, which are also our reporting units: Thermal Products, Mechanical Products and
Electrical Products. Our Thermal Products segment consists of our subsidiaries in Mansfield, Massachusetts (Temptronic
Corporation, Sigma Systems Corp. and Thermonics, Inc.), Germany (inTEST Thermal Solutions GmbH), and Singapore (inTEST
Pte Ltd.). Our Mechanical Products segment consists of our manufacturing operation in Mt. Laurel, New Jersey. Our Electrical
Products segment consists of our subsidiary in Freemont, California (inTEST Silicon Valley Corporation).
Semiconductor manufacturers use our mechanical products during testing of wafers and specialized packaged ICs. They use our
thermal and electrical products in both front-end and back-end testing of ICs. These ICs include microprocessors, digital signal
processing chips, mixed signal devices, MEMS (Micro-Electro-Mechanical Systems), application specific ICs and specialized
memory ICs, and are used primarily in the automotive, aerospace, computer, consumer products and telecommunications
industries. We custom design most of our products for each customer's particular combination of ATE.
Thermal Products
Our thermal products are sold into the environmental test market encompassing a wide variety of industries including the ATE,
automotive, consumer electronics, defense/aerospace, energy and telecommunications industries. Our thermal products enable a
manufacturer to test semiconductor wafers and ICs, electronic components and assemblies, mechanical assemblies and
electromechanical assemblies. These products provide the ability to characterize and stress test a variety of materials over extreme
and variable temperature conditions that can occur in actual use.
ThermoStream(R) Products: Our ThermoStream(R) products are used in the semiconductor industry as a stand-alone temperature
management tool, or in a variety of electronic test applications as part of our MobileTemp systems. ThermoStream(R) products
provide a source of heated and cooled air which can be directed over the component or device under test. These systems are
capable of controlling temperatures to within +/- 0.1 degree Celsius over a range of -100 degrees Celsius to as high as +300
degrees Celsius within 1.0 degree Celsius of accuracy. As a stand-alone tool, ThermoStreams(R) provide a temperature-controlled
air stream to rapidly change and stabilize the temperature of packaged ICs and other devices.
Our MobileTemp Series combines our ThermoStream(R) products with our family of exclusive, high-speed ThermoChambers to
offer thermal test systems with fast, uniform temperature control in a compact package enabling temperature testing at the test
location. MobileTemp Systems are designed specifically for small thermal-mass applications beyond the semiconductor market
and have found application in the automotive, electronic, fiber optic and oil field service industries testing such things as
electronic sub-assemblies, sensor assemblies, and printed circuit boards.
- 7 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 1. BUSINESS (Continued)
Traditionally, our customers used ThermoStream(R) products primarily in engineering, quality assurance and small-run
manufacturing environments. However, increasingly, our customers use ThermoStream(R) products in longer-run production
applications. ThermoStream(R) and MobileTemp products range in price from approximately $15,000 to $50,000.
Sigma has significantly broadened our product line and provided access to a wide array of market applications. Sigma products
are used to test or condition products in almost every market, including food, electronic test, and material test, to name a few.
ThermoChambers: Our chamber products are available in a variety of sizes, from small bench-top units to chambers with internal
volumes of twenty-seven cubic feet and greater and with temperature ranges as wide as from -190 degrees Celsius to +500
degrees Celsius. Chambers can be designed to utilize liquid nitrogen or liquid carbon dioxide cooling or mechanical refrigeration,
and sometimes both. These chambers can accommodate large thermal masses and are found in both laboratory and production
environments. Chambers are priced from $15,000 to $150,000.
Thermal Platforms: Our platforms are available in surface sizes ranging from 7.2 square inches to 396 square inches. They
provide a flat, thermally conductive, precisely temperature controllable surface that is ideal for conditioning and testing devices
with a flat surface. Platforms are available with temperature ranges as broad as -100 degrees Celsius to +250 degrees Celsius.
Thermal platforms can be designed to utilize either liquid nitrogen or liquid carbon dioxide cooling or mechanical refrigeration.
Platforms offer virtually unimpeded access to the device under test and their easy access and compact size makes them ideal for
convenient bench-top use. Platforms are priced from $6,500 to $65,000.
ThermoChuck(R) Products: Our ThermoChuck(R) precision vacuum platform assemblies, used primarily in the semiconductor
industry, quickly change and stabilize the temperature of semiconductor wafers accurately and uniformly during testing without
removing the wafer from its testing environment. Such temperatures can range from as low as -65 degrees Celsius to as high as
+400 degrees Celsius. ThermoChucks(R) are incorporated into wafer prober equipment for laboratory analysis and for in-line
production testing of semiconductor wafers. ThermoChuck(R) products range in price from approximately $16,000 to $90,000.
Mechanical Products
Manipulator Products. We offer four lines of manipulator products: the in2(R), the M Series, the Aero Series and the Cobal
Series. These free-standing universal manipulators can hold a variety of test heads and enable an operator to reposition a test head
for alternate use with any one of several probers or handlers on a test floor. Certain members of the Aero family are also available
as a lower-cost solution for dedicated prober-only or handler-only test cell applications.
The in2(R) and Cobal Series of manipulator products incorporate our balanced floating-head design. This design permits a test
head weighing up to 3,000 pounds to be held in an effectively weightless state, so it can be moved manually or with optional
powered assistance, up or down, right or left, forward or backward and rotated around each axis (known as six degrees of motion
freedom) by an operator using a modest amount of force. The same design features enable the operator to dock the test head
without causing inadvertent damage to the fragile electrical contacts. As a result, after testing a particular production lot of ICs,
the operator can quickly and easily disconnect a test head that is held in an in2(R) manipulator and equipped with our docking
hardware and dock it to another electronic device handler for testing either a subsequent lot of the same packaged ICs or to test
different ICs. The in2(R) and Cobal Series manipulators range in price from approximately $12,000 to $60,000.
The M Series line of manipulator products consists of the M400 and M500 manipulators. These compact universal manipulators
are designed to handle test heads weighing less than 550 pounds. The up and down movement is counter-balanced by an air-
pressure-based floating state technology. The M Series manipulators range in price from approximately $12,000 to $30,000.
The Aero Series of manipulator products consists of the Aero 450H and Aero 150P manipulators. These manipulators are
designed to handle test heads weighing less than 1,500 pounds. The up and down movement is supported by an air-pressure-based
floating state technology. The Aero Series manipulators range in price from $10,000 to $30,000.
Docking Hardware Products. Our docking hardware products protect the delicate interface contacts and ensure proper repeatable
and precise alignment between the test head's interface board and the prober's probing assembly or the handler's test socket as
they are brought together, or "docked." A simple cam action docks and locks the test head to the prober or handler, thus
eliminating motion of the test head relative to the prober or handler. This minimizes deterioration of the interface boards,
- 8 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 1. BUSINESS (Continued)
test sockets and probing assemblies which is caused by constant vibration during testing. Our docking hardware products are used
primarily with floating-head universal manipulators when maximum mobility and inter-changeability of handlers and probers
between test heads is required. By using our docking hardware products, semiconductor manufacturers can achieve cost savings
through improved ATE utilization, improved accuracy and integrity of test results, and reduced repairs and replacements of
expensive ATE interface products.
We believe our docking hardware products offer our customers the ability to make various competing brands of test heads
compatible with various brands of probers and handlers by only changing interface boards. This is called "plug-compatibility."
Plug-compatibility enables increased flexibility and utilization of test heads, probers and handlers purchased from various
manufacturers. We believe that because we do not compete with ATE manufacturers in the sale of probers, handlers or testers,
ATE manufacturers are willing to provide us with the information that is integral to the design of plug-compatible products. Our
docking hardware products range in price from approximately $2,000 to $25,000.
Electrical Products
Our electrical products, which include various types of tester interfaces, provide the electrical connections between the tester and
the wafer prober or IC handler to carry the electrical signals between the tester and the probe card on the prober or the test socket
on the handler. Our designs optimize the integrity of the transmitted signal. Therefore, our tester interfaces can be used with high
speed, high frequency, digital or mixed signal testers used in testing more complex ICs. Because our tester interface products
enable the tester to provide more reliable yield data, our interfaces may also reduce IC production costs. We design standard and
modular interface products to address most possible tester/prober combinations on the market today. In addition, we provide a
custom design service that will allow any of our customers to use virtually any tester, prober or handler combination with any
type of device, such as analog, digital, mixed signal and radio frequency. For example, our Centaur(R) modular interface is
designed to provide flexibility and scalability through the use of replaceable signal modules which can be easily changed on the
test floor as our customers' testing requirements change. In addition to the Centaur(R) modular interface, we also offer over 200
different types of tester interface models that we custom designed for our customers' specific applications. These products range
in price from approximately $7,000 to $40,000.
Financial Information About Product Segments and Geographic Areas
Please see Note 17 of our consolidated financial statements included in Item 8 of this Report on Form 10-K for additional data
regarding net revenues, profit or loss and total assets of each of our segments and revenues attributable to foreign countries.
MARKETING, SALES AND CUSTOMER SUPPORT
We market and sell our products primarily in markets where semiconductors are manufactured. North American and European
semiconductor manufacturers have located most of their back-end factories in Southeast Asia. The front-end wafer fabrication
plants of U.S. semiconductor manufacturers are primarily in the U.S. Likewise, European, Taiwanese, South Korean and Japanese
semiconductor manufacturers generally have located their wafer fabrication plants in their respective countries.
Thermal Products: We market our thermal products under the inTEST Thermal Solutions name and sales to ATE manufacturers
are handled directly by our own sales force. Sales to semiconductor manufacturers and customers in other industries in the U.S.
are handled through independent sales representative organizations. In Singapore and Malaysia, our sales and service are handled
through our internal sales and service staff. In the rest of Asia, our sales are handled through distributors. In Europe, sales
managers at our office in Germany, as well as regional distributors and independent sales representatives, sell to semiconductor
manufacturers and customers in other industries. We visit our distributors regularly and have trained them to sell and service all of
our thermal products.
Mechanical and Electrical Products: In North America, we sell to semiconductor manufacturers principally through the use of
independent, commissioned sales representatives. North American sales representatives also coordinate product installation and
support with our technical staff and participate in trade shows.
- 9 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 1. BUSINESS (Continued)
Our internal sales staff handles sales to ATE manufacturers and is responsible for a portfolio of customer accounts and for
managing certain independent sales representatives. In addition, our account managers are responsible for pricing, quotations,
proposals and transaction negotiations, and they assist with applications engineering and custom product design. Technical
support is provided to North American customers and independent sales representatives by employees based in New Jersey,
California and Texas.
In Europe we sell to semiconductor and ATE manufacturers through our internal sales staff and through the use of independent
sales representatives. Technical support is provided to European customers by an employee based in the UK or by independent
sales representatives who we have trained. In China, Malaysia, the Philippines, Singapore, South Korea, Taiwan and Thailand, we
sell through the use of independent sales representatives who are supervised by our internal sales staff. International sales
representatives are responsible for sales, installation, support and trade show participation in their geographic market areas.
Technical support is provided to Asian customers primarily by employees based in Malaysia, the Philippines and Taiwan.
CUSTOMERS
We market all of our products to end users, which include semiconductor manufacturers and third-party foundries, test and
assembly houses, as well as to original equipment manufacturers ("OEMs"), which include ATE manufacturers and their third-
party outsource manufacturing partners. In the case of thermal products, we also market our products to independent testers of
semiconductors, manufacturers of automotive, consumer electronics, defense/aerospace, energy and telecommunications
products, and semiconductor research facilities. Our customers use our products principally in production testing, although our
ThermoStream(R) products traditionally have been used largely in engineering development and quality assurance. We believe
that we sell to most of the major semiconductor manufacturers in the world.
Texas Instruments Incorporated accounted for 14% and 12% of our consolidated net revenues in 2012 and 2011, respectively.
Teradyne, Inc. accounted for 11% of our consolidated net revenues in 2012. While all three of our operating segments sold to
these customers, these revenues were primarily generated by our Mechanical Products and Electrical Products segments. Our ten
largest customers accounted for approximately 47% and 49% of our net revenues in 2012 and 2011, respectively. The loss of any
one or more of our largest customers, or a reduction in orders by a major customer, could materially reduce our net revenues or
otherwise materially affect our business, financial condition, or results of operations.
Our largest customers in 2012 include:
Semiconductor Manufacturers
ATE Manufacturers
Teradyne, Inc.
Avago Technologies
Intel Corporation
NXP Semiconductors
PDF Solutions
Samsung Electronics
Texas Instruments Incorporated
MANUFACTURING AND SUPPLY
Other
Emerson Electric Co.
Hakuto Co. Ltd
Raytheon Company
As of December 31, 2012, our principal manufacturing operations consisted of assembly and testing at our facilities in
Massachusetts, New Jersey and California. In February 2011, we relocated our Thermal Products segment's manufacturing
operations from Sharon, Massachusetts to a new, smaller facility in Mansfield, Massachusetts. In January 2011, we relocated our
Mechanical Products segment manufacturing operations and our corporate offices from Cherry Hill, New Jersey to a new, smaller
facility in Mt. Laurel, New Jersey. In March 2012, we relocated our Electrical Products segment's manufacturing operations from
San Jose, California to a new, smaller facility in Fremont, California. The consolidation and relocations of manufacturing
operations were done to reduce our fixed operating costs and streamline operations as more fully discussed in Item 7,
"Management's Discussion and Analysis of Financial Condition and Results of Operations" below.
- 10 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 1. BUSINESS (Continued)
We assemble most of our products from a combination of standard components and custom parts that have been fabricated to our
specifications by either third-party manufacturers or our own fabrication operation in New Jersey. Our practice is to use the
highest quality raw materials and components in our products. The primary raw materials used in fabricated parts are all widely
available. We purchase substantially all of our components from multiple suppliers. We purchase certain raw materials and
components from single suppliers, however we believe that all materials and components are available in adequate amounts from
other sources, although from time to time, certain components may be in short supply because of high demand or the inability of
some vendors to consistently meet our quality or delivery requirements.
We conduct inspections of incoming raw materials, fabricated parts and components using sophisticated measurement equipment.
This includes testing with coordinate measuring machines in all but one of our manufacturing facilities to ensure that products
with critical dimensions meet our specifications. We have designed our inspection standards to comply with applicable MIL
specifications and ANSI standards.
In 2001, we obtained ISO 9001:1994 certification at our New Jersey facility. During 2003, we made the determination to upgrade
to ISO 9001:2000 at our New Jersey facility, which was completed in 2007. In May 2003, our California facility obtained ISO
9001:2000 certification. Neither our New Jersey nor our California facility have completed their 2009 ISO audits due to the loss
of most of our internal ISO auditors in our reductions in force. As a result, we are no longer ISO 9001 certified, although we
continue to employ all the practices embodied in this standard. Our Massachusetts facility completed ISO 9001:2000 certification
in November 2004 and upgraded to ISO 9001:2008 in November 2009.
ENGINEERING AND PRODUCT DEVELOPMENT
Our success depends on our ability to provide our customers with products and solutions that are well engineered, and to design
those products and solutions before, or at least no later than, our competitors. As of December 31, 2012, we employed a total of
25 engineers, who were engaged full time in engineering and product development. In addition, when the demands of engineering
and product development projects exceed the capacity or knowledge of our in-house staff, we retain temporary third-party
engineering and product development consultants to assist us. Our practice in many cases is to assign engineers to work with
specific customers, thereby enabling us to develop the relationships and exchange of information that is most conducive to
successful product development and enhancement. In addition, some of our engineers are assigned to new product research and
development and have worked on such projects as the development of new types of universal manipulators, the redesign and
development of new thermal products and the development of high performance interfaces.
Since most of our products are customized, we consider substantially all of our engineering activities to be engineering and
product development. We spent approximately $3.9 million in 2012 and $3.2 million in 2011 on engineering and product
development, respectively.
PATENTS AND OTHER PROPRIETARY RIGHTS
Our policy is to protect our technology by filing patent applications for the technologies that we consider important to our
business. We also rely on trademarks, trade secrets, copyrights and unpatentable know-how to protect our proprietary rights. It is
our practice to require that all of our employees and third-party product development consultants assign to us all rights to
inventions or other discoveries relating to our business that were made while working for us. In addition, all employees and third-
party product development consultants agree not to disclose any private or confidential information relating to our technology,
trade secrets or intellectual property.
