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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
(Mark One)
For the fiscal year ended
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from __________________ to ___________________
Commission File Number 0-22529
inTEST Corporation
Delaware |
22-2370659 (I.R.S. Employer Identification Number) |
(856) 424-6886
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act: Common Stock, par value $0.01 per share.
Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file
such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes /X/ No / /
The aggregate market value of the voting and non-voting common equity held by non-affiliates of the Registrant computed by reference to the closing price of such stock on March 15, 2001 as quoted on the Nasdaq National Market system was $33,097,758.
The number of shares outstanding of the Registrant's Common Stock, as of March 15, 2001 is 8,656,757.
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (ss. 229.405 of this chapter) 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. / /
inTEST Corporation
Annual Report on Form 10-K
INDEX
Part I: |
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Page |
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Item 1: |
Description of Business |
3 |
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Item 2: |
Properties |
10 |
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Item 3: |
Legal Proceedings |
10 |
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Item 4: |
Submission of Matters to a Vote of Security Holders |
10 |
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Part II: |
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Item 5: |
Market for Registrant's Common Equity and Related Stockholders Matters |
11 |
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Item 6: |
Selected Financial Data |
11 |
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Item 7: |
Management's Discussion and Analysis of Financial Condition and Results of Operations |
12 |
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Item 7A: |
Quantitative and Qualitative Disclosures About Market Risk |
18 |
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Item 8: |
Financial Statements and Supplementary Data |
18 |
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Item 9: |
Changes in and Disagreements with Accountants on Accounting and Financial Disclosures |
18 |
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Part III: |
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Item 10: |
Directors and Executive Officers |
19 |
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Item 11: |
Executive Compensation |
19 |
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Item 12: |
Security Ownership of Certain Beneficial Owners and Management |
19 |
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Item 13: |
Certain Relationships and Related Transactions |
19 |
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Part IV: |
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Item 14: |
Exhibits, Financial Statements Schedules and Reports on Form 8-K |
20 |
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Signatures |
22 |
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Index to Exhibits |
23 |
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Index to Consolidated Financial Statements and Consolidated Financial Statement Schedule |
24 |
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- 2 -
inTEST Corporation
Annual Report on Form 10-K
PART I:
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 (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, and can often be identified by the use of forward-looking terminology such as "believes", "expects", "intends", "may", "will", "should" or "anticipates" or similar terminology. Investors and prospective investors are cautioned that such statements are only projections. These statements involve risks and uncertainties and are based upon various assumptions. We discuss many of these risks and uncertainties under the heading "Risks That Could Affect Future Results" in "Management's Discussion and Analysis of Financial Condition and Results of Operations" below, and elsewhere in this Report. These risks, among others, could cause our actual future results to differ materially from those described in our forward-looking statements. We are not obligated to update these forward-looking statements, even though our situation may change in the future.
Item 1. DESCRIPTION OF BUSINESS
INTRODUCTION
We are a leading independent designer, manufacturer and marketer of manipulator and docking hardware products, temperature management systems and tester interface products that are used by semiconductor manufacturers in conjunction with automatic
test equipment, or ATE, in the testing of integrated circuits, or ICs. Our high performance products are designed to enable semiconductor manufacturers to improve the efficiency of their IC test processes and, consequently, their profitability. We supply
our products worldwide to major semiconductor manufacturers directly and through leading ATE manufacturers. Our customers include Texas Instruments, ST Microelectronics, Agere Systems (formerly the Microelectronics Group of Lucent Technologies), Philips,
Motorola, Teradyne, Cascade Microtech, Electroglas, Tokyo Seimitsu, Agilent Technologies (formerly Hewlett Packard), LTX, Analog Devices and Credence Systems' ICE Division (formerly TMT).
We were incorporated in New Jersey in 1981 and reincorporated in Delaware in April 1997. We established inTEST Limited in the U.K. in 1985, inTEST Kabushiki Kaisha (inTEST K.K.) in Japan in 1987, inTEST PTE, Limited in Singapore in 1990 and inTEST GmbH
in Germany in 2000. inTEST Limited designs, manufactures, markets and provides technical support for our products principally in Europe. inTEST K.K. acts as a liaison office with Japanese ATE manufacturers, and markets and provides technical support for
our products in Japan. inTEST PTE, Limited designs, manufactures, markets and provides technical support to customers in Southeast Asia. inTEST GmbH provides sales and service in continental Europe for temperature management systems as well as sales and
service for manipulator, docking hardware and tester interface products for selected accounts. In 1997, we completed our initial public offering. In 1998, we acquired all of the stock of TestDesign Corporation, which expanded our capabilities in the
design, manufacture and marketing of tester interface products. On March 9, 2000, we acquired all of the stock of Temptronic Corporation, a designer, manufacturer and marketer of high-performance temperature management systems used in the testing of ICs,
printed circuit boards and other subassemblies.
INDUSTRY
Overview
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 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. As product life cycles shorten, semiconductor manufacturers are
under more 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.
The 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
newer IC technologies include the use of 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 more sophisticated testing requirements of ICs.
- 3 -
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, before the ICs are put in a plastic, ceramic or other protective housing. This process step is 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" or "wafer probe." In front-end test, a piece of equipment known as a wafer prober automatically positions the wafer under a "test head," which connects electrically to a test system. Once the good
ICs have been identified, they are packaged. The packaged IC also requires testing, called "back-end test," to determine if it meets design and performance specifications. Packaged ICs are placed into a machine called a handler, which then plugs the
packaged ICs into an environmentally-controlled test head, which includes a test socket, for testing.
Testers range in price from approximately $500,000 to over $3.0 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 $100,000 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 wafer prober in front-end test, and to the handler in back-end test. Docking hardware connects the test head to the wafer prober and 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 the demand for front-end testing grows.
Trends in IC Testing
While the basic purpose of testing ICs during production is to identify unacceptable products, a related goal of the semiconductor manufacturer is to perform the test in the most efficient and cost-effective manner possible. To provide testing equipment
that can help manufacturers meet this goal, the ATE industry must respond to the following developments:
Change in Technology. Currently, most semiconductor manufacturers use 150 mm and 200 mm wafer technology. In order to increase throughput and lower IC cost, semiconductor manufacturers will need to add 300 mm wafer production capability over the
next few years. In addition, end-user applications are demanding ICs with increasingly higher performance, greater speeds, and smaller sizes. ICs that meet these higher standards are more complex and dense. SOC designs are likely to have increasing demand
in the future. These technology trends have significant implications for the IC testing process, including:
Need for Plug-Compatibility and Integration. Semiconductor manufacturers need test methodologies that will perform increasingly complex tests while lowering the overall cost of testing. This can require combining ATE manufactured by various
companies into optimally performing systems. Semiconductor manufacturers have to work closely with various test hardware, software, interface and component vendors to resolve design and compatibility issues in order to make these vendors' products
plug-compatible with test equipment manufactured by other vendors.
Testing under Extreme Conditions. ICs will have to perform across a wider spectrum of temperature and environmental conditions than ever before because of the growing complexity of products in which they are deployed. Temperature testing will
likely find 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 are increasingly demanding higher levels of technical support on a routine basis. ATE manufacturers must commit greater 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 centers 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. We believe that this factor will
lead to more front-end, wafer level testing.
OUR SOLUTIONS
We have focused our efforts on designing and producing high quality products that provide superior performance and cost-effectiveness. We seek 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 design solutions to overcome the evolving challenges facing the ATE industry by providing the following advantages:
- 4 -
Scalable, Universal, High Performance Interface Technology. Our universal test head manipulators provide six degrees of motion freedom to enable a high degree of flexibility with the minimum amount of effort. As a result, our products can be
used in virtually any test setting. Our manipulators have kept pace with the rapidly increasing size of test heads, which can weigh up to 3,000 pounds and which will become larger and heavier as the required level of testing sophistication increases. 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. We believe that these characteristics will gain even more
significance as testing becomes more complicated.
Compatibility and Integration. A hallmark of our products has been, and continues to be, compatibility with a wide variety of ATE. Our universal manipulators can handle test heads produced by different manufacturers. We also design and manufacture
docking hardware that can 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 and lower overall test costs.
Wafer Level Testing. Semiconductor manufacturers use our redesigned ThermoChuck(R) products for front-end temperature stress screening at the wafer level. This can provide significant cost savings from early identification of defective ICs that
will not perform at specified temperatures thereby eliminating the costs of packaging and testing these defective ICs. ThermoChuck(R) products are capable of handling any size wafer, including a 300 mm wafer, for thermal test without causing the wafer
distortion that can occur as temperature changes are introduced. In addition, our Pro Dock can be used in front-end testing by a single operator to position a test head weighing up to 1,000 pounds. The Pro Dock has a relatively small footprint that
significantly increases test floor space utilization. We believe that these characteristics will become even more important as front-end testing becomes more intricate.
Worldwide Customer Service and Support. We have long recognized the need to maintain a physical presence near our customers' facilities. We have manufacturing facilities in New Jersey, Massachusetts, California, the U.K. and Singapore, and we
provide service to our customers from 12 sales and service offices in the U.S., the U.K., Japan, Singapore and Germany. Thus, our engineers are easily accessible to, and can work directly with, most of our customers from the time we begin developing our
initial proposal through the delivery, installation and use of the product by our customer. In this way, we are able to develop and maintain close relationships with our customers.
OUR STRATEGY
Our goal is to be recognized in our industry as the designer and manufacturer of the highest quality products in our markets and to become a supplier for all of our customers' ATE needs, other than probers, handlers and testers. Our strategies to achieve
these goals include the following:
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 are 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.
Continuing our International Expansion. 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., the U.K., Japan, Singapore and Germany.
Pursuing Synergistic Acquisitions. A key element of our growth strategy is to acquire businesses, technologies or products that are complementary to our current product offerings. Our TestDesign and Temptronic acquisitions have expanded our line
of product offerings and given us the opportunity to market a broader range of products to our customer base. We expect to make acquisitions that will further expand our product lines, enabling us to become a single source supplier to the test floor for a
complete selection of equipment compatible with testers, probers and handlers of all manufacturers.
OUR PRODUCTS
We design and manufacture manipulators, docking hardware, temperature management systems and tester interface products, all of which are designed to improve the utilization and performance of ATE used by semiconductor manufacturers in the testing of ICs.
Semiconductor manufacturers most frequently use our primary lines of manipulators and docking hardware during back-end testing of specialized packaged ICs. They use our temperature management systems and tester interface products in both front-end and
back-end testing of ICs. These ICs include microprocessors, digital signal processing chips, application specific ICs and specialized memory ICs, and are used primarily in the automotive, computer, consumer products and telecommunications industries. We
custom design most of our products for each customer's particular combination of ATE. We have designed over 5,000 models, each of which is mechanically different. These models are designed to facilitate the use of one or more of over 175 different test
heads with one or more of over 30 probers or 300 handlers.
- 5 -
Manipulator Products
Universal Manipulators: Our primary line of manipulator products consists of the in2(R) and in2 Pro test head positioners, which are free-standing universal manipulators. 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. The in2(R) and in2 Pro differ from universal manipulators manufactured by our competitors by our innovative, patented floating-head design.
This design permits a test head weighing up to 3,000 pounds to be held in an effectively weightless state, so it can be moved manually or, in the case of the in2 Pro, 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 interface board 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 held in an in2(R) or in2 Pro manipulator and equipped with our docking hardware and dock it to another handler for testing
either a subsequent lot of the same packaged IC or to test a different IC. in2(R) and in2 Pro manipulators range in price from approximately $12,000 to $165,000.
Dedicated Manipulators: In addition to our free-standing universal manipulators, we manufacture several models of dedicated manipulators. We have developed a fully-automatic, electrically-powered and microprocessor-controlled dedicated
manipulator, which we call the Pro Dock. We believe it is the only fully-automatic manipulator which enables a test head to be automatically docked to a prober or handler with the push of one button. We believe that the Pro Dock series of manipulators
will be attractive to semiconductor manufacturers for testing 300 mm wafers and packaged memory ICs because the size of test heads for these wafers and ICs make manual manipulation difficult. In addition, we believe that the Pro Dock will enable
semiconductor manufacturers to increase floor space utilization of their ATE systems by 25% to 40% over that achieved by other dedicated or universal manipulators because a Pro Dock manipulator has virtually a zero footprint. We have not yet sold any Pro
Dock manipulators and do not expect significant sales of this product until demand for 300 mm wafers reaches levels warranting significant investment in new testing equipment by semiconductor manufacturers.
Docking Hardware Products
Our docking hardware products ensure proper alignment of the delicate interface 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 the constant
vibration during testing. Our docking hardware products are used primarily with floating-head universal manipulators when maximum mobility and inter-changeability of handlers 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.
Our docking hardware products differ from those offered by competing ATE manufacturers by our ability to make various competing brands of test heads compatible with various brands of probers and handlers used by a semiconductor manufacturer 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 $12,000.
Temperature Management Systems
Our temperature management systems enable a manufacturer to test a semiconductor wafer or IC over the extreme and variable temperature conditions that can occur in the actual use of the electronic device containing the ICs.
