2014 I ANNUAL REPORTFORGING A NEWPATH80870 Cover_v5Intest_2014AR.indd 35/8/15 2:23 PM COMPANY PROFILE inTEST Corporation (NYSE MKT: 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 market, such as the automotive, consumer electronics, defense/aerospace, energy, industrial and telecommunications markets. 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 Advanced Semiconductor Engineering, Inc., Analog Devices, Inc., Avago Technologies Limited, Emerson Electric Co., Hakuto Co., Linear Technology Corp., NXP Semiconductors N.V., PDF Solutions, Inc., Teradyne, Inc., and Texas Instruments Incorporated.Headquartered in Mt. Laurel, New Jersey, inTEST has approximately 130 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 and Germany, with additional support personnel in other key semiconductor manufacturing areas around the world.« To celebrate the move to the NYSE MKT, the senior management and directors of inTEST rang the closing bell on the New York Stock Exchange on May 2, 2014.80870 Cover_v5Intest_2014AR.indd 15/8/15 2:23 PM Vision
The Power of Precision Engineering™
High-performance testing success depends
on fast test set-ups, secure alignment,
accurate high fidelity test signals, and correct
test temperature. It requires inTEST, a single
source for perfectly integrated thermal test
systems, manipulators, docking hardware
and tester interfaces 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 new 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.
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
semiconductor downturns
• Test solutions drive higher profits
• Lean operating structure
• Operational efficiencies drive higher gross margin
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 and Thermonics
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.
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
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inTEST I 2014 Annual Report I Page 1
fellow
stockholders
inTEST Corporation: New Directions in Testing
The Semiconductor Automated Test Equipment (ATE)
industry has experienced significant transformations
since its inception. Advancing device designs, new
transistor architecture, new applications (including
“Internet of Things” devices), and 3D integrated circuits
(ICs) among other developments in semiconductor
design and manufacturing continue to present new
challenges and demands on semiconductor test. Over
the last three decades, inTEST Corporation has evolved
in step, forging a new path and ensuring the foundation
for the continued success of the Company. By leveraging
the strength of our semiconductor business, we have
steadily diversified inTEST. 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.
We reported solid financial results for 2014, with
business driven by strong demand and quote activity
in the semiconductor, defense/aerospace and telecom-
munications industries; and we continue to see solid
growth. We have steadily developed and improved our
products and services, while continuing to broaden our
end-market penetration. Our operating results reinforce
the soundness of our business model, which is centered
on our core market in semiconductor ATE, complemented
by an expanded product offering for non-traditional
electronics markets that require thermal testing. 2014
bookings and revenues increased 11% and 6%, respec-
tively, compared with 2013, fueled by the momentum
and strength of our business as well as the adoption
of our new products from a wide range of customers.
29% of 2014 bookings and 27% of net revenues were
from non-semiconductor test, compared with 27%
for bookings and 28% of net revenues for 2013. 2014
gross margin increased to 49% from 48% year-over-
year. 2014 net earnings were $3.4 million, or $0.33 per
diluted share, compared with $3.1 million, or $0.30 per
diluted share in 2013. We have structured inTEST such
that even during periods of cyclically declining revenues,
we can remain profitable, and 2014 marked our fifth
consecutive year of profitability. This is a metric we are
very proud of, and very few large cap companies in the
ATE industry can make this claim, let alone our micro-cap
peers. Five years of profitability is not only gratifying,
it’s a testament to the diligence and hard work of our
entire organization. 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
2014 with cash and cash equivalents of $23.1 million,
an increase of $4.1 million compared with 2013. More-
over, we currently expect cash flow to remain strong
throughout 2015.
Steady growth in the electronics industry is boosting
semiconductor manufacturing, while innovations in
semiconductor devices and the growing complexity
of silicon chips is driving demand in the ATE industry.
Strong fab equipment spending is expected in 2015.
In March, SEMI announced an update of the SEMI
World Fab Forecast report for 2015 and 2016. The report
tracks fab spending for construction and equipment, as
well as capacity changes, and technology nodes transi-
tions and product type changes by fab. SEMI noted that
fab equipment spending in 2014 increased almost 20%
and will rise 15% in 2015, increasing another 2-4% in
2016. And, according to Research & Markets, the total
value of the automated test equipment market is
expected to grow at a CAGR of 2.80% from 2014
to 2020, and reach $4.13 billion by 2020.
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We reported solid financial results for
2014, with business driven by strong
demand and quote activity in the
semiconductor, defense/aerospace
and telecommunications industries;
and we continue to see solid growth.
Robert E. Matthiessen I President & CEO
Thermal Products: Broadening End Market Penetration
We are creating new opportunities in industrial testing,
and have continued to transform inTEST, predominantly
through the strategic diversification of our Thermal
Products Segment – our largest, most profitable and
diversified division. Our Thermal Products Segment
specializes in delivering highly engineered, application-
specific solutions that often require extreme temperature
environments. Highly customizable, these thermal
test systems can be readily adapted not only to our
traditional semiconductor market, but to electronics
test applications in various growth markets including
automotive, consumer electronics, defense/aerospace,
energy, industrial and telecommunications. Having
in-house engineering capabilities that can adapt
products is an important competency to service
demand as digital technology continues to increase
density into smaller spaces, which often requires
an alternative approach to testing and required
equipment. Our technology-driven innovation has
provided inTEST with significant growth opportunities
both now and in the future.
During 2014 our Thermal Products segment achieved
two significant milestones with the successful customer
acceptance and shipment of the first two chillers for the
nuclear power industry and completion of the first phase
of development for a cryogenic liquid chamber for a
major defense company. A major US defense contractor,
working in the nuclear field, continued to order significant
numbers of our custom chamber and thermal platform
combinations for manufacturing test. And we had strong
sales into both the Asian telecommunications and fiber
optics markets, including 10 systems sold to a single
customer in Taiwan, representing our largest telecom
order from Taiwan to date.
Mechanical Products Segment
Our mechanical products consist of test head manipu-
lators 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’s docking
hardware accelerates 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 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.
During 2014 our Mechanical Products segment sold
and delivered multiple Cobal™ 500 manipulators to
various Asian customers. The Cobal 500 has also been
approved by a major domestic IDM for use with the
Teradyne J750EX and the J750HD testers. We exhibited
our newest interface and docking products at SEMICON
West, which were very well received, and we sponsored
the TestVision 2020 Workshop at that trade show. On
the docking hardware front, the inTEST 4-cam version of
“Ultra Probe” PIB direct docking hardware was proven and
accepted by a major IDM, with multiple sets purchased.
Electrical Products Segment
We continue to develop our high performance interfaces
for today’s most demanding test requirements. 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 customized electronic bridge between
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We enter 2015 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 operations since 1998 − a very successful
track record of acquisitions that have bolstered our
growth opportunities. By leveraging Temptronic,
Sigma Systems and Thermonics synergies, our
Thermal Products Segment is making significant
progress in widening the breadth of inTEST’s end
market penetration.
We enter 2015 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.
Dr. Stuart F. Daniels, Ph.D., passed away in November
2014, after serving almost 20 years as a director of
the Company. Stu was a co-founder of inTEST and the
Company would not be where it is today without his
strong guidance.
We extend our sincere appreciation and thanks to our
customers, employees, stockholders, and suppliers for
their continued trust, confidence and support during
the past year. We remain committed to maintaining the
highest ethical standards in our relationships with all
of our constituencies, and to exceeding our customers’
expectations while protecting stockholder value.
Sincerely,
Robert E. Matthiessen I President & CEO
May 1, 2015
the tester and the specific type of IC being tested.
Our tester interface products are purchased primarily
for manufacturing capacity expansion.
During 2014 our Electrical Products segment developed
inFLEX™, a new wafer probe interface for the Teradyne
Flex family of testers, which has been evaluated and
approved by five companies. The first unit sold was
delivered at the end of the first quarter, with additional
units shipped in the second quarter. We also received
our first order for a new high-pin-count mixed signal
probe interface from a large domestic IDM. This new
interface is built to be mechanically stable over a
temperature range of −50° centigrade to +150°
centigrade which allows extended test times at
extreme temperatures. We shipped the first units
in the fourth quarter.
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 growth markets. We are actively
investing in growth, with a goal of growing the business
through strategic M&A of companies that complement
our current products and expertise. We have transformed
inTEST largely through acquisitions, most notably in our
Thermal Products Segment, which has provided a path
for revenue growth. We have added five companies to
Page 4 I inTEST I 2014 Annual Report
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FORM
10K
80870 Intest_2014AR_10K CV.indd 1
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[This Page Intentionally Left Blank]
UNITED STATES SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
FORM 10-K
ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the fiscal year ended
OR
TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
December 31, 2014
Commission File Number 1-36117
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
NYSE MKT
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, 2014 (the last business day of the registrant's most recently completed second
fiscal quarter), was: $31,037,908.
The number of shares outstanding of the registrant's Common Stock, as of March 20, 2015, was 10,562,678.
DOCUMENTS INCORPORATED BY REFERENCE
Portions of the definitive proxy statement of the Registrant for the Registrant's 2015 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, 2014
INDEX
PART I
Item 1. Business ................................................................................................................................................................... 3
Item 1A. Risk Factors ............................................................................................................................................................. 13
Item 1B. Unresolved Staff Comments .................................................................................................................................... 19
Item 2. Properties ................................................................................................................................................................. 19
Item 3. Legal Proceedings .................................................................................................................................................... 19
Item 4. Mine Safety Disclosures .......................................................................................................................................... 19
Page
PART II
Item 5. Market for Registrant's Common Equity, Related Stockholder Matters and Issuer Purchases of Equity
Securities ..................................................................................................................................................................
19
Item 6. Selected Financial Data ............................................................................................................................................ 20
Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations ................................... 21
Item 7A. Quantitative and Qualitative Disclosures About Market Risk ................................................................................. 27
Item 8. Financial Statements and Supplementary Data ........................................................................................................ 27
Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure ................................... 28
Item 9A. Controls and Procedures .......................................................................................................................................... 28
Item 9B. Other Information .................................................................................................................................................... 29
PART III
Item 10. Directors, Executive Officers and Corporate Governance ....................................................................................... 29
Item 11. Executive Compensation .......................................................................................................................................... 29
Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters ................. 29
Item 13. Certain Relationships and Related Transactions, and Director Independence ......................................................... 30
Item 14. Principal Accounting Fees and Services .................................................................................................................. 30
PART IV
Item 15. Exhibits, Financial Statement Schedules ................................................................................................................. 30
Signatures ................................................................................................................................................................. 31
Index to Exhibits ...................................................................................................................................................... 32
Index to Consolidated Financial Statements and Financial Statement Schedule ..................................................... 34
- 2 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
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 success of our strategy to diversify our business by entering markets outside the IC and ATE markets, including
the automotive, consumer electronics, defense/aerospace, energy, industrial and telecommunications markets;
the possibility of future acquisitions or dispositions;
indications of a change in the market cycles in the integrated circuit, or IC, and automatic test equipment, or ATE,
markets or other markets we serve;
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;
• developments and trends in the IC and ATE markets;
•
•
•
• general economic conditions both domestically and globally;
• net revenues generated by foreign subsidiaries;
•
•
•
•
•
•
• other projections of net revenues, taxable earnings (loss), net earnings (loss), net earnings (loss) per share, capital
effects of exchange rate fluctuations;
competitive pricing pressures;
the sufficiency of cash balances, lines of credit and net cash from operations;
stock price fluctuations;
the anticipated market for our products;
costs associated with the implementation of new SEC regulations; and
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 thermal, mechanical 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 markets outside the ATE market, such as the automotive, consumer electronics, defense/aerospace, energy,
industrial and telecommunications markets. Our high performance products are designed to enable our customers to improve the
efficiency of their test processes and, consequently, their profitability.