As of December 31, 2012, we held 45 active U.S. patents and had 16 pending U.S. patent applications covering various aspects of
our technology. Our U.S. patents expire at various times beginning in 2013 and extending through 2030. During 2012, two U.S.
patents were issued and we had seven U.S. patents expire. We do not believe that the expiration of these patents or the upcoming
expiration of certain of our patents in 2013 will have a material impact on our business. Our acquisition of Thermonics during
2012 provided one additional active patent, which is included in these totals. We also hold foreign patents and file foreign patent
applications, in selected cases corresponding to our U.S. patents and patent applications, to the extent management deems
appropriate.
- 11 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 1. BUSINESS (Continued)
While we believe that our patents and other proprietary rights are important to our business, we also believe that, due to the rapid
pace of technological change in the semiconductor equipment industry, the successful manufacture and sale of our products also
depends upon our engineering, manufacturing, marketing and servicing skills. In the absence of patent protection, we would be
vulnerable to competitors who attempt to copy or imitate our products or processes. We believe our intellectual property has
value, and we have taken in the past, and will take in the future, actions we deem appropriate to protect such property from
misappropriation. There can be no assurance, however, that such actions will provide meaningful protection from competition.
For additional information regarding risks related to our intellectual property, see "Risk Factors. "
COMPETITION
We operate in an increasingly competitive environment within each of our product segments. Some of our competitors have
greater financial resources and more extensive design and production capabilities than we do. Certain markets in which we
operate have recently become more fragmented, with smaller companies entering the market. These new smaller entrants
typically have much lower levels of fixed operating overhead than we do, which enables them to be profitable with lower priced
products. In order to remain competitive with these and other companies, we must be able to continue to commit a significant
portion of our personnel, financial resources, research and development and customer support to developing new products and
maintaining customer relationships worldwide.
Our competitors include independent manufacturers, ATE manufacturers and, to a lesser extent, semiconductor manufacturers' in-
house ATE interface groups. Competitive factors in our market include price, functionality, timely product delivery, customer
service, applications support, product performance and reliability. We believe that our long-term relationships with the industry's
leading semiconductor manufacturers and other customers, and our commitment to, and reputation for, providing high quality
products, are important elements in our ability to compete effectively in all of our markets.
Our principal competitor for Thermostream products is FTS Systems. Our principal competitors for Thermochuck products
include ERS Electronik GmbH, Advanced Temperature Systems GmbH and Espec Corp. Our principal competitors for
environmental chambers are Thermotron Industries, Cincinnati Sub-Zero Products, Inc. and Espec Corp. Our principal competitor
for thermal platforms is Environmental Stress Systems Inc.
Our principal competitors for manipulator products are Esmo AG and Reid-Ashman Manufacturing. Our principal competitors for
docking hardware products include Esmo AG, Knight Automation and Reid-Ashman Manufacturing. We also compete with the
ATE manufacturers Advantest Corporation and Teradyne (who are also our customers) on the sale of docking hardware and
manipulators.
Our principal competitors for tester interface products are Reid-Ashman Manufacturing, Esmo AG and Integrated Test
Corporation.
BACKLOG
At December 31, 2012, our backlog of unfilled orders for all products was approximately $4.2 million compared with
approximately $4.0 million at December 31, 2011. Our backlog includes customer orders which we have accepted, substantially
all of which we expect to deliver in 2013. 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 shorter 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 of these factors, our
backlog at a particular date is not necessarily indicative of sales for any future period.
EMPLOYEES
At December 31, 2012, we had 131 full time employees, including 63 in manufacturing operations, 47 in customer
support/operations and 21 in administration. Substantially all of our key employees are highly skilled and trained technical
personnel. None of our employees are represented by a labor union, and we have never experienced a work stoppage. From time
to time we retain third-party contractors to assist us in manufacturing operations and engineering and product development
projects.
- 12 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 1. BUSINESS (Continued)
ADDITIONAL INFORMATION
Our Annual Report on Form 10-K, Quarterly Reports on Form 10-Q and Current Reports on Form 8-K, and amendments to these
reports that are filed with the SEC pursuant to Section 13(a) or 15(d) of the Exchange Act, are available free of charge through
our website (www.intest.com) as soon as reasonably practicable after we electronically file them with, or furnish them to, the
SEC.
Item 1A. RISK FACTORS
The following are some of the factors 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. The risks and uncertainties
described below are not the only ones facing us and we cannot predict every event and circumstance that may adversely affect our
business. However, these risks and uncertainties are the most significant factors that we have identified at this time. If one or
more of these risks actually occurs, our business, results of operations, and/or financial condition would likely suffer, and the
price of our stock could be negatively affected.
Global economic cycles, which are difficult to predict, have had an impact on our business and may continue to do so.
Demand for our products and our operating results have in the past been negatively affected by sudden downturns in the global
economies and the resulting reduction in customer capital investment. Such conditions deteriorated significantly in many
countries and regions in late 2008 and throughout 2009. While economic conditions began to improve during late 2009 in many
countries and regions, they still remain below historical levels and may remain depressed for the foreseeable future. In the last
several years, political instability in Europe, the Middle East and North Africa has negatively affected global financial markets. In
the past, these uncertainties have caused our customers to cancel or postpone deliveries of ordered systems and not to place new
orders. Continued global economic uncertainties may continue to depress future sales of our products and services.
Our sales are affected by the cyclicality of the semiconductor industry, which causes our operating results to fluctuate
significantly.
Our business depends in significant part upon the capital expenditures of semiconductor manufacturers. Capital expenditures by
these companies depend upon, among other things, the current and anticipated market demand for semiconductors and the
products that utilize them. Typically, semiconductor manufacturers curtail capital expenditures during periods of economic
downtown. Conversely, semiconductor manufacturers increase capital expenditures when market demand requires the addition of
new or expanded production capabilities or the reconfiguration of existing fabrication facilities to accommodate new products.
These market changes have contributed in the past, and will likely continue to contribute in the future, to fluctuations in our
operating results.
Our business is subject to intense competition.
We face significant competition throughout the world in each of our product segments. Some of our competitors have substantial
financial resources and more extensive design and production capabilities than we do. In order to remain competitive, we must be
able to continually commit a significant portion of our personnel and financial resources to developing new products and
maintaining customer satisfaction worldwide. We expect our competitors to continue to improve the performance of their current
products and introduce new products or technologies. Over the last several years, in response to significant declines in global
demand for our products, some competitors have reduced their product pricing significantly, which has led to intensified price
based competition, which could materially adversely affect our business, financial condition and results of operations.
- 13 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 1A. RISK FACTORS (Continued)
We seek to further diversify the markets for our thermal products in order to increase the proportion of our sales
attributable to industries which are less subject to cyclicality than the semiconductor industry. If we are unable to do so,
our future performance will remain substantially exposed to the fluctuations of the cyclicality of the semiconductor
industry.
In recent years, we began selling our thermal products in industries outside of the semiconductor industry, including the
automotive, consumer electronics, defense/aerospace, energy and telecommunications industries. Our sales to these non-
semiconductor industries were $6.6 million or 15% of our consolidated net revenues in 2012 compared to $12.6 million or 27% of
our net revenues in 2011. Our goal is to increase our sales into these and other non-semiconductor industries; however, in most
cases, the expansion of our thermal product sales into these new markets has just begun, and we may experience difficulty in
expanding our sales efforts further into these markets. These difficulties could include hiring sales and marketing staff with
sufficient experience selling into these new markets and our ability to continue to develop products which meet the needs of
customers in these markets and which are not currently offered by our competitors. If we are unable to expand our sales in non-
semiconductor industries, our net revenues and results of operations will remain substantially dependent upon the cycles of the
semiconductor industry.
We generate a large portion of our sales from a small number of customers. If we were to lose one or more of our large
customers, operating results could suffer dramatically.
Texas Instruments Incorporated accounted for 14% and 12% of our consolidated net revenues in 2012 and 2011, respectively.
Teradyne, Inc. accounted for 11% of our consolidated net revenues in 2012. While all three of our operating segments sold to
these customers, these revenues were primarily generated by our Mechanical Products and Electrical Products segments. Our ten
largest customers accounted for approximately 47% and 49% of our net revenues in 2012 and 2011, respectively. The loss of any
one or more of our largest customers, or a reduction in orders by a major customer, could materially reduce our net revenues or
otherwise materially affect our business, financial condition or results of operations.
We seek to acquire additional businesses. If we are unable to do so, our future rate of growth may be reduced or limited.
A key element of our growth strategy is to acquire businesses, technologies or products that expand and complement our current
businesses. We may not be able to execute our acquisition strategy if:
• we are unable to identify suitable businesses or technologies to acquire;
• we do not have the cash or access to required capital at the necessary time; or
• we are unwilling or unable to outbid larger, more resourceful companies.
Our acquisition strategy involves financial and management risks which may adversely affect our results in the future.
If we acquire additional businesses, technologies or products, we will face the following additional risks:
•
future acquisitions could divert management's attention from daily operations or otherwise require additional
management, operational and financial resources;
• we might not be able to integrate future acquisitions into our business successfully or operate acquired businesses
• we may realize substantial acquisition related expenses which would reduce our net earnings in future years; and
• our investigation of potential acquisition candidates may not reveal problems and liabilities of the companies that we
profitably;
acquire.
If any of the events described above occur, our earnings could be reduced. If we issue shares of our stock or other rights to
purchase our stock in connection with any future acquisitions, we would dilute our existing stockholders' interests and our
earnings per share may decrease. If we issue debt in connection with any future acquisitions, lenders may impose covenants on us
which could, among other things, restrict our ability to increase capital expenditures or to acquire additional businesses.
- 14 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 1A. RISK FACTORS (Continued)
Our operating results often change significantly from quarter to quarter and may cause fluctuations in our stock price.
During the last several years, our operating results have fluctuated significantly from quarter to quarter. We believe that these
fluctuations occur primarily due to the cycles of demand in the semiconductor manufacturing industry. In addition to the changing
cycles of demand in the semiconductor manufacturing industry, other factors that have caused our quarterly operating results to
fluctuate in the past, and that may cause fluctuations and losses in the future, include:
the state of the U.S. and global economies;
changes in the buying patterns of our customers;
changes in our market share;
the technological obsolescence of our inventories;
•
•
•
•
• quantities of our inventories greater than is reasonably likely to be utilized in future periods;
•
significant product warranty charges;
•
the recording of the reversal of valuation allowances against our deferred tax assets;
•
competitive pricing pressures;
•
the impairment of our assets due to reduced future demand for our products;
•
excess manufacturing capacity;
• our ability to control operating costs;
•
• delays in shipments of our products;
•
the mix of our products sold;
•
the mix of customers and geographic regions where we sell our products;
•
changes in the level of our fixed costs;
•
costs associated with the development of our proprietary technology;
•
costs and timing of integration of our acquisitions and plant consolidations and relocations;
• our ability to obtain raw materials or fabricated parts when needed;
•
•
•
• political or economic instability.
increases in costs of component materials;
cancellation or rescheduling of orders by our customers;
changes in government regulations; and
costs associated with implementing restructuring initiatives;
Because the market price of our common stock has tended to vary based on, and in relation to, changes in our operating results,
fluctuations in the market price of our stock are likely to continue as variations in our quarterly results continue.
Changes in the buying patterns of our customers have affected, and may continue to affect, demand for our products and
our gross and net operating margins. Such changes in patterns are difficult to predict and may not be immediately
apparent.
In addition to the cyclicality of the semiconductor market, demand for our products and our gross and net operating margins have
also been affected by changes in the buying patterns of our customers. We believe that in recent years there have been a variety of
changes within the ATE market, including, for example, changing product requirements, longer time periods between new
product offerings by OEMs and changes in customer buying patterns. In particular, demand for our mechanical and electrical
products, which are sold exclusively within the ATE industry, 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 increasing practice of OEM manufacturers to specify other suppliers as primary vendors, with less frequent opportunities to
compete for such designations, (iii) customers requiring products with a greater range of use at the lowest cost, and (iv) customer
supply line management groups demanding lower prices and spreading purchases across multiple vendors. These shifts in market
practices have had, and may continue to have, varying degrees of impact on our net revenues and our gross and net operating
- 15 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 1A. RISK FACTORS (Continued)
margins. Such shifts are difficult to predict and may not be immediately apparent, and the impact of these practices is difficult to
quantify from period to period. There can be no assurance that we will be successful in implementing effective strategies to
counter these shifts.
If our suppliers do not meet product or delivery requirements, we could have reduced revenues and earnings.
Certain components may be in short supply from time to time because of high demand or the inability of some vendors to
consistently meet our quality or delivery requirements. A significant portion of our material purchases require some custom work
and there are not always multiple suppliers capable of performing such custom work on a timely or cost effective basis. If any of
our suppliers were to cancel commitments or fail to meet quality or delivery requirements needed to satisfy customer orders for
our products, we could lose time-sensitive customer orders, have reduced revenues and earnings, and be subject to contractual
penalties, any of which could have a material adverse effect on our business, results of operations and financial condition.
Our industry is subject to rapid technological change, and our business prospects would be negatively affected if we are
unable to quickly and effectively respond to innovation in the semiconductor industry.
Semiconductor technology continues to become more complex as manufacturers incorporate ICs into an increasing variety of
products. This trend, and the changes needed in automatic testing systems to respond to developments in the semiconductor
industry, are likely to continue. We cannot be certain that we will be successful or timely in developing, manufacturing or selling
products that will satisfy customer needs or that will attain market acceptance. Our failure to provide products that effectively and
timely meet customer needs or gain market acceptance will negatively affect our business prospects.
New regulations related to conflict minerals may adversely affect us.
The Dodd-Frank Wall Street Reform and Consumer Protection Act imposes new disclosure requirements regarding the use of
"conflict" minerals mined from the Democratic Republic of Congo and adjoining countries in our products. This new requirement
could affect the pricing, sourcing and availability of minerals used in the manufacture of components we use in our products. In
addition, there will be additional costs associated with complying with the disclosure requirements, such as costs related to
determining the source of any conflict minerals used in our products. Our supply chain is complex and we may be unable to verify
the origins for all metals used in our products. As a result, we may be unable to certify that our products are conflict mineral free.
We may experience significant variability in our effective tax rates and may have exposure to additional tax liabilities and
costs.
We are subject to paying income taxes in the US and various other countries in which we operate. Our effective tax rate is
dependent on where our earnings are generated and the tax regulations and the interpretation and judgment of administrative tax
or revenue entities in the US and other countries. We are also subject to tax audits in the countries where we operate. Any
material assessment resulting from an audit from an administrative tax or revenue entity could negatively affect our financial
results.
New statutory and regulatory requirements, tax increases and changes in government spending could adversely affect our
operating results.
In recent years, the Federal government launched an aggressive statutory and regulatory agenda with the goal of enacting social
and economic reforms. This agenda includes health care reform legislation and financial system regulatory reform, as well as
proposed climate change and other environmental legislation and regulations. In addition, the Federal and many state and local
governments are faced with budget crises that are causing these bodies to consider enacting significant tax increases, reducing or
eliminating the use of net operating loss carryforwards and making significant budget cuts. It is uncertain how the applicable
government agencies will enact the regulations necessary to carry out the statutory requirements. Accordingly, we cannot
determine the costs and other effects of new legal requirements with certainty. For example, new legislation or regulations
may cause us to experience increased costs as a direct result of our compliance efforts. At this point, we are unable to determine
the impact that newly enacted federal healthcare legislation could have on our employer-sponsored medical plans. We may
also indirectly experience increased costs to the extent such legal requirements increase the prices of goods and services that we
purchase as a result of increased compliance costs to the vendors who provide these goods and services to us or the reduced
availability of raw materials that we need to purchase. In addition, we cannot determine the impact that new legal
- 16 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 1A. RISK FACTORS (Continued)
requirements, tax increases or state and local government spending cuts will have on the business operations of our customers,
where significant increases in operating costs due to the costs to comply with new legal requirements or tax increases may reduce
their future product development and capital spending budgets. Our revenues and results of operations may be adversely affected
by these new legal requirements and government actions.