ThermoChuck(R) Products: Our ThermoChuck(R) precision vacuum platform assemblies quickly change and stabilize the temperature of semiconductor wafers during testing without removing the wafer from its testing environment. Such temperatures can
range from as low as -65 degrees Celsius to as high as +400 degrees Celsius. ThermoChucks(R) are incorporated into wafer prober equipment for laboratory analysis and for in-line production testing of semiconductor wafers. During 2000, we redesigned our
ThermoChuck(R) product line and developed an innovative manufacturing process for this product line. We began marketing the redesigned ThermoChuck(R) products during 2000 and, based upon customer feedback from initial sales, we believe that this new
design and manufacturing process has improved the reliability and performance of ThermoChuck(R) products. Specifically, our redesigned ThermoChuck(R) products stay flatter, remain more level and maintain more uniform temperatures during testing than our
previous design. In addition, the new manufacturing process has reduced production costs for these products. ThermoChuck(R) products range in price from approximately $14,000 to $55,000.
ThermoStream(R) Products: Our ThermoStream(R) stand-alone temperature management systems use a temperature-controlled air stream to rapidly change and stabilize the temperature of packaged ICs and printed circuit boards. 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 -75 degrees Celsius to as high as +225 degrees
Celsius within 1.0 degree Celsius of accuracy. Traditionally, our customers used ThermoStream(R) products primarily in engineering, quality assurance and small-run manufacturing environments. However, increasingly, our customers use ThermoStream(R)
products in longer-run production applications. ThermoStream(R) products range in price from approximately $4,500 to $35,000.
Other Temperature Management Products: We also manufacture ancillary temperature management products including temperature-controlled contact probes, temperature-controlled enclosures, and precision temperature platforms. Recent developments in
wireless communications have resulted in the mounting of wireless transmitters outdoors to reduce transmission line problems. As a result, these transmitters are exposed to extreme temperature variations and require testing over the full range of
temperature exposure that will be encountered. Historically, the standard approach to this type of testing has been to use conventional thermal chambers, which can require removing equipment during testing and potentially cause damage to the sensitive
microwave cables or create erroneous measurements. Our other temperature management products can be used to provide a closed, temperature-controlled environment for temperature testing of high frequency transmitters and receivers without the need for
removal during testing, eliminating the risk of damage due to interruption of the test.
- 6 -
Tester Interface Products
Tester interface products 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 which increases the accuracy of the test data. Therefore, our tester interface products can be used with high speed, high frequency, digital or mixed signal interfaces 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 offer over 200 different types of tester interface models that we custom designed for our customers' specific
applications. These products range in price from $6,000 to $51,000.
Financial Information About Product Segments and Geographic Areas
Please refer to Note 4 of our consolidated financial statements included in this Report for additional data regarding each of our product segments and revenues attributable to foreign countries.
MARKETING, SALES AND CUSTOMER SUPPORT
We market and sell our products in all markets where the manufacture of semiconductors occurs. 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.
Manipulator, Docking Hardware and Tester Interface Products: In North America, we sell to semiconductor manufacturers principally through independent, commissioned sales representatives. North American sales representatives also coordinate product
installation and support with our technical staff and participate in trade shows.
Our regional and account managers handle sales to ATE manufacturers and are 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, Texas and Arizona.
In Europe and Japan, we sell to semiconductor and ATE manufacturers through our account managers. In China, Hong Kong, Malaysia, the Philippines, South Korea, Taiwan and Thailand, we sell through independent sales representatives. International sales
representatives are responsible for sales, installation, support and trade show participation in their geographic market areas.
Temperature Management Systems: Sales to ATE manufacturers are handled directly by our own sales force. Sales to semiconductor manufacturers in the U.S. are handled through independent sales representative organizations. Outside the U.S., our
sales to semiconducor manufacturers are handled through distributors, except for Germany and the U.K. where these sales are handled by our account managers. Our distributors represent us in 30 countries. We visit our distributors regularly and have
trained them to sell and service all of our temperature management products.
CUSTOMERS
We market all of our products to semiconductor manufacturers and ATE manufacturers. In the case of temperature management products, we also market our products to independent testers of semiconductors, manufacturers of electronic 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 major semiconductor manufacturers in the world.
Our largest customers include:
Semiconductor Manufacturers |
ATE Manufacturers |
Texas Instruments |
Teradyne |
ST Microelectronics |
Cascade Microtech |
Agere Systems (formerly the Microelectronics Group of |
Electroglas |
Lucent Technologies) |
Tokyo Seimitsu |
Philips |
Agilent Technologies (formerly Hewlett Packard) |
Motorola |
LTX |
|
Analog Devices |
|
Credence Systems' ICE Division (formerly TMT) |
- 7 -
MANUFACTURING AND SUPPLY
Our principal manufacturing operations consist of assembly and testing at our facilities in New Jersey, Massachusetts, California, the U.K., and Singapore. By maintaining manufacturing facilities and technical support in geographic markets where most of
our customers are located, we believe that we are able to respond more quickly and effectively to our customers' needs. During the first quarter of 2000, we relocated our manufacturing facilities in California. During the fourth quarter of 2000, we moved
our headquarters, manufacturing and warehouse facility in New Jersey to a larger facility and we signed a lease for a larger facility for our Temptronic operation. During the first quarter of 2001, we expanded our Thame, U.K. operation and signed a lease
for a larger facility for our Singapore operation. We plan to move both our Temptronic operation in Massachusetts and our Singapore operation to their larger facilities during the second quarter of 2001.
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 operations in New Jersey and California. Fabrication
operations are expected to commence in the U.K. by the end of the second quarter of 2001. 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. Although we purchase certain raw materials and components from single suppliers, we believe that all materials and components are available in adequate amounts from other sources.
We conduct inspections of incoming raw materials, fabricated parts and components using sophisticated measurement equipment. This includes testing with coordinate measuring machines in New Jersey, Massachusetts, the U.K. and Singapore 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. We recently obtained ISO 9001 certification at our New Jersey facility and are in the
process of applying for similar certification for our California operation.
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, 2000, we employed a total
of 48 engineers, who were engaged full time in engineering and product development. Our practice in many cases is to assign engineers to work with specific customers, thereby enabling us to develop the relationships and free 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 redesign of the ThermoChuck® and the development of
several new types of universal manipulators.
Since most of our products are customized, we consider substantially all of our engineering activities to be engineering and product development. We spent approximately $6.6 million on engineering and product development in 2000, $4.9 million in 1999,
and $4.1 million in 1998.
PATENTS AND OTHER PROPRIETARY RIGHTS
As of December 31, 2000, we held 25 U.S. patents and had pending 19 U.S. patent applications covering various aspects of our technology. Our U.S. issued patents will expire at various times beginning in 2001 and extending through 2017. We also hold
foreign patents and file foreign patent applications, in each case derived from our U.S. patents, to the extent management deems appropriate.
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 trade secrets and unpatentable know-how to protect our proprietary rights. It is our practice to
require, as a condition of permanent employment, that all of our employees agree to assign to us all rights to inventions or other discoveries relating to our business made while employed by us. In addition, all employees agree not to disclose any private
or confidential information relating to our technology or intellectual property.
COMPETITION
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 product performance, price, functionality, reliability,
customer service, applications support, and timely product delivery. 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.
The independent manufacturers of docking hardware and manipulators that compete with us include Reid-Ashman Manufacturing and Microhandling GmbH, each of which manufactures docking hardware and manipulators. The ATE manufacturers that compete with us in
the sale of docking hardware and universal manipulators include Credence Systems, LTX, Schlumberger and Teradyne, who are also our customers.
Our principal competitors for temperature management products are Thermonics, Trio-Tech International and ERS Elektronik GmbH. The independent manufacturers of tester interface products that compete with us include Cerprobe, a division of Kulicke &
Soffa, Synergetix, a division of IDI, and Xandex. ATE manufacturers that compete with us in the sale of tester interface products include Credence Systems, LTX and Teradyne.
- 8 -
BACKLOG
At December 31, 2000, our backlog of unfilled orders for all products was approximately $22.3 million compared with approximately $15.2 million at December 31, 1999. Our backlog includes customer purchase orders which we have accepted, substantially all
of which we expect to deliver in the current fiscal year. 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. As a result, our backlog at a
particular date is not necessarily indicative of sales for any future period.
EMPLOYEES
At December 31, 2000, we had 386 full time employees, including 225 in manufacturing operations, 120 in customer support/operations and 41 in administration. These figures include approximately 40 temporary employees, primarily in manufacturing jobs.
Substantially all of our key employees are highly skilled and trained technical personnel. None of our employees is represented by a labor union, and we have never experienced a work stoppage. We believe that our relationship with our employees is very
good.
During the first quarter of 2001, we reduced our workforce by 77 employees as a part of a cost containment program which we recently implemented. Of these employees, 71 were in manufacturing operations, 5 in customer support/operations and 1 in
administration. These figures included approximately 35 temporary employees.
- 9 -
inTEST Corporation
Annual Report on Form 10-K
Item 2: PROPERTIES
At December 31, 2000, we leased 12 facilities worldwide. We relocated our Sunnyvale, California and Tokyo, Japan operations during the first quarter of 2000. During the third quarter of 2000, we leased a facility in Germany. During the fourth
quarter of 2000, we moved our headquarters, manufacturing and warehouse facility in New Jersey to a larger facility and we signed a lease for a larger facility for our Temptronic operation. During the first quarter of 2001, we expanded our Thame, U.K.
operation and signed a lease for a larger facility for our Singapore operation. We plan to move both our Temptronic operation in Massachusetts and our Singapore operation to their larger facilities during the second quarter of 2001. We believe that
additional space to meet our current and foreseeable future needs is readily available.
The following chart provides information regarding each of the principal facilities with square footage in excess of 15,000 which we occupied, or for which we had signed leases, at December 31, 2000.
|
|
Approx. |
|
|
Cherry Hill, NJ |
9/10 |
121,700 |
Corporate headquarters and design, manufacturing, service |
|
Newton, MA(1) |
8/01 |
44,000 |
Current design, manufacturing, service and sales -- temperature |
|
Sharon, MA(2) |
2/11 |
62,400 |
Future site of design, manufacturing, service and sales -- |
|
Sunnyvale, CA |
12/04 |
18,300 |
Design, manufacturing, service and sales -- tester interface |
(1) Site to be vacated prior to lease expiration.
(2) Site to be occupied on or about May 15, 2001.
Item 3: LEGAL PROCEEDINGS
From time to time we are a party to legal proceedings. We are not currently involved in any legal proceedings the resolution of which could have a material effect on our business, our financial position or our results of operations.
Item 4: SUBMISSIONS OF MATTERS TO A VOTE OF SECURITY HOLDERS
No matters were submitted to a vote during the fourth quarter of 2000.
- 10 -
inTEST Corporation
Annual Report on Form 10-K
PART II:
Item 5:
MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERSOur common stock is traded on the Nasdaq National Market under the symbol "INTT." The following table sets forth the high and low sale prices of our common stock, as reported on the Nasdaq National Market, for the periods indicated. Sale prices have been rounded to the nearest full cent.
|
Sales Price |
|
|
High |
Low |
1999 |
|
|
First Quarter |
$ 8.25 |
$ 5.25 |
Second Quarter |
7.75 |
3.63 |
Third Quarter |
11.25 |
6.50 |
Fourth Quarter |
20.38 |
6.63 |
|
|
|
2000 |
|
|
First Quarter |
$26.25 |
$16.44 |
Second Quarter |
24.50 |
14.00 |
Third Quarter |
18.88 |
8.00 |
Fourth Quarter |
11.13 |
5.00 |
On March 15, 2001, the closing price for our common stock as reported on the Nasdaq National Market was $6.63. As of March 15, 2001, we had 8,656,757 shares outstanding that were held of record by approximately 1,000 shareholders.
We have not paid dividends on our common stock since our initial public offering, and we do not 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. In addition, our current credit agreement prohibits us from paying cash
dividends without the lender's prior consent.
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.
|
Years Ended December 31, |
||||
|
2000 |
1999 |
1998 |
1997 |
1996 |
|
(in thousands, except share and per share data) |
||||
Consolidated Statement of Earnings Data: |
|
|
|
|
|
Net revenues |
$87,651 |
$53,585 |
$36,058 |
$40,014 |
$36,259 |
Gross margin |
39,556 |
26,710 |
17,188 |
20,914 |
20,512 |
Operating income |
10,909 |
7,327 |
2,076 |
5,840 |
7,211 |
Net earnings |
6,379 |
6,133 |
1,058 |
4,223 |
5,613 |
Net earnings per common share (1997 and 1996 |
|
|
|
|
|
Basic |
.78 |
.76 |
.14 |
.55 |
.82 |
Diluted |
.75 |
.74 |
.14 |
.54 |
.76 |
Weighted average common shares outstanding (1997 |
|
|
|
|
|
Basic |
8,201 |
8,084 |
7,669 |
6,531 |
5,325 |
Diluted |
8,470 |
8,266 |
7,822 |
6,697 |
5,688 |
- 11 -
|
As of December 31, |
||||
|
2000 |
1999 |
1998 |
1997 |
1996 |
|
(in thousands) |
||||
Consolidated Balance Sheet Data: |
|
|
|
|
|
Cash and cash equivalents |
$ 5,680 |
$12,047 |
$ 8,637 |
$12,138 |
$ 3,840 |
Working capital |
26,768 |
20,784 |
15,068 |
16,826 |
6,513 |
Total assets |
46,529 |
43,015 |
32,201 |
31,290 |
16,018 |
Long-term debt, less current portion |
- |
133 |
262 |
427 |
1,312 |
Total stockholders' equity |
38,398 |
31,458 |
25,062 |
21,037 |
7,767 |
The 1996 and 1997 net earnings per common share and weighted average share data are presented on a pro forma basis to reflect our results as if we had been taxed as a C corporation for all of 1996 and 1997 and as if we had acquired our minority
interests in three foreign subsidiaries on January 1, 1996, rather than on June 20, 1997, the actual date of acquisition.