- 3 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 1. BUSINESS (Continued)
We sell our products worldwide. Within the ATE market, we sell our products both directly to major semiconductor
manufacturers and semiconductor test subcontractors and indirectly through leading ATE manufacturers. In markets outside the
ATE market, we sell our products directly to the end user of the product. Our largest customers include Advanced Semiconductor
Engineering, Inc., Analog Devices, Inc., Avago Technologies Limited, Emerson Electric Co., Hakuto Co. Ltd., Linear
Technology Corp., NXP Semiconductors N.V., PDF Solutions, Inc., Teradyne, Inc. and Texas Instruments Incorporated.
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.
MARKETS
Overview
Our business has historically focused exclusively on the ATE market, which provides automated test equipment to the
semiconductor market; however, since 2009, we have begun to diversify our served markets to address the thermal test
requirements of several other markets outside the ATE market. These include the automotive, consumer electronics,
defense/aerospace, energy, industrial and telecommunications markets. In the last five years, our net revenues from sales in
markets outside the ATE market have ranged from 17% to 30%. As we are a relatively new market entrant in these markets
outside the ATE market, our sales into these markets have varied significantly from period to period and we expect they will
continue to do so in future periods. One of our goals is to further expand our sales in these markets outside the ATE market.
During both 2014 and 2013, our net revenues in markets outside the ATE market were $11.1 million and represented 27% and
28%, respectively, of our total net revenues.
The level of our net revenues in the various markets we serve outside the ATE market varies significantly from market to market.
During 2014 and 2013, our net revenues into the telecommunications market represented 11% and 10%, respectively, of our total
net revenues, while our net revenues into the defense/aerospace market represented 8% and 7%, respectively, of our total net
revenues and our net revenues into the industrial market represented 4% and 9%, respectively, of our total net revenues. The level
of our net revenues in these non-ATE markets has varied significantly in the past and we expect will vary significantly in the
future as we build our presence in these markets and establish new markets for our products. Because we are a recent market
entrant in these markets, we have not yet developed meaningful market shares in these non-ATE markets. Consequently, we are
continuing to evaluate buying patterns and opportunities for growth in these markets that may affect our performance. The
following discussion of our markets, therefore, is limited to only the ATE and semiconductor markets, which currently represent
the majority of our net revenues.
Semiconductor and ATE Markets
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.
- 4 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 1. BUSINESS (Continued)
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.
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 market 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.
- 5 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 1. BUSINESS (Continued)
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 and other markets that we serve, which we believe
provide the following advantages:
Temperature-Controlled Testing. Our Thermostream (R) products are used by manufacturers in a number of markets 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 markets 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, 2014, we had domestic manufacturing facilities in New Jersey, Massachusetts and California and
provided service to our customers from sales and service personnel based in the U.S., Europe and Asia. 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.
- 6 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 1. BUSINESS (Continued)
OUR STRATEGIES
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 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 in 2008, and Thermonics 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.
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, industrial and telecommunications markets. 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. During both 2014 and 2013, approximately
$11.1 million, or 27% and 28%, respectively, of our total 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.
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., 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, which manufactures products under the Temptronic, Sigma and Thermonics brand names), 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 Fremont, 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, consumer electronics, defense/aerospace, energy, industrial and
telecommunications markets. We custom design most of our products for each customer's particular combination of ATE.
- 7 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 1. BUSINESS (Continued)
Thermal Products
Our thermal products are sold into the environmental test market encompassing a wide variety of markets including the ATE,
automotive, consumer electronics, defense/aerospace, energy, industrial and telecommunications markets. 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 market 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 markets testing such things as electronic
sub-assemblies, sensor assemblies, and printed circuit boards.
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. Sigma has significantly broadened our product line by providing the ability to thermally test devices and assemblies
requiring a far larger scale, both physically and thermally, than previously achievable. ThermoStream(R) and MobileTemp
products range in price from approximately $15,000 to $50,000.
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 616 square inches. They
provide a flat, thermally conductive, precisely temperature controllable surface that is ideal for conditioning of 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
market, 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
+300 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 $120,000.
Thermonics(R) Products: Our Thermonics temperature conditioning products provide tempered gas or fluid to enable customers
to maintain desired thermal conditions within their tool or process. Applications include general industrial, chemical processing,
energy, electronics and semiconductor industries. Prices range from $20,000 to greater than $100,000.
- 8 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 1. BUSINESS (Continued)
Mechanical Products
Manipulator Products. We offer three lines of manipulator products: the in2(R), 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 1,600 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 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, 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.
- 9 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 1. BUSINESS (Continued)
Financial Information About Product Segments and Geographic Areas
Please see Note 14 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 brands, Temptronic, Sigma and Thermonics, under the umbrella name of
inTEST Thermal Solutions and sales to ATE manufacturers are handled directly by our own sales force. Sales to semiconductor
manufacturers and customers in other markets 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 markets. 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.
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, industrial 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 13% of our consolidated net revenues in both 2014 and 2013. While all three of our
operating segments sold to this customer, these revenues were primarily generated by our Mechanical Products and Electrical
Products segments. Hakuto Co. Ltd. accounted for 11% of our consolidated net revenues in 2014. These revenues were generated
by our Thermal Products segment. Our ten largest customers accounted for approximately 48% and 47% of our consolidated net
revenues in 2014 and 2013, 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.
- 10 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 1. BUSINESS (Continued)
Our largest customers in 2014 include:
Semiconductor Manufacturers
Advanced Semiconductor Engineering, Inc.
ATE Manufacturers
Teradyne, Inc.
Analog Devices, Inc.
Linear Technology Corporation
NXP Semiconductors
PDF Solutions, Inc.
Texas Instruments Incorporated
MANUFACTURING AND SUPPLY
Other
Avago Technologies
Emerson Electric Co.
Hakuto Co. Ltd.
As of December 31, 2014, our principal manufacturing operations consisted of assembly and testing at our facilities in
Massachusetts, New Jersey and California. 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. In 2009, we made the decision to discontinue ISO certification in our New Jersey and California
operations because our customers at that time operated solely in the semiconductor market where ISO certification has little
impact. We continue to employ all the practices embodied in the ISO 9001:2000 standard. We believe that the loss of ISO 9001
certification for our New Jersey and California facilities has not negatively impacted our working relationships with our
customers or prevented us from obtaining orders from our customers. Our Massachusetts facility completed ISO 9001:2000
certification in November 2004 and upgraded to ISO 9001:2008 in November 2009 and has maintained certification with the
ISO 9001:2008 standard since that time.
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, 2014, we employed a total of
27 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 $3.6 million in 2014 and $3.7 million in 2013 on engineering and product
development, respectively.
- 11 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 1. BUSINESS (Continued)
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, 2014, we held 47 active U.S. patents and had 11 pending U.S. patent applications covering various aspects of
our technology. Our U.S. patents expire at various times beginning in 2015 and extending through 2033. During 2014, three U.S.
patents were issued and we had three U.S. patents expire. We do not believe that the expiration of these patents or the upcoming
expiration of certain of our patents in 2015 will have a material impact on our business. 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.
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 market, 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 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, Cascade Microtech, Inc. 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, Inc. (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, Teradyne, Inc., and Advantest
Corporation.
- 12 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 1. BUSINESS (Continued)
BACKLOG
At December 31, 2014, our backlog of unfilled orders for all products was approximately $3.8 million compared with
approximately $3.1 million at December 31, 2013. Our backlog includes customer orders which we have accepted, substantially
all of which we expect to deliver in 2015. 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, 2014, we had 125 full time employees, including 57 in manufacturing operations, 48 in customer
support/operations and 20 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.
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.
Our sales are affected by the cyclicality and seasonality of the semiconductor and ATE markets, 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
downturn. 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. In
addition to being cyclical, the ATE market has also developed a seasonal pattern in the last several years, with the second and
third quarters being the periods of strong demand and the first and fourth quarters being periods of weakened demand. We believe
this change has been driven by the strong demand for consumer products containing semiconductor content sold during the year-
end holiday shopping season. These market changes and seasonal sales pattern have contributed in the past, and will likely
continue to contribute in the future, to fluctuations in our operating results.
- 13 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 1A. RISK FACTORS (Continued)
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 has and could continue to materially adversely affect our business, financial condition and results of
operations.
We seek to further diversify the markets for our thermal products in order to increase the proportion of our sales
attributable to markets which are less subject to cyclicality than the semiconductor and ATE markets. If we are unable to
do so, our future performance will remain substantially exposed to the fluctuations of the cyclicality of the semiconductor
and ATE markets.
Since 2009, we have sold our thermal products in markets outside of the ATE market, including the automotive, consumer
electronics, defense/aerospace, energy, industrial and telecommunications markets. Our sales to these non-ATE markets were
$11.1 million in both 2014 and 2013 and represented 27% and 28%, respectively, of our consolidated net revenues. Our goal is to
increase our sales into these and other non-ATE markets; however, in most cases, the expansion of our thermal product sales into
these new markets has occurred in the last several years, 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-ATE markets, our net revenues and results
of operations will remain substantially dependent upon the cycles of the semiconductor and ATE markets.
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 are complementary to our current
product offerings. We seek to make acquisitions that will further expand our product lines as well as increase our exposure to
markets outside the ATE market. We may not be able to execute our acquisition strategy if:
• we are unable to identify suitable businesses, technologies or products to acquire;
• we do not have sufficient 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
profitably;
• 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
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, 2014
Item 1A. RISK FACTORS (Continued)
Our operating results often change significantly from quarter to quarter and may cause fluctuations in our stock price.