If we do not continue to retain the services of key personnel, relationships with, and sales to, some of our customers could
suffer, which could have a negative effect on our business.
The loss of key personnel could adversely affect our ability to manage our business effectively. Our future success will depend
largely upon the continued services of our senior management and other key employees. During the 2009 global economic
recession, in response to the significant operating losses we sustained and in an effort to conserve cash, we implemented
workforce reductions, temporary salary reductions and furloughs, reduced or eliminated certain employee benefits and closed
facilities. These actions had a negative impact on overall employee morale. When business conditions subsequently improved, we
eliminated all furloughs and restored employee salaries and benefits that were eliminated. In addition, due to improvements in our
profitability, we were able to provide salary increases to all of our employees in both 2011 and 2010 after not providing salary
increases for several years. During 2012, due to operating losses in our Mechanical Products segment, we did not provide salary
increases to most of the employees of this segment; however, we did provide salary increases for all employees in our other two
product segments. As global economic conditions improve and employment opportunities increase, if we are unable to increase
employee salaries and maintain employee benefits which have been previously reduced or eliminated, we may not be able to
retain our senior management and other key employees. Our business could suffer if we are unable to retain one of more of our
senior officers or other key employees.
If we are not able to obtain patents on or otherwise preserve and protect our proprietary technologies, our business may
suffer.
We have obtained domestic and foreign patents covering some of our products which expire between the years 2013 and 2030,
and we have applications pending for additional patents. Some of our products utilize proprietary technology that is not covered
by a patent or similar protection, and, in many cases, cannot be protected. We cannot be certain that:
•
•
any additional patents will be issued on our applications;
any patents we own now or in the future will protect our business against competitors that develop similar
technology or products;
• our patents will be held valid if they are challenged or subjected to reexamination or reissue;
• others will not claim rights to our patented or other proprietary technologies; or
• others will not develop technologies which are similar to, or can compete with, our unpatented proprietary
technologies.
If we cannot obtain patent or other protection for our proprietary technologies, our ability to compete in our markets could be
impaired.
Claims of intellectual property infringement by or against us could seriously harm our businesses.
From time to time, we may be forced to respond to or prosecute intellectual property infringement claims to defend or protect our
rights or a customer's rights. These claims, regardless of merit, may consume valuable management time, result in costly litigation
or cause product shipment delays. Any of these factors could seriously harm our business and operating results. We may have to
enter into royalty or licensing agreements with third parties who claim infringement. These royalty or licensing agreements, if
available, may be costly to us. If we are unable to enter into royalty or licensing agreements with satisfactory terms, our business
could suffer. In instances where we have had reason to believe that we may be infringing the patent rights of others, or that
someone may be infringing our patent rights, we have asked our patent counsel to evaluate the validity of the patents in question,
as well as the potentially infringing conduct. If we become involved in a dispute, neither the third parties nor the courts are bound
by our counsel's conclusions.
- 17 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 1A. RISK FACTORS (Continued)
A substantial portion of our customers are located outside the U.S., which exposes us to foreign political and economic
risks.
We have operated internationally for many years and expect to expand our international operations as necessary to continue
expansion of our sales and service to our non-U.S. customers. Our foreign subsidiaries generated 11% and 16% of consolidated
net revenues in 2012 and 2011, respectively. Net revenues from foreign customers totaled $27.5 million, or 63% of consolidated
net revenues in 2012 and $28.1 million, or 59% of consolidated net revenues, in 2011. We expect our net revenues from foreign
customers will continue to represent a significant portion of total net revenues. However, in addition to the risks generally
associated with sales and operations in the U.S., sales to customers outside the U.S. and operations in foreign countries are subject
to additional risks, which may, in the future, affect our operations. These risks include:
• political and economic instability in foreign countries;
•
•
•
the imposition of financial and operational controls and regulatory restrictions by foreign governments;
the need to comply with a wide variety of U.S. and foreign import and export laws;
local business and cultural factors that differ from our normal standards and practices, including business practices
that we are prohibited from engaging in by the Foreign Corrupt Practices Act (FCPA) and other anti-corruption laws
and regulations;
trade restrictions;
changes in tariffs and taxes;
longer payment cycles;
fluctuations in currency exchange rates; and
the greater difficulty of administering business abroad.
•
•
•
•
•
A significant portion of our cash position is maintained overseas.
While much of our cash is in the U.S., a significant portion is generated from and maintained by our foreign operations. Our
financial condition and results of operations could be adversely impacted if we are unable to maintain a sufficient level of cash
flow in the U.S. to address our cash requirements or we are unable to efficiently and timely repatriate cash from overseas. Any
payment of distributions, loans or advances to us by our foreign subsidiaries could be subject to restrictions on, or taxation of,
dividends or repatriation of earnings under applicable local law, monetary transfer restrictions and foreign currency exchange
regulations in the jurisdictions in which our subsidiaries operate. If we are unable to repatriate the earnings of our subsidiaries it
could have an adverse impact on our ability to redeploy earnings in other jurisdictions where they could be used more profitably.
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
At December 31, 2012, we leased 7 facilities worldwide. The following chart provides information regarding each of our
principal facilities that we occupied at December 31, 2012:
Location at
December 31, 2012
Mt. Laurel, NJ
Mansfield, MA
Fremont, CA
Lease
Expiration
4/21
Approx.
Square
Footage
54,897 Corporate headquarters and Mechanical
Products segment operations.
Principal Uses
8/21
9/17
52,700 Thermal Products segment operations.
15,746 Electrical Products segment operations.
- 18 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 2. PROPERTIES (Continued)
We relocated out Electrical Products segment's design, manufacturing, services and sales operation from our San Jose, California
facility, to a 15,746 square foot facility located in Freemont, California in March 2012. The lease expires in September 2017. All
of our facilities have space to accommodate our needs for the foreseeable future.
Item 3. 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 4. MINE SAFETY DISCLOSURES
Not applicable.
PART II
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES
Our common stock is traded on NASDAQ under the symbol "INTT." The following table sets forth the high and low sale prices
of our common stock, as reported on the NASDAQ Capital Market, for the periods indicated. Sale prices have been rounded to
the nearest full cent.
Sales Price
High Low
2012
First Quarter ........................................................ $3.85 $2.74
Second Quarter ...................................................
Third Quarter ......................................................
Fourth Quarter ....................................................
3.97
3.64
3.03
3.13
2.28
2.31
2011
First Quarter ........................................................ $4.67 $2.56
Second Quarter ...................................................
Third Quarter ......................................................
Fourth Quarter ....................................................
4.33
3.84
2.88
3.19
2.50
2.13
On March 15, 2013, the closing price for our common stock as reported on the NASDAQ Capital Market was $3.00. As of
March 15, 2013, we had 10,450,178 shares outstanding that were held of record by approximately 750 beneficial and record
holders.
On December 3, 2012, the Board of Directors declared a one-time special dividend of $0.08 per share paid on December 17, 2012
to stockholders of record at the close of business on December 10, 2012. Payment of any future dividends will be at the discretion
of our Board of Directors.
- 19 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 6. SELECTED FINANCIAL DATA
The following table contains certain selected consolidated financial data of inTEST and is qualified by the more detailed
Consolidated Financial Statements and Notes thereto included elsewhere in this Annual Report on Form 10-K and should be read
in conjunction with "Management's Discussion and Analysis of Financial Condition and Results of Operations" and the other
financial information included in this Annual Report on Form 10-K.
2012
Years Ended December 31,
2010
(in thousands, except per share data)
2009
2011
2008
Condensed Consolidated Statement of Operations Data:
Net revenues ..................................................................................... $43,376 $47,266 $46,204 $23,499 $38,790
13,785
Gross margin ....................................................................................
(9,440)
Operating income (loss) ....................................................................
Net earnings (loss) ............................................................................
(9,133)
Net earnings (loss) per common share:
Basic ............................................................................................
Diluted .........................................................................................
Weighted average common shares outstanding :
Basic ............................................................................................
Diluted .........................................................................................
19,059 22,893
7,578
9,863
10,273 10,148
10,347 10,286
7,813
(5,046)
(4,843)
22,145
7,350
7,252
$(0.49)
$(0.49)
$(0.97)
$(0.97)
10,019
10,142
$0.21
$0.21
$0.97
$0.96
$0.72
$0.72
9,465
9,465
2,996
2,156
9,975
9,975
2012
2011
As of December 31,
2010
2009
(in thousands)
2008
Condensed Consolidated Balance Sheet Data:
Cash and cash equivalents ................................................................ $15,576 $13,957 $ 6,895 $ 2,647 $ 7,137
10,680
Working capital ................................................................................
20,492
Total assets .......................................................................................
1,526
Long-term debt, net of current portion .............................................
13,467
Total stockholders' equity .................................................................
21,000 19,759
32,399 31,237
-
27,820 26,199
11,793
21,408
-
16,104
6,252
15,144
1,144
8,594
-
Item 7. 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" 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."
Overview
This MD&A should be read in conjunction with the accompanying consolidated financial statements.
- 20 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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. 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. These industry cycles are difficult to predict and in recent years have become more volatile and, in certain
cases, shorter in duration. Because the industry 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.
We believe that purchases of most of our products are typically made from semiconductor manufacturers' capital expenditure
budgets. Certain portions of our business, however, are generally less dependent upon the capital expenditure budgets of the end
users. For example, purchases of certain related ATE interface products, such as sockets and interface boards, which must be
replaced periodically, are typically made from the end users' operating budgets. In addition, purchases of certain of our products,
such as docking hardware, for the purpose of upgrading or improving the utilization, performance and efficiency of existing ATE,
tend to be counter cyclical to sales of new ATE. Moreover, we believe a portion of our sales of thermal products results from the
increasing need for temperature testing of circuit boards and specialized components that do not have the design or quantity to be
tested in an electronic device handler. In addition, we market our Thermostream temperature management systems in industries
outside semiconductor test, such as the automotive, consumer electronics, defense/aerospace, energy and telecommunications
industries. We believe that these industries usually are less cyclical than the ATE industry.
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 changes
within the ATE market, including, for example, changing product requirements, longer time periods between new product
offerings by OEMs and changes in customer buying patterns. In particular, demand for our mechanical and electrical products,
which are sold exclusively within the ATE industry, 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 OEM manufacturers to specify other suppliers as primary vendors, with less frequent opportunities to compete for such
designations, (iii) 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, (iv) customer supply line management groups demanding lower prices and spreading
purchases across multiple vendors, and (v) 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). These shifts in market
practices 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.
Net Revenues and Orders
The following table sets forth, for the periods indicated, a breakdown of the net revenues from unaffiliated customers both by
product segment and geographic area (based on the location to which the goods are shipped).
- 21 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Years Ended
December 31,
2012
2011
Net revenues from unaffiliated customers:
Thermal Products .............................................................................................................. $24,307 $26,942
15,208
Mechanical Products .........................................................................................................
5,151
Electrical Products ............................................................................................................
(35)
Intersegment sales.............................................................................................................
$43,376 $47,266
9,916
9,165
(12)
Intersegment sales:
Thermal Products .............................................................................................................. $ - $ -
7
Mechanical Products .........................................................................................................
28
Electrical Products ............................................................................................................
$ 12 $ 35
12
-
Net revenues from unaffiliated customers (net of intersegment sales):
Thermal Products .............................................................................................................. $24,307 $26,942
15,201
Mechanical Products .........................................................................................................
5,123
Electrical Products ............................................................................................................
$43,376 $47,266
9,904
9,165
Net revenues from unaffiliated customers:
U.S. ................................................................................................................................... $15,915 $19,165
27,461
28,101
Foreign ..............................................................................................................................
$43,376 $47,266
Our consolidated net revenues for the year ended December 31, 2012 decreased $3.9 million or 8% as compared to 2011. This
decrease consisted of a $2.6 million or 10% decline in the net revenues (net of intersegment sales) of our Thermal Products
segment and a $5.3 million or 35% decline in the net revenues (net of intersegment sales) of our Mechanical Products segment.
These declines were partially offset by an increase of $4.0 million or 79% in the net revenues (net of intersegment sales) of our
Electrical Products segment. During the year ended December 31, 2012, the net revenues of our Thermal Products segment
included $4.7 million of net revenues attributable to Thermonics, Inc. ("Thermonics"), which we acquired on January 16, 2012 as
discussed further under "Acquisition" below. Adjusted to eliminate the impact of the net revenues attributable to Thermonics, the
net revenues (net of intersegment sales) of our Thermal Products segment for 2012 would have decreased $7.3 million or 27% as
compared to 2011. Net revenues from customers in various industries outside of the ATE industry and those net revenues as a
percentage of our total consolidated net revenues were $6.6 million or 15%, respectively, for the year ended December 31, 2012,
compared to $12.6 million or 27%, respectively, for the year ended December 31, 2011. Adjusted to eliminate the impact of the
net revenues attributable to Thermonics, the net revenues from customers in various industries outside of the ATE industry and
those net revenues as a percentage of our total consolidated net revenues were $6.6 million or 17%, respectively, for the year
ended December 31, 2012.
We believe the decline in the level of net revenues of our Thermal Products segment in 2012 as compared to 2011 reflects in part
that this segment, which has historically lagged our other two product segments in regard to experiencing the impact of both
increases and decreases in the levels of demand within the ATE industry, was impacted in 2012 by the decline in demand in the
ATE industry which we began to see impacting our Mechanical Products segment during the second quarter of 2011. In addition,
our Thermal Products segment sells to industries outside of the ATE industry. This diversification has, in the past, helped to
balance the impact of changing levels of demand in the ATE industry. However, in 2012, we experienced weakened levels of
demand in certain of these industries as well, which contributed to the overall level of decrease experienced by this product
segment in 2012 as compared to 2011. During the fourth quarter of 2012, we began to see some improvement in demand within
the Thermal Products segment resulting in an increase of approximately $763,000 or 13% in orders for the fourth quarter of 2012
as compared to the third quarter of 2012. We cannot be certain that this trend will continue.
- 22 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
We believe the decline in the level of net revenues in our Mechanical Products segment in 2012 as compared to 2011 primarily
reflects reduced demand within the ATE industry, which we had begun to see reflected in the level of our orders for this segment
during the second quarter of 2011. This decline in demand was partially offset by increased demand during the first quarter of
2012 from a major customer that recently completed an acquisition and, as a result, had higher than typical demand for certain of
our equipment as a part of the process of integrating its post-acquisition operations. This same customer also purchases products
from our Electrical Products segment, and we believe this also is responsible for a portion of the increase in the net revenues of
our Electrical Products segment during 2012 as compared to 2011. We also attribute the increase in the net revenues of our
Electrical Products segment to a significant increase in demand from another customer. However, the level of demand from this
OEM customer weakened significantly during the second half of 2012 which resulted in a decline in the net revenues of our
Electrical Products segment in the fourth quarter of 2012 as compared to the third quarter of 2012 and which we expect will
continue to impact the level of net revenues of this segment in the first quarter of 2013.
Total consolidated orders for the year ended December 31, 2012 were $42.8 million compared to $45.2 million for 2011. Orders
for 2012 included $4.2 million attributable to Thermonics. For the year ended December 31, 2012, orders for our Thermal,
Mechanical and Electrical Products segments were $23.8 million, $9.5 million and $9.4 million, respectively, compared to $26.8
million, $13.3 million and $5.1 million for 2011, respectively. Orders from customers in various industries outside the ATE
industry were $6.3 million or 15% of total consolidated orders for the year ended December 31, 2012 compared to $13.2 million
or 29% of total consolidated orders for the year ended December 31, 2011. We cannot be certain what the level of our orders or
net revenues will be in any future period for any of our product segments.
Backlog
At December 31, 2012, our backlog of unfilled orders for all products was approximately $4.2 million compared with
approximately $4.0 million at December 31, 2011. Our backlog includes customer orders which we have accepted, substantially
all of which we expect to deliver in 2013. 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.
Acquisition
On January 16, 2012, Temptronic Corporation acquired substantially all of the assets and certain liabilities of Thermonics, Inc.
("Thermonics"), a division of Test Enterprises, Inc., pursuant to the Asset Purchase Agreement dated December 9, 2011.