The selected financial data gives retroactive effect to our merger with Temptronic Corporation on March 9, 2000. The merger has been accounted for using the pooling-of-interests method of accounting.
Item 7: MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
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. 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. 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 cyclicality has been clearly demonstrated during the past five years,
with downward cycles in 1996 and 1998, and up cycles in 1997, 1999 and 2000. During the fourth quarter of 2000, demand for ATE entered another cyclical downturn. We cannot be sure as to the length and depth of this current downturn and when the next
cyclical growth phase will occur.
In response to this downturn, we reduced our worldwide workforce by 20%, or 77 people, during the first quarter of 2001. In addition, we have implemented a worldwide salary freeze, put a hold on new hires and implemented additional cost controls on other
expenditures with the goal of reducing our overall operating expenditures by 10%.
We sell our products to both semiconductor manufacturers (end user sales) and to ATE manufacturers (OEM sales) who ultimately resell our equipment with theirs to semiconductor manufacturers. The mix of customers during any given period will affect our
gross margin due to differing sales discounts and commissions. Historically, the majority of our manipulator, docking hardware and tester interface product sales have been directly to semiconductor manufacturers, with our end user sales typically in the
range of 65% to 75% of our net revenues. In the past year, many semiconductor manufacturers have begun to show a preference for purchasing the various components of the ATE (excluding temperature management systems) they need from a single source.
Typically, this source is the manufacturer of the largest and most expensive components of the ATE system, the tester manufacturer. During 2000, OEM sales as a percentage of net revenues increased from 33% to 41% for manipulator and docking hardware
products and from 21% to 42% for tester interface products and we expect that OEM sales as a percentage of net revenues will continue to increase in the future for these product segments. The impact of this increase in OEM sales as a percentage of net
revenues is a reduction in our gross margin, as OEM sales have a more significant discount than end user sales. Our current net operating margins on OEM sales for these product segments, 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 also expect to continue to experience demands from our OEM customers' supply line management groups to reduce our sales prices to them. This continued price pressure may
have the ultimate effect of reducing our gross and operating margins if we cannot reduce our manufacturing and operating costs.
We believe that purchases of most of our products are typically made from the end users' capital expenditure budgets. Certain portions of our business, however, are less dependent upon the capital expenditure budgets of the end users. For example,
purchases of certain related ATE interface products, such as sockets and interface boards, which must be replaced periodically, are typically made from the end users' operating budgets. In addition, purchases of our products for the purpose of upgrading,
or to improve the utilization, performance and efficiency of, existing ATE tend to be counter cyclical to sales of new ATE. Moreover, we believe a portion of our sales of temperature management products results from the increasing need for temperature
testing of circuit boards and specialized components that do not have the design or quantity to be tested in a handler. We believe that this business is less cyclical than new ATE sales.
Please refer to the section entitled "Risks That Could Affect Future Results" below for a further discussion of important factors that could cause our results to differ materially from our prior results or those expressed or implied by our
forward-looking statements.
- 12 -
Significant Events
On March 9, 2000, we acquired Temptronic Corporation. The acquisition was in the form of a merger of Temptronic into a subsidiary of ours, and was accounted for as a pooling of interests. Temptronic designs, makes, sells and services high-performance
temperature management systems used in the testing of ICs and other electronic products. These temperature management systems are complementary to the manipulator, docking hardware and tester interface products manufactured by us prior to the merger and
expand our line of product offerings to our customer base.
On August 3, 1998, we acquired all of the outstanding capital stock of TestDesign Corporation, a privately held California corporation. TestDesign is engaged in the design and manufacture of tester interface products used by the semiconductor industry.
The purchase price was $4.4 million in cash and 625,000 shares of our common stock. Subsequent to the acquisition, TestDesign was renamed "inTEST Sunnyvale Corporation."
Results of Operations
All of our products are used by semiconductor manufacturers in conjunction with ATE in the testing of ICs. Consequently, the results of operations for each product segment 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 for the company as
a whole and includes discussion of factors unique to each product segment where significant to an understanding of such business.
Year Ended December 31, 2000 Compared to Year Ended December 31, 1999
Net Revenues. Net revenues were $87.7 million for 2000 compared to $53.6 million for 1999, an increase of $34.1 million or 64%. We believe that the significant increase in net revenues over the comparable prior period is principally the result of
growth in the demand for ATE that continued through most of 2000 as compared to 1999.
Gross Margin. Gross margin decreased to 45% in 2000 from 50% in 1999. The decline in gross margin was primarily the result of increased material costs coupled with higher levels of fixed manufacturing costs and, to a lesser extent, for manipulator
and docking hardware products as well as tester interface products, an increase in the percentage of OEM sales in 2000 compared to 1999. The increase in material costs was mainly the result of significant additions to our obsolescence reserve and, to a
lesser extent, higher costs to purchase certain component materials, such as aluminum, as well as increases in fabrication costs. The additions to our obsolescence reserve were made against certain recently discontinued product lines, as well as other
products where we do not see significant future demand relative to current inventory levels. We believe the increase in fabrication costs is the result of higher demand for fabrication in most of the markets where we operate. The increase in fixed
manufacturing costs is primarily the result of increased levels of salary expense due to additional operations staff hired in late 1999 and 2000 in response to increased business activity as well as salary increases for existing staff, combined with
higher facility and depreciation costs primarily resulting from the relocation of certain of our manufacturing facilities in the U.S. in order to significantly increase our manufacturing capacity. We believe this increased capacity coupled with additional
expansions planned for 2001 will enable us to meet the demand for our products in the foreseeable future. The decline in gross margin was partially offset by the absorption of fixed manufacturing costs over significantly higher net revenue levels in 2000
compared to 1999.
Selling Expense. Selling expense was $11.7 million for 2000 compared to $8.4 million for 1999, an increase of $3.3 million or 39%. We attribute the increase primarily to increased commission expense related to the higher sales levels in 2000, as
well as higher levels of salary and benefits expense for new and existing staff. To a lesser extent, higher levels of warranty expense, travel costs, freight and advertising expenditures also contributed to the increase in selling expense.
Engineering and Product Development Expense. Engineering and product development expense was $6.6 million for 2000 compared to $4.9 million for 1999, an increase of $1.7 million or 35%. We attribute the increase primarily to the salary and
benefits expense of additional engineering and technical staff and, to a lesser extent, increased spending on product development materials and fees for technical consultants associated with new product development.
General and Administrative Expense. General and administrative expense was $7.3 million for 2000 compared to $6.1 million for 1999, an increase of $1.2 million or 19%. We attribute the increase primarily to increases in incentive compensation for
existing staff and, to a lesser extent, increases in professional fees and travel costs. These increases were partially offset by the receipt of $300,000 in settlement of patent infringement litigation, which was recorded as a reduction of legal expense.
Merger-related Costs. Merger-related costs resulting from our merger with Temptronic Corporation were $2.7 million, which consisted primarily of fees paid to investment bankers, professional fees, printing, escrow and other miscellaneous costs.
Write-off of Deferred Offering Costs. During September 2000, we withdrew our registration statement for the offering of 2.0 million shares of our common stock, 1.0 million of which were to be offered by us and 1.0 million by certain of our
stockholders. Approximately $415,000 of costs related to the withdrawn offering, which consisted primarily of professional fees, printing costs and roadshow costs, were expensed during the third quarter of 2000.
Other Income (Expense). Other income (expense) was $670,000 for 2000 compared to $231,000 for 1999, an increase of $439,000 or 190%. We attribute the increase to the reduction in interest expense resulting from debt retirements early in 2000,
combined with an increase in interest income in 2000 from higher average balances of cash and cash equivalents in 2000 compared to 1999 and an increase in other miscellaneous income.
- 13 -
Income Tax Expense. Income tax expense increased to $5.2 million for 2000 from $1.4 million for 1999. Our effective tax rate for 2000 was 45% compared to 19% for 1999. The significant increase in the effective tax rate is primarily due to $2.3
million of non-tax deductible merger-related costs incurred in 2000, which significantly increased the 2000 effective tax rate, combined with a $1.4 million reduction in the valuation allowance in 1999, which significantly reduced the 1999 effective tax
rate. The reduction in the valuation allowance was based on management's assessment of our ability to realize the deferred tax assets.
Year Ended December 31, 1999 Compared to Year Ended December 31, 1998
Net Revenues. Net revenues were $53.6 million for 1999 compared to $36.1 million for 1998, an increase of $17.5 million or 49%. The significant increase in net revenues over the comparable prior period results from the turnaround in the demand for
ATE in 1999 previously described. Net revenues for 1999, excluding the net revenues of inTEST Sunnyvale, formerly TestDesign Corporation, which was acquired on August 3, 1998, increased $10.8 million or 31% over 1998.
Gross Margin. Gross margin increased to 50% for 1999 from 48% in 1998. The improvement in gross margin resulted primarily from the absorption of fixed manufacturing costs over significantly higher net revenue levels in 1999 compared to 1998. Also
contributing to the improvement in the gross margin were production methodology improvements implemented in 1999 by Temptronic, which were offset, in part, by increases in fixed manufacturing costs, resulting from manufacturing capacity increases in 1999
and the acquisition of inTEST Sunnyvale. During the third quarter of 1999, we added a machining operation in Cherry Hill, New Jersey and commenced manufacturing operations in Singapore. Both of these additions had a negative impact on our gross margin
because these operations were not fully functional until late in the fourth quarter of 1999.
Selling Expense. Selling expense was $8.4 million for 1999 compared to $7.0 million for 1998, an increase of $1.4 million or 21%. We attribute the increase to several factors, including the salary expense of new sales and marketing staff, as well
as salary increases for existing staff, increased expenditures for travel, higher levels of both warranty and freight costs and increased spending on advertising.
Engineering and Product Development Expense. Engineering and product development expense was $4.9 million for 1999 compared to $4.1 million for 1998, an increase of $802,000 or 20%. We attribute the increase primarily to the additional salary
expense of the inTEST Sunnyvale engineering and technical staff. To a lesser extent, increased costs of materials used in product development and travel expenses to facilitate collaboration among our several offices contributed to the overall increases in
this expense category. Offsetting these increases were reductions in spending on third-party product development consultants and reductions in engineering and technical staff by Temptronic.
General and Administrative Expense. General and administrative expense was $6.1 million for 1999 compared to $4.1 million for 1998, an increase of $2.0 million or 50%. We attribute the increase primarily to increases in administrative salary
expense due to staffing additions, including the staff of inTEST Sunnyvale, and salary and incentive compensation increases for existing staff, legal costs related to our patent infringement suit and for the filing of new patents and maintenance on
existing patents worldwide, settlement costs of threatened litigation relating to a Temptronic personnel matter that occurred prior to our acquisition of Temptronic, and amortization of goodwill related to the acquisition of inTEST Sunnyvale.
Other Income (Expense). Other income (expense) was $231,000 for 1999 compared to $163,000 for 1998, an increase of $68,000 or 42%. We attribute the increase to the reduction in interest expense resulting from debt retirements during 1999, which
were partially offset by reduced interest income in 1999 from lower average balances of cash and cash equivalents in 1999 compared to 1998.
Income Tax Expense. Income tax expense increased to $1.4 million for 1999 from $1.2 million for 1998, an increase of $244,000. Our effective tax rate was 19% for 1999 compared to 53% for 1998. The significant decline in the effective tax rate was
primarily due to the $1.4 million reduction in the valuation allowance in 1999. The valuation allowance was reduced based on management's assessment of our ability to realize the deferred tax assets. The 1998 rate was negatively affected by the
nonrecognition of a current tax benefit on a portion of Temptronic's operating loss.
Liquidity and Capital Resources
Net cash used in operations for the year ended December 31, 2000 was $1.9 million. Accounts receivable increased $4.9 million from December 31, 1999 to December 31, 2000 due to the increase in sales activity throughout 2000. Inventories increased $4.6
million, also as a result of the increased sales activity as we made purchases for future product shipments. Other current assets decreased $431,000, primarily as a result of the expensing of previously capitalized merger-related costs. Accounts payable
decreased $543,000 due to the timing of payments to vendors. Accrued expenses increased $581,000 primarily as a result of additional accruals for salaries, incentive compensation, sales commissions, merger-related costs and warranty expense. Domestic and
foreign income taxes payable decreased $1.8 million as a result of significant estimated tax payments made during the fourth quarter of 2000.