Historically, 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;
•
fluctuations in the level of product warranty charges;
•
competitive pricing pressures;
•
the impairment of our assets due to reduced future demand for our products;
•
costs and timing of integration of our acquisitions and plant consolidations and relocations;
•
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;
• 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 and seasonality of the semiconductor and ATE markets, 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 market, and our operating margins in these product
segments have been affected by shifts in the competitive landscape, including (i) customers placing heightened emphasis on
shorter lead times (which places increased demands on our available engineering and production capacity increasing unit costs)
and ordering in smaller quantities (which prevents us from acquiring component materials in larger volumes at lower cost and
increasing unit costs), (ii) the 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 chain management groups demanding lower prices and spreading purchases across multiple
vendors.
- 15 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 1A. RISK FACTORS (Continued)
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 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.
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 13% of our consolidated net revenues in both 2014 and 2013, respectively. While
all three of our operating segments sold to this customer, these revenues were primarily generated by our Mechanical Products
and Electrical Products segments. Hakuto Co. Ltd. accounted for 11% of our consolidated net revenues in 2014. These revenues
were generated by our Thermal Products segment. Our ten largest customers accounted for approximately 48% and 47% of our
net revenues in 2014 and 2013, 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 have experienced and may continue to 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 U.S. 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 U.S. 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.
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 and ATE markets.
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
market, 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.
A breach of our operational or security systems could negatively affect our business and results of operations.
We rely on various information technology networks and systems, some of which are managed by third parties, to process,
transmit and store electronic information, including confidential data, and to carry out and support a variety of business activities,
including manufacturing, research and development, supply chain management, sales and accounting. A failure in or a breach of
our operational or security systems or infrastructure, or those of our suppliers and other service providers, including as a result of
cyber attacks, could disrupt our business, result in the disclosure or misuse of proprietary or confidential information, damage our
reputation, cause losses and increase our costs.
- 16 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 1A. RISK FACTORS (Continued)
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.
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 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.
Our business may suffer if we are unable to attract and retain key employees.
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 or the development of successors with
commensurate skills and talents. In the past, during periods of weakened demand which has caused us to experience operating
losses, we have implemented temporary salary and benefit reductions and eliminations that have remained in place until our
operations returned to profitability. As global economic conditions improve and employment opportunities increase, if we are
unable to increase employee salaries and maintain employee benefits commensurate with competitive opportunities, we may not
be able to retain our senior management and other key employees. Our business could suffer if we were to lose 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 2015 and 2033,
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
- 17 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 1A. RISK FACTORS (Continued)
• 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.
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 15% and 16% of consolidated
net revenues in 2014 and 2013, respectively. Net revenues from foreign customers totaled $27.4 million, or 66% of consolidated
net revenues in 2014 and $26.1 million, or 66% of consolidated net revenues in 2013. 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 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. As of
December 31, 2014, $3.1 million of our cash and cash equivalents was held by our foreign subsidiaries. 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.
- 18 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 1B. UNRESOLVED STAFF COMMENTS
None.
Item 2. PROPERTIES
At December 31, 2014, we leased 5 facilities worldwide. The following chart provides information regarding each of our
principal facilities that we occupied at December 31, 2014:
Location
Mt. Laurel, NJ
Mansfield, MA
Fremont, CA
Lease
Expiration
4/21
8/21
9/17
Approx.
Square
Footage
54,897
52,700
15,746
Principal Uses
Corporate headquarters and Mechanical
Products segment operations.
Thermal Products segment operations.
Electrical Products segment operations.
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
Since October 15, 2013, our common stock has been traded on NYSE MKT under the symbol "INTT." Prior to that, our common
stock was traded on the NASDAQ under the symbol "INTT". The following table sets forth the high and low sale prices of our
common stock, as reported on the NYSE MKT LLC or the NASDAQ Capital Market, as the case may be, for the periods
indicated. Sale prices have been rounded to the nearest full cent.
2014
Sales Price
High Low
Second Quarter .....................................................
First Quarter .......................................................... $4.44 $3.69
4.25 3.66
5.75 3.87
4.80 3.98
Fourth Quarter ......................................................
Third Quarter ........................................................
- 19 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 5. MARKET FOR REGISTRANT'S COMMON EQUITY, RELATED STOCKHOLDER MATTERS AND ISSUER
PURCHASES OF EQUITY SECURITIES (Continued)
Sales Price
High Low
2013
First Quarter .......................................................... $3.55 $2.63
3.87 2.81
Second Quarter .....................................................
4.25 3.75
4.13 3.66
Third Quarter ........................................................
Fourth Quarter ......................................................
On March 20, 2015, the closing price for our common stock as reported on the NYSE MKT LLC was $4.15. As of March 20,
2015, we had 10,562,678 shares outstanding that were held of record by approximately 1,000 beneficial and record holders.
No dividends were paid on our common stock in the years ended December 31, 2014 or 2013. We do not currently plan to pay
cash dividends in the foreseeable future. Our current policy is to retain any future earnings for reinvestment in the operation and
expansion of our business, including possible acquisitions of other businesses, technologies or products. Payment of any future
dividends will be at the discretion of our Board of Directors.
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.
2014
Years Ended December 31,
2011
2012
2013
(in thousands, except per share data)
2010
Condensed Consolidated Statement of Operations Data:
Net revenues ..................................................................................... $41,796 $39,426 $43,376 $47,266 $46,204
20,462 19,015 19,059 22,893 22,145
Gross margin ....................................................................................
7,350
2,996
4,916
Operating income ............................................................................
7,252
2,156
3,439
Net earnings .....................................................................................
Net earnings per common share:
Basic ............................................................................................
Diluted .........................................................................................
Weighted average common shares outstanding :
Basic ............................................................................................
Diluted .........................................................................................
10,432 10,364 10,273 10,148 10,019
10,466 10,419 10,347 10,286 10,142
3,962
3,077
7,578
9,863
$0.72
$0.72
$0.30
$0.30
$0.33
$0.33
$0.97
$0.96
$0.21
$0.21
Condensed Consolidated Balance Sheet Data:
Cash and cash equivalents ................................................................ $23,126 $19,018 $15,576 $13,957 $ 6,895
28,561 24,749 21,000 19,759 11,793
Working capital ................................................................................
38,738 35,481 32,399 31,237 21,408
Total assets .......................................................................................
-
Long-term debt, net of current portion .............................................
34,368 31,149 27,820 26,199 16,104
Total stockholders' equity .................................................................
-
-
-
-
2014
2013
2010
As of December 31,
2012
(in thousands)
2011
- 20 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
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.
Our business and results of operations are substantially dependent upon the demand for ATE by semiconductor manufacturers and
companies that specialize in the testing of ICs. Demand for ATE is driven by semiconductor manufacturers that are opening new,
or expanding existing, semiconductor fabrication facilities or upgrading existing equipment, which in turn is dependent upon the
current and anticipated market demand for semiconductors and products incorporating semiconductors. Such market demand can
be the result of market expansion, development of new technologies or redesigned products to incorporate new features. In
addition, we continue to focus on design improvements and new approaches for our own products which contribute to our net
revenues as our customers adopt these new products.
In the past, the semiconductor industry has been highly cyclical with recurring periods of oversupply, which often have a severe
impact on the semiconductor industry's demand for ATE, including the products we manufacture. This can cause wide
fluctuations in both our orders and net revenues and, depending on our ability to react quickly to these shifts in demand, can
significantly impact our results of operations. ATE market cycles are difficult to predict and in recent years have become more
volatile and, in certain cases, shorter in duration. Because the market cycles are generally characterized by sequential periods of
growth or declines in orders and net revenues during each cycle, year over year comparisons of operating results may not always
be as meaningful as comparisons of periods at similar points in either up or down cycles. In addition, during both downward and
upward cycles in our industry, in any given quarter, the trend in both our orders and net revenues can be erratic. This can occur,
for example, when orders are canceled or currently scheduled delivery dates are accelerated or postponed by a significant
customer or when customer forecasts and general business conditions fluctuate during a quarter. In addition to being cyclical, the
ATE market has also developed a seasonal pattern in the last several years, with the second and third quarters being the periods of
strong demand and the first and fourth quarters being periods of weakened demand. We believe this change has been driven by
the strong demand for consumer products containing semiconductor content sold during the year-end holiday shopping season.
As part of our diversification strategy to reduce the impact of ATE market volatility on our business operations, we market our
Thermostream temperature management systems in markets outside the ATE market, such as the automotive, consumer
electronics, defense/aerospace, energy, industrial and telecommunications markets. We believe that these markets usually are less
cyclical than the ATE market. However, because we are a recent market entrant in these markets, we have not yet developed
meaningful market shares in these non-ATE markets. Consequently, we are continuing to evaluate customer buying patterns and
market trends in these non-ATE markets. In addition, our orders and net revenues in any given period in these markets do not
necessarily reflect the overall trends in these non-ATE markets due to our limited market shares. The level of our orders and net
revenues from these non-ATE markets has varied in the past, and we expect will vary significantly in the future, as we work to
build our presence in these markets and establish new markets for our products.
- 21 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 market, and our operating margins in these product segments have been affected by
shifts in the competitive landscape, including (i) customers placing heightened emphasis on shorter lead times (which places
increased demands on our available engineering and production capacity increasing unit costs) and ordering in smaller quantities
(which prevents us from acquiring component materials in larger volumes at lower cost and increasing unit costs), (ii) the practice
of 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 chain 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).
In addition, in recent periods we have seen instances where demand for ATE is not consistent for each of our product segments or
for any given product within a particular product segment. This inconsistency in demand for ATE can be driven by a number of
factors, but in most cases we have found the primary reason is unique customer-specific changes in demand for certain products
driven by the needs of their customers or markets served. These shifts in market practices and customer-specific needs have had,
and may continue to have, varying levels of impact on our operating results and are difficult to quantify or predict from period to
period. Management has taken, and will continue to take, such actions it deems appropriate to adjust our strategies, products and
operations to counter such shifts in market practices as they become evident.
Orders and Backlog
The following table sets forth, for the periods indicated, a breakdown of the orders received both by product segment and market.
Years Ended
December 31,
2013
2014
Orders:
Thermal Products ................................................... $23,866 $21,953
11,363 10,115
Mechanical Products ..............................................
7,212 6,291
Electrical Products .................................................
$42,441 $38,359
Change
$
%
9%
$1,913
1,248 12
921 15
$4,082 11%
ATE market ........................................................... $30,214 $27,875
12,227 10,484
Non-ATE market ...................................................
$42,441 $38,359
8%
$2,339
1,743 17
$4,082 11%
Total consolidated orders for the year ended December 31, 2014 were $42.4 million compared to $38.4 million for 2013. The
increase in consolidated orders reflects higher levels of demand from the ATE market, as well as the success of new product
introductions in our Mechanical and Electrical Products segment and continued penetration into non-ATE markets by our
Thermal Products segment.