Thermonics is engaged in the business of designing, manufacturing, selling and distributing temperature forcing systems used in
the testing of various products under temperature controlled situations. The acquisition of the Thermonics business has broadened
the product line of inTEST's thermal products division. The purchase price for the assets was approximately $3.8 million in cash,
plus the assumption of specified liabilities, including trade payables and certain customer contract obligations. For further
discussion of the acquisition, see Note 3 to our consolidated financial statements.
Product/Customer Mix
Our three product segments each have multiple products that we design, manufacture and sell to our customers. The gross margin
on each product we offer is affected by a number of factors including the amount of intellectual property (such as patents) utilized
in the product, the number of units ordered by the customer at one time, and the amount of inTEST designed and fabricated
material included in our product compared with the amount of third-party designed and fabricated material included in our
product. The weight of each of these factors, as well as the current market conditions, determines the ultimate sales price we can
obtain for our products and the resulting 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.
- 23 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 semiconductor manufacturers. Our Thermal
Products segment also sells into a variety of other industries including the automotive, consumer electronics, defense/aerospace,
energy and telecommunications industries. The mix of customers during any given period will affect our gross margin due to
differing sales discounts and commissions. For the years ended December 31, 2012 and 2011, our OEM sales as a percentage of
net revenues were 16% and 12%, respectively, and our sales of thermal products in other industries outside the ATE industry as a
percentage of net revenues were 15% and 27%, respectively
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 line managers to reduce our sales prices to them. If we cannot further reduce our manufacturing
and operating costs, these pricing pressures will continue to reduce 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 and obscure any unique factors that affected the results of operations of our
different product segments. 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.
The following table sets forth, for the periods indicated, the principal items included in the Consolidated Statements of Operations
as a percentage of total net revenues.
Net revenues ................................................................................................ 100.0%
56.1
Cost of revenues ..........................................................................................
43.9
Gross margin ...............................................................................................
12.5
Selling expense ............................................................................................
9.0
Engineering and product development expense ..........................................
14.8
General and administrative expense ............................................................
0.7
Restructuring and other charges ..................................................................
6.9
Operating income ........................................................................................
0.1
Other income ..............................................................................................
7.0
Earnings before income tax expense (benefit) .............................................
Income tax expense (benefit) .......................................................................
2.0
5.0%
Net earnings .................................................................................................
2012
Percentage of Net Revenues
Years Ended December 31,
2011
100.0%
51.6
48.4
12.1
6.8
13.5
-
16.0
0.2
16.2
(4.7)
20.9%
Year Ended December 31, 2012 Compared to Year Ended December 31, 2011
Net Revenues. Net revenues were $43.4 million for the year ended December 31, 2012 compared to $47.3 million for the same
period in 2011, a decrease of $3.9 million or 8%. This decrease consisted of a $2.6 million or 10% decline in the net revenues (net
of intersegment sales) of our Thermal Products segment and a $5.3 million or 35% decline in the net revenues (net of
intersegment sales) of our Mechanical Products segment. These declines were partially offset by an increase of $4.0 million or
79% in the net revenues (net of intersegment sales) of our Electrical Products segment. During the year ended December 31,
2012, the net revenues of our Thermal Products segment included $4.7 million of net revenues attributable to Thermonics. We
believe the decrease in our consolidated net revenues during 2012 primarily reflects the factors previously discussed in the
Overview.
- 24 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
During the year ended December 31, 2012, our net revenues from customers in the U.S. decreased 17% while our net revenues
from foreign customers decreased 2%, respectively, as compared to the same period in 2011. The impact of changes in foreign
currency exchange rates on the decrease in net revenues from foreign customers was less than 1%.
Gross Margin. Gross margin was 44% for the year ended December 31, 2012 compared to 48% for the same period in 2011. The
decrease in gross margin was largely the result of an increase in our component material costs as a percentage of net revenues
combined with an increase in our fixed operating expenses, both in absolute dollar terms and as a percentage of net revenues.
Total component material costs represented 36% of net revenues for 2012 compared to 34% for the same period in 2011. The
increase in component material costs as a percentage of net revenues primarily reflects changes in customer mix in our Electrical
Products segments. For 2012, a greater percentage of this segment's total net revenues were generated by sales to OEM customers
where our margins are typically lower than for similar sales to End User customers. For 2012, our fixed operating costs increased
$165,000 in absolute dollar terms. As a percentage of net revenues, these costs increased from 14% of net revenues in 2011 to
16% of net revenues in 2012, reflecting in part that these costs were not as fully absorbed due to the lower net revenue levels in
2012. The increase in the absolute dollar value of these costs primarily represents higher levels of depreciation as a result of a
higher asset base at December 31, 2012 compared to December 31, 2011, and an increase in salary and benefits expense as a
result of an increase in the number of staff in our Thermal Products segment. These increases were partially offset by decreases in
facilities related costs such as rent and utilities, reflecting that we have now completed the relocation of all three of our domestic
operations to smaller facilities. To a lesser extent, the decrease in gross margin is also the result of an increase in our charges for
excess and obsolete inventory in our Mechanical and Electrical Products segments, which increased $285,000 in absolute dollar
terms during 2012 as compared to the same period in 2011. This increase indicates that more inventory items are falling into our
standard excess and obsolete criteria in 2012, largely as a result of the continued reduced levels of demand in the ATE industry.
Selling Expense. Selling expense was $5.4 million for the year ended December 31, 2012 compared to $5.7 million for the same
period in 2011, a decrease of $283,000 or 5%. The decrease primarily represents lower levels of commissions in our Mechanical
Products segment as a result of the lower net revenue levels in 2012 as compared to 2011. Although our Thermal Products
segment also recorded lower net revenue levels in 2012 as compared to 2011, changes in product and customer mix resulted in a
similar level of commission expense being recorded in both 2012 and 2011 by this product segment.
Engineering and Product Development Expense. Engineering and product development expense was $3.9 million for year ended
December 31, 2012 compared to $3.2 million for the same period in 2011, an increase of $655,000 or 20%. The increase in
engineering and product development expense reflects higher spending on materials used in new product development projects
and an increased use of third party consultants primarily in our Thermal Products segment, and, to a lesser extent, the hiring of
additional staff in our Thermal and Electrical Products segments.
General and Administrative Expense. General and administrative expense was relatively unchanged at $6.4 million for both the
year ended December 31, 2012 and the same period in 2011. During 2012, we recorded $337,000 in costs associated with the
acquisition of Thermonics which was completed on January 16, 2012, compared with $148,000 of acquisition costs recorded
during 2011 related to this transaction. In addition, amortization expense related to our intangible assets increased $341,000
during 2012 as compared to 2011. This increase represents amortization of the intangible assets acquired as a part of the
Thermonics transaction. These increases were partially offset by a decrease in accruals for profit-related bonuses in our
Corporate, Mechanical Products and Thermal Products segments, reflecting the lower level of net earnings in 2012 as compared
to 2011.
Restructuring and Other Charges. Restructuring and other charges were $313,000 for the year ended December 31, 2012; there
were no similar charges for the same period in 2011. The restructuring and other charges recorded during 2012 represent facility
closure costs related to the closure of the Sunnyvale, California facility occupied by Thermonics at the time of our acquisition of
this operation.
Other Income. Other income was $57,000 for the year ended December 31, 2012 compared to $81,000 for the same period in
2011, a decrease of $24,000. During 2011, we recorded a gain on sale of property and equipment; there was no similar gain
recorded during 2012.
- 25 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Income Tax Expense (Benefit). For the year ended December 31, 2012, we recorded income tax expense of $897,000 compared
with an income tax benefit of $2.2 million for the same period in 2011. 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.
Several years ago, due to our history of operating losses in both our domestic and certain of our foreign operations, we had
recorded a full valuation allowance against the deferred tax assets of these operations, including net operating loss carryforwards,
where we believed it was more likely than not that we would not have sufficient taxable income to utilize these assets before they
expire. During the third and fourth quarters of 2011, we reversed $3.1 million of the valuation allowance which had been recorded
against the deferred tax assets of these operations. The reversal of this amount of the valuation allowance was based on our
assessment that it is now more likely than not that we will be able to fully utilize these assets in the near future. Some of the key
factors we considered in making our assessment included our profitability in both 2011 and 2010 and our level of certainty with
regard to our forecasts of near term future profitability for the operations to which these assets relate.
Liquidity and Capital Resources
Net cash provided by operations for the year ended December 31, 2012 was $6.6 million compared to $7.8 million for the same
period in 2011. The decrease in net cash provided by operations primarily reflects the lower level of net earnings in 2012 as
compared to 2011. During 2012, we recorded deferred income tax expense of $443,000; in contrast, during 2011, we recorded a
$2.5 million deferred tax benefit, primarily as a result of the aforementioned reversal of $3.1 million of the valuation allowance
that had been recorded against our deferred tax assets in prior periods. Adjusted to eliminate the impact of the Thermonics
acquisition, accounts receivable decreased $1.9 million during 2012 compared to a decrease of $24,000 during 2011, and
inventories decreased $948,000 during 2012 compared to an increase of $809,000 during 2011. The level of decrease in both
accounts receivable and inventory during 2012 primarily reflect the reduced business activity in our Thermal and Mechanical
Products segments in 2012 as compared to 2011. Deferred revenue and customer deposits decreased $171,000 during 2012
compared to an increase of $341,000 during 2011 reflecting the timing of the recognition of the related revenue. Depreciation and
amortization was $933,000 for the year ended December 31, 2012 compared to $394,000 for the same period in 2011. The
increase in 2012 as compared to 2011 primarily reflects higher levels of depreciation and amortization related to fixed assets and
intangible assets acquired as a part of the Thermonics transaction completed in January 2012.
During 2012, we paid $3.8 million to acquire Thermonics, as discussed further in the Overview and in Note 3 to our consolidated
financial statements. Adjusted to eliminate the impact of the Thermonics transaction, during 2012 we acquired $431,000 of
property and equipment, primarily representing rental units capitalized by our Thermal Products segment's German operation and
leasehold improvements and other equipment for our Electrical Products segment which relocated to a smaller facility during
2012. We have no significant commitments for capital expenditures for 2013, however, depending upon changes in market
demand, we may make such purchases as we deem necessary and appropriate. During 2012, we paid a single, special cash
dividend to our stockholders in the aggregate amount of $834,000.
As of December 31, 2012, we had cash and cash equivalents of $15.6 million. We currently expect our cash and cash equivalents
and projected future cash flow to be sufficient to support our short term working capital requirements. We do not currently have
any available credit facilities under which we can borrow to help fund our working capital requirements. We cannot be certain
that, if needed, we would be able to obtain any credit facilities or under what terms such credit facilities would be available.
New or Recently Adopted Accounting Standards
See Note 2 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 ("U.S. GAAP") 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, deferred income tax valuation
- 26 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
allowances and product warranty reserves. 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.
Inventory Valuation
Inventory is valued at standard cost, which approximates actual cost computed on a first-in, first-out basis, not in excess of market
value. 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 charges for excess and obsolete inventory are recorded based upon current
industry conditions, anticipated product life cycles, new product introductions and expected future use of the inventory. The
charges for excess and obsolete inventory that we record establish a new cost basis for the related inventory. In 2012, we recorded
an inventory obsolescence charge for excess and obsolete inventory of $688,000.
Goodwill, Intangible and Long-Lived Assets
Goodwill is assessed for impairment at least 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. Factors we consider important which
could indicate impairment include significant underperformance relative to expected historical or projected future operating
results, significant changes in the manner of our use of the asset or the strategy for our overall business and significant negative
industry or economic trends. The 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 would have a significant impact on either the fair value of the reporting unit or the amount of the
goodwill impairment charge. During the goodwill impairment assessment, we perform a Step I test to identify potential
impairment, in which the fair value of a reporting unit is 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. As of December 31, 2012, goodwill was $1.7 million. During 2012, we did not record any impairment charges
related to our goodwill.
Indefinite-lived intangible assets are assessed for impairment at least annually in the fourth quarter, or more frequently if events
or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair
value of an intangible asset with its carrying amount. If the carrying amount of an intangible asset exceeds its fair value, an
impairment loss is recognized in an amount equal to that excess. As of December 31, 2012, indefinite-lived intangible assets were
$510,000. During 2012, we did not record any impairment charges related to our indefinite-lived intangible assets.
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. At December 31, 2012, finite-lived intangibles and long-lived assets were
$2.9 million. During 2012, we did not record any impairment charges related to our long-lived assets.
- 27 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Income Taxes
Deferred tax assets are analyzed to determine if there will be sufficient taxable income in the future in order to realize such assets.
We assess all of the positive and negative evidence concerning the realizability of the deferred tax assets, including our historical
results of operations for the recent past and our projections of future results of operations, in which we make subjective
determinations of future events. If, after assessing all of the evidence, both positive and negative, a determination is made that the
realizability of the deferred tax assets is not more likely than not, we establish a deferred tax valuation allowance for all or a
portion of the deferred tax assets depending upon the specific facts. If any of the significant assumptions were changed, materially
different results could occur, which could significantly change the amount of the deferred tax valuation allowance established.
Several years ago, due to our history of operating losses in both our domestic and certain of our foreign operations, we had
recorded a full valuation allowance against the deferred tax assets of these operations, including net operating loss carryforwards,
where we believed it was more likely than not that we would not have sufficient taxable income to utilize these assets before they
expire. During 2011, we reversed $3.1 million of the valuation allowance which had been recorded against the deferred tax assets
of these operations. The reversal of this amount of the valuation allowance was based on our assessment that it is now more likely
than not that we will be able to fully utilize these assets in the near future. Some of the key factors we considered in making our
assessment included our profitability in both 2011 and 2010 and our level of certainty with regard to our forecasts of near term
future profitability for the operations to which these assets relate. As of December 31, 2012, we had a net deferred tax asset of
$2.0 million.
Product Warranty Accrual
In connection with the accrual of warranty costs associated with our products, we make assumptions about the level of product
failures that may occur in the future. These assumptions are primarily based upon historical claims experience. Should the rate of
future product failures significantly differ from historical levels, our accrued warranty reserves would need to be adjusted, and the
amount of the adjustment could be material. At December 31, 2012, accrued warranty was $197,000 and is included in Other
Current Liabilities on our balance sheet. During 2012, we recorded charges related to product warranty of $57,000.
Off -Balance Sheet Arrangements
There were no off-balance sheet arrangements during the year ended December 31, 2012 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 7A. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
This disclosure is not required for a smaller reporting company.
Item 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements are set forth in this Report beginning at page F-1 and are incorporated by reference into this
Item 8.
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
- 28 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 9A. CONTROLS AND PROCEDURES
CEO and CFO Certifications. Included with this Annual Report as Exhibits 31.1 and 31.2 are two certifications, one by each of
our Chief Executive Officer and our Chief Financial Officer (the "Section 302 Certifications"). This Item 9A contains information
concerning the evaluations of our disclosure controls and procedures and internal control over financial reporting that are referred
to in the Section 302 Certifications. This information should be read in conjunction with the Section 302 Certifications for a more
complete understanding of the topics presented.
Evaluation of Our Disclosure Controls and Procedures. The SEC requires that as of the end of the year covered by this Report,
our CEO and CFO must evaluate the effectiveness of the design and operation of our disclosure controls and procedures and
report on the effectiveness of the design and operation of our disclosure controls and procedures.
"Disclosure controls and procedures" mean the controls and other procedures that are designed with the objective of ensuring that
information required to be disclosed in our reports filed under the Securities Exchange Act of 1934 (the "Exchange Act"), such as
this Report, is recorded, processed, summarized and reported within the time periods specified in the rules and forms promulgated
by the SEC. Disclosure controls and procedures are also designed with the objective of ensuring that such information is
accumulated and communicated to our management, including the CEO and CFO, as appropriate, to allow timely decisions
regarding required disclosure.