Purchases of machinery and equipment were $4.1 million for the year ended December 31, 2000, which consisted primarily of improvements to our domestic facilities. During this period we spent approximately $556,000 on equipment, $279,000 on leasehold
improvements and $270,000 on furnishings at our new facility for our inTEST Sunnyvale operation, which relocated during the first quarter of 2000. In addition, during the fourth quarter of 2000, we relocated our headquarters and primary manufacturing
facility and spent approximately $1.1 million on leasehold improvements, $548,000 on equipment, and $477,000 on furnishings. We plan to relocate our UK manufacturing facility during the first quarter of 2001, and we estimate the total cost of leasehold
improvements and other costs associated with the move will be approximately $200,000. We plan to keep our existing UK manufacturing facility and convert it into a machine shop during the second quarter of 2001 to support the fabrication needs of our UK
manufacturing operation. We estimate the cost to convert the existing facility and purchase the equipment to be approximately $306,000. We plan to relocate our Singapore manufacturing facility during the second quarter of 2001 and we estimate the total
cost of leasehold improvements and other costs associated with the move will be approximately $170,000. We plan to relocate our Temptronic subsidiary during the second quarter of 2001, and we estimate that the total cost of leasehold improvements and
other costs associated with the move will be approximately $1.0 million. In addition we spent approximately $452,000 on manufacturing and computer equipment at various other domestic operations during the year, including approximately $123,000 for
demonstration equipment related to a recently redesigned product for our Temptronic subsidiary and $30,000 as a deposit on an additional coordinate measuring machine for our Cherry Hill location. We expect delivery and final payment for this equipment of
approximately $190,000 to occur in the first quarter of 2001.
- 14 -
Other long-term assets decreased $921,000 for the year ended December 31, 2000 primarily as a result of the liquidation of life insurance policies held on certain former Temptronic officers and directors.
Net cash used in financing activities for the year ended December 31, 2000 was $1.1 million. During this period, we repaid approximately $1.2 million under revolving lines of credit as well as $256,000 of long-term debt acquired as a result of the merger
with Temptronic. During the same period we received $227,000 from the exercise of stock options held by employees.
As of December 31, 2000, we had a $5.0 million committed, unsecured line of credit. This line of credit is due to expire June 30, 2001. Based upon our projected operating results for 2001, coupled with our historic results of operations, we believe that
this line of credit will be renewed in 2001 by the bank which granted it. This facility has been renewed each year since the original credit agreement was signed in 1992.
We believe that our existing cash balances and line of credit plus the anticipated net cash provided from operations will be sufficient to satisfy our cash requirements for the foreseeable future. However, future acquisitions may require additional
equity or debt financing to meet working capital requirements or capital expenditure needs. We do not anticipate paying dividends in the foreseeable future. Under the terms of our current credit agreement, any payment of dividends would require the prior
consent of the lender.
Risks That Could Affect Future Results
The factors discussed below are cautionary statements that identify important factors that could cause our actual results to differ materially from those expressed or implied by our forward-looking statements. These factors may also cause our future
results to differ materially from our prior results.
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:
Our sales reflect the cyclicality of the semiconductor industry, which causes our operating results to fluctuate significantly.
Our business depends in significant part upon the capital expenditures of semiconductor manufacturers. Capital expenditures by these companies depend upon, among other things, the current and anticipated market demand for semiconductors and the products
that utilize them. Typically, semiconductor manufacturers curtail capital expenditures during periods of economic downtown. Conversely, semiconductor manufacturers increase capital expenditures when market demand requires the addition of new or expanded
production capabilities or the reconfiguration of existing fabrication facilities to accommodate new products. These market changes have caused in the past, and will likely cause in the future, our operating results to fluctuate. The current cyclical
downturn in the semiconductor industry has slowed demand for our products. Our sales and operating results will likely be reduced during this downturn.
Our operating results often change significantly from quarter to quarter and may cause fluctuations in our stock price.
During the last three years, our operating results have fluctuated significantly from quarter to quarter. We believe that these fluctuations occur primarily due to the cycles of demand in the semiconductor manufacturing industry. In addition to the
changing cycles of demand in the semiconductor manufacturing industry, other factors that have caused our quarterly operating results to fluctuate in the past, or that may cause fluctuations or losses in the future, include:
- 15 -
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.
If we are not able to control our operating expenses during a cyclical downturn, our operating margins will be reduced.
Due to the current cyclical downturn, we have implemented cost containment strategies with a goal of reducing our operating expenses by 10%. These strategies include workforce reductions at all of our domestic manufacturing facilities, a worldwide salary
freeze, a hold on all new hires and additional cost controls on other expenditures. We may not be successful in reaching our goal of reducing our operating expenses by 10% and, if we are not able to control our operating expenses, they could increase and
our operating margins will be reduced.
We intend to acquire additional businesses. If we are unable to do so, our future rate of growth may be reduced or limited.
A key element of our growth strategy is to acquire businesses, technologies or products that expand and complement our current businesses. We may not be able to execute our acquisition strategy if:
Our acquisition strategy involves financial and management risks which may adversely affect our earnings in the future.
If we acquire additional businesses, technologies or products, we will face the following additional risks:
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 use which could, among other things, restrict our ability to increase capital expenditures or to acquire additional businesses.
Our industry is subject to rapidly evolving technological change, and our business prospects would be hurt if we are unable to respond to innovation in the semiconductor industry.
Semiconductor technology continues to become more complex as manufacturers incorporate ICs into an increasing variety of products. This trend, and the rapid changes needed in automatic testing systems to respond to developments in the semiconductor
industry, are likely to continue. We cannot assure you that we will be successful in developing, manufacturing or selling products that will satisfy customer needs or attain market acceptance. Our failure to provide products that meet customer needs or
gain market acceptance will hurt our business prospects.
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 2001 and 2017, and we have pending applications for additional patents. Some of our products utilize proprietary technology that is not covered by
patent or similar protection, and in many cases, cannot be protected. We cannot be certain that:
- 16 -
any additional patents will be issued on our applications;
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.
Our business will suffer if we cannot compete successfully with manufacturers whose products are similar to ours.
We compete with numerous manufacturers, many of whom have greater financial resources and more extensive design and production capabilities that we do. Some of our principal competitors in the sale of manipulator, docking and tester interface products
are Reid-Ashman Manufacturing, Microhandling GmbH, Credence Systems, LTX, Schlumberger, Teradyne and Cerprobe. Some of our principal competitors in the sale of temperature-management products are Trio-Tech International, Thermonics and ERS Elektronik
GmbH. 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 satisfaction worldwide. If we are not able to compete successfully, our business will suffer.
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.
Our ten largest customers accounted for approximately 55% of net revenues in 2000, although no one customer accounted for 10% or more of our net revenues in 2000. 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.
If we do not continue to retain the services of key personnel, relationships with, and sales to, some of our customers could suffer.
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 certain other key employees. Generally, we do not have
employment agreements with any of our executive officers or other key employees, although we entered into an employment agreement with the President and Chief Executive Officer of Temptronic in connection with our merger with Temptronic. Our future
success will depend, in part, upon our ability to retain our managers, engineers and other key employees. Our business could suffer if we were unable to retain one or more of our senior officers or other key employees.
A substantial portion of our operations exists 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 16% of consolidated net revenues
in both 2000 and 1999. Export sales from our U.S. manufacturing facilities totaled $22.9 million, or 26% of consolidated net revenues in 2000 and $15.9 million, or 30% in 1999. The portion of our consolidated net revenues that were derived from sales to
the Asia-Pacific region were 9% in 2000, 10% in 1999 and 13% in 1998. Countries in the Asia-Pacific region, including Japan, have experienced economic instability resulting in weaknesses in their currency, banking and equity markets. Although the economic
instability in the Asia-Pacific region has not had a material adverse effect on our order backlog, financial condition, or results of operations to date, continued economic instability could have a material adverse effect on demand for our products and
our results of operations. We expect our international revenues will continue to represent a significant portion of total net revenues. To date, we have not experienced significant problems in our foreign operations. 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:
- 17 -
We conduct business in foreign currencies, and fluctuations in the values of those currencies could result in foreign exchange losses.
In 2000, approximately 4% of our net revenues were dominated in Japanese yen, approximately 7% were dominated in British pounds, and less than 1% were dominated in German deutsche marks (our operation in Germany commenced in August 2000). Fluctuations in
the values of these currencies could result in foreign exchange losses. Any strengthening of the U.S. dollar in relation to the currencies of our competitors or customers, or strengthening or weakening of the Japanese yen, British pound or German deutsche
mark (or the Euro beginning in 2002) in relation to other currencies in which our customers or competitors do business, could adversely affect our competitiveness. Moreover, a strengthening of the U.S. dollar or other competitive factors could put
pressure on us to denominate a greater portion of our sales in foreign currencies, thereby increasing our exposure to fluctuations in exchange rates. Any devaluation of these currencies would hurt our business. We do not undertake hedging activities
against all of our exchange rate risk. Fluctuations in exchange rates may adversely affect our competitive position or result in foreign exchange losses, either of which could cause our business to suffer.
Item 7A: QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
We are exposed to currency exchange rate risk in the normal course of our business, primarily in our Japanese operations. Our exposure results from the fact that the sales of our Japanese subsidiary are in Japanese yen and inventory purchases are
in U.S. dollars. We have the same exposure in our German operations (which commenced in August 2000) as a portion of total sales are in German deutsche marks while inventory purchases are in U.S. dollars. We will also have a similar exposure in our
Singapore operations as our manufacturing operations expand, because our sales are in U.S. dollars but some of our manufacturing costs are in British pounds and Singapore dollars. We employ risk management strategies, including the use of forward exchange
rate contracts, to manage our exposure to exchange rate risks involving the yen, and may, in the future, use forward exchange rate contracts to manage our exposure to exchange rate risks involving the Singapore dollar and German deutsche mark.
Our objective in managing currency exchange risk is to minimize the impact of significant currency exchange rate fluctuations. We use forward exchange rate contracts to establish a fixed conversion rate between the Japanese yen and the U.S. dollar so
that the level of our gross margin from sales in Japan is not negatively affected by significant movements in the Japanese yen to U.S. dollar exchange rate. We purchase forward exchange rate contracts on a monthly basis in the amounts management deems
appropriate in light of the amount of the U.S. dollar denominated obligations of our Japanese subsidiary that are due within the month. We do not purchase forward contracts with settlement dates beyond 30 days. As of December 31, 2000, there were no
forward exchange rate contracts outstanding.
It is our policy to enter into forward exchange rate contracts only to the extent necessary to achieve the desired objectives of management in limiting our exposure to significant fluctuations in currency exchange rates. We do not hedge all of our
currency exchange rate risk exposures in a manner that would completely eliminate the impact of changes in currency exchange rates on our net earnings. We do not expect that the results of our operations or our liquidity will be materially affected by
these risk management activities.
Item 8: FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Consolidated financial statements are set forth in this Report beginning at page F-1
Item 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURES
None
- 18 -
inTEST Corporation
Annual Report on Form 10-K
PART III:
Item 10:
DIRECTORS AND EXECUTIVE OFFICERSThe information required by this item will be filed not later than April 30, 2001 by an amendment to this Report or incorporation by reference to the proxy statement for our 2001 Annual Meeting of Stockholders.
Item 11: EXECUTIVE COMPENSATION
The information required by this item will be filed not later than April 30, 2001 by an amendment to this Report or incorporation by reference to the proxy statement for our 2001 Annual Meeting of Stockholders.
Item 12: SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The information required by this item will be filed not later than April 30, 2001 by an amendment to this Report or incorporation by reference to the proxy statement for our 2001 Annual Meeting of Stockholders.
Item 13: CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The information required by this item will be filed not later than April 30, 2001 by an amendment to this Report or incorporation by reference to the proxy statement for our 2001 Annual Meeting of Stockholders.
- 19 -
inTEST Corporation
Annual Report on Form 10-K
PART IV:
Item 14:
EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K(a) The documents filed as part of this Annual Report on Form 10-K are:
(i) The Company's consolidated financial statements and notes thereto as well as the applicable report of the independent certified public accountants are included in Part II, Item 8 of this Annual Report on Form 10-K.
(ii) The following consolidated 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 14(c) of this Annual Report on Form 10-K.
(b) Reports on Form 8-K
On December 29, 2000, we filed a Report on Form 8-K providing information responsive to the requirements of Items 5 and 7 of that form regarding the anticipated financial results for that quarter.