Orders from customers in various markets outside of the ATE market for the year ended December 31, 2014, grew by 17% during
2014 as compared to 2013 and increased from 27% of our consolidated orders in 2013 to 29% in 2014. We believe the increases
in both our orders from customers in various markets outside the ATE market and those orders as a percentage of our
consolidated orders reflect improved demand from the customers we serve in several of the markets outside the ATE market,
including the defense/aerospace and telecommunications markets. The level of our orders in these non-ATE markets has varied in
the past, and we expect it will vary significantly in the future as we build our presence in these markets and establish new markets
for our products.
- 22 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
At December 31, 2014, our backlog of unfilled orders for all products was approximately $3.8 million compared with
approximately $3.1 million at December 31, 2013. Our backlog includes customer orders which we have accepted, substantially
all of which we expect to deliver in 2015. While backlog is calculated on the basis of firm purchase orders, a customer may cancel
an order or accelerate or postpone currently scheduled delivery dates. Our backlog may be affected by the tendency of customers
to rely on short lead times available from suppliers, including us, in periods of depressed demand. In periods of increased
demand, there is a tendency towards longer lead times that has the effect of increasing backlog. As a result, our backlog at a
particular date is not necessarily indicative of sales for any future period.
Net Revenues
The following table sets forth, for the periods indicated, a breakdown of the net revenues both by product segment and market.
Years Ended
December 31,
2013
2014
Net revenues:
Thermal Products ................................................ $23,446 $22,962
11,245
9,962
Mechanical Products ...........................................
7,105
6,502
Electrical Products ..............................................
$41,796 $39,426
ATE market ........................................................ $30,737 $28,346
11,059
11,080
Non-ATE market ................................................
$41,796 $39,426
Change
%
$
$ 484
1,283
603
$2,370
$2,391
(21)
$2,370
2%
13
9
6%
8%
-
6%
Total consolidated net revenues for the year ended December 31, 2014 were $41.8 million compared to $39.4 million for 2013.
The increase in consolidated net revenues primarily reflects the aforementioned higher levels of demand from the ATE market, as
well as the success of new product introductions in our Mechanical and Electrical Products segment. In addition, the higher
percentage increase for our Mechanical Products segment also reflects that one particular customer of this segment was building a
new facility in Southeast Asia during 2014 and, as a result, had a higher level of demand for certain of our products during 2014.
Net revenues from customers in markets outside the ATE market were relatively unchanged at $11.1 million in both 2014 and
2013. As a percentage of our total consolidated net revenues, they represented 27% and 28% in 2014 and 2013, respectively.
Product/Customer Mix
Our three product segments each have multiple products that we design, manufacture and market to our customers. Due to a
number of factors, our products have varying levels of gross margin. The mix of products we sell in any period is ultimately
determined by our customers' needs. Therefore, the mix of products sold in any given period can change significantly from the
prior period. As a result, our consolidated gross margin can be significantly impacted in any given period by a change in the mix
of products sold in that period.
We sell most of our products to semiconductor manufacturers and third-party test and assembly houses (end user sales) and to
ATE manufacturers (OEM sales) who ultimately resell our equipment with theirs to semiconductor manufacturers. Our Thermal
Products segment also sells into a variety of other markets including the automotive, consumer electronics, defense/aerospace,
energy, industrial and telecommunications markets. The mix of customers during any given period will affect our gross margin
due to differing sales discounts and commissions. For the years ended December 31, 2014 and 2013, our OEM sales as a
percentage of net revenues were 9% and 12%, respectively.
- 23 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
OEM sales generally have a lower gross margin than end user sales, as OEM sales historically have had a more significant
discount. Our current net operating margins on most OEM sales, however, are only slightly less than margins on end user sales
because of the payment of third party sales commissions on most end user sales. We have also continued to experience demands
from our OEM customers' supply chain managers to reduce our sales prices to them. If we cannot further reduce our
manufacturing and operating costs, these pricing pressures will negatively affect our gross and operating margins.
Results of Operations
The results of operations for our three product segments are generally affected by the same factors. Separate discussions and
analyses for each product segment would be repetitive 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.
Year Ended December 31, 2014 Compared to Year Ended December 31, 2013
Net Revenues. Net revenues were $41.8 million for the year ended December 31, 2014 compared to $39.4 million for the same
period in 2013, an increase of $2.4 million or 6%. For the year ended December 31, 2014, the net revenues of our Thermal,
Mechanical and Electrical Products segments increased $484,000 or 2%, $1.3 million or 13% and $603,000 or 9%, respectively.
We believe the increase in our net revenues during 2014 primarily reflects the factors previously discussed in the Overview.
Gross Margin. Gross margin was 49% for the year ended December 31, 2014 compared to 48% for the same period in 2013. The
improvement in the gross margin was primarily the result of our fixed operating costs being more fully absorbed by the higher net
revenue levels in 2014 as compared to 2013. In absolute dollar terms, these costs increased $78,000 from 2013 to 2014 but as a
percentage of net revenues, these costs declined from 15% in 2013 to 14% in 2014. Higher levels of depreciation and facility
related costs, primarily in our Thermal Products segment, were partially offset by better utilization rates for our machine shop
operation in our Mechanical Products segment and reductions in salary and benefits expense in our Thermal Products segment.
Selling Expense. Selling expense was $5.7 million for the year ended December 31, 2014 compared to $5.4 million for the same
period in 2013, an increase of $340,000 or 6%. The increase primarily reflects higher salaries and benefits expense as a result of
an increase in headcount in our Thermal and Electrical Products segments and higher levels of commissions as a result of the
increase in our consolidated net revenues.
Engineering and Product Development Expense. Engineering and product development expense was $3.6 million for the year
ended December 31, 2014 compared to $3.7 million for the same period in 2013, a decrease of $103,000 or 3%. The decrease in
engineering and product development expense primarily reflects a reduction in the use of third party consultants in our Thermal
Products segment and decreased spending on matters related to our intellectual property. These decreases were partially offset by
an increase in salaries and benefits expense, primarily reflecting annual salary increases for existing employees and an increase in
headcount in our Electrical Products segment.
General and Administrative Expense. General and administrative expense was $6.2 million for the year ended December 31, 2014
compared to $6.0 million for the same period in 2013, an increase of $256,000 or 4%. The increase primarily reflects an increase
in the use of third-party professionals who assist us with certain of our strategic initiatives and, to a lesser extent, higher levels of
travel related costs in implementing these initiatives. This increase was partially offset by a reduction in amortization expense
related to our intangible assets in our Thermal Products segment.
Income Tax Expense. For the year ended December 31, 2014, we recorded income tax expense of $1.5 million compared to
$931,000 for the same period in 2013. Our effective tax rate was 30% for 2014 compared to 23% for 2013. On a quarterly basis,
we record income tax expense or benefit based on the expected annualized effective tax rate for the various taxing jurisdictions in
which we operate our businesses. The increase in our effective tax rate in 2014 as compared to 2013 primarily reflects the lower
level of tax credits available to offset current tax expense in 2014, as well as the impact of the recording of additional benefits
during 2013 as a result of the finalization of an audit of our German operation in September of that year.
- 24 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
Liquidity and Capital Resources
As discussed more fully in the Overview, our business and results of operations are substantially dependent upon the demand for
ATE by semiconductor manufacturers and companies that specialize in the testing of ICs. The cyclical and volatile nature of
demand for ATE makes estimates of future revenues, results of operations and net cash flows difficult.
Our primary historical source of liquidity and capital resources has been cash flow generated by our operations and we manage
our businesses to maximize operating cash flows as our primary source of liquidity. We use cash to fund growth in our operating
assets, for new product research and development and for acquisitions.
Liquidity
Our cash and cash equivalents and working capital were as follows:
Cash and cash equivalents .................................................... $23,126 $19,018
Working capital .................................................................... $28,561 $24,749
December 31,
2013
2014
As of December 31, 2014, $3.1 million of our cash and cash equivalents was held by our foreign subsidiaries. If these funds are
needed for our operations in the U.S., we may be required to accrue and pay foreign taxes if we repatriate certain of these funds.
On February 25, 2015 we repatriated $883,000 from our subsidiary in Singapore. We currently plan to indefinitely reinvest the
funds held by our subsidiary in Germany.
We currently expect our cash and cash equivalents and projected future cash flow to be sufficient to support our short term
working capital requirements. However, we may need additional financial resources to consummate a significant acquisition if the
consideration in such a transaction would require us to utilize a substantial portion of our available cash. We do not currently have
any credit facilities under which we can borrow to help fund our working capital or other requirements.
Cash Flows
Operating Activities. Net cash provided by operations for the year ended December 31, 2014 was $5.1 million. During 2014, we
recorded net earnings of $3.4 million, which included non-cash charges of $879,000 for depreciation and amortization, $344,000
for excess and obsolete inventory charges and $318,000 of deferred income tax expense. During 2014, accounts receivable
decreased $610,000, compared to the levels at the end of 2013, primarily reflecting an improvement in customer payment
patterns. During 2014, inventories and accounts payable increased $893,000 and $172,000, respectively, compared to the levels at
the end of 2013. The increase in inventory primarily reflects increased finished goods inventory on hand at December 31, 2014
that will be shipped to customers in early 2015. The increase in accounts payable primarily reflects the timing of payments to
customers. During 2014, restricted certificates of deposit decreased $100,000. Our restricted certificates of deposit are pledged to
secure letters of credit issued as security deposits for certain of our domestic leases. In accordance with the terms of the lease for
our facility in Mansfield, Massachusetts, after reaching the thirty-seventh month of the term of the lease with no events of default
having occurred, we requested and received approval to reduce the amount of the letter of credit by $100,000.
Investing Activities. During 2014, purchases of property and equipment were $831,000 which primarily represent additions to
leased systems in our Thermal and Mechanical Products segments and additional production testing and demonstration equipment
for our Electrical Products segment. We have no significant commitments for capital expenditures for 2015, however, depending
upon changes in market demand, we may make such purchases as we deem necessary and appropriate.
Financing Activities. During 2014, there were no cash flows from financing activities.
- 25 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
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 requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues, expenses and
related disclosure of contingent assets and liabilities. On an on-going basis, we evaluate our estimates, including those related to
inventories, long-lived assets, goodwill, identifiable intangibles and deferred income tax valuation allowances. 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
Inventories are valued at cost 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 excess and obsolete inventory charges are recorded based upon current market conditions, anticipated product life
cycles, new product introductions and expected future use of the inventory. The excess and obsolete inventory charges we record
establish a new cost basis for the related inventories. During 2014 and 2013, we recorded inventory obsolescence charges for
excess and obsolete inventory of $344,000 and $311,000, respectively.