Limitations on the Effectiveness of Controls. Our management, including the CEO and CFO, does not expect that our
disclosure controls and procedures or our internal control over financial reporting will prevent all error and all fraud. 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. 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. Because of the inherent limitations in all control
systems, no evaluation of controls can provide absolute assurance that all control issues and instances of fraud, if any, within an
entity have been detected. 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. The design of any system of
controls also is based in part upon certain assumptions about the likelihood of future events, and there can be no assurance that
any design will succeed in achieving its stated goals under all potential future conditions; over time, a system of controls may
become inadequate because of changes in conditions, or the degree of compliance with the policies or procedures may deteriorate.
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.
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.
Management's Report on Internal Control over Financial Reporting. Our management is responsible for establishing and
maintaining adequate internal control over financial reporting. Internal control over financial reporting is defined in Rule 13a-
15(f) and 15d-15(f) under the Securities Exchange Act of 1934, as amended, as a process designed by, or under the supervision
of, our principal executive and principal financial officers and effected by our Board of Directors, management and other
personnel 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 and includes those policies and
procedures that:
1. Pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and
dispositions of our assets;
2. Provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial
statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are
being made only in accordance with authorizations of our management and directors; and
3. Provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or
disposition of our assets that could have a material effect on the financial statements.
- 29 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 9A. CONTROLS AND PROCEDURES (Continued)
Because of inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Projections of
any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes
in conditions, or that the degree of compliance with the policies or procedures may deteriorate.
Management assessed the effectiveness of our internal control over financial reporting as of December 31, 2012. In making this
assessment, management used the criteria set forth by the Committee of Sponsoring Organizations of the Treadway Commission
(COSO) on Internal Control-Integrated Framework. Based upon this assessment, management believes that, as of December 31,
2012, our internal control over financial reporting is effective at a reasonable assurance level.
This annual report does not include an attestation report of our independent registered public accounting firm regarding internal
control over financial reporting, as such an attestation is not required pursuant to rules of the Securities and Exchange
Commission applicable to smaller reporting companies.
Item 9B. OTHER INFORMATION
None.
PART III
Item 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE
The information required by this Item is incorporated by reference from our definitive proxy statement for our 2013 Annual
Meeting of Stockholders to be filed with the SEC on or before April 30, 2013, or, if our proxy statement is not filed on or before
April 30, 2013, will be filed by that date by an amendment to this Form 10-K.
Item 11. EXECUTIVE COMPENSATION
The information required by this Item is incorporated by reference from our definitive proxy statement for our 2013 Annual
Meeting of Stockholders to be filed with the SEC on or before April 30, 2013, or, if our proxy statement is not filed on or before
April 30, 2013, will be filed by that date by an amendment to this Form 10-K.
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS
The information required by Item 201(d) of Regulation S-K is set forth below. The remainder of the information required by this
Item 12 is incorporated by reference from our definitive proxy statement for our 2013 Annual Meeting of Stockholders to be filed
with the SEC on or before April 30, 2013, or, if our proxy statement is not filed on or before April 30, 2013, will be filed by that
date by an amendment to this Form 10-K.
The following table shows the number of securities that may be issued pursuant to our equity compensation plans (including
individual compensation arrangements) as of December 31, 2012:
- 30 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2012
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS (Continued)
Equity Compensation Plan Information
Plan Category
Equity compensation plans approved by security holders ........
Equity compensation plans not approved by security holders ..
Total ..........................................................................................
Number of securities
to be issued upon
exercise of
outstanding options,
warrants and rights(1)
219,000
-
219,000
Weighted-average
exercise price of
outstanding options,
warrants and rights(1)
$3.17
-
$3.17
Number of securities
remaining available
for future issuance
under equity
compensation plans(2)
190,000
-
190,000
The securities that may be issued are shares of inTEST common stock, issuable upon exercise of outstanding stock options.
(1)
(2) The securities that remain available for future issuance are issuable pursuant to the 2007 Stock Plan.
Item 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS, AND DIRECTOR INDEPENDENCE
The information required by this Item is incorporated by reference from our definitive proxy statement for our 2013 Annual
Meeting of Stockholders to be filed with the SEC on or before April 30, 2013, or, if our proxy statement is not filed on or before
April 30, 2013, will be filed by that date by an amendment to this Form 10-K.
Item 14. PRINCIPAL ACCOUNTING FEES AND SERVICES
The information required by this Item is incorporated by reference from our definitive proxy statement for our 2013 Annual
Meeting of Stockholders to be filed with the SEC on or before April 30, 2013, or, if our proxy statement is not filed on or before
April 30, 2013, will be filed by that date by an amendment to this Form 10-K.
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The documents filed as part of this Annual Report on Form 10-K are:
PART IV
(i) Our consolidated financial statements and notes thereto as well as the applicable report of our independent registered
public accounting firm are included in Part II, Item 8 of this Annual Report on Form 10-K.
(ii) The following financial statement schedule should be read in conjunction with the consolidated financial statements set
forth in Part II, Item 8 of this Annual Report on Form 10-K:
Schedule II -- Valuation and Qualifying Accounts
(iii) The exhibits required by Item 601 of Regulation S-K are included under Item 15(b) of this Annual Report on Form 10-K.
(b) Exhibits required by Item 601 of Regulation S-K:
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 Exhibit
Index immediately following the signature page, which Exhibit Index is incorporated herein by reference.
- 31 -
Pursuant to the requirements of Section 13 or 15(d) 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.
Signatures
inTEST Corporation
By: /s/ Robert E. Matthiessen
Robert E. Matthiessen
President and Chief Executive Officer
March 29, 2013
Pursuant to the requirements of Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf
of the Registrant and in the capacities and on the dates indicated.
/s/ Robert E. Matthiessen
Robert E. Matthiessen, President,
Chief Executive Officer and Director
(Principal Executive Officer)
/s/ Hugh T. Regan, Jr.
Hugh T. Regan, Jr., Treasurer, Chief
Financial Officer and Secretary
(Principal Financial Officer)
/s/ Alyn R. Holt
Alyn R. Holt, Executive Chairman
/s/ Steven J. Abrams
Steven J. Abrams, Esq., Director
/s/ Stuart F. Daniels
Stuart F. Daniels, Ph.D, Director
/s/ William Kraut
William Kraut, Director
/s/ James W. Schwartz
James W. Schwartz, Esq., Director
March 29, 2013
March 29, 2013
March 29, 2013
March 29, 2013
March 29, 2013
March 29, 2013
March 29, 2013
- 32 -
Index to Exhibits (A)
Description of Exhibit
Asset Purchase Agreement dated December 9, 2011 by and among Temptronic Corporation, Test Enterprises, Inc., James
C. Kufis and Carollyn M. Kufis, Trustees of the Kufis Family Trust Dated November 9, 1990, and any amendments
thereto, and James C. Kufis. (1)
Certificate of Incorporation. (2)
Bylaws. (3)
Lease Agreement between Exeter 804 East Gate, LLC and the Company dated May 10, 2010. (4)
Lease Agreement between AMB-SGP Seattle/Boston, LLC and Temptronic Corporation (a subsidiary of the Company),
dated October 25, 2010. (5)
Lease Agreements between Columbia California Warm Springs Industrial, LLC and inTEST Silicon Valley Corporation
dated January 9, 2012. (6)
Guaranty Agreements between Columbia California Warm Springs Industrial, LLC and inTEST Corporation dated
January 9, 2012. (6)
inTEST Corporation Amended and Restated 1997 Stock Plan. (7)(*)
inTEST Corporation 2007 Stock Plan. (8)(*)
Form of Restricted Stock Grant. (9)(*)
Form of Stock Option Grant - Director. (9)(*)
Form of Stock Option Grant - Officer. (9)(*)
Change of Control Agreement dated August 27, 2007 between the Company and Robert E. Matthiessen. (10)(*)
Change of Control Agreement dated August 27, 2007 between the Company and Hugh T. Regan, Jr. (10)(*)
Change of Control Agreement dated May 5, 2008 between the Company and Daniel J. Graham. (11)(*)
Change of Control Agreement dated May 5, 2008 between the Company and James Pelrin. (11)(*)
Amendment to Change of Control Agreement dated December 31, 2008 between the Company and Robert E. Matthiessen.
(12)(*)
Amendment to Change of Control Agreement dated December 31, 2008 between the Company and Hugh T. Regan, Jr.
(12)(*)
Amendment to Change of Control Agreement dated December 31, 2008 between the Company and Daniel J. Graham.
(12)(*)
Amendment to Change of Control Agreement dated December 31, 2008 between the Company and James Pelrin. (12)(*)
Compensatory Arrangements of Executive Officers and Directors. (*)
Code of Ethics. (13)
Subsidiaries of the Company.
Consent of McGladrey LLP.
Certification of Chief Executive Officer pursuant to Rule 13a-14(a).
Certification of Chief Financial Officer pursuant to Rule 13a-14(a).
Certification of Chief Executive Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Certification of Chief Financial Officer pursuant to Section 906 of the Sarbanes-Oxley Act of 2002.
Exhibit
Number
2
3.1
3.2
10.1
10.2
10.3
10.4
10.5
10.6
10.7
10.8
10.9
10.10
10.11
10.12
10.13
10.14
10.15
10.16
10.17
10.18
14
21
23
31.1
31.2
32.1
32.2
- 33 -
Index to Exhibits (A)
(Continued)
(1)
(2)
(3)
(4)
(5
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(13)
(*)
(A)
Previously filed by the Company as an exhibit to the Company's Form 10-K for the year ended December 31, 2011, File
No. 000-22529, filed March 30, 2012, and incorporated herein by reference.
Previously filed by the Company as an exhibit to the Company's Registration Statement on Form S-1, File No. 333-26457
filed May 2, 1997, and incorporated herein by reference.
Previously filed by the Company as an exhibit to the Company's Form 8-K dated October 30, 2007, File No. 000-22529,
filed November 5, 2007, and incorporated herein by reference.
Previously filed by the Company as an exhibit to the Company's Form 8-K dated May 10, 2010, File No. 000-22529, filed
May 13, 2010, and incorporated herein by reference.
Previously filed by the Company as an exhibit to the Company's Form 8-K dated October 27, 2010, File No. 000-22529,
filed October 29, 2010, and incorporated herein by reference.
Previously filed by the Company as an exhibit to the Company's Form 10-Q for the quarter ended March 31, 2012, File No.
000-22529, filed May 15, 2012, and incorporated herein by reference.
Previously filed as an appendix to the Company's Proxy Statement filed April 25, 2002, and incorporated herein by
reference.
Previously filed as an appendix to the Company's Proxy Statement filed April 27, 2007, and incorporated herein by
reference.
Previously filed by the Company as an exhibit to the Company's Form 10-K for the year ended December 31, 2004, File
No. 000-22529, filed March 31, 2005, and incorporated herein by reference.
Previously filed by the Company as an exhibit to the Company's Form 10-K for the year ended December 31, 2007, File
No. 000-22529, filed March 31, 2008, and incorporated herein by reference.
Previously filed by the Company as an exhibit to the Company's Form 10-Q for the quarter ended June 30, 2008, File No.
000-22529, filed August 14, 2008, and incorporated herein by reference.
Previously filed by the Company as an exhibit to the Company's Form 10-Q for the quarter ended June 30, 2009, File No.
000-22529, filed August 14, 2009, and incorporated herein by reference.
Previously filed by the Company as an exhibit to the Company's Form 10-K for the year ended December 31, 2003, File
No. 000-22529, filed March 30, 2004, and incorporated herein by reference.
Indicates a management contract or compensatory plan, contract or arrangement in which a director or executive officers
participate.
Copies of the exhibits which were filed with the SEC are not included in this Annual Report to Stockholders but may be
obtained electronically through our website at www.intest.com or through the SEC’s website at www.sec.gov.
- 34 -
inTEST CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
FINANCIAL STATEMENT SCHEDULE
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
CONSOLIDATED FINANCIAL STATEMENTS
Consolidated Balance Sheets as of December 31, 2012 and 2011
Consolidated Statements of Operations for the years ended
December 31, 2012 and 2011
Consolidated Statements of Comprehensive Earnings for the years
ended December 31, 2012 and 2011
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2012 and 2011
Consolidated Statements of Cash Flows for the years ended
December 31, 2012 and 2011
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts
Page
F - 1
F - 2
F - 3
F - 4
F - 5
F - 6
F - 7
F - 26
- 35 -
(This page intentionally left blank.)
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
MCGLADREY LLP
To The Board of Directors and Stockholders
inTEST Corporation
We have audited the accompanying consolidated balance sheets of inTEST Corporation and subsidiaries as of December 31, 2012 and
2011, and the related consolidated statements of operations, comprehensive earnings, stockholders' equity, and cash flows for the
years then ended. Our audits also included the financial statement schedule of inTEST Corporation listed in Item 15(a). These
financial statements and financial statement schedule are the responsibility of the Company's management. Our responsibility is to
express an opinion on these financial statements based on our audits.
We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those
standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over
financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the
Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of
inTEST Corporation and subsidiaries as of December 31, 2012 and 2011, and the results of their operations and their cash flows for
the years then ended in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial
statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all
material respects the information set forth therein.
/s/ McGLADREY LLP
Blue Bell, Pennsylvania
March 29, 2013
F - 1
inTEST CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
ASSETS:
Current assets:
Cash and cash equivalents ....................................................................................................................
Trade accounts receivable, net of allowance for doubtful accounts of
$147 and $195, respectively ..............................................................................................................
Inventories ............................................................................................................................................
Deferred tax assets ................................................................................................................................
Prepaid expenses and other current assets ............................................................................................
Total current assets......................................................................................................................
Property and equipment:
Machinery and equipment .....................................................................................................................
Leasehold improvements ......................................................................................................................
Gross property and equipment ....................................................................................................
Less: accumulated depreciation ...........................................................................................................
Net property and equipment ........................................................................................................
Deferred tax assets .....................................................................................................................................
Goodwill ....................................................................................................................................................
Intangible assets, net ..................................................................................................................................
Restricted certificates of deposit ................................................................................................................
Other assets ................................................................................................................................................
December 31,
2012
2011
$15,576
$13,957
5,501
3,135
1,004
363
25,579
3,948
591
4,539
(3,289)
1,250
1,034
1,706
2,194
450
186
6,189
3,896
453
302
24,797
3,585
514
4,099
(2,965)
1,134
2,028
1,656
942
500
180
Total assets ..................................................................................................................................
$32,399
$31,237
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable ..................................................................................................................................
Accrued wages and benefits ..................................................................................................................
Accrued sales commissions ..................................................................................................................
Accrued rent ..........................................................................................................................................
Accrued professional fees .....................................................................................................................
Deferred revenue and customer deposits ..............................................................................................
Other current liabilities .........................................................................................................................
Total current liabilities ................................................................................................................
$ 1,041
1,562
348
529
385
255
459
4,579
$ 1,031
1,795
493
407
451
425
436
5,038
Commitments and Contingencies (Notes 11, 12, 14 and 16)
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;
10,453,255 and 10,463,255 shares issued, respectively .....................................................................
Additional paid-in capital .....................................................................................................................
Retained earnings (accumulated deficit) ...............................................................................................
Accumulated other comprehensive earnings .........................................................................................
Treasury stock, at cost; 33,077 and 76,328 shares, respectively ...........................................................
Total stockholders’ equity ...........................................................................................................
-
-
105
26,030
636
1,253
(204)
27,820
105
26,035
(686)
1,217
(472)
26,199
Total liabilities and stockholders’ equity ....................................................................................
$32,399
$31,237
See accompanying Notes to Consolidated Financial Statements.
F - 2
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF OPERATIONS
(In thousands, except share and per share data)
Years Ended December 31,
2012
2011
Net revenues ......................................................................................................................... $43,376
24,317
Cost of revenues ....................................................................................................................
$47,266
24,373
Gross margin ..........................................................................................................
19,059
22,893
Operating expenses:
Selling expense ................................................................................................................
Engineering and product development expense ...............................................................
General and administrative expense .................................................................................
Restructuring and other charges .......................................................................................
5,425
3,895
6,430
313
5,708
3,240
6,367
-
Total operating expenses ........................................................................................
16,063
15,315
Operating income ..................................................................................................................
Other income.........................................................................................................................
2,996
57
Earnings before income tax expense (benefit) ......................................................................
Income tax expense (benefit) ................................................................................................