(c) Exhibits required by Item 601 of Regulation S-K:
Exhibit |
|
3.1 |
Certificate of Incorporation.* |
3.2 |
By Laws.* |
10.1 |
Loan Agreement dated November 16, 2000 between PNC Bank, National |
10.2 |
Note payable to PNC Bank, National Association dated November 1, 2000. |
10.3 |
Lease Agreement between First Industrial, L.P. and the Company, dated |
10.4 |
Lease dated October 27, 1999 between Earl E. and Mitsue Jio and inTEST Sunnyvale, a |
10.5 |
Lease between SPHOS, Inc. and Temptronic Corporation (a subsidiary of the Company), |
10.6 |
Consulting Agreement, dated April 1, 1997, between the Company and Stuart F. |
10.7 |
Temptronic Corporation 1998 Incentive and Non-Statutory Stock Option Plan.**** |
10.8 |
Incentive Stock Option dated October 26, 1998 granted by Temptronic Corporation |
10.9 |
Non-Statutory Option granted by Temptronic Corporation to William M. Stone, dated |
10.10 |
Amended and Restated 1997 Stock Plan.***** |
10.11 |
Employment Agreement dated March 9, 2000 between William M. Stone and |
10.12 |
Amendment to Employment Agreement dated March 9, 2000 between William M. |
21 |
Subsidiaries of the Company. |
23 |
Consent of KPMG LLP. |
|
|
|
- 20 - |
|
|
|
|
|
|
* |
Previously filed by the Company as an exhibit to the Company's Registration Statement on |
** |
Previously filed by the Company as an exhibit to the Company's Form 10-Q for the quarter |
*** |
Previously filed by the Company as an exhibit to the Company's Form 10-K for the year |
**** |
Previously filed by the Company as an exhibit to the Company's Form 10-Q/A for the |
***** |
Previously filed as an appendix to the Company's proxy statement filed June 30, 2000, |
****** |
Previously filed by the Company as an exhibit to the Company's Form 10-Q for the quarter |
- 21 -
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 |
|
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 |
March 30, 2001 |
|
|
/s/ Hugh T. Regan, Jr. Financial Officer and Secretary (principal financial officer) |
March 30, 2001 |
|
|
/s/ Daniel J. Graham Vice President |
March 30, 2001 |
|
|
/s/ Alyn R. Holt |
March 30, 2001 |
|
|
/s/ William M. Stone |
March 30, 2001 |
|
|
/s/ Richard O. Endres |
March 30, 2001 |
|
|
/s/ Stuart F. Daniels |
March 30, 2001 |
|
|
/s/ Gregory W. Slayton |
March 30, 2001 |
|
|
/s/ Douglas W. Smith Douglas W. Smith, Director |
March 30, 2001 |
|
|
/s/ James J. Greed, Jr. |
March 30, 2001 |
- 22 -
Index to Exhibits
Exhibit |
|
3.1 |
Certificate of Incorporation.* |
3.2 |
By Laws.* |
10.1 |
Loan Agreement dated November 16, 2000 between PNC Bank, National |
10.2 |
Note payable to PNC Bank, National Association dated November 1, 2000. |
10.3 |
Lease Agreement between First Industrial, L.P. and the Company, dated |
10.4 |
Lease dated October 27, 1999 between Earl E. and Mitsue Jio and inTEST Sunnyvale, a |
10.5 |
Lease between SPHOS, Inc. and Temptronic Corporation (a subsidiary of the Company), |
10.6 |
Consulting Agreement, dated April 1, 1997, between the Company and Stuart F. |
10.7 |
Temptronic Corporation 1998 Incentive and Non-Statutory Stock Option Plan.**** |
10.8 |
Incentive Stock Option dated October 26, 1998 granted by Temptronic Corporation |
10.9 |
Non-Statutory Option granted by Temptronic Corporation to William M. Stone, dated |
10.10 |
Amended and Restated 1997 Stock Plan.***** |
10.11 |
Employment Agreement dated March 9, 2000 between William M. Stone and |
10.12 |
Amendment to Employment Agreement dated March 9, 2000 between William M. |
21 |
Subsidiaries of the Company. |
23 |
Consent of KPMG LLP. |
|
|
|
|
* |
Previously filed by the Company as an exhibit to the Company's Registration Statement on |
|
|
** |
Previously filed by the Company as an exhibit to the Company's Form 10-Q for the quarter |
|
|
*** |
Previously filed by the Company as an exhibit to the Company's Form 10-K for the year |
|
|
**** |
Previously filed by the Company as an exhibit to the Company's Form 10-Q/A for the |
|
|
***** |
Previously filed as an appendix to the Company's proxy statement filed June 30, 2000, |
|
|
****** |
Previously filed by the Company as an exhibit to the Company's Form 10-Q for the quarter |
- 23 -
inTEST CORPORATION
INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE
|
Page |
CONSOLIDATED FINANCIAL STATEMENTS |
|
Independent Auditor's Report |
F - 1 |
Consolidated Balance Sheets as of December 31, 2000 and 1999 |
F - 2 |
Consolidated Statements of Earnings for the years ended |
|
Consolidated Statements of Comprehensive Earnings for the years |
|
Consolidated Statements of Stockholders' Equity for the years |
|
Consolidated Statements of Cash Flows for the years ended |
|
Notes to Consolidated Financial Statements |
F - 7 |
|
|
CONSOLIDATED FINANCIAL STATEMENT SCHEDULE: |
|
Schedule II - Valuation and Qualifying Accounts |
F - 19 |
|
|
- 24 -
Independent Auditors' Report
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, 2000 and 1999, and the related consolidated statements of earnings, comprehensive earnings, stockholders' equity and cash flows for
each of the years in the three-year period ended December 31, 2000. In connection with our audits of the consolidated financial statements, we also have audited the consolidated financial statement schedule of valuation and qualifying accounts as of and
for the three years ended December 31, 2000. These consolidated financial statements and consolidated financial statement schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these consolidated
financial statements and consolidated financial statement schedule based on our audits.
We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of
material misstatements. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes 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, 2000 and 1999, and the results of their operations and
their cash flows for each of the years in the three-year period ended December 31, 2000, in conformity with accounting principles generally accepted in the United States of America. Also in our opinion, the related consolidated 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.
KPMG LLP
Philadelphia, Pennsylvania
February 19, 2001
F - 1
inTEST CORPORATION
CONSOLIDATED BALANCE SHEETS
(In thousands, except share and per share data)
Dec. 31, Dec. 31, 2000 1999 --------- -------- ASSETS: Current assets: Cash and cash equivalents $ 5,680 $12,047 Trade accounts and notes receivable, net of allowance for doubtful accounts of $241 and $239, respectively 14,752 10,020 Inventories 12,559 7,972 Deferred tax asset 1,287 1,271 Refundable domestic and foreign income taxes 158 - Other current assets 463 898 ------- ------- Total current assets 34,899 32,208 ------- ------- Property and equipment: Machinery and equipment 9,856 7,279 Leasehold improvements 2,750 1,420 ------- ------- 12,606 8,699 Less: accumulated depreciation (7,519) (6,002) ------- ------- Net property and equipment 5,087 2,697 ------- ------- Cash surrender value of life insurance - 1,067 Deferred tax asset 210 350 Other assets 407 288 Goodwill, net of accumulated amortization of $1,259 and $780, respectively 5,926 6,405 ------- ------- Total assets $46,529 $43,015 ======= ======= LIABILITIES AND STOCKHOLDERS' EQUITY Current liabilities: Notes payable to bank $ - $ 1,241 Accounts payable 4,563 5,195 Accrued expenses 3,568 3,011 Current portion of long-term debt - 123 Domestic and foreign income taxes payable - 1,854 ------- ------- Total current liabilities 8,131 11,424 ------- ------- Long-term debt, net of current portion - 133 ------- ------- Total liabilities 8,131 11,557 ------- ------- Commitments 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; 8,658,511 and 8,630,980 shares issued, respectively 87 86 Additional paid-in capital 22,328 21,872 Retained earnings 19,456 13,077 Accumulated other comprehensive income (loss) (300) 14 Deferred compensation (98) (139) Note receivable from Equity Participation Plan (3,075) (3,228) Treasury stock, at cost; 0 and 55,557 shares, respectively - (224) ------- ------- Total stockholders' equity 38,398 31,458 ------- ------- Total liabilities and stockholders' equity $46,529 $43,015 ======= =======
See accompanying Notes to Consolidated Financial Statements.
F - 2
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF EARNINGS
Years Ended December 31, ------------------------------ 2000 1999 1998 ------- -------- -------- Net revenues $87,651 $53,585 $36,058 Cost of revenues 48,095 26,875 18,870 ------- ------- ------- Gross margin 39,556 26,710 17,188 ------- ------- ------- Operating expenses: Selling expense 11,711 8,418 6,976 Engineering and product development expense 6,576 4,864 4,062 General and administrative expense 7,273 6,101 4,074 Merger-related costs 2,672 - - Write-off of deferred offering costs 415 - - ------- ------- ------- Total operating expenses 28,647 19,383 15,112 ------- ------- ------- Operating income 10,909 7,327 2,076 ------- ------- ------- Other income (expense): Interest income 493 348 455 Interest expense (31) (229) (356) Other 208 112 64 ------- ------- ------- Total other income 670 231 163 ------- ------- ------- Earnings before income taxes 11,579 7,558 2,239 Income tax expense 5,200 1,425 1,181 ------- ------- ------- Net earnings $ 6,379 $ 6,133 $ 1,058 ======= ======= ======= Net earnings per common share-basic $0.78 $0.76 $0.14 Weighted average common shares outstanding- basic 8,201,029 8,084,398 7,668,911 Net earnings per common share-diluted $0.75 $0.74 $0.14 Weighted average common shares and common share equivalents outstanding-diluted 8,469,910 8,265,537 7,822,088
See accompanying Notes to Consolidated Financial Statements.
F - 3
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
Years Ended December 31, --------------------------- 2000 1999 1998 ------- ------ ------ Net earnings $6,379 $6,133 $1,058 Foreign currency translation adjustments (314) 49 77 ------ ------ ------ Comprehensive earnings $6,065 $6,182 $1,135 ====== ====== ======
See accompanying Notes to Consolidated Financial Statements.
F - 4
inTEST CORPORATION
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
(In thousands, except share and per share data)
Accum. Other Common Stock Addt'l Comp. Equity Total ---------------- Paid-In Retained Income Deferred Part. Treasury Stockholders' Shares Amount Capital Earnings (Loss) Comp. Plan Note Stock Equity --------- ------ ------- -------- --------- -------- --------- -------- ------------- Balance, 1/1/98 7,968,680 $ 80 $19,310 $ 5,886 $(112) $ (411) $(3,492) $(224) $21,037 Net earnings - - - 1,058 - - - - 1,058 Other comprehen- sive income - - - - 77 - - - 77 Deferred compensation - - 47 - - (47) - - - Amortization of deferred compensation - - - - - 93 - - 93 Elimination of deferred comp- ensation related to stock options forefeited - - (110) - - 110 - - - Principal payments by Equity Partici- pation Plan - - - - - - 125 - 125 Stock options exercised 4,162 - - - - - - - - Issuance of common stock in connec- tion with the Acquisition 625,000 6 2,666 - - - - - 2,672 --------- ----- ------- ------- ----- ------ ------- ----- ------- Balance, 12/31/98 8,597,842 86 21,913 6,944 (35) (255) (3,367) (224) 25,062 Net earnings - - - 6,133 - - - - 6,133 Other comprehen- sive income - - - - 49 - - - 49 Amortization of deferred compensation - - - - - 75 - - 75 Elimination of Deferred comp- ensation related to stock options forfeited - - (41) - - 41 - - - Principal payments by Equity Partici- pation Plan - - - - - - 139 - 139 Stock options exercised 33,138 - - - - - - - - --------- ----- ------- ------- ----- ------ ------- ----- ------- Balance, 12/31/99 8,630,980 86 21,872 13,077 14 (139) (3,228) (224) 31,458 Net earnings - - - 6,379 - - - - 6,379 Other comprehen- sive loss - - - - (314) - - - (314) Amortization of deferred compensation - - - - - 41 - - 41 Principal payments by Equity Partici- pation Plan - - - - - - 153 - 153 Stock options exercised 83,088 1 226 - - - - - 227 Tax benefit from exercise of stock options - - 454 - - - - - 454 Retirement of treasury stock (55,557) - (224) - - - - 224 - --------- ----- ------- ------- ----- ------ ------- ----- ------- Balance, 12/31/00 8,658,511 $ 87 $22,328 $19,456 $(300) $ (98) $(3,075) $ - $38,398 ========= ===== ======= ======= ===== ====== ======= ===== =======
See accompanying Notes to Consolidated Financial Statements.
F - 5
inTEST CORPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share and per share data)
Years Ended December 31, --------------------------- 2000 1999 1998 CASH FLOWS FROM OPERATING ACTIVITIES ------- ------- ------- Net earnings $ 6,379 $ 6,133 $ 1,058 Adjustments to reconcile net earnings to net cash provided by (used in) operating activities: Depreciation 1,595 950 822 Amortization of goodwill 479 479 252 Tax benefit from exercise of stock options 454 - - Deferred taxes 124 (1,377) 259 Foreign exchange (gain) loss (28) (36) 52 Deferred compensation relating to stock options 41 75 93 Loss on disposal of assets 16 - - Changes in assets and liabilities, net of effects of Acquisition: Trade accounts and notes receivable (4,901) (4,189) 2,831 Inventories (4,604) (2,080) 605 Proceeds from sale of demonstration equipment, net of gain 17 85 251 Refundable domestic and foreign income taxes (158) 977 (750) Other current assets 431 (481) 111 Accounts payable (543) 3,045 (1,284) Domestic and foreign income taxes payable (1,824) 1,785 (1,262) Accrued expenses 581 1,561 (724) ------- ------- ------- Net cash provided by (used in) operating activities (1,941) 6,927 2,314 ------- ------- ------- CASH FLOWS FROM INVESTING ACTIVITIES Acquisition of business, net of cash acquired - - (4,629) Purchase of machinery and equipment (4,050) (1,596) (972) Other long-term assets 921 (100) 229 ------- ------- ------- Net cash used in investing activities (3,129) (1,696) (5,372) ------- ------- ------- CASH FLOWS FROM FINANCING ACTIVITIES Net repayments of revolving debt (1,241) (1,784) (221) Proceeds from long-term debt - - 21 Repayment of long-term debt (256) (156) (391) Note receivable repayments from Equity Participation Plan 153 139 125 Proceeds from stock options exercised 227 - - ------- ------- ------- Net cash used in financing activities (1,117) (1,801) (466) ------- ------- ------- Effects of exchange rates on cash (180) (20) 23 ------- ------- ------- Net cash provided by (used in) all activities (6,367) 3,410 (3,501) Cash and cash equivalents at beginning of period 12,047 8,637 12,138 ------- ------- ------- Cash and cash equivalents at end of period $ 5,680 $12,047 $ 8,637 ======= ======= ======= SUPPLEMENTAL SCHEDULE OF NON-CASH INVESTING ACTIVITIES Details of Acquisition: Fair value of assets acquired, net of cash acquired $ 2,003 Liabilities assumed (549) Common stock issued (2,672) Goodwill resulting from Acquisition 5,847 ------- Net cash paid for Acquisition $ 4,629 ======= Cash payments made for: Domestic and foreign income taxes $6,573 $ 59 $ 2,975 Interest 32 240 358
See accompanying Notes to Consolidated Financial Statements.