Goodwill, Intangible and Long-Lived Assets
We account for goodwill and intangible assets in accordance with Accounting Standards Codification ("ASC") 350 (Intangibles-
Goodwill and Other). Finite-lived intangible assets are amortized over their estimated useful economic life and are carried at cost
less accumulated amortization. Goodwill is assessed for impairment 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. As a part
of the goodwill impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more-
likely-than-not that the fair value of a reporting unit is less than its carrying amount. If we determine this is the case, we are
required to perform a two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of
goodwill impairment loss to be recognized. The two-step test is discussed below. If we determine that it is more-likely-than-not
that the fair value of the reporting unit is greater than its carrying amounts, the two-step goodwill impairment test is not required.
If we determine it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a result of our
qualitative assessment, we will perform a quantitative two-step goodwill impairment test. In the Step I test, the fair value of a
reporting unit is computed and compared with its book value. If the book value of a reporting unit exceeds its fair value, a Step II
test is performed in which the implied fair value of goodwill is compared with the carrying amount of goodwill. If the carrying
amount of goodwill exceeds the implied fair value, an impairment loss is recorded in an amount equal to that excess. The two-step
goodwill impairment assessment is based upon a combination of the income approach, which estimates the fair value of our
reporting units based upon a discounted cash flow approach, and the market approach which estimates the fair value of our
reporting units based upon comparable market multiples. This fair value is then reconciled to our market capitalization at year end
with an appropriate control premium. The determination of the fair value of our reporting units requires management to make
significant estimates and assumptions including the selection of appropriate peer group companies, control premiums, discount
rate, terminal growth rates, forecasts of revenue and expense growth rates, changes in working capital, depreciation,
- 26 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS (Continued)
amortization and capital expenditures. Changes in assumptions concerning future financial results or other underlying
assumptions could have a significant impact on either the fair value of the reporting unit or the amount of the goodwill
impairment charge. As of December 31, 2014 and 2013, goodwill was $1.7 million. We did not record any impairment charges
related to our goodwill during 2014 or 2013.
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. As a part of the impairment assessment, we have the option
to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is
impaired. If, as a result of our qualitative assessment, we determine that it is more-likely-than-not that the fair value of the
indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further
testing is required. The quantitative impairment test consists of a comparison of the fair value of the intangible asset with its
carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an
amount equal to that excess. As of December 31, 2014 and 2013, our indefinite-lived intangible asset was $510,000. We did not
record any impairment charges related to our indefinite-lived intangible asset during 2014 or 2013.
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, 2014 and 2013, finite-lived intangibles and long-lived
assets were $2.2 million and $2.5 million, respectively. We did not record any impairment charges related to our long-lived assets
during 2014 or 2013.
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. As
of December 31, 2014 and 2013, we had a net deferred tax asset of $1.4 million and $1.7 million, respectively, and a deferred tax
valuation allowance of $100,000 and $287,000, respectively.
Off -Balance Sheet Arrangements
There were no off-balance sheet arrangements during the year ended December 31, 2014 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.
- 27 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL
DISCLOSURE
None.
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:
- 28 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 9A. CONTROLS AND PROCEDURES (Continued)
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.
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, 2014. 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 1992 Framework. Based upon this assessment, management believes that, as of December
31, 2014, 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 2015 Annual
Meeting of Stockholders to be filed with the SEC on or before April 30, 2015, or, if our proxy statement is not filed on or before
April 30, 2015, 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 2015 Annual
Meeting of Stockholders to be filed with the SEC on or before April 30, 2015, or, if our proxy statement is not filed on or before
April 30, 2015, 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 2015 Annual Meeting of Stockholders to be filed
with the SEC on or before April 30, 2015, or, if our proxy statement is not filed on or before April 30, 2015, will be filed by that
date by an amendment to this Form 10-K.
- 29 -
inTEST CORPORATION
FORM 10-K
FOR THE YEAR ENDED DECEMBER 31, 2014
Item 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT AND RELATED
STOCKHOLDER MATTERS (Continued)
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, 2014:
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
-
-
-
Weighted-average
exercise price of
outstanding options,
warrants and rights
-
-
-
Number of securities
remaining available
for future issuance
under equity
compensation plans(1)
557,500
-
557,500
(1)
The securities that remain available for future issuance are issuable pursuant to the 2014 Stock Plan (500,000 shares)
and the 2007 Stock Plan (57,500 shares).
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 2015 Annual
Meeting of Stockholders to be filed with the SEC on or before April 30, 2015, or, if our proxy statement is not filed on or before
April 30, 2015, 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 2015 Annual
Meeting of Stockholders to be filed with the SEC on or before April 30, 2015, or, if our proxy statement is not filed on or before
April 30, 2015, will be filed by that date by an amendment to this Form 10-K.
* * * * * * * * * * * * * * * *
PART IV
Item 15. EXHIBITS, FINANCIAL STATEMENT SCHEDULES
(a) The documents filed as part of this Annual Report on Form 10-K are:
(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.
- 30 -
Signatures
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.
inTEST Corporation
By: /s/ Robert E. Matthiessen
Robert E. Matthiessen
President and Chief Executive Officer
March 26, 2015
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/ Joseph W. Dews IV
Joseph W. Dews IV, Director
/s/ William Kraut
William Kraut, Director
March 26, 2015
March 26, 2015
March 26, 2015
March 26, 2015
March 26, 2015
March 26, 2015
- 31 -
Index to Exhibits (A)
Exhibit
Number
3.1
3.2
10.1
10.2
10.3
10.4
Description of Exhibit
Certificate of Incorporation. (1)
Bylaws as amended on December 5, 2013. (2)
Lease Agreement between Exeter 804 East Gate, LLC and the Company dated May 10, 2010. (3)
Lease Agreement between AMB-SGP Seattle/Boston, LLC and Temptronic Corporation (a subsidiary of the Company),
dated October 25, 2010. (4)
Lease Agreements between Columbia California Warm Springs Industrial, LLC and inTEST Silicon Valley Corporation
dated January 9, 2012. (5)
Guaranty Agreements between Columbia California Warm Springs Industrial, LLC and inTEST Corporation dated
January 9, 2012. (5)
inTEST Corporation 2014 Stock Plan (6)(*)
inTEST Corporation 2007 Stock Plan. (7)(*)
Form of Restricted Stock Grant. (8)(*)
Form of Stock Option Grant - Director. (8)(*)
Form of Stock Option Grant - Officer. (8)(*)
10.5
10.6
10.7
10.8
10.9
10.10 Change of Control Agreement dated August 27, 2007 between the Company and Robert E. Matthiessen. (9)(*)
10.11 Change of Control Agreement dated August 27, 2007 between the Company and Hugh T. Regan, Jr. (9)(*)
10.12 Change of Control Agreement dated May 5, 2008 between the Company and Daniel J. Graham. (10)(*)
10.13 Change of Control Agreement dated May 5, 2008 between the Company and James Pelrin. (10)(*)
10.14 Amendment to Change of Control Agreement dated December 31, 2008 between the Company and Robert E. Matthiessen.
(11)(*)
10.15 Amendment to Change of Control Agreement dated December 31, 2008 between the Company and Hugh T. Regan, Jr.
(11)(*)
10.16 Amendment to Change of Control Agreement dated December 31, 2008 between the Company and Daniel J. Graham.
(11)(*)
10.17 Amendment to Change of Control Agreement dated December 31, 2008 between the Company and James Pelrin. (11)(*)
10.18 Compensatory Arrangements of Executive Officers and Directors. (*)
14
21
23
31.1
31.2
32.1
32.2
Code of Ethics. (12)
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.
- 32 -
Index to Exhibits (A)
(Continued)
(1)
(2)
(3)
(4)
(5)
(6)
(7)
(8)
(9)
(10)
(11)
(12)
(*)
(A)
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 December 5, 2013, File No. 001-36117,
filed December 9, 2013, 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 30, 2014, 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.
- 33 -
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, 2014 and 2013
Consolidated Statements of Operations for the years ended
December 31, 2014 and 2013
Consolidated Statements of Comprehensive Earnings for the years
ended December 31, 2014 and 2013
Consolidated Statements of Stockholders' Equity for the years
ended December 31, 2014 and 2013
Consolidated Statements of Cash Flows for the years ended
December 31, 2014 and 2013
Notes to Consolidated Financial Statements
FINANCIAL STATEMENT SCHEDULE
Schedule II - Valuation and Qualifying Accounts
Page
F - 1
F - 2
F - 3
F - 3
F - 4
F - 5
F - 6
F - 21
- 34 -
REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM
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, 2014 and
2013, 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 and schedule 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, 2014 and 2013, 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 26, 2015
F -1
inTEST CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
ASSETS:
Current assets:
Cash and cash equivalents.......................................................................................................................
Trade accounts receivable, net of allowance for doubtful accounts of
$146 and $147, 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,
2014
2013
$23,126
$19,018
5,034
3,769
529
473
32,931
4,322
593
4,915
)
(3,647
1,268
884
1,706
1,393
350
206
5,748
3,243
701
371
29,081
4,190
594
4,784
)
(3,530
1,254
1,030
1,706
1,748
450
212
Total assets ....................................................................................................................................
$38,738
$35,481
LIABILITIES AND STOCKHOLDERS’ EQUITY
Current liabilities:
Accounts payable ....................................................................................................................................
Accrued wages and benefits ....................................................................................................................
Accrued rent ............................................................................................................................................
Accrued professional fees .......................................................................................................................
Accrued sales commissions ....................................................................................................................
Domestic and foreign income taxes payable ...........................................................................................
Other current liabilities ...........................................................................................................................
Total current liabilities ..................................................................................................................
$ 1,234
1,528
615
390
328
22
253
4,370
$ 1,064
1,635
577
367
305
83
301
4,332
Commitments and Contingencies (Notes 9 and 11)
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;
10,595,755 and 10,590,755 shares issued, respectively .......................................................................
Additional paid-in capital........................................................................................................................
Retained earnings ....................................................................................................................................
Accumulated other comprehensive earnings...........................................................................................
Treasury stock, at cost; 33,077 and 33,077 shares, respectively .............................................................
Total stockholders’ equity .............................................................................................................
-
-
106
26,321
7,152
993
(204
)
34,368
106
26,187
3,713
1,347
(204
)
31,149
Total liabilities and stockholders’ equity ......................................................................................
$38,738
$35,481
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,
2014
2013
Net revenues .......................................................................................................................... $41,796
21,334
Cost of revenues .....................................................................................................................
Gross margin ...........................................................................................................
20,462
Operating expenses:
Selling expense .................................................................................................................
Engineering and product development expense ................................................................
General and administrative expense..................................................................................
5,735
3,580
6,231
Total operating expenses .........................................................................................
15,546
Operating income ...................................................................................................................
Other income (expense) .........................................................................................................