3,053
897
7,578
81
7,659
(2,204)
Net earnings ........................................................................................................... $ 2,156
$ 9,863
Net earnings per common share:
Basic ................................................................................................................................
Diluted .............................................................................................................................
$0.21
$0.21
Weighted average common shares outstanding:
Basic ................................................................................................................................ 10,273,377
Diluted ............................................................................................................................. 10,347,077
$0.97
$0.96
10,147,708
10,285,621
See accompanying Notes to Consolidated Financial Statements.
F - 3
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
Years Ended December 31,
2012
2011
Net earnings ..................................................................................................................
$2,156
$9,863
Foreign currency translation adjustments .....................................................................
36
(94)
Comprehensive earnings ..............................................................................................
$2,192
$9,769
See accompanying Notes to Consolidated Financial Statements.
F - 4
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S
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
2012
2011
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ........................................................................................................................................ $ 2,156
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization .......................................................................................................
Provision for excess and obsolete inventory ..................................................................................
Foreign exchange (gain) loss .........................................................................................................
Amortization of deferred compensation related to restricted stock ................................................
Profit sharing expense funded through the issuance of treasury stock ...........................................
Gain on sale of property and equipment ........................................................................................
Proceeds from sale of demonstration equipment, net of gain ........................................................
Deferred income tax expense (benefit) ..........................................................................................
Changes in assets and liabilities:
Trade accounts receivable .........................................................................................................
Inventories.................................................................................................................................
Prepaid expenses and other current assets .................................................................................
Restricted certificates of deposit ...............................................................................................
Other assets ...............................................................................................................................
Accounts payable ......................................................................................................................
Accrued wages and benefits ......................................................................................................
Accrued sales commissions ......................................................................................................
Accrued rent ..............................................................................................................................
Accrued professional fees .........................................................................................................
Deferred revenue and customer deposits ..................................................................................
Other current liabilities .............................................................................................................
Deferred rent .............................................................................................................................
Net cash provided by operating activities ................................................................................................
1,868
948
(60)
50
(3)
(67)
(237)
(227)
122
(66)
(171)
(92)
933
688
(12)
113
150
-
109
443
-
6,645
CASH FLOWS FROM INVESTING ACTIVITIES
Acquisition of business .......................................................................................................................
Purchase of property and equipment ...................................................................................................
Proceeds from sale of property and equipment ...................................................................................
Net cash used in investing activities ........................................................................................................
(3,802)
(431)
19
(4,214)
CASH FLOWS FROM FINANCING ACTIVITIES
Cash dividends paid ............................................................................................................................
Proceeds from stock options exercised ...............................................................................................
Net cash provided by (used in) financing activities .................................................................................
(834)
-
(834)
Effects of exchange rates on cash ............................................................................................................
Net cash provided by all activities ...........................................................................................................
Cash and cash equivalents at beginning of period ...................................................................................
22
1,619
13,957
Cash and cash equivalents at end of period ............................................................................................. $15,576
Cash payments for:
Domestic and foreign income taxes .................................................................................................... $ 379
8
Interest ................................................................................................................................................
Details of acquisition:
Fair value of assets acquired ............................................................................................................... $ 4,026
Liabilities assumed..............................................................................................................................
50
Goodwill resulting from acquisition ...................................................................................................
Net cash paid for acquisition .................................................................................................................... $ 3,802
(274)
$ 9,863
394
403
3
146
150
(48)
94
(2,481)
24
(809)
126
200
13
(640)
24
(29)
324
79
341
(316)
(39)
7,822
-
(780)
54
(726)
-
30
30
(64)
7,062
6,895
$13,957
$ 269
1
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Forfeiture of non-vested shares of restricted stock .................................................................................. $ (14)
$ (20)
See accompanying Notes to Consolidated Financial Statements.
F - 6
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(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"). In addition, in recent years we have begun marketing our thermal products in industries outside the ATE
industry, such as the automotive, consumer electronics, defense/aerospace, telecommunications and energy industries.
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. On January 16, 2012, Temptronic Corporation ("Temptronic"), a wholly-owned subsidiary of inTEST
Corporation, acquired substantially all of the assets and certain liabilities of Thermonics, Inc. ("Thermonics"), a division of Test
Enterprises, Inc. The acquisition of the Thermonics business broadens the product line of inTEST's Thermal Products Segment.
This acquisition is discussed further in Note 3.
The semiconductor industry in which we operate is characterized by rapid technological change, competitive pricing pressures
and cyclical market patterns. This industry 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 industry and the other industries 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 industry. 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 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, deferred income tax valuation allowances and product warranty reserves, are particularly impacted by
estimates.
Reclassification
Certain prior year amounts have been reclassified to be comparable with the current year's presentation.
Cash and Cash Equivalents
Short-term investments that have maturities of three months or less when purchased are considered to be cash equivalents and are
carried at cost, which approximates market value.
F - 7
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Trade Accounts Receivable and Allowance for Doubtful Accounts
Trade accounts receivable are recorded at the invoiced amount and do not bear interest. We grant credit to customers and
generally require no collateral. To minimize our risk, we perform ongoing credit evaluations of our customers' financial condition.
The allowance for doubtful accounts is our best estimate of the amount of probable credit losses in our existing accounts
receivable. We determine the allowance based on historical write-off experience and the aging of such receivables, among other
factors. Account balances are charged off against the allowance after all means of collection have been exhausted and the
potential for recovery is considered remote. We do not have any off-balance sheet credit exposure related to our customers. Bad
debt (recovery) expense was $(8) and $48 for the years ended December 31, 2012 and 2011, respectively. Cash flows from
accounts receivable are recorded in operating cash flows.
Fair Value of Financial Instruments
Our financial instruments, principally accounts and notes receivable and accounts payable, are carried at cost which approximates
fair value, due to the short maturities of the accounts.
Inventories
Inventories are valued 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 industry 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 $688 and $403 for the years ended December 31, 2012 and 2011,
respectively.
Property and Equipment
Machinery and equipment are stated at cost. As further discussed below under "Goodwill, Intangible and Long-Lived Assets,"
machinery and equipment that has been determined to be impaired is written down to its fair value at the time of the impairment.
Depreciation is based upon the estimated useful life of the assets using the straight-line method. The estimated useful lives range
from one to seven years. Leasehold improvements are recorded at cost and amortized over the shorter of the lease term or the
estimated useful life of the asset. Total depreciation expense was $457 and $259 for the years ended December 31, 2012 and
2011, respectively. Expenditures for maintenance and repairs are charged to operations as incurred.
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 at least 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. In
September 2011, the Financial Accounting Standards Board ("FASB") issued new guidance which provides an entity with 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 an entity determines this is the case, it is 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 an entity determines 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. This new guidance was effective for fiscal years
beginning after December 15, 2011. We adopted this guidance as of January 1, 2012. The adoption of this guidance did not have a
material impact on our consolidated financial statements.
F - 8
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 would 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 at least annually in the fourth quarter, or more frequently if events
or changes in circumstances indicate that the asset might be impaired. The impairment test consists of a comparison of the fair
value of an intangible asset with its carrying amount. If the carrying amount of an 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, which is then amortized to expense over the service periods. See further disclosures
related to our stock-based compensation plan in Note 15.
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 year ended December 31, 2012.
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 collectibility 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.
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.
F - 9
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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 the consolidated financial statements.
Engineering and Product Development
Engineering and product development costs, which consist primarily of the salary and related benefits costs of our technical staff,
as well as the cost of materials used in product development, are expensed as incurred.
Restructuring and Other Charges
We recognize a liability for restructuring costs at fair value only when the liability is incurred. The three main components of our
restructuring plans have been related to workforce reductions, the consolidation of excess facilities and asset impairments.
Workforce-related charges are accrued when it is determined that a liability has been incurred, which is generally after individuals
have been notified of their termination dates and expected severance benefits. Plans to consolidate excess facilities result in
charges for lease termination fees and future commitments to pay lease charges, net of estimated future sub-lease income. We
recognize these charges when we have vacated the premises. In addition, as a result of plans to consolidate excess facilities, we
may incur other associated costs such as charges to relocate inventory, equipment or personnel. We recognize charges for other
associated costs when these costs are incurred, which is generally when the goods or services have been provided to us. Assets
that may be impaired consist of property, plant and equipment and intangible assets. Asset impairment charges are based on an
estimate of the amounts and timing of future cash flows related to the expected future remaining use and ultimate sale or disposal
of the asset.
Foreign Currency
For our foreign subsidiaries whose functional currency is not the U.S. dollar, assets and liabilities are translated using the
exchange rate in effect at the balance sheet date. The results of operations are translated using an average exchange rate for the
period. The effects of rate fluctuations in translating assets and liabilities of these international operations into U.S. dollars are
included in accumulated other comprehensive earnings in stockholders' equity. Transaction gains or losses are included in net
earnings. For the years ended December 31, 2012 and 2011, foreign currency transaction gains (losses) were $12 and $(3),
respectively.
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 stock options and unvested shares of restricted stock 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 and their respective weighted average exercise prices that were excluded from the calculation of diluted
earnings per share because their effect was anti-dilutive:
F - 10
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Years Ended
December 31,
2012
2011
Weighted average common shares outstanding – basic ................................. 10,273,377 10,147,708
Potentially dilutive securities:
Employee stock options and unvested shares of restricted stock ..............
137,913
73,700
Weighted average common shares outstanding – diluted .............................. 10,347,077 10,285,621
Average number of potentially dilutive securities
excluded from calculation ............................................................................
129,217
39,209
Effect of Recently Issued Amendments to Authoritative Accounting Guidance
In July 2012, the FASB issued amendments to existing guidance on the assessment of impairment for indefinite-lived intangible
assets other than goodwill. The amendments permit an entity first to assess qualitative factors to determine whether it is more
likely than not that an indefinite-lived intangible asset is impaired as a basis for determining whether it is necessary to perform the
quantitative impairment test. If an entity believes, as a result of its qualitative assessment, that it is more-likely-than-not that the
fair value of a reporting unit is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further
testing is required. The amendments are effective for annual and interim impairment tests performed for fiscal years beginning
after September 15, 2012. However, an entity can choose to adopt this guidance early even if its annual test date is before the
issuance of the final standard, provided that the entity has not yet issued its financial statements for the most recent annual or
interim period. We plan to adopt these amendments on January 1, 2013. We do not expect the adoption of these amendments to
have a material impact on our consolidated financial statements.
In February 2013, the FASB issued amendments to existing guidance on the accounting for accumulated other comprehensive
income. The amendments require entities to provide information about the amounts reclassified out of accumulated other
comprehensive income by component. In addition, an entity is required to present, either on the face of the financial statements or
in the notes, significant amounts reclassified out of accumulated other comprehensive income by the respective line items of net
income, but only if the amount reclassified is required to be reclassified in its entirety in the same reporting period. For amounts
that are not required to be reclassified in their entirety to net income, an entity is required to cross-reference to other disclosures
that provide additional details about those amounts. The amendments are effective for annual and interim periods beginning after
December 15, 2012. We plan to adopt these amendments on January 1, 2013. We do not expect the adoption of these amendments
to have a material impact on our consolidated financial statements.
(3) ACQUISITION
On January 16, 2012, Temptronic acquired substantially all of the assets and certain liabilities of Thermonics pursuant to the
Asset Purchase Agreement dated December 9, 2011. Thermonics is engaged in the business of designing, manufacturing, selling
and distributing temperature forcing systems used in the testing of various products under temperature controlled situations. The
acquisition of the Thermonics business broadens the product line of inTEST's Thermal Products segment.
The purchase price for the assets was approximately $3,802 in cash, plus the assumption of specified liabilities, including trade
payables and certain customer contract obligations. In connection with this acquisition, we also signed a separate one year lease
for the facility occupied by Thermonics in Sunnyvale, California. This facility is owned by certain shareholders of the seller. We
ceased operations at this facility in February 2012 and relocated the Thermonics product line to our facility in Mansfield,
Massachusetts where our Temptronic operations are located. We recorded a restructuring charge of $313 related to this action.
See Note 5 for further detail regarding this charge.
Total acquisition costs incurred to complete this transaction were $485. The portion of these costs that was incurred in 2011 was
$148. Acquisition costs are expensed as incurred and included in general and administrative expense.
F - 11
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(3) ACQUISITION (Continued)
The Thermonics acquisition was accounted for as a purchase business combination and, accordingly, the results of Thermonics
have been included in our consolidated results of operations from the date of acquisition. The allocation of the total purchase price
of Thermonics net tangible and identifiable intangible assets was based on their estimated fair values as of the acquisition date.
The tangible assets acquired include accounts receivable, inventory, and property and equipment. Liabilities assumed include
trade payables, certain customer contract obligations and accrued payments under a non-compete/non-solicitation agreement with
a former employee of Thermonics. Identifiable intangible assets acquired include customer relationships, customer backlog, the
Thermonics trade name, patented technology, and a non-compete/non-solicitation agreement with a former employee of
Thermonics. The excess of the purchase price over the identifiable intangible and net tangible assets in the amount of $50 was
allocated to goodwill and is deductible for tax purposes. Goodwill is attributed to the synergies that are expected to result from the
operations of the combined businesses. The determination of fair value reflects the assistance of third-party valuation specialists,
as well as our own estimates and assumptions.
The following represents the allocation of the purchase price:
Goodwill ........................................................................................... $ 50
Identifable intangible assets ..............................................................
1,728
Tangible assets acquired and liabilities assumed:
Trade accounts receivable .............................................................
Inventories ....................................................................................
Property and equipment ................................................................
Accounts payable ..........................................................................
Accrued non-compete/non-solicitation payments .........................
Accrued sales commissions ..........................................................
Accrued warranty .........................................................................
Total purchase price ..........................................................................
1,161
874
263
(77)
(48)
(82)
(67)
$3,802
We estimated the fair value of identifiable intangible assets acquired using a combination of the income, cost and market
approaches. 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. The following table provides
further information about the finite-lived intangible assets acquired in connection with the acquisition of Thermonics as of the
acquisition date:
Fair
Value
Customer relationships .....................................................
Customer backlog .............................................................
Thermonics trade name ....................................................
Patented technology ..........................................................
Non-compete/non-solicitation agreement .........................
$1,110
70
140
360
48
Weighted
Average
Estimated
Useful Life
(in months)
72
3
48
132
18
Total intangible assets ......................................................
$1,728
78.3
For the period from January 16, 2012 to December 31, 2012, Thermonics contributed $4,692 of net revenues. We do not track net
income within our Thermal Products segment by product line. As a result, the net income for Thermonics for the period from
January 16, 2012 to December 31, 2012 is not available.
F - 12
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(3) ACQUISITION (Continued)
The following unaudited pro forma information gives effect to the acquisition of Thermonics as if the acquisition occurred on
January 1, 2011. These proforma summaries do not reflect any operating efficiencies or costs savings that may be achieved by the
combined businesses. These proforma summaries are presented for informational purposes only and are not necessarily indicative
of what the actual results of operations would have been had the acquisition taken place as of that date, nor are they indicative of
future consolidated results of operations:
(Unaudited)
Years Ended
Dec. 31,
2012
2011
Net revenues ......................................................................... $43,592 $52,742
Net earnings ..........................................................................
2,156
8,530
Diluted earnings per share ....................................................
$0.21
$0.83
The proforma results for 2011 shown above include non-recurring charges of $337 which represent transaction costs related to the
Thermonics acquisition and $313 which represent facility closure costs related to the relocation of Thermonics' operations.
(4) GOODWILL, INTANGIBLE AND LONG-LIVED 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 in January 2012. The acquisition of Thermonics is discussed further in Note 3.
Goodwill
All of our goodwill is allocated to our Thermal Products segment. Changes in the amount of the carrying value of goodwill for the
year ended December 31, 2012 are as follows:
Balance - January 1, 2012 .....................................
$1,656
$ - $1,656
Acquisition of Thermonics ....................................
-
50
50
Balance - December 31, 2012 ...............................
$1,656
$ 50 $1,706
Sigma Thermonics Total
Intangible Assets
The following table provides further detail about our intangible assets as of December 31, 2012 and 2011:
December 31, 2012
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Finite-lived intangible assets:
Customer relationships ........................................................................
Patented technology .............................................................................
Software ...............................................................................................