F - 6
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(1) NATURE OF OPERATIONS
inTEST Corporation (the "Company") is a leading independent designer, manufacturer and marketer of manipulator and docking hardware products, temperature management systems and tester interface products that are used by semiconductor manufacturers
in conjunction with automatic test equipment, or ATE, in the testing of integrated circuits, or ICs.
The consolidated entity is comprised of inTEST Corporation (parent) and its nine 100% owned subsidiaries: inTEST Limited (Thame, U.K.), inTEST Kabushiki Kaisha (Kichijoji, Japan), inTEST PTE, Limited (Singapore), inTEST Sunnyvale Corp. (Delaware) (see
Note 3), Temptronic Corporation (Delaware), inTEST GmbH (Germany) (operations commenced during August 2000), inTEST Investments, Inc. (a Delaware holding company), inTEST IP Corp. (a Delaware holding company) and inTEST Licensing Corp. (a Delaware holding
company).
The Company manufactures its products in the U.S., U.K. and Singapore (where the Company commenced manufacturing during September 1999). Marketing and support activities are conducted worldwide from the Company's facilities in the U.S., U.K., Germany,
Japan and Singapore.
On March 9, 2000, the Company completed a merger with Temptronic Corporation ("Temptronic") whereby Temptronic was merged into a wholly-owned subsidiary of the Company. The Company exchanged 2,046,793 shares of its common stock for all of the Temptronic
common stock. Each share of Temptronic common stock was exchanged for 0.925 shares of the Company's common stock. In addition, outstanding Temptronic stock options were converted at the same exchange ratio into options to acquire 175,686 shares of the
Company's common stock. The merger was accounted for under the pooling-of-interests method of accounting and, accordingly, the accompanying consolidated financial statements have been retroactively restated to give effect to the merger. Upon consummation
of the merger, 55,557 shares of treasury stock held by Temptronic with a cost of $224 were retired. Temptronic also has a 100% owned foreign subsidiary, which is consolidated with Temptronic for reporting purposes.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
The accompanying consolidated financial statements include the accounts of the Company and its wholly-owned subsidiaries. All significant intercompany accounts and transactions have been eliminated upon consolidation. The preparation of financial
statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.
Risks and Uncertainties
The Company's historic results of operations as presented in these financial statements may not be indicative of future results, as these future results involve a number of risks and uncertainties. Factors that could affect the Company's future operating
results and cause actual results to vary materially from historical results include, but are not limited to, the highly cyclical nature of the semiconductor industry, dependence upon capital expenditures of semiconductor manufacturers, developments and
trends in the IC and ATE industries, changes in general economic, business and financial market conditions, future acquisitions and the Company's ability to successfully integrate its operations with those of the acquired entity, costs associated with
future acquisitions and integration of operations, costs associated with the expansion of facilities, the ability to effectively control operating costs, competitive pricing pressures, delays in shipments of products, the mix of products sold, the mix of
customers and geographic regions where products are sold, the development of new products and technologies by the Company or its competitors, the availability of materials used to manufacture the Company's products, the availability of qualified
personnel, net revenues generated by foreign subsidiaries, exchange rate fluctuations and the use of forward exchange rate contracts, stock price fluctuations, the anticipated market for the Company's products, and the sufficiency of cash balances, lines
of credit and net cash from operations.
Cash and Cash Equivalents
Short-term investments, which have maturities of three months or less when purchased, are considered to be cash equivalents and are carried at cost, which approximates market value.
Trade Notes Receivable
Trade notes receivable are due from trade customers in Japan, and have original maturities of less than four months. The notes are non-interest bearing. Trade notes receivable were $193 and $141 at December 31, 2000 and 1999, respectively.
F - 7
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Note Receivable from Equity Participation Plan
As a result of the merger with Temptronic, the Company has a note receivable from the Temptronic Corporation Equity Participation Plan ("EPP"). The note was issued on November 6, 1996 with a principal amount of $3.7 million. The note bears interest at
10% and matures on September 30, 2011. The proceeds of the note were used by the EPP to purchase approximately 565,483 shares of common stock at $6.49 per share from certain former stockholders of Temptronic. The Company has agreed to make an annual
contribution to the EPP in the amount of the principal plus interest due on the EPP's note (see Note 11).
Credit Risks
The Company grants credit to customers and generally requires no collateral. To minimize its risk, the Company performs ongoing credit evaluations of its customers' financial condition. Bad debt expense (recovery) was $31, $16, and $(4) for the years
ended December 31, 2000, 1999 and 1998, respectively.
Inventories
Inventories are stated at the lower of cost or market. Cost is determined under the first-in first-out (FIFO) method.
Property and Equipment
Machinery and equipment are stated at cost. Depreciation is based upon the estimated useful life of the assets using the straight-line method. The estimated useful lives range from three to seven years. Leasehold improvements are recorded at cost and
amortized over the shorter of the lease term or the estimated useful life of the asset. Total depreciation expense was $1,595, $950 and $822 for the years ended December 31, 2000, 1999 and 1998, respectively. Expenditures for maintenance and repairs are
charged to operations as incurred.
Intangibles
Goodwill resulting from the acquisition of the minority interest in three of the Company's foreign subsidiaries and the acquisition of TestDesign (as described in Note 3) is amortized on a straight-line basis over 15 years. Total amortization expense for
the years ended December 31, 2000, 1999 and 1998 was $479, $479 and $252, respectively. When events or circumstances so indicate, the Company assesses the potential impairment of its intangible assets and other long-lived assets based on anticipated
undiscounted cash flows from operations. Such events and circumstances include a sale of all or a significant part of the operations associated with the long-lived asset, or a significant decline in the operating performance of the asset. If an impairment
is indicated, the amount of impairment charge would be calculated by comparing the anticipated discounted future cash flows to the carrying value of the long-lived asset. At December 31, 2000, no impairment was indicated.
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 unless it is more likely than not that such assets will be realized.
Net Earnings Per Common Share
Net earnings per common share is computed in accordance with Statement of Financial Accounting Standards ("SFAS") No. 128, Earnings Per Share. Basic earnings per common share is computed by dividing net earnings by the weighted average number of common
shares outstanding during each year. Diluted earnings per common share is computed by dividing net earnings by the weighted average number of common shares and common share equivalents outstanding during each year. Common share equivalents represent stock
options and are calculated using the treasury stock method.
A reconciliation of weighted average common shares outstanding -- basic to weighted average common shares outstanding -- diluted appears below:
|
Years Ended December 31, |
||
|
2000 |
1999 |
1998 |
Weighted average common shares outstanding -- basic |
8,201,029 |
8,084,398 |
7,668,911 |
Potentially dilutive securities: |
|
|
|
Employee stock options |
268,881 |
181,139 |
153,177 |
|
|
|
|
Weighted average common shares outstanding -- diluted |
8,469,910 |
8,265,537 |
7,822,088 |
F - 8
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Weighted average common shares outstanding exclude unallocated shares of common stock held by the Company's EPP (see Note 11).
Revenue Recognition
Revenues from sales of products are recognized upon shipment to customers. Service revenues are recognized as the services are performed.
Engineering and Product Development
Engineering and product development costs, which consist primarily of the salary and related benefits costs of the Company's technical staff, as well as product development costs, are expensed as incurred.
Product Warranties
The Company generally provides product warranties and records estimated warranty expense at the time of sale based upon historical claims experience. Warranty expense for the years ended December 31, 2000, 1999 and 1998 was $1,102, $790 and $601,
respectively.
Stock-Based Compensation
The Company accounts for its stock option plans in accordance with SFAS No. 123, Accounting for Stock-Based Compensation. As permitted by SFAS No. 123, the Company has elected to continue to follow Accounting Principles Board Opinion No. 25, Accounting
for Stock Issued to Employees ("APB 25") in accounting for its stock option plans. Under APB 25, the Company does not recognize compensation expense on the issuance of its stock options to employees and non-employee directors when the option terms are
fixed and the exercise price equals the fair value of the underlying stock on the grant date. Compensation expense for stock options granted to non-employees is accounted for based upon the fair value of the options on the date of grant, in accordance
with the provisions of SFAS No. 123.
Foreign Currency
The accounts of the foreign subsidiaries are translated in accordance with SFAS No. 52, Foreign Currency Translation, which requires that assets and liabilities of international operations be 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 international operations into U.S. dollars are accumulated within other
comprehensive income or loss in the consolidated statements of stockholders' equity. Transaction gains or losses are included in net earnings.
Financial Instruments
The Company's financial instruments, principally accounts and notes receivable and accounts payable, are carried at cost which approximates fair value, due to the short maturities of the accounts. The estimated fair values of the Company's notes payable
and long-term debt approximated their carrying value based upon the rates offered to the Company for similar type arrangements.
New Accounting Pronouncements
In June 1998, the Financial Accounting Standards Board issued SFAS No. 133, Accounting for Derivative Instruments and Hedging Activities, which establishes accounting and reporting standards for derivative instruments, including certain derivative
instruments embedded in other contracts (collectively referred to as derivatives) and for hedging activities. SFAS No. 133, as amended, is effective for all fiscal quarters of fiscal years beginning after June 15, 2000. The Company plans to adopt SFAS No.
133 in the first quarter of 2001, as required. The adoption of SFAS No. 133 is not expected to have a material effect on the results of operations, financial condition or long-term liquidity of the Company.
In December 1999, the Securities and Exchange Commission issued Staff Accounting Bulletin ("SAB") No. 101, Revenue Recognition in Financial Statements, as amended by SAB 101A and 101B. The Company adopted SAB 101, as amended, in the quarter ended
December 31, 2000, as required. The adoption of SAB 101 did not have a material effect on the results of operations, financial condition or long-term liquidity of the Company as of December 31, 2000 and for the year then ended.
(3) ACQUISITION
On August 3, 1998, the Company acquired all of the outstanding capital stock of TestDesign Corporation ("TestDesign"), a privately held California corporation (the "Acquisition"). Subsequent to the Acquisition, the Company changed the name of TestDesign to inTEST Sunnyvale Corp ("inTEST Sunnyvale"). inTEST Sunnyvale is engaged in the design and manufacture of tester interfaces used by the semiconductor industry. The purchase price was $4.4 million in cash and 625,000 shares of the Company's common stock (subject to certain adjustments).
F - 9
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(3) ACQUISITION (Continued)
Although the Company's common stock had a market price of $4.75 per share on the closing date of the transaction, all of the 625,000 shares issued in connection with the Acquisition were subject to legal restrictions on transfer and were valued at a 10% discount to the market price of the shares. In addition, the Company incurred transaction costs of approximately $425 in completing the Acquisition. The following is an allocation of the purchase price:
Cash payment |
$4,400 |
Transaction costs |
425 |
625,000 common shares at $4.28 |
2,672 |
|
7,497 |
Estimated fair value of identifiable assets acquired net of liabilities assumed |
1,650 |
Goodwill to be amortized over 15 years |
$5,847 |
The Acquisition has been accounted for as a purchase and the results of operations of the acquired business have been included in the Company's consolidated financial statements since the date of the Acquisition. The following unaudited pro forma information presents a summary of consolidated results of operations for the Company and inTEST Sunnyvale as if the Acquisition had occurred on January 1, 1998:
|
Year |
Pro forma net revenues |
$40,318 |
Pro forma earnings before income taxes |
2,105 |
Pro forma income taxes |
1,162 |
Pro forma net earnings |
943 |
|
|
Pro forma net earnings per common share -- basic |
$0.12 |
Pro forma weighted average common shares outstanding -- basic |
8,035,349 |
|
|
Pro forma net earnings per common share -- diluted |
$0.12 |
Pro forma weighted average common shares and common |
|
share equivalents outstanding -- diluted |
8,188,527 |
(4)
SEGMENT INFORMATIONThe various products the Company designs, manufactures and markets are considered by management to form three reportable segments: manipulator and docking hardware products, temperature management systems and tester interface products. The
manipulator and docking hardware segment includes the operations of the Company's Cherry Hill, New Jersey manufacturing facility as well as the operations of three of the Company's foreign subsidiaries: inTEST Limited, inTEST Kabushiki Kaisha, and inTEST
PTE, Limited. Sales of this segment consist primarily of manipulator and docking hardware products which the company designs, manufactures and markets, as well as certain other high performance test sockets and interface boards which the Company designs
and markets, but which are manufactured by third parties. The temperature management segment includes the operations of Temptronic in Newton, Massachusetts as well as inTEST GmbH. Sales of this segment consist primarily of temperature management systems
which the Company designs, manufactures and markets under its Temptronic product line. The tester interface segment includes the operations of inTEST Sunnyvale in Sunnyvale, California. Sales of this segment consist primarily of tester interface products
which the Company designs, manufactures and markets under its TestDesign product line.
The Company operates its business worldwide and all three segments sell their products both domestically and internationally. All three segments sell to semiconductor manufacturers and ATE manufacturers.