4,916
)
(7
Earnings before income tax expense ......................................................................................
Income tax expense ................................................................................................................
Net earnings ............................................................................................................
4,909
1,470
$ 3,439
Net earnings per common share:
Basic .................................................................................................................................
Diluted ..............................................................................................................................
$0.33
$0.33
$39,426
20,411
19,015
5,395
3,683
5,975
15,053
3,962
46
4,008
931
$ 3,077
$0.30
$0.30
Weighted average common shares outstanding:
Basic ................................................................................................................................. 10,431,743
Diluted .............................................................................................................................. 10,466,064
10,363,678
10,419,103
See accompanying Notes to Consolidated Financial Statements.
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands)
Years Ended December 31,
2014
2013
Net earnings ................................................................................................................... $3,439
$3,077
Foreign currency translation adjustments ...................................................................... (354 )
94
Comprehensive earnings ...............................................................................................
$3,085
$3,171
See accompanying Notes to Consolidated Financial Statements.
F -3
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S
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands)
Years Ended December 31,
2014
2013
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings ......................................................................................................................................... $ 3,439
Adjustments to reconcile net earnings to net cash provided by operating activities:
Depreciation and amortization ........................................................................................................
Provision for excess and obsolete inventory ...................................................................................
Foreign exchange loss .....................................................................................................................
Amortization of deferred compensation related to restricted stock .................................................
(Gain) loss on sale of property and equipment ...............................................................................
Proceeds from sale of demonstration equipment, net of gain .........................................................
Deferred income tax expense ..........................................................................................................
Changes in assets and liabilities:
610
Trade accounts receivable ..........................................................................................................
(893)
Inventories..................................................................................................................................
(113)
Prepaid expenses and other current assets ..................................................................................
100
Restricted certificates of deposit ................................................................................................
(17)
Other assets ................................................................................................................................
172
Accounts payable .......................................................................................................................
(75)
Accrued wages and benefits .......................................................................................................
38
Accrued rent ...............................................................................................................................
25
Accrued professional fees ..........................................................................................................
23
Accrued sales commissions .......................................................................................................
(61)
Domestic and foreign income taxes payable ..............................................................................
Other current liabilities .............................................................................................................. (43 )
Net cash provided by operating activities .................................................................................................
879
344
44
134
44
161
318
5,129
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment ....................................................................................................
Proceeds from sale of property and equipment ....................................................................................
Net cash used in investing activities .........................................................................................................
(831)
8
(823 )
CASH FLOWS FROM FINANCING ACTIVITIES
Proceeds from stock options exercised ................................................................................................
Net cash provided by financing activities .................................................................................................
Effects of exchange rates on cash .............................................................................................................
Net cash provided by all activities ............................................................................................................
Cash and cash equivalents at beginning of period ....................................................................................
-
-
(198 )
4,108
19,018
$ 3,077
847
311
4
128
(3)
32
307
(233)
(416)
(6)
-
(18)
23
63
48
(19)
(43)
-
(332
)
3,770
(424)
10
)
(414
30
30
56
3,442
15,576
Cash and cash equivalents at end of period ..............................................................................................
$23,126
$19,018
Cash payments for:
Domestic and foreign income taxes ..................................................................................................... $ 1,213
$ 623
SUPPLEMENTAL DISCLOSURE OF NON-CASH INVESTING AND FINANCING ACTIVITIES:
Issuance of non-vested shares of restricted stock...................................................................................... $ 41
Forfeiture of non-vested shares of restricted stock ................................................................................... $ (20)
$ 462
$ -
See accompanying Notes to Consolidated Financial Statements.
F -5
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 markets outside the ATE
market, such as the automotive, consumer electronics, defense/aerospace, energy, industrial and telecommunications markets.
The consolidated entity is comprised of inTEST Corporation (parent) and our wholly-owned subsidiaries. We have three
reportable segments which are also our reporting units: Thermal Products, Mechanical Products and Electrical Products. We
manufacture our products in the U.S. Marketing and support activities are conducted worldwide from our facilities in the U.S.,
Germany and Singapore.
The semiconductor market in which we operate is characterized by rapid technological change, competitive pricing pressures and
cyclical as well as seasonal market patterns. This market is subject to significant economic downturns at various times. Our
financial results are affected by a wide variety of factors, including, but not limited to, general economic conditions worldwide
and in the markets in which we operate, economic conditions specific to the semiconductor market and the other markets we
serve, our ability to safeguard patented technology and intellectual property in a rapidly evolving market, downward pricing
pressures from customers, and our reliance on a relatively few number of customers for a significant portion of our sales. In
addition, we are exposed to the risk of obsolescence of our inventory depending on the mix of future business and technological
changes within the markets that we serve. As a result of these or other factors, we may experience significant period-to-period
fluctuations in future operating results.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation and Use of Estimates
The accompanying consolidated financial statements include our accounts and those of our wholly-owned subsidiaries. All
significant intercompany accounts and transactions have been eliminated upon consolidation. The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America ("U.S. GAAP") requires
us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets
and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting
period. Actual results could differ from those estimates. Certain of our accounts, including inventories, long-lived assets,
goodwill, identifiable intangibles and deferred tax assets and liabilities including related valuation allowances, 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. Our cash balances, which are deposited with highly reputable financial
institutions, at times may exceed the federally insured limits. We have not experienced any losses related to these cash balances
and believe the credit risk to be minimal.
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. There
was no bad debt expense recorded in either of the years ended December 31, 2014 or 2013. Cash flows from accounts receivable
are recorded in operating cash flows.
F -6
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Fair Value of Financial Instruments
Our financial instruments, principally accounts receivable and accounts payable, are carried at cost which approximates fair value,
due to the short maturities of the accounts.
Inventories
Inventories are valued at cost on a first-in, first-out basis, not in excess of market value. Cash flows from the sale of inventories
are recorded in operating cash flows. On a quarterly basis, we review our inventories and record excess and obsolete inventory
charges based upon our established objective excess and obsolete inventory criteria. These criteria identify material that has not
been used in a work order during the prior twelve months and the quantity of material on hand that is greater than the average
annual usage of that material over the prior three years. In certain cases, additional excess and obsolete inventory charges are
recorded based upon current market conditions, anticipated product life cycles, new product introductions and expected future use
of the inventory. The excess and obsolete inventory charges we record establish a new cost basis for the related inventories. We
incurred excess and obsolete inventory charges of $344 and $311 for the years ended December 31, 2014 and 2013, 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 ten 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 $524 and $401 for the years ended December 31, 2014 and
2013, respectively.
Goodwill, Intangible and Long-Lived Assets
We account for goodwill and intangible assets in accordance with Accounting Standards Codification ("ASC") 350 (Intangibles-
Goodwill and Other). Finite-lived intangible assets are amortized over their estimated useful economic life and are carried at cost
less accumulated amortization. Goodwill is assessed for impairment 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. As a part
of the goodwill impairment assessment, we have the option to perform a qualitative assessment to determine whether it is more-
likely-than-not that the fair value of a reporting unit is less than its carrying amount. If we determine this is the case, we are
required to perform a two-step goodwill impairment test to identify potential goodwill impairment and measure the amount of
goodwill impairment loss to be recognized. The two-step test is discussed below. If we determine that it is more-likely-than-not
that the fair value of the reporting unit is greater than its carrying amounts, the two-step goodwill impairment test is not required.
If we determine it is more-likely-than-not that the fair value of a reporting unit is less than its carrying amount as a result of our
qualitative assessment, we will perform a quantitative two-step goodwill impairment test. In the Step I test, the fair value of a
reporting unit is computed and compared with its book value. If the book value of a reporting unit exceeds its fair value, a Step II
test is performed in which the implied fair value of goodwill is compared with the carrying amount of goodwill. If the carrying
amount of goodwill exceeds the implied fair value, an impairment loss is recorded in an amount equal to that excess. The two-step
goodwill impairment assessment is based upon a combination of the income approach, which estimates the fair value of our
reporting units based upon a discounted cash flow approach, and the market approach which estimates the fair value of our
reporting units based upon comparable market multiples. This fair value is then reconciled to our market capitalization at year end
with an appropriate control premium. The determination of the fair value of our reporting units requires management to make
significant estimates and assumptions including the selection of appropriate peer group companies, control premiums, discount
rate, terminal growth rates, forecasts of revenue and expense growth rates, changes in working capital, depreciation, amortization
and capital expenditures. Changes in assumptions concerning future financial results or other underlying assumptions could have
a significant impact on either the fair value of the reporting unit or the amount of the goodwill impairment charge.
F -7
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
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. As a part of the impairment assessment, we have the option
to perform a qualitative assessment to determine whether it is more likely than not that an indefinite-lived intangible asset is
impaired. If, as a result of our qualitative assessment, we determine that it is more-likely-than-not that the fair value of the
indefinite-lived intangible asset is less than its carrying amount, the quantitative impairment test is required. Otherwise, no further
testing is required. The quantitative impairment test consists of a comparison of the fair value of the intangible asset with its
carrying amount. If the carrying amount of the intangible asset exceeds its fair value, an impairment loss is recognized in an
amount equal to that excess.
Long-lived assets, which consist of finite-lived intangible assets and property and equipment, are assessed for impairment
whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable
or that the useful lives of these assets are no longer appropriate. Each impairment test is based on a comparison of the estimated
undiscounted cash flows to the recorded value of the asset. If impairment is indicated, the asset is written down to its estimated
fair value. The cash flow estimates used to determine the impairment, if any, contain management's best estimates using
appropriate assumptions and projections at that time.
Stock-Based Compensation
We account for stock-based compensation in accordance with ASC Topic 718 (Compensation - Stock Compensation) which
requires that employee share-based equity awards be accounted for under the fair value method and requires the use of an option
pricing model for estimating fair value, which is then amortized to expense over the service periods. See further disclosures
related to our stock-based compensation plan in Note 12.
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, 2014.
Revenue Recognition
We recognize revenue when persuasive evidence of an arrangement exists, delivery has occurred or services have been rendered,
the price is fixed or determinable, and collection of the related receivable is reasonably assured. Sales of our products are made
through our sales employees, third-party sales representatives and distributors. There are no differences in revenue recognition
policies based on the sales channel. We do not provide our customers with rights of return or exchanges. Revenue is generally
recognized upon product shipment. Our customers' purchase orders do not typically contain any customer-specific acceptance
criteria, other than that the product performs within the agreed upon specifications. We test all products manufactured as part of
our quality assurance process to determine that they comply with specifications prior to shipment to a customer. To the extent that
any customer purchase order contains customer-specific acceptance criteria, revenue recognition is deferred until customer
acceptance.
In addition, in our Thermal Products and Mechanical Products segments, we lease certain of our equipment to customers under
non-cancellable operating leases. These leases generally have an initial term of six months. We recognize revenue for these leases
on a straight-line basis over the term of the lease.