Trade name ..........................................................................................
Customer backlog ................................................................................
Non-compete/non-solicitation agreement ............................................
Total finite-lived intangible assets ..........................................................
Indefinite-lived intangible assets:
Sigma trademark ..................................................................................
Total intangible assets ............................................................................
$1,480
590
270
140
70
48
2,598
510
$3,108
$ 439
233
115
33
70
24
914
$1,041
357
155
107
-
24
1,684
-
$ 914
510
$2,194
F - 13
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(4) GOODWILL, INTANGIBLE AND LONG-LIVED ASSETS (Continued)
December 31, 2011
Gross
Carrying
Amount
Accumulated
Amortization
Net
Carrying
Amount
Finite-lived intangible assets:
Customer relationships ........................................................................
Patented technology .............................................................................
Software ...............................................................................................
Total finite-lived intangible assets ..........................................................
Indefinite-lived intangible assets:
Sigma trademark ..................................................................................
Total intangible assets ............................................................................
$ 370
230
270
870
510
$1,380
$ 200
150
88
438
$ 170
80
182
432
-
$ 438
510
$ 942
We generally amortize our finite-lived intangible assets over their estimated useful lives on a straightline 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 finite-lived assets have any residual value.
The following table provides further information about the estimated useful lives of our finite-lived intangible assets as of
December 31, 2012:
Remaining
Estimated
Useful Life at
Dec. 31, 2012
Estimated
Useful Life
- - - - (in months) - - - -
Finite-lived intangible assets resulting from the acquisition of Sigma:
Customer relationships ...............................................................................................
Software ......................................................................................................................
Patented technology ....................................................................................................
Finite-lived intangible assets resulting from the acquisition of Thermonics:
Customer relationships ...............................................................................................
Customer backlog .......................................................................................................
Trade name .................................................................................................................
Patented technology ....................................................................................................
Non-compete/non-solicitation agreement ...................................................................
72
120
60
72
3
48
132
18
21
69
9
60.5
-
36.5
120.5
9
The following table sets forth changes in the amount of the carrying value of finite-lived intangible assets for the year ended
December 31, 2012:
Balance - January 1, 2012 ..................................................
$ 432
Acquisition of Thermonics .................................................
1,728
Amortization ......................................................................
(476)
Balance - December 31, 2012 ............................................
$1,684
Total amortization expense for the years ended December 31, 2012 and 2011 was $476 and $135, respectively. The following
table sets forth the estimated annual amortization expense for our finite-lived intangible assets for each of the next five years:
2013 .............................................................. $446
2014 .............................................................. $355
2015 .............................................................. $289
2016 .............................................................. $229
2017 .............................................................. $212
F - 14
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(4) GOODWILL, INTANGIBLE AND LONG-LIVED ASSETS (Continued)
Impairment of Goodwill and Indefinite Life Intangible Assets
During December 2012 and 2011, we assessed our goodwill and indefinite life intangible assets for impairment in accordance
with the requirements of ASC Topic 350 (Intangibles - Goodwill and Other). Our 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 discount rate
used in 2012 and 2011 for the discounted cash flows were 24% and 20%, respectively. The selection of these rates was based
upon our analysis of market based estimates of capital costs and discount rates. The peer companies used in the market approach
operate in our market segment. 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 would have a
significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charge.
During the goodwill impairment assessment in both 2012 and 2011, we performed a Step I test to identify potential impairment,
in which the fair value of the reporting unit was compared with its book value. This assessment indicated no impairment existed
as the fair value of this reporting unit was determined to exceed its carrying value by 41% or $7,516 at December 31, 2012 and by
50% or $8,670 at December 31, 2011.
During the indefinite life intangible asset impairment assessment in both 2012 and 2011, we compared the fair value of our
intangible assets with their carrying amount. This assessment indicated no impairment existed as the fair value of the intangible
assets exceeded their carrying values in both 2012 and 2011.
Impairment of Long-Lived Assets and Finite-lived Intangible Assets
In accordance with ASC Topic 350 (Intangibles - Goodwill and Other) and ASC Topic 360 (Property, Plant and Equipment), we
review long-lived assets 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. As previously noted, our long-lived
assets consist of our finite-lived intangible assets and property and equipment. During December 2012, due to continued operating
losses experienced throughout 2012 in our Mechanical Products segment, we assessed the long-lived assets of this segment for
impairment. Our assessment indicated that the property and equipment that is allocated to this segment was not impaired. During
2012, we did not review our Thermal and Electrical Products segment's long lived assets for impairment and during 2011, we did
not review our long-lived assets in any of our segments for impairment as we determined there were no events or circumstances
that indicated the need for such review.
(5) RESTRUCTURING AND OTHER CHARGES
In connection with the acquisition of Thermonics, as discussed further in Note 3, in January 2012 we signed a separate one year
lease for the facility in Sunnyvale, California occupied by Thermonics at the time of the acquisition. This facility is owned by
certain shareholders of the seller. We ceased operations at this facility in February 2012 and relocated the Thermonics product
line to our facility in Mansfield, Massachusetts where our Temptronic operations are located. During the first quarter of 2012, we
incurred approximately $359 of facility closure costs related to this action. During the fourth quarter of 2012 we received a refund
of $46 of lease termination fees paid in the first quarter due to the sale of the leased facility. As a result, our net facility closure
costs related to this action were $313. These costs included lease termination fees of approximately $174 and other costs
associated with this consolidation of facilities, including the cost to relocate inventory and equipment, of approximately $139.
Accrued restructuring and other charges are included in Other Current Liabilities on our balance sheet.
F - 15
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(5) RESTRUCTURING AND OTHER CHARGES (Continued)
Changes in our liability for restructuring and other charges for the year ended December 31, 2012 are summarized as follows:
Thermonics
Relocation
Balance - January 1, 2012 .....................................................................
$ -
Accruals for facility closure costs .........................................................
313
Cash payments related to facility closure costs ....................................
(359)
Refund of lease termination fees...........................................................
46
Balance - December 31, 2012 ...............................................................
$ -
(6) MAJOR CUSTOMERS
Texas Instruments Incorporated accounted for 14% and 12% of our consolidated net revenues in 2012 and 2011, respectively.
While all three of our operating segments sold products to this customer, these revenues were primarily generated by our
Mechanical Products and Electrical Products segments. Teradyne, Inc. accounted for 11% of our consolidated net revenues in
2012. While all three of our operating segments sold products to this customer, these revenues were primarily generated by our
Electrical Products segment. During the years ended December 31, 2012 and 2011, no other customer accounted for 10% or more
of our consolidated net revenues.
(7) INVENTORIES
Inventories held at December 31 were comprised of the following:
2012
2011
Raw materials ........................................................
$2,157 $2,784
Work in process .....................................................
Inventory consigned to others ................................
454
105
351
201
Finished goods .......................................................
419
560
$3,135 $3,896
(8) OTHER CURRENT LIABILITIES
Other current liabilities consist of the following:
December 31,
2011
2012
Accrued warranty ..............................................................
$197 $214
Domestic and foreign income taxes payable .....................
83
8
Other ..................................................................................
179 214
$459 $436
F - 16
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(9) DEBT
Letters of Credit
We have issued letters of credit as the security deposits for certain of our domestic leases. These letters of credit are secured by
pledged certificates of deposit which are classified as Restricted Certificates of Deposit on our balance sheet. The terms of our
leases require us to renew these letters of credit at least 30 days prior to their expiration dates for successive terms of not less than
one year until lease expiration. Our outstanding letters of credit at December 31, 2012 and 2011 consisted of the following:
Facility
Mt. Laurel, NJ
Mansfield, MA
San Jose, CA
Original L/C
Issue Date
L/C
Expiration
Date
Lease
Expiration
Date
Letters of Credit
Amount Outstanding
Dec. 31,
2011
Dec. 31
2012
3/29/2010
4/01/2013
4/30/2021
$250
$250
10/27/2010
11/08/2013
8/23/2021
9/13/2004
6/30/2012
4/30/2012
200
-
200
50
$450
$500
(10) LEASEHOLD IMPROVEMENTS AND DEFERRED RENT
We record tenant improvements made to our leased facilities based on the amount of the total cost to construct the improvements
regardless of whether a portion of that cost was paid through an allowance provided by the facility's landlord. The amount of the
allowance, if any, is recorded as deferred rent. We amortize deferred rent on a straight-line basis over the lease term and record
the amortization as a reduction of rent expense.
(11) COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
We lease our offices, warehouse facilities, automobiles and certain equipment under noncancellable operating leases which expire
at various dates through 2021. Total rental expense for the years ended December 31, 2012 and 2011 was $1,237 and $1,327,
respectively. Certain of our operating leases contain predetermined fixed escalations of minimum rentals and rent holidays during
the original lease terms. Rent holidays are periods during which we have control of the leased facility but are not obligated to pay
rent. For these leases, we recognize the related rental expense on a straight-line basis over the life of the lease, which includes any
rent holiday, and record the difference between the amounts charged to operations and amounts paid as Accrued Rent on our
balance sheet. In addition to the monthly rental payments due, most of our leases for our offices and warehouse facilities require
us to pay our portion of the common area maintenance, property taxes and insurance charges incurred by the landlord for the
facilities which we occupy. These amounts are generally included in rental expense in our statement of operations, but they are
not included in the minimum rental commitments disclosed below as they are based on actual charges incurred in the periods to
which they apply.
The aggregate minimum rental commitments under the noncancellable operating leases in effect at December 31, 2012 are as
follows:
2013 .................................................... $1,053
2014 .................................................... $1,014
2015 .................................................... $1,024
2016 .................................................... $1,095
2017 .................................................... $1,059
Thereafter ........................................... $3,479
$8,724
F - 17
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(12) GUARANTEES
Product Warranties
Warranty expense for the years ended December 31, 2012 and 2011 was $57 and $122, respectively. Accrued warranty costs are
included in Other Current Liabilities on our balance sheet. The following table sets forth the changes in the liability for product
warranties for the years ended December 31, 2012 and 2011:
2012
2011
Balance - Beginning of period ........................................
Acquisition of Thermonics .............................................
Payments made under warranty ......................................
Accruals for product warranty ........................................
$ 214 $ 274
-
(182)
122
67
(141)
57
Balance - End of period ..................................................
$ 197 $ 214
(13) INCOME TAXES
We are subject to Federal and certain state income taxes. In addition, we are taxed in certain foreign countries. As of December
31, 2012 and 2011, there were no cumulative undistributed earnings of our foreign subsidiaries for which U.S. income taxes have
not been provided.
Earnings before income taxes was as follows:
Domestic ......................................................................
Foreign .........................................................................
Income tax expense (benefit) was as follows:
Current
Domestic – Federal ..................................................
Domestic – state .......................................................
Foreign .....................................................................
Deferred
Domestic – Federal ..................................................
Domestic – state .......................................................
Foreign .....................................................................
Income tax expense (benefit) .......................................
2011
Years Ended
December 31,
2012
$2,580 $6,722
473
937
$3,053 $7,659
Years Ended
December 31,
2012
2011
$ 362 $ 148
133
(20)
261
62
30
454
(1,676)
396
(193)
(126)
(596)
173
443
(2,465)
$ 897 $(2,204)
F - 18
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(13) INCOME TAXES (Continued)
Deferred income taxes reflect the net tax effect of net operating loss and credit carryforwards as well as temporary differences
between the carrying amount of assets and liabilities for financial reporting purposes and the amounts used for income tax
purposes. The following is a summary of the significant components of our deferred tax assets and liabilities as of December 31,
2012 and 2011:
Deferred tax assets:
Net operating loss ("NOL") (state and foreign) ..........................
Depreciation of property and equipment ....................................
Tax credit carryforwards (foreign, research and AMT) ..............
Accrued vacation pay and stock-based compensation ................
Inventories ..................................................................................
Intangibles ..................................................................................
Allowance for doubtful accounts ................................................
Acquisition costs .........................................................................
Accrued warranty .......................................................................
Other ...........................................................................................
Valuation allowance .......................................................................
Deferred tax assets ..........................................................................
Deferred tax liabilities:
Net intangible assets ...................................................................
Unremitted earnings of foreign subsidiaries ...............................
Deferred tax liabilities ....................................................................
Net deferred tax asset .....................................................................
December 31,
2012
2011
$1,182 $1,159
815
963
162
209
35
56
-
25
6
3,430
(484)
2,946
793
440
182
177
86
56
39
22
68
3,045
(573)
2,472
(358)
(307)
(127)
(107)
(434)
(465)
$2,038 $2,481
The valuation allowance for deferred tax assets as of the beginning of 2012 and 2011 was $484 and $5,153, respectively. The net
change in the valuation allowance for the years ended December 31, 2012 and 2011 was an increase of $89 and a decrease of
$4,669, respectively. In assessing the ability to realize the deferred tax assets, we consider whether it is more likely than not that
some portion or all of the deferred tax assets will not be realized. The ultimate realization of deferred tax assets is dependent upon
the generation of future taxable income during periods in which those temporary differences become deductible. We consider the
scheduled reversal of deferred tax liabilities, projected future taxable income and tax planning strategies in making this
assessment. In order to fully realize the total deferred tax assets, we will need to generate future taxable income prior to the
expiration of net operating loss and credit carryforwards which expire in various years through 2032.
Several years ago, due to our history of operating losses in both our domestic and certain of our foreign operations, we had
recorded a full valuation allowance against the deferred tax assets of these operations, including net operating loss carryforwards,
where we believed it was more likely than not that we would not have sufficient taxable income to utilize these assets before they
expire. During 2011, we reversed $3,110 of the valuation allowance which had been recorded against the deferred tax assets of
these operations. The reversal of this amount of the valuation allowance was based on our assessment that it is now more likely
than not that we will be able to fully utilize these assets in the near future. Some of the key factors we considered in making our
assessment included our profitability in recent years and our level of certainty with regard to our forecasts of near term future
profitability for the operations to which these assets relate.
F - 19
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(13) INCOME TAXES (Continued)
An analysis of the effective tax rate for the years ended December 31, 2012 and 2011 and a reconciliation from the expected
statutory rate of 34% is as follows:
Expected income tax provision at U.S. statutory rate ..............................
Increase (decrease) in tax from:
Current year tax credits (foreign and research) .................................
Foreign income tax rate differences ..................................................
Changes in valuation allowance ........................................................
Deemed dividend from foreign subsidiaries .....................................
Domestic tax expense, net of Federal benefit ...................................
Nondeductible expenses ....................................................................
Effects of NOL carryforwards .........................................................
Other .................................................................................................
Income tax expense (benefit) ...................................................................
Years Ended
December 31,
2012
2011
$1,038 $2,604
(349)
(523)
94
(36)
(3,110)
89
90
212
260
72
48
20
(1,803)
103
(78)
(38)
$ 897 $(2,204)
In accounting for income taxes, we follow the guidance in ASC Topic 740 (Income Taxes) regarding the recognition and
measurement of uncertain tax positions in our financial statements. Recognition involves a determination of whether it is more
likely than not that a tax position will be sustained upon examination with the presumption that the tax position will be examined
by the appropriate taxing authority having full knowledge of all relevant information. Our policy is to record interest and penalties
associated with unrecognized tax benefits as additional income taxes in the statement of operations. As of December 31, 2012 and
2011, we did not have an accrual for uncertain tax positions.
We file U.S. income tax returns and multiple state and foreign income tax returns. With few exceptions, the U.S. and state income
tax returns filed for the tax years ending on December 31, 2009 and thereafter are subject to examination by the relevant taxing
authorities.
(14) 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 legal proceedings the resolution of which we believe could have a material effect on our business, financial
position, results of operations or long-term liquidity.
(15) STOCK-BASED COMPENSATION PLAN
As of December 31, 2012 and 2011, we have outstanding stock options and unvested restricted stock awards granted under the
Amended and Restated 1997 Stock Plan (the "1997 Stock Plan") as well as under the inTEST Corporation 2007 Stock Plan (the
"2007 Stock Plan"). As of March 31, 2007, no additional stock options or shares of restricted stock could be granted under the
1997 Plan.
The 2007 Stock Plan was approved at our annual meeting of stockholders held on June 13, 2007, upon the recommendation of our
Board of Directors. The 2007 Stock Plan permits the granting of stock options or restricted stock, for up to 500,000 shares of our
common stock, to officers, other key employees and consultants. A description of the 2007 Stock Plan, including the full text of
the 2007 Stock Plan, is contained in the proxy statement for our 2007 annual meeting of stockholders. As of December 31, 2012,
190,000 shares remain available to grant under the 2007 Stock Plan.