F - 10
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(4) SEGMENT INFORMATION (Continued)
Intercompany pricing between segments is either a multiple of cost for component parts used in manufacturing or a percentage discount from list price for finished goods sold to non-manufacturing operations.
|
Years Ended December 31, |
||
|
2000 |
1999 |
1998 |
Net revenues from unaffiliated customers: |
|
|
|
Manipulator and Docking Hardware |
$39,556 |
$26,423 |
$17,726 |
Temperature Management |
33,505 |
19,089 |
16,983 |
Tester Interface |
14,590 |
8,073 |
1,349 |
|
$87,651 |
$53,585 |
$36,058 |
Affiliate sales or transfer from: |
|
|
|
Manipulator and Docking Hardware |
$2,087 |
$2,049 |
$1,302 |
Temperature Management |
136 |
506 |
459 |
Tester Interface |
1,873 |
502 |
19 |
|
$4,096 |
$3,057 |
$1,780 |
Depreciation/amortization: |
|
|
|
Manipulator and Docking Hardware |
$1,114 |
$781 |
$575 |
Temperature Management |
562 |
495 |
446 |
Tester Interface |
398 |
153 |
53 |
|
$2,074 |
$1,429 |
$1,074 |
Operating income (loss): |
|
|
|
Manipulator and Docking Hardware |
$ 7,677 |
$5,477 |
$2,939 |
Temperature Management |
1,801 |
1,005 |
(442) |
Tester Interface |
1,431 |
845 |
(421) |
|
$10,909 |
$7,327 |
$2,076 |
Earnings (loss) before income taxes: |
|
|
|
Manipulator and Docking Hardware |
$8,319 |
$5,884 |
$3,447 |
Temperature Management |
1,830 |
829 |
(787) |
Tester Interface |
1,430 |
845 |
(421) |
|
$11,579 |
$7,558 |
$2,239 |
Income tax expense (benefit): |
|
|
|
Manipulator and Docking Hardware |
$2,857 |
$2,298 |
$1,251 |
Temperature Management |
1,738 |
(1,210) |
82 |
Tester Interface |
605 |
337 |
(152) |
|
$5,200 |
$1,425 |
$1,181 |
Net earnings (loss): |
|
|
|
Manipulator and Docking Hardware |
$5,461 |
$3,586 |
$2,196 |
Temperature Management |
92 |
2,039 |
(869) |
Tester Interface |
826 |
508 |
(269) |
|
$6,379 |
$6,133 |
$1,058 |
Identifiable assets: |
|
|
|
Manipulator and Docking Hardware |
$25,002 |
$27,206 |
$21,371 |
Temperature Management |
14,604 |
11,395 |
8,983 |
Tester Interface |
6,923 |
4,414 |
1,847 |
|
$46,529 |
$43,015 |
$32,201 |
The $2.6 million of merger-related costs were incurred by the temperature management segment. The Company does not currently allocate corporate overhead to its subsidiaries. All costs associated with the Company's executive management team are charged
to the Cherry Hill, New Jersey operation which is included in the manipulator and docking hardware segment. Substantially all interest income is generated by the Company's three Delaware holding companies, whose results are also included in the
manipulator and docking hardware segment.
Export sales from the Company's domestic manufacturing facilities (New Jersey, California and Massachusetts) totaled $22.9 million, $15.9 million and $12.3 million during the years ended December 31, 2000, 1999 and 1998, respectively. During the years
ended December 31, 2000, 1999 and 1998, the Company had sales to Japan of $10.1 million, $5.7 million and $6.8 million, respectively. The Company's foreign subsidiaries generated $13.7 million, $8.5 million and $7.1 million of net revenues in 2000, 1999
and 1998, respectively.
F - 11
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(5) MAJOR CUSTOMERS
No customer accounted for more than 10% of the Company's consolidated net revenues in 2000, 1999 or 1998.
(6) INVENTORIES
Inventories held at December 31 were comprised of the following:
|
2000 |
1999 |
Raw materials |
$8,237 |
$6,091 |
Work in process |
4,244 |
1,954 |
Finished goods |
1,687 |
704 |
Reserve for obsolete inventory |
(1,609) |
(777) |
|
$12,559 |
$7,972 |
(7)
DEBTLine of Credit
(8) STOCK OPTION PLAN
The Amended and Restated 1997 Stock Plan (the "Plan") provides for the granting of either incentive stock options or non-qualified stock options to purchase shares of the Company's common stock and for other stock-based awards to key employees and
directors responsible for the direction and management of the Company and to non-employee consultants. The Plan consists of two parts: the Non-Qualified Plan (administered by the Board of Directors of the Company) and the Key Employee Plan (administered
by the Compensation Committee of the Board of Directors of the Company). The Company has reserved 1,000,000 shares of common stock for issuance upon exercise of options or stock awards under the Plan.
No option may be granted with an exercise period in excess of ten years from the date of grant. Generally, incentive stock options will be granted with an exercise price equal to the fair market value on the date of grant; the exercise price of
non-qualified stock options will be determined by either the Board of Directors or the Compensation Committee of the Board of Directors.
The options which have been issued under the Plan generally vest 20% one year from date of grant and 20% in each of the succeeding four years.
In connection with the merger with Temptronic, outstanding incentive and non-qualified stock options to acquire Temptronic common stock were converted into stock options to acquire the Company's stock at a conversion ratio of 0.925, with appropriate
adjustment to the exercise price. These stock options generally vest over four to five years.
As discussed in Note 2, the Company has elected to continue to follow APB 25 in accounting for its stock option plans. Under APB 25, the Company does not recognize compensation expense on the issuance of its stock options to employees and non-employee
directors when the option terms are fixed and the exercise price equals the fair value of the underlying stock on the grant date. Prior to the merger, Temptronic had granted certain non-qualified stock options to employees which had an exercise price
below the estimated fair value of Temptronic's common stock at the date of grant. For these options, compensation cost, equaling the difference between the fair market value of the underlying stock and the cost to exercise the options, was recorded as
deferred compensation at the date of grant. This cost is amortized to expense as the options vest. Total compensation cost recognized for the years ended December 31, 2000, 1999 and 1998 was $41, $75, $93, respectively.
F - 12
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(8) STOCK OPTION PLAN (Continued)
Had compensation costs for the Company's stock-based compensation plans been determined consistent with SFAS No. 123, the Company's net earnings and net earnings per common share for the years ended December 31, 2000, 1999 and 1998 would have been reduced to the pro forma amounts indicated below:
|
2000 |
1999 |
1998 |
|
Net earnings: |
|
|
|
|
As reported |
$6,379 |
$6,133 |
$1,058 |
|
Pro forma |
5,416 |
$5,988 |
$915 |
|
Net earnings per common share -- basic: |
|
|
|
|
As reported |
$0.78 |
$0.76 |
$0.14 |
|
Pro forma |
$0.66 |
$0.74 |
$0.12 |
|
Net earnings per common share -- diluted: |
|
|
|
|
As reported |
$0.75 |
$0.74 |
$0.14 |
|
Pro forma |
$0.64 |
$0.72 |
$0.12 |
The fair value for stock options granted in 2000 and 1998 was estimated at the date of grant using the Black-Scholes option pricing model with the following weighted average assumptions (no options were granted in 1999):
|
2000 |
1998 |
Risk-free interest rate |
4.99% |
5.65% |
Dividend yield |
0.00% |
0.00% |
Expected common stock market price volatility factor |
.82 |
.61 |
Weighted average expected life of stock options |
5 years |
5 years |
The per share weighted average fair value of stock options issued by the Company in 2000 and 1998 was $8.92 and $3.71, respectively.
The Black-Scholes option valuation model was developed for use in estimating the fair value of traded options which have no vesting restrictions and are fully transferable. In addition, option valuation models require the input of highly subjective
assumptions including the expected stock price volatility. As the Company's stock options have characteristics significantly different from those of traded options, and as changes in the subjective input assumptions can materially affect the fair value
estimate, in management's opinion, the existing models do not necessarily provide a reliable single measure of the fair value of its stock options.
The following table summarizes the stock option activity for the three years ended December 31, 2000:
|
|
Weighted |
Options outstanding, January 1, 1998 (177,067 exercisable) |
411,855 |
$4.38 |
Granted |
200,875 |
4.20 |
Exercised |
(4,162) |
.02 |
Canceled |
(22,877 ) |
4.22 |
Options outstanding, December 31, 1998 (215,637 exercisable) |
585,691 |
$3.91 |
Granted |
-- |
-- |
Exercised |
(33,138) |
.10 |
Canceled |
(79,598) |
3.40 |
Options outstanding, December 31, 1999 (202,464 exercisable) |
472,955 |
$ 4.26 |
Granted |
642,000 |
13.08 |
Exercised |
(83,088) |
2.70 |
Canceled |
(6,865) |
14.76 |
Options outstanding, December 31, 2000 (196,386 exercisable) |
1,025,002 |
$ 9.84 |
F - 13
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(8) STOCK OPTION PLAN (Continued)
On June 30, 1998, the Company modified 141,000 options originally exercisable at $7.50 per share and 10,000 options originally exercisable at $11.00 per share to reduce the exercise price of such options to $6.00 per share.
The following table summarizes information about stock options outstanding at December 31, 2000:
|
|
|
Weighted |
|
Weighted |
|
|
|
|
|
|
$0.02 |
18,037 |
6.49 years |
$0.02 |
2,312 |
$0.02 |
$3.79 - $4.44 |
237,365 |
7.04 years |
$4.16 |
116,674 |
$4.11 |
$6.00 |
132,600 |
6.55 years |
$6.00 |
77,400 |
$6.00 |
$9.56 - $12.69 |
430,000 |
9.62 years |
$10.35 |
-- |
-- |
$18.63 |
207,000 |
9.25 years |
$18.63 |
-- |
-- |
(9)
COMMITMENTSThe Company leases its offices, warehouse facilities, automobiles and certain equipment under noncancellable operating leases which expire at various dates through 2005. Total rental expense for the years ended December 31, 2000, 1999 and 1998 was
$1.7 million, $1.2 million and $1.1 million, respectively.
The aggregate minimum rental commitments under the noncancellable operating leases in effect at December 31, 2000, are as follows:
2001 |
$2,336 |
2002 |
$1,908 |
2003 |
$1,839 |
2004 |
$1,688 |
2005 |
$1,324 |
Thereafter |
$6,233 |
(10)
The Company is subject to Federal and certain state income taxes. In addition, the Company is taxed in certain foreign countries. The cumulative amount of undistributed earnings of foreign subsidiaries for which U.S. income taxes have not been
provided was approximately $4.6 million and $3.0 million at December 31, 2000 and 1999, respectively.
Total income tax expense was allocated as follows:
|
Years Ended December 31, |
||
|
2000 |
1999 |
1998 |
Income from operations |
$5,200 |
$1,425 |
$1,181 |
Shareholders' equity, for tax benefit derived from |
|
|
|
|
$4,746 |
$1,425 |
$1,181 |
F - 14
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(10) INCOME TAXES (Continued)
Earnings before income taxes were as follows:
|
Years Ended December 31, |
||
|
2000 |
1999 |
1998 |
Domestic |
$ 8,511 |
$5,949 |
$1,333 |
Foreign |
3,068 |
1,609 |
906 |
|
$11,579 |
$7,558 |
$2,239 |
Income tax expense was as follows:
|
Years Ended December 31, |
||
|
2000 |
1999 |
1998 |
Current |
|
|
|
Domestic -- Federal |
$3,922 |
$1,934 |
$ 516 |
Domestic -- state |
165 |
215 |
54 |
Foreign |
989 |
652 |
352 |
|
5,076 |
2,801 |
922 |
Deferred: |
|
|
|
Domestic -- Federal |
(171) |
(946) |
284 |
Domestic -- state |
295 |
(430) |
(25) |
|
124 |
(1,376) |
259 |
Income tax expense |
$5,200 |
$1,425 |
$1,181 |
Deferred income taxes reflect the net tax effect of net operating loss and credit carryforwards and 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 the Company's deferred tax assets and liabilities as of December 31, 2000 and 1999:
|
December 31, |
|
|
2000 |
1999 |
Deferred tax assets: |
|
|
Accrued vacation pay |
$ 264 |
$ 195 |
Allowance for doubtful accounts |
69 |
88 |
Inventories |
609 |
392 |
Accrued warranty |
143 |
87 |
Accrued bonuses |
271 |
84 |
Net operating loss and credit carryforward |
90 |
686 |
Stock compensation |
90 |
88 |
Property and equipment |
120 |
101 |
Other |
57 |
55 |
|
1,713 |
1,776 |
Valuation allowance |
(90) |
(90) |
Deferred tax assets |
1,623 |
1,686 |
Deferred tax liabilities: |
|
|
Accrued royalty income |
(126) |
(65) |
Deferred tax liabilities |
(126) |
(65) |
|
|
|
Net deferred tax asset |
$1,497 |
$1,621 |
F-15
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(10) INCOME TAXES (Continued)
The valuation allowance for deferred tax assets as of the beginning of 2000 and 1999 was $90 and $1.5 million, respectively. The net change in the valuation allowance for the years ended December 31, 2000 and 1999 was $0 and a decrease of $1.4
million, respectively. In assessing the ability to realize the deferred tax assets, management considers 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. Management considers 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, the Company will need to generate future taxable income prior to the expiration of net operating loss and credit carryforwards which expire at various
years through 2019. Based upon the level of historical taxable income and projections for future taxable income over the periods in which the temporary differences are deductible, management believes it is more likely than not the Company will realize the
benefit of the deferred tax asset, net of the valuation allowance, at December 31, 2000. The amount of the deferred tax asset considered realizable, however, could be reduced in the near term if estimates of future taxable income during the carryforward
period are reduced.