With respect to sales tax collected from customers and remitted to governmental authorities, we use a net presentation in our
consolidated statement of operations. As a result, there are no amounts included in either our net revenues or cost of revenues
related to sales tax.
Product Warranties
We generally provide product warranties and record estimated warranty expense at the time of sale based upon historical claims
experience. Warranty expense is included in selling expense in the 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)
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.
Foreign Currency
For our foreign subsidiary 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, 2014 and 2013, foreign currency transaction losses were $44 and $4, 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:
Years Ended December 31,
2014
2013
Weighted average common shares outstanding – basic ........................... 10,431,743 10,363,678
Potentially dilutive securities:
Employee stock options and unvested shares of restricted stock ........
34,321
55,425
Weighted average common shares outstanding – diluted ........................ 10,466,064 10,419,103
Average number of potentially dilutive securities
excluded from calculation......................................................................
48,021
32,836
Effect of Recently Issued Amendments to Authoritative Accounting Guidance
In May 2014, the FASB issued new guidance on the recognition of revenue from contracts with customers. This guidance is
presented in ASC Topic 606 (Revenue from Contracts with Customers). This new guidance will replace most existing revenue
recognition guidance in U.S. GAAP when it becomes effective. Companies can use either the retrospective or cumulative effect
transition method. This new guidance is effective for us on January 1, 2017. Early application is not permitted. We have not yet
selected a transition method and we are still evaluating the effect that this guidance will have on our consolidated financial
statements and related disclosures.
F -9
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(3) 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, Inc. ("Thermonics") in January 2012.
Goodwill
All of our goodwill is allocated to our Thermal Products segment. There were no changes in the amount of the carrying value of
goodwill for the year ended December 31, 2014.
Intangible Assets
The following table provides further detail about our intangible assets as of December 31, 2014 and 2013:
December 31, 2014
Net
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Finite-lived intangible assets:
Customer relationships .......................................... $1,480
590
Patented technology ...............................................
270
Software .................................................................
140
Trade name ............................................................
Customer backlog ..................................................
70
48
Non-compete/non-solicitation agreement ..............
2,598
Total finite-lived intangible assets ............................
Indefinite-lived intangible assets:
Sigma trademark ....................................................
Total intangible assets ..............................................
510
$3,108
$ 979
346
169
103
70
48
1,715
$ 501
244
101
37
-
-
883
-
$1,715
510
$1,393
December 31, 2013
Net
Carrying
Amount
Accumulated
Amortization
Gross
Carrying
Amount
Finite-lived intangible assets:
Customer relationships .......................................... $1,480
590
Patented technology ...............................................
270
Software .................................................................
140
Trade name ............................................................
Customer backlog ..................................................
70
48
Non-compete/non-solicitation agreement ..............
2,598
Total finite-lived intangible assets ............................
Indefinite-lived intangible assets:
Sigma trademark ....................................................
Total intangible assets ..............................................
510
$3,108
$ 725
307
142
68
70
48
1,360
$ 755
283
128
72
-
-
1,238
-
$1,360
510
$1,748
We generally amortize our finite-lived intangible assets over their estimated useful lives on a straight-line basis, unless an
alternate amortization method can be reliably determined. Any such alternate amortization method would be based on the pattern
in which the economic benefits of the intangible asset are expected to be consumed. None of our 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, 2014:
F -10
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(3) GOODWILL, INTANGIBLE AND LONG-LIVED ASSETS (Continued)
Remaining
Estimated
Useful Life at
Dec. 31, 2014
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
-
45
-
36.5
-
12.5
96.5
-
The following table sets forth changes in the amount of the carrying value of finite-lived intangible assets for the year ended
December 31, 2014:
Balance - January 1, 2014 ..................................................... $1,238
Amortization.......................................................................... (355
)
Balance - December 31, 2014 ...............................................
$ 883
Total amortization expense for the years ended December 31, 2014 and 2013 was $355 and $446, respectively. The following
table sets forth the estimated annual amortization expense for our finite-lived intangible assets for each of the next five years:
2015 ................................................................. $289
2016 ................................................................. $229
2017 ................................................................. $212
2018 ................................................................. $ 65
2019 ................................................................. $ 39
Impairment of Goodwill and Indefinite Life Intangible Assets
During December 2014 and 2013, we assessed our goodwill and indefinite life intangible asset 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 rates
used in 2014 and 2013 for the discounted cash flows were 17% 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 could have a significant
impact on either the fair value of the reporting unit or the amount of the goodwill impairment charge.
F -11
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(3) GOODWILL, INTANGIBLE AND LONG-LIVED ASSETS (Continued)
During the goodwill impairment assessment in both 2014 and 2013, 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 68% or $15,971 at December 31, 2014 and
by 65% or $13,888 at December 31, 2013.
During the indefinite life intangible asset impairment assessment in both 2014 and 2013, we compared the fair value of our
intangible asset with its carrying amount. This assessment indicated no impairment existed as the fair value of the intangible
assets exceeded their carrying values in both 2014 and 2013.
Impairment of Long-Lived Assets and Finite-lived Intangible Assets
As previously noted, our long-lived assets consist of our finite-lived intangible assets and property and equipment. During both
December 2014 and 2013, due to continued operating losses experienced in our Mechanical Products segment, we assessed the
long-lived assets of this segment for impairment. Our assessments indicated that the property and equipment that is allocated to
this segment was not impaired. During 2014 and 2013, we did not review our Thermal and Electrical Products segment's long
lived assets for impairment as there were no events or changes in business circumstances that would indicate an impairment might
exist.
(4) MAJOR CUSTOMERS
Texas Instruments Incorporated accounted for 13% of our consolidated net revenues in both 2014 and 2013. 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. Hakuto Co. Ltd. accounted for 11% of our consolidated net revenues in 2014. These revenues were
generated by our Thermal Products segment. During the years ended December 31, 2014 and 2013, no other customer accounted
for 10% or more of our consolidated net revenues.
(5) INVENTORIES
Inventories held at December 31 were comprised of the following:
2014
2013
Raw materials .......................................................................... $2,505 $2,753
Work in process .......................................................................
Inventory consigned to others ..................................................
406
129
222
94
Finished goods .........................................................................
729
174
$3,769 $3,243
(6) OTHER CURRENT LIABILITIES
Other current liabilities at December 31 were comprised of the following:
Accrued warranty .................................................................... $118 $123
Deferred revenue and customer deposits .................................
70
74
Other ........................................................................................
65 104
$253 $301
2014 2013
F -12
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(7) 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 sheets. 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. The terms of our leases also allow us to request a reduction in the amount of these letters of credit
at certain points during the lease term if there have been no events of default. As of December 31, 2014, there have been no
events of default. Our outstanding letters of credit at December 31, 2014 and 2013 consisted of the following:
Facility
Mt. Laurel, NJ
Mansfield, MA
(8) EQUIPMENT LEASING
Original L/C
Issue Date
L/C
Expiration
Date
Lease
Expiration
Date
Letters of Credit
Amount Outstanding
Dec. 31,
Dec. 31
2013
2014
3/29/2010
3/31/2015
4/30/2021
$250
$250
10/27/2010 11/08/2015
8/23/2021
100
200
$350
$450
In our Thermal Products and Mechanical Products segments, we lease certain of our equipment to customers under non-
cancellable operating leases. These leases generally have an initial term of six months. We recognize revenue for these leases on a
straight-line basis over the term of the lease.
The total cost of leased equipment at December 31, 2014 and 2013 was $692 and $561, respectively, and is included in
Machinery and Equipment on our balance sheet. As of December 31, 2014 and 2013, accumulated depreciation for leased
equipment was $167 and $138, respectively.
As of December 31, 2014, total minimum payments receivable under non-cancellable operating leases were $151. All of these
payments will be received in 2015.
(9) COMMITMENTS AND CONTINGENCIES
Operating Lease Commitments
We lease our offices, warehouse facilities, automobiles and certain equipment under non-cancellable operating leases which
expire at various dates through 2021. Total rental expense for the years ended December 31, 2014 and 2013 was $1,307 and
$1,221, 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.
F -13
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(9) COMMITMENTS AND CONTINGENCIES (Continued)
The aggregate minimum rental commitments under the non-cancellable operating leases in effect at December 31, 2014 are as
follows:
2015 ................................................
$1,045
2016 ................................................
1,097
2017 ................................................
1,062
2018 ................................................
2019 ................................................
981
999
Thereafter .......................................
1,504
$6,688
(10) 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, 2014 and 2013, 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 ............................................................................. $4,061 $3,245
Foreign ................................................................................
848
763
Years Ended
December 31,
2013
2014
Income tax expense (benefit) was as follows:
Current
Domestic – Federal .........................................................
Domestic – state..............................................................
Foreign ............................................................................
Deferred
Domestic – Federal .........................................................
Domestic – state..............................................................
Foreign ............................................................................
Income tax expense ...........................................................
$4,909 $4,008
Years Ended
December 31,
2014
2013
$ 1,073
78
1
$ 1,152
$ 515
74
35
$ 624
401
256
(339)
318
$ 1,470
218
212
(123)
307
$ 931
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,
2014 and 2013:
F -14
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(10) INCOME TAXES (Continued)
December 31,
2013
2014
Deferred tax assets:
Depreciation of property and equipment ........................................ $ 596 $ 646
829
Net operating loss ("NOL") (state and foreign) ..............................
162
Intangibles ......................................................................................
180
Inventories ......................................................................................
169
Accrued vacation pay and stock-based compensation ....................
269
Tax credit carryforwards (foreign, research and AMT) ..................
56
Allowance for doubtful accounts ....................................................
37
Acquisition costs.............................................................................
Accrued warranty ...........................................................................
11
26
Other ...............................................................................................
2,385
(287)
2,098
513
224
184
126
92
56
34
6
21
1,852
(100)
1,752
Valuation allowance ...........................................................................
Deferred tax assets ..............................................................................
Deferred tax liabilities:
Net intangible assets .......................................................................
Unremitted earnings of foreign subsidiaries ...................................
Deferred tax liabilities ........................................................................
Net deferred tax asset .........................................................................
(260)
(232)
)
(107)
(339)
)
$1,413 $1,731
(107
(367
The valuation allowance for deferred tax assets as of the beginning of 2014 and 2013 was $287 and $573, respectively. The net
change in the valuation allowance for the years ended December 31, 2014 and 2013 were decreases of $187 and $286,
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 2034.
An analysis of the effective tax rate for the years ended December 31, 2014 and 2013 and a reconciliation from the expected
statutory rate of 34% is as follows:
Years Ended
December 31,
2013
2014
Expected income tax provision at U.S. statutory rate ........................................