We have not granted any stock options during 2012 or 2011. Our unvested restricted stock awards outstanding are accounted for
based on their grant date fair value. As of December 31, 2012, total compensation expense to be recognized in future periods was
$105. All of this expense is related to nonvested shares of restricted stock. The weighted average period over which this expense
is expected to be recognized is 1.2 years.
F - 20
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(15) STOCK-BASED COMPENSATION PLAN (Continued)
Stock Options
The following table summarizes the stock option activity for the two years ended December 31, 2012:
Options outstanding, January 1, 2011 (337,000 exercisable) ........................
Granted .......................................................................................................
Exercised ....................................................................................................
Canceled .....................................................................................................
Options outstanding, December 31, 2011 (249,000 exercisable) ..................
Granted .......................................................................................................
Exercised ....................................................................................................
Canceled .....................................................................................................
Options outstanding, December 31, 2012 (219,000 exercisable) ..................
Number
of Shares
337,000
-
(10,000)
(78,000)
249,000
-
-
(30,000)
219,000
Weighted
Average
Exercise Price
$3.26
-
3.04
3.20
3.28
-
-
4.11
3.17
The following table summarizes information about stock options outstanding at December 31, 2012:
Range of
Exercise Prices
$3.04 - $3.25
Number
Outstanding and
Exercisable at
Weighted
Average
Remaining Life
Weighted
Average
Exercise Price
Aggregate
Intrinsic
Value
209,000
0.30 years
$5.66
10,000
1.46 years
219,000
$3.05
$5.66
$3.17
$ -
-
$ -
The aggregate intrinsic value in the table above, if any, represents the total pretax intrinsic value, based on a closing price for our
stock of $2.76 at December 31, 2012, assuming all option holders exercised their stock options that were in-the-money as of that
date. In general, it is our policy to issue new shares upon the exercise of stock options.
Restricted Stock Awards
We record compensation expense for restricted stock awards (nonvested shares) 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. The
following table summarizes the compensation expense we recorded during 2012 and 2011, respectively, related to nonvested
shares:
Cost of revenues .............................................................
Selling expense ...............................................................
Engineering and product development expense ..............
General and administrative expense ...............................
Years Ended
December 31,
2011
2012
$ 10
$ 5
15
9
40
24
81
75
$146
$113
There was no compensation expense capitalized in 2012 or 2011. The following table summarizes the activity related to
nonvested shares for the two years ended December 31, 2012:
F - 21
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(15) STOCK-BASED COMPENSATION PLAN (Continued)
Nonvested shares outstanding, January 1, 2011 ..........................
Granted .....................................................................................
Vested .......................................................................................
Forfeited ...................................................................................
Nonvested shares outstanding, December 31, 2011 ....................
Granted .....................................................................................
Vested .......................................................................................
Forfeited ...................................................................................
Nonvested shares outstanding, December 31, 2012 ....................
Weighted
Average
Grant Date
Fair Value
$1.89
-
2.45
1.73
1.62
-
1.62
1.42
1.63
Number
of Shares
303,250
-
(97,000)
(11,250)
195,000
-
(76,250)
(10,000)
108,750
The total fair value of the shares that vested during the years ended December 31, 2012 and 2011 was $253 and $360,
respectively, as of the vesting dates of these shares.
(16) EMPLOYEE BENEFIT PLANS
We have a defined contribution 401(k) plan for our employees who work in the U.S. (the "inTEST 401(k) Plan"). All permanent
employees of inTEST Corporation and inTEST Silicon Valley Corp 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 years ended
December 31, 2012 and 2011, we recorded $182 and $183 of expense for matching contributions, respectively.
Temptronic adopted a defined contribution 401(k) plan for its domestic employees in 1988, that was merged into the inTEST
401(k) Plan effective September 1, 2002. The inTEST 401(k) Plan retains the matching provisions of the prior Temptronic plan
for all Temptronic employees. Temptronic matches employee contributions $0.50 on the dollar up to 6% of the employees' annual
compensation, with a maximum limit of $3. Matching contributions are discretionary. The eligibility and vesting provisions of the
prior Temptronic plan have been conformed to those for inTEST Corporation and inTEST Silicon Valley Corporation employees.
For each of the years ended December 31, 2012 and 2011, Temptronic contributed $81 to the plan.
In addition to the employer matching for which Temptronic employees are eligible, upon the termination of the Temptronic
Equity Participation Plan ("EPP"), we also acknowledged that it was our intention to contribute $3,000 in the aggregate to the
inTEST 401(k) Plan as a form of profit sharing (not to exceed $300 per year) for the benefit of Temptronic employees. The
amount of these contributions approximates the amount that we had been committed to contribute to the EPP as of its termination
date. All such profit sharing contributions are at the discretion of management, and will be allocated to employees annually in the
same manner in which the shares held by the EPP had been allocated. The vesting provisions for these contributions are the same
as those of the inTEST 401(k) Plan. Accruals for profit sharing contributions totaling $300 were made and expensed during each
of 2012 and 2011. Through December 31, 2012, we had made a total of $2,153 in profit sharing contributions. We have
historically funded these contributions through the use of treasury shares during the quarter subsequent to the quarter in which we
record the profit sharing liability, although management has the discretion to use cash to fund these contributions. Historically we
have used cash to fund these contributions when our stock price was below $3.00 per share.
During the third quarter of 2012, our Board of Directors approved an amendment to the inTEST 401(k) Plan. The amendment
terminated the profit sharing contributions for Temptronic employees effective December 31, 2012. In addition, the amendment
conformed the employer matching provisions for the Temptronic employees with those currently in place for inTEST Corporation
and inTEST Silicon Valley employees effective January 1, 2013.
F - 22
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(17) 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 (which we acquired in January
2012 as discussed further in Note 3), Sigma Systems Corp., 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 Systems 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. In addition, this segment provides post warranty service and support for various ATE equipment.
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 industries outside of the semiconductor industry, including the automotive, consumer
electronics, defense/aerospace, telecommunications and energy industries. Intercompany pricing between segments is either a
multiple of cost for component parts or list price for finished goods.
Years Ended
December 31,
2011
2012
Net revenues from unaffiliated customers:
Thermal Products ..................................................................... $24,307 $26,942
15,208
Mechanical Products ................................................................
Electrical Products ...................................................................
5,151
(12) (35)
Intersegment sales....................................................................
$43,376 $47,266
9,916
9,165
Intersegment sales:
Thermal Products ..................................................................... $ - $ -
Mechanical Products ................................................................
7
28
Electrical Products ...................................................................
$ 12 $ 35
12
-
Depreciation/amortization:
Thermal Products ..................................................................... $ 816 $ 319
59
Mechanical Products ................................................................
16
Electrical Products ...................................................................
$ 933 $ 394
73
44
Operating income (loss):
Thermal Products .....................................................................
Mechanical Products ................................................................
Electrical Products ...................................................................
Corporate .................................................................................
Earnings (loss) before income tax expense (benefit):
Thermal Products .....................................................................
Mechanical Products ................................................................
Electrical Products ...................................................................
Corporate .................................................................................
$ 2,939 $ 6,951
736
(1,944)
2,023
457
(566)
(22)
$ 2,996 $ 7,578
$ 2,958 $ 6,965
785
(1,934)
475
2,051
(22) (566)
$ 3,053 $ 7,659
F - 23
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(17) SEGMENT INFORMATION
Years Ended
December 31,
2011
2012
Income tax expense (benefit):
Thermal Products ..................................................................... $ 869 $ (1,823)
(170)
Mechanical Products ................................................................
Electrical Products ...................................................................
(142)
(6) (69)
Corporate .................................................................................
$ 897 $ (2,204)
(568)
602
Net earnings (loss):
Thermal Products ..................................................................... $ 2,089 $ 8,788
955
Mechanical Products ................................................................
617
Electrical Products ...................................................................
(16) (497)
Corporate .................................................................................
$ 2,156 $ 9,863
(1,366)
1,449
Capital expenditures:
Thermal Products ..................................................................... $ 216 $ 431
Mechanical Products ................................................................
264
85
Electrical Products ...................................................................
$ 431 $ 780
37
178
Identifiable assets:
Thermal Products ..................................................................... $20,849 $20,030
8,240
Mechanical Products ................................................................
2,967
Electrical Products ...................................................................
$32,399 $31,237
7,737
3,813
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.
Net revenues from unaffiliated customers:
U.S. .........................................................................................
Foreign ....................................................................................
$15,915 $19,165
28,101
27,461
Years Ended
December 31,
2012
2011
$43,376 $47,266
December 31,
2012
2011
Long-lived assets:
U.S. .........................................................................................
Foreign ....................................................................................
$ 899 $ 836
298
351
$ 1,250 $ 1,134
F - 24
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(18) QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited)
The following tables present certain unaudited consolidated quarterly financial information for each of the eight quarters ended
December 31, 2012. In our opinion, this quarterly information has been prepared on the same basis as the consolidated financial
statements and includes all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the
information for the periods presented. The results of operations for any quarter are not necessarily indicative of results for the full
year or for any future period.
Year-over-year quarterly comparisons of our results of operations may not be as meaningful as the sequential quarterly
comparisons set forth below that tend to reflect the cyclical activity of the semiconductor industry as a whole. Quarterly
fluctuations in expenses are related directly to sales activity and volume and may also reflect the timing of operating expenses
incurred throughout the year.
Net revenues ...................................................................... $10,731 $13,576
6,194
Gross margin .....................................................................
1,994
Earnings (loss) before income tax expense (benefit) .........
660
Income tax expense (benefit) .............................................
1,334
Net earnings (loss) .............................................................
4,596
(71)
(28)
(43)
3/31/12
6/30/12
Quarters Ended
9/30/12
$10,799
4,762
1,012
348
664
12/31/12
$ 8,270
3,507
118
(83)
201
Total
$43,376
19,059
3,053
897
2,156
Net earnings (loss) per common share – basic ..................
$0.21
Weighted average common shares outstanding – basic ..... 10,205,114 10,273,812 10,302,417 10,311,428 10,273,377
$0.21
Net earnings (loss) per common share – diluted ................
Weighted average common shares outstanding – diluted .. 10,205,114 10,359,657 10,360,377 10,343,793 10,347,077
$0.13
$0.00
$0.06
$0.00
$0.06
$0.02
$0.13
$0.02
Net revenues .....................................................................
Gross margin .....................................................................
Earnings before income tax expense (benefit) ..................
Income tax expense (benefit) ............................................
Net earnings ......................................................................
Quarters Ended
6/30/11
3/31/11
$11,704 $13,800
6,798
2,733
78
2,655
5,093
1,317
60
1,257
9/30/11
12/31/11
$11,681 $10,081
4,869
1,189
420
769
6,133
2,420
(2,762)
5,182
Total
$47,266
22,893
7,659
(2,204)
9,863
Net earnings per common share – basic ...........................
$0.97
Weighted average common shares outstanding – basic .... 10,067,748 10,146,613 10,182,795 10,191,927 10,147,708
Net earnings per common share – diluted .........................
$0.96
Weighted average common shares outstanding – diluted . 10,266,644 10,296,902 10,297,284 10,281,364 10,285,621
$0.26
$0.13
$0.26
$0.12
$0.08
$0.08
$0.50
$0.51
F - 25
inTEST CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
Balance at
Beginning
of Period
Expense
(Recovery)
Deductions
Balance at
End of
Period
Year Ended December 31, 2011
Allowance for doubtful accounts ..................................
150
48
(3)
195
Warranty reserve ...........................................................
274
122
(182)
214
Year Ended December 31, 2012
Allowance for doubtful accounts ..................................
195
(8)
(40)
147
Warranty reserve ...........................................................
214
124
(141)
197
F - 26
company
profile
inTEST Corporation (Nasdaq: INTT) is an independent designer, manufacturer and
marketer of temperature management products and ATE (Automatic Test Equipment)
interface solutions used by semiconductor manufacturers to perform final testing of
integrated circuits (ICs) and electronic assemblies. Our high-performance products
are designed to enable semiconductor manufacturers to improve the speed, reliability,
efficiency and profitability of IC test processes. Our products are also sold into markets
outside the ATE industry, such as the automotive, consumer electronics, defense/
aerospace, energy and telecommunications industries. Specific products include
temperature management systems, test head manipulators and docking hardware
products and customized interface solutions. We have established strong relationships
with our customers globally, which we support through a network of local offices. Our
largest customers include Avago Technologies Limited, Emerson Electric Co., Hakuto Co.,
Intel Corporation, NXP Semiconductors N.V., PDF Solutions, Inc., Raytheon Company,
Samsung Electronics Co., Ltd., Teradyne, Inc., and Texas Instruments Incorporated.
Headquartered in Mt. Laurel, New Jersey, inTEST has approximately 140 highly
skilled and trained technical personnel. We have manufacturing facilities in New
Jersey, Massachusetts and California. We also have sales, service and support offices
in Singapore, the U.K. and Germany, with additional support personnel in other key
semiconductor manufacturing areas around the world.
corporate information
Executive Officers
Alyn R. Holt
Executive Chairman
Robert E. Matthiessen
President and Chief Executive Officer
Hugh T. Regan, Jr.
Secretary, Treasurer
and Chief Financial Officer
Daniel J. Graham
Senior Vice President
and General Manager,
Mechanical Products Segment
and Electrical Products Segment
James Pelrin
Legal Counsel
Saul Ewing LLP
Centre Square West
1500 Market Street, 38th Floor
Philadelphia, PA 19102-2186
Independent Registered
Public Accounting Firm
McGladrey LLP
751 Arbor Way, Suite 200
Blue Bell, PA 19422-2700
Transfer Agent
Computershare Investor Services
P. O. Box 43070
Vice President and General Manager,
Providence, RI 02940-3070
Thermal Products Segment
800-962-4284
Board of Directors
Alyn R. Holt
Executive Chairman,
inTEST Corporation
Robert E. Matthiessen
President and CEO,
inTEST Corporation
Steven J. Abrams, Esq.
Partner, Pepper Hamilton LLP
Stuart F. Daniels, Ph.D.
Principal, The Daniels Group,
Technology Assessment, Protection
and Commercialization Consulting
William Kraut
Partner, Newport Board Group LLC
James W. Schwartz, Esq.
Of Counsel, Saul Ewing LLP
Investor Relations
Laura Guerrant-Oiye,
Principal
Guerrant Associates
lguerrant@guerrantir.com
808-882-1467
Annual Stockholders’ Meeting
Our 2013 Annual Meeting of
Stockholders will be held at
11:00 A.M. Eastern Daylight Time
on Wednesday, June 26, 2013,
at our offices:
804 East Gate Drive, Suite 200
Mt. Laurel, New Jersey 08054
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Availability of Annual Report on Form
10-K A copy of our Annual Report
on Form 10-K for the year ended
December 31, 2012 (excluding
exhibits) as filed with the Securities and
Exchange Commission is available to
any stockholder without charge, upon
written request to Hugh T. Regan,
Jr., Secretary, inTEST Corporation,
804 East Gate Drive, Suite 200, Mt.
Laurel, NJ 08054, or by calling (856)
505-8800. Copies of the exhibits
filed therewith will be provided upon
written request to the Secretary of
the Corporation and payment of a
reasonable fee (which will not exceed
our expense incurred in connection with
providing such copies). In addition,
our Annual Report on Form 10-K and
all exhibits are available at no charge
by accessing the Investor Relations
page of our website, at http://investor.
shareholder.com/intest/index.cfm, or
the SEC’s website, at www.sec.gov.
249172_SSD_Cov.indd 4-6
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2012 I Annu Al RepoRt
inTEST Corporation
Corporate Headquarters
804 East Gate Drive, Suite 200
Mt. Laurel, NJ 08054 USA
Tel (856) 505-8800
Fax (856) 505-8801
www.intest.com
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