Increase (decrease) in tax from:
Changes in valuation allowance ..................................................................
Current year tax credits (foreign and research) ...........................................
Foreign income tax rate differences ............................................................
Deemed dividend from foreign subsidiaries ................................................
NOL carryforwards utilized ........................................................................
Domestic tax expense, net of Federal benefit ..............................................
Nondeductible expenses ..............................................................................
Other ............................................................................................................
Income tax expense ............................................................................................
$1,669 $1,363
(286)
(187)
(417)
(179)
(80)
(63)
135
208
200
93
127
52
10
7
(130)
)
$1,470 $ 931
(121
F -15
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(10) INCOME TAXES (Continued)
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, 2014 and
2013, 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, 2011 and thereafter are subject to examination by the relevant taxing
authorities.
(11) 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.
(12) STOCK-BASED COMPENSATION PLAN
As of December 31, 2014, we have unvested restricted stock awards granted under the inTEST Corporation 2007 Stock Plan (the
"2007 Stock Plan"). The 2007 Stock Plan was approved at our annual meeting of stockholders held on June 13, 2007. 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. As of December 31, 2014, 57,500 shares remain available to grant under the 2007 Stock
Plan.
In addition, at our annual meeting on June 25, 2014, our stockholders approved the inTEST Corporation 2014 Stock Plan (the
"2014 Stock Plan"). The 2014 Stock Plan permits the granting of stock options, restricted stock, stock appreciation rights or
restricted stock units for up to 500,000 shares of our common stock to directors, officers, other key employees and consultants. As
of December 31, 2014, no stock awards have been granted under the 2014 Stock Plan.
We have not granted any stock options during 2014 or 2013. Our unvested restricted stock awards outstanding are accounted for
based on their grant date fair value. As of December 31, 2014, total compensation expense to be recognized in future periods was
$326. 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 2.7 years.
Stock Options
The following table summarizes the stock option activity for the two years ended December 31, 2014:
Options outstanding, January 1, 2013 (219,000 exercisable) ..........................
Granted .........................................................................................................
Exercised ......................................................................................................
Canceled .......................................................................................................
Options outstanding, December 31, 2013 (10,000 exercisable) ......................
Granted .........................................................................................................
Exercised ......................................................................................................
Canceled .......................................................................................................
Options outstanding, December 31, 2014 ........................................................
Number
of Shares
219,000
-
(10,000)
)
(199,000
10,000
-
-
(10,000
)
-
Weighted
Average
Exercise Price
$3.17
-
3.04
3.05
5.66
-
-
5.66
-
F -16
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(12) STOCK-BASED COMPENSATION PLAN (Continued)
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 2014 and 2013, related to nonvested shares:
Years Ended
December 31,
2013
2014
Cost of revenues .......................................................................... $ 11 $ 8
Selling expense ............................................................................
Engineering and product development expense ...........................
6
16
10
28
General and administrative expense ............................................ 101
82
$134
$128
There was no compensation expense capitalized in 2014 or 2013. The following table summarizes the activity related to
nonvested shares for the two years ended December 31, 2014:
Nonvested shares outstanding, January 1, 2013 ............................
Granted .......................................................................................
Vested .........................................................................................
Forfeited .....................................................................................
Nonvested shares outstanding, December 31, 2013 ......................
Granted .......................................................................................
Vested .........................................................................................
Forfeited .....................................................................................
Nonvested shares outstanding, December 31, 2014 ......................
Weighted
Average
Grant Date
Fair Value
$1.63
3.62
1.70
-
2.69
4.14
2.31
3.97
2.82
Number
of Shares
108,750
127,500
(56,250)
-
180,000
10,000
(83,125)
(5,000
)
101,875
The total fair value of the shares that vested during the years ended December 31, 2014 and 2013 was $351 and $176,
respectively, as of the vesting dates of these shares.
(13) 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, Temptronic Corporation and inTEST Silicon Valley Corporation who are at least 18 years of
age are eligible to participate in the plan. We match employee contributions dollar for dollar up to 10% of the employee's annual
compensation, with a maximum limit of $5. Employer contributions vest ratably over four years. Matching contributions are
discretionary. For the years ended December 31, 2014 and 2013, we recorded $317 and $320 of expense for matching
contributions, respectively.
(14) SEGMENT INFORMATION
We have three reportable segments, which are also our reporting units: Thermal Products, Mechanical Products and Electrical
Products.
The Thermal Products segment includes the operations of Temptronic Corporation, Thermonics, Sigma, inTEST Thermal
Solutions GmbH (Germany), and inTEST Pte, Limited (Singapore). Sales of this segment consist primarily of temperature
management systems which we design, manufacture and market under our Temptronic, Thermonics and Sigma product lines. In
addition, this segment provides post warranty service and support.
F -17
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(14) SEGMENT INFORMATION (Continued)
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 markets outside of the ATE market, including the automotive, consumer electronics,
defense/aerospace, energy, industrial and telecommunications markets. Intercompany pricing between segments is either a
multiple of cost for component parts or list price for finished goods.
Years Ended
December 31,
2013
2014
Net revenues from unaffiliated customers:
Thermal Products ....................................................................... $23,446 $22,962
9,962
Mechanical Products ..................................................................
11,245
7,105
6,502
Electrical Products .....................................................................
$41,796 $39,426
Depreciation/amortization:
Thermal Products .......................................................................
Mechanical Products ..................................................................
Electrical Products .....................................................................
Operating income (loss):
Thermal Products .......................................................................
Mechanical Products ..................................................................
Electrical Products .....................................................................
Corporate ...................................................................................
Earnings (loss) before income tax expense (benefit):
Thermal Products .......................................................................
Mechanical Products ..................................................................
Electrical Products .....................................................................
Corporate ...................................................................................
Income tax expense (benefit):
Thermal Products .......................................................................
Mechanical Products ..................................................................
Electrical Products .....................................................................
Corporate ...................................................................................
$720
87
72
$879
$4,740
(18)
781
(587)
$4,916
$4,699
(5)
802
(587)
$4,909
$1,407
(2)
240
(175)
$1,470
$695
79
73
$847
$4,322
(784)
722
)
(298
$3,962
$4,327
(772)
751
(298
)
$4,008
$1,005
(179)
174
(69
)
$ 931
F -18
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(14) SEGMENT INFORMATION (Continued)
Net earnings (loss):
Thermal Products .......................................................................
Mechanical Products ..................................................................
Electrical Products .....................................................................
Corporate ...................................................................................
Capital expenditures:
Thermal Products .......................................................................
Mechanical Products ..................................................................
Electrical Products .....................................................................
Years Ended
December 31,
2014
2013
$3,292
(3)
562
(412)
$3,439
$3,322
(593)
577
(229
)
$3,077
$595
96
140
$831
$349
16
59
$424
December 31,
2014
2013
Identifiable assets:
Thermal Products ....................................................................... $26,211 $23,934
7,093
Mechanical Products ..................................................................
7,801
4,726
4,454
Electrical Products .....................................................................
$38,738 $35,481
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. ............................................................................................ $14,363 $13,337
27,433
26,089
Foreign .......................................................................................
$41.796 $39,426
Years Ended
December 31,
2013
2014
Property and equipment:
U.S. ............................................................................................
Foreign .......................................................................................
December 31,
2013
2014
$ 621
647
$1,268
$ 700
554
$1,254
F -19
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(15) QUARTERLY CONSOLIDATED FINANCIAL DATA (Unaudited)
The following tables present certain unaudited consolidated quarterly financial information for each of the eight quarters ended
December 31, 2014. 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 and ATE markets. 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.
3/31/14
Quarters Ended
9/30/14
6/30/14
12/31/14
Total
Net revenues ..................................................................................... $ 8,797 $12,343 $10,794 $ 9,862 $41,796
20,462
Gross margin ....................................................................................
4,909
Earnings before income tax expense ...............................................
1,470
Income tax expense .........................................................................
3,439
Net earnings .....................................................................................
4,185
411
125
286
6,082
2,054
697
1,357
5,168
1,268
431
837
5,027
1,176
217
959
Net earnings per common share – basic ...........................................
$0.33
Weighted average common shares outstanding – basic .................... 10,393,956 10,436,730 10,440,803 10,454,716 10,431,743
Net earnings per common share – diluted ........................................
$0.33
Weighted average common shares outstanding – diluted ................. 10,448,911 10,456,183 10,477,814 10,480,867 10,466,064
$0.08
$0.09
$0.08
$0.09
$0.13
$0.13
$0.03
$0.03
Net revenues ..................................................................................... $ 8,973 $11,218 $ 9,900 $ 9,335 $39,426
19,015
Gross margin ....................................................................................
4,008
Earnings before income tax expense ...............................................
931
Income tax expense .........................................................................
3,077
Net earnings .....................................................................................
4,105
370
78
292
4,689
1,037
345
692
5,465
1,487
484
1,003
4,756
1,114
24
1,090
3/31/13
Quarters Ended
9/30/13
6/30/13
12/31/13
Total
Net earnings per common share – basic ...........................................
$0.30
Weighted average common shares outstanding – basic .................... 10,327,428 10,371,716 10,377,189 10,377,678 10,363,678
$0.30
Net earnings per common share – diluted ........................................
Weighted average common shares outstanding – diluted ................. 10,366,312 10,394,094 10,404,095 10,435,096 10,419,103
$0.07
$0.10
$0.03
$0.10
$0.07
$0.10
$0.11
$0.03
F -20
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, 2014
Allowance for doubtful accounts ...........................................
Warranty reserve ....................................................................
147
123
-
(1)
96
(101)
146
118
Year Ended December 31, 2013
Allowance for doubtful accounts ...........................................
Warranty reserve ....................................................................
147
197
-
-
37
(111)
147
123
F -21
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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
Vice President and General Manager
Thermal Products Segment
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
Joseph W. Dews IV
Partner, AGC Partners
William Kraut
Partner, Newport Board Group LLC
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
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A
Transfer Agent
Computershare Investor Services
P. O. Box 43070
Providence, RI 02940-3070
800-962-4284
Investor Relations
Laura Guerrant-Oiye, Principal
Guerrant Associates
lguerrant@guerrantir.com
808-882-1467
Annual Stockholders’ Meeting
Our 2015 Annual Meeting of Stockholders will be held
at 11:00 A.M. Eastern Daylight Time on Wednesday,
June 24, 2015, 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, 2014 (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.
80870 Cover_v5Intest_2014AR.indd 3
5/8/15 2:23 PM
004CTN133CinTEST CorporationCorporate Headquarters804 East Gate Drive, Suite 200Mt. Laurel, NJ 08054 USATel (856) 505-8800Fax (856) 505-8801www.intest.com80870 Cover_v5Intest_2014AR.indd 15/8/15 2:23 PM