An analysis of the effective tax rate for the years ended December 31, 2000, 1999 and 1998 on earnings and a reconciliation from the expected statutory rate of 35%, 34% and 34%, respectively, are as follows:
|
|
Years Ended December 31, |
||||||||||
|
|
2000 |
1999 |
1998 |
||||||||
Expected income tax provision at U.S. statutory rate |
$4,053 |
$2,570 |
$ 761 |
|||||||||
State taxes, net of Federal benefit |
299 |
157 |
(65) |
|||||||||
Increase (decrease) in tax from: |
|
|
|
|||||||||
|
Non-deductible merger-related costs |
815 |
-- |
-- |
||||||||
|
Liquidation of life insurance policies |
83 |
-- |
-- |
||||||||
|
Non-deductible goodwill and other permanent differences |
69 |
28 |
(83) |
||||||||
|
Foreign income tax rate differences |
(85) |
58 |
12 |
||||||||
|
Federal credits |
-- |
(51) |
(41) |
||||||||
|
Change in valuation allowance |
-- |
(1,418) |
610 |
||||||||
|
Other |
(34) |
81 |
(13) |
||||||||
Income tax expense |
$5,200 |
$1,425 |
$1,181 |
(11)
EMPLOYEE BENEFIT PLANSThe Company has a defined contribution 401(k) plan for its employees who work in the U.S. All permanent employees of inTEST Corporation and inTEST Sunnyvale Corp. who are at least 18 years of age and have completed six months of service with the
Company are eligible to participate in the plan. During 2000, 1999 and 1998, the Company matched employee contributions dollar for dollar up to 10% of the employee's annual compensation up to $5. Future matching contributions are discretionary. Employer
contributions vest over a six-year period. The Company contributed $299, $221 and $157 to the plan for the years ended December 31, 2000, 1999 and 1998, respectively.
Prior to the Acquisition, inTEST Sunnyvale had adopted a defined contribution 401(k) plan for its employees. Under the plan, inTEST Sunnyvale matched employee contributions equal to 25% of an employee's contributions up to 5% of gross salary. Matching
contributions for the plan were $6 from the date of the Acquisition through October 1, 1998. Effective October 1, 1998, all inTEST Sunnyvale permanent employees who were at least 18 years of age and had completed six months of service were offered
enrollment in the Company's 401(k) plan, and employee contributions and employer matching contributions into the inTEST Sunnyvale plan ceased. In 2000, the Company terminated the inTEST Sunnyvale plan and the former participants had the option of rolling
their assets into the Company's plan.
Temptronic adopted a defined contribution 401(k) plan for its domestic employees in 1988. All permanent employees who are at least 21 years of age and have completed six months of service with Temptronic are eligible to participate in the plan. Under the
plan, Temptronic may make discretionary matching contributions to be determined annually by Temptronic up to 6% of the employees' annual compensation. Employer contributions vest over a seven-year period. Temptronic contributed $74, $56 and $88 to the
plan for the years ended December 31, 2000, 1999 and 1998, respectively.
Temptronic established the EPP covering substantially all employees in 1982. On November 6, 1996, in exchange for a note receivable, Temptronic loaned the EPP $3.7 million to purchase 565,483 shares of stock from certain former stockholders of
Temptronic. The amount of the note from the EPP was recorded as a reduction of stockholders' equity. The amount in stockholders' equity is reduced when the tax deductible contributions are made. Shares acquired are allocated to participant accounts on
September 30 of each plan year. Temptronic contributed approximately $470 to the EPP during each of the years ended December 31, 2000, 1999 and 1998, and recorded interest income of $317, $331 and $345, respectively, on the EPP note. At December 31, 2000,
the EPP owned 665,157 shares of stock with a fair market value of approximately $4.2 million of which 250,523 shares were allocated to participants. The remaining shares will be allocated to participants in the future under the EPP guidelines.
F - 16
inTEST CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(In thousands, except share and per share data)
(12) ACCRUED EXPENSES
Accrued expenses consist of the following:
|
December 31, |
||
|
2000 |
1999 |
|
Accrued compensation |
$1,630 |
$1,237 |
|
Accrued commissions |
870 |
776 |
|
Accrued warranty costs |
367 |
228 |
|
Accrued merger-related costs |
239 |
-- |
|
Accrued professional fees |
166 |
340 |
|
Accrued other |
296 |
430 |
|
|
|
|
|
|
$3,568 |
$3,011 |
(13) RELATED PARTY TRANSACTIONS
The Company paid consulting fees to one individual who is a member of the Board of Directors of the parent company which totaled $59, $67 and $56 during the years ended December 31, 2000, 1999 and 1998, respectively.
During 1998, in connection with the acquisition of TestDesign, the Company repaid $215 on a note due to a firm ("PRIM") controlled by Douglas W. Smith, formerly Executive Vice President and Chief Operating Officer of the Company and a current board
member of the Company. This note, which did not bear interest or have a maturity date, evidenced borrowings that TestDesign had made from PRIM prior to the acquisition. In addition, subject to the terms of a consulting agreement between TestDesign and
Gregory W. Slayton, a current board member of the Company, the Company paid directly to Mr. Slayton, on behalf of TestDesign, $170 in cash and 31,250 shares of the Company's common stock. These payments are included in the merger consideration and are
accounted for as described in Note 3.
Some of the Company's foreign subsidiaries paid directors' fees to several individuals who are executive officers of the Company which totaled $113, $119 and $104 during the years ended December 31, 2000, 1999 and 1998, respectively.
At December 31, 2000 and 1999, there were $6 and $48, respectively, of foreign directors' fees payable to executive officers of the Company.
Temptronic has transactions in the normal course of business with Hakuto Co. Ltd. As of December 31, 2000, a wholly-owned subsidiary of Hakuto Co. Ltd., Hakuto America Holdings, Inc., owned 647,500 shares of the Company's outstanding stock. During the
years ended December 31, 2000, 1999 and 1998, Temptronic sold product at market prices totaling approximately $1.5 million, $1.5 million and $2.5 million, respectively, to Hakuto Co. Ltd. At December 31, 2000 and 1999, accounts receivable from Hakuto Co.
Ltd. amounted to approximately $38 and $200, respectively.
(14) LEGAL PROCEEDINGS
From time to time we are a party to legal proceedings. We are not currently involved in any legal proceedings the resolution of which could have a material effect on our business, our financial position or our results of operations.
F - 17
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, 2000. In the opinion of the Company's management, 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 period presented. The results of operations for any quarter are not
necessarily indicative of results for the full year or for any future period.
The Company's business is not seasonal; therefore year-over-year quarterly comparisons of the Company's results of operations may not be as meaningful as the sequential quarterly comparisons set forth below which tend to reflect the cyclical activity of
the semiconductor industry as a whole. Quarterly fluctuations in expenses are related directly to sales activity and volume and may also reflect the timing of operating expenses incurred throughout the year.
|
Quarters Ended |
|
|||
|
3/31/00 |
6/30/00 |
9/30/00 |
12/31/00 |
Total |
Net revenues |
$20,254 |
$21,317 |
$24,491 |
$21,589 |
$87,651 |
Gross margin |
9,975 |
10,506 |
11,261 |
7,814 |
39,556 |
Earnings before income taxes |
2,277 |
4,354 |
4,186 |
762 |
11,579 |
Income taxes |
1,799 |
1,560 |
1,552 |
289 |
5,200 |
Net earnings |
478 |
2,794 |
2,634 |
473 |
6,379 |
|
|
|
|
|
|
Net earnings per common share - basis |
$0.06 |
$0.34 |
$0.32 |
$0.06 |
$0.78 |
Weighted average common shares outstanding - basic |
8,137,167 |
8,190,178 |
8,232,003 |
8,243,928 |
8,201,029 |
|
|
|
|
|
|
Net earnings per common share - diluted |
$0.06 |
$0.33 |
$0.31 |
$0.06 |
$0.75 |
Weighted average common shares and common share |
|
|
|
|
|
|
Quarters Ended |
|
|||
|
3/31/99 |
6/30/99 |
9/30/99 |
12/31/99 |
Total |
Net revenues |
$ 8,223 |
$10,816 |
$15,237 |
$19,309 |
$53,585 |
Gross margin |
3,752 |
5,314 |
7,615 |
10,029 |
26,710 |
Earnings before income taxes |
64 |
1,051 |
2,669 |
3,774 |
7,558 |
Income taxes |
125 |
357 |
901 |
42 |
1,425 |
Net earnings |
(61) |
694 |
1,768 |
3,732 |
6,133 |
|
|
|
|
|
|
Net earnings per common share - basis |
$(0.01) |
$0.09 |
$0.22 |
$0.46 |
$0.76 |
Weighted average common shares outstanding - basic |
8,061,730 |
8,071,154 |
8,081,482 |
8,122,588 |
8,084,398 |
|
|
|
|
|
|
Net earnings per common share - diluted |
$(0.01) |
$0.08 |
$0.21 |
$0.45 |
$0.74 |
Weighted average common shares and common share |
|
|
|
|
|
F -18
inTEST CORPORATION
SCHEDULE II -- VALUATION AND QUALIFYING ACCOUNTS
(in thousands)
|
Additions |
||||||
|
Balance at |
Acquisition |
|
|
Balance at |
||
Year ended December 31, 1998 |
|
|
|
|
|
||
Allowance for doubtful accounts |
$197 |
$ 54 |
$ (4) |
$ 26 |
$ 221 |
||
Inventory obsolescence reserve |
507 |
38 |
260 |
178 |
627 |
||
Warranty reserve |
155 |
20 |
601 |
676 |
100 |
||
|
|
|
|
|
|
||
Year Ended December 31, 1999 |
|
|
|
|
|
||
Allowance for doubtful accounts |
221 |
-- |
16 |
(2) |
239 |
||
Inventory obsolescence reserve |
627 |
-- |
242 |
92 |
777 |
||
Warranty reserve |
100 |
-- |
790 |
662 |
228 |
||
|
|
|
|
|
|
||
Year Ended December 31, 2000 |
|
|
|
|
|
||
Allowance for doubtful accounts |
239 |
-- |
31 |
29 |
241 |
||
Inventory obsolescence reserve |
777 |
-- |
1,312 |
480 |
1,609 |
||
Warranty reserve |
228 |
-- |
1,102 |
963 |
367 |
F - 19
EXHIBIT 10.1
[PNC BANK LETTERHEAD]
November 16, 2000
inTEST Corporation
Seven Esterbrook Lane
Cherry Hill, NJ 08003
Attention: Hugh Regan
Re: Renewal, Restatement and Increase of Committed Line of Credit
Dear Hugh:
We are pleased to inform you that PNC Bank, National Association (the "Bank") has approved your request for the renewal, restatement and increase of a committed line of credit (the "Loan") to inTEST Corporation, inTEST Sunnyvale
Corporation, Temptronic Corporation, inTEST Investments, Inc., inTEST Licensing Corp. and inTEST IP Corp. (collectively, the "Borrower"). This letter agreement amends, restates and replaces the existing Amended and Restated Loan Agreement between the Bank and inTEST Corporation dated June 30, 1996 (as amended, the "Existing Loan Agreement"). We look forward to
this opportunity to help you meet the financing needs of your business. All the details regarding your Loan are outlined in the following sections of this letter. If these terms are satisfactory, please follow the instructions for proceeding with your
Loan provided at the end of this letter.
1. Facility and Use of Proceeds. This is a committed revolving line of credit under which the Borrower may request and the Bank, subject to the terms and conditions of this letter, will make advances to the Borrower from time to
time until the Expiration Date, in an amount in the aggregate at any time outstanding not to exceed $5,000,000.00 (the "Line of Credit"). The "Expiration Date" means June 30, 2001, or such later date as may be designated by the Bank by written notice to the Borrower. Advances under the Line of Credit will be used for working capital or other general business
purposes of the Borrower.
The Borrower may request that the Bank, in lieu of cash advances, issue standby letters of credit (individually, a "Letter of Credit" and collectively the "Letters of Credit") under the Line of Credit in an amount not to exceed $500,000 in
the aggregate and having expiration dates not to exceed one (1) year. The availability of advances under the Line of Credit shall be reduced by the face amount of each Letter of Credit issued and outstanding (whether or not drawn). Each payment by the
Bank under a Letter of Credit shall in the Bank's discretion constitute an advance of principal under the Line of Credit and shall be evidenced by the Note (as defined below). The Letters of Credit shall be governed by one or more reimbursement agreements
executed by the Borrower (the "Reimbursement Agreement"). Each request for the issuance of a Letter of Credit must be accompanied by the Borrower's execution of an application on the Bank's
inTEST Corporation
November 16, 2000
Page 2
standard forms, together with all supporting documentation. Each Letter of Credit will be issued in the Bank's sole discretion and in a form acceptable to the Bank. The Borrower shall pay the Bank's standard issuance fee on the face amount of each Letter
of Credit upon issuance, together with such other customary fees, commissions and expenses therefor as shall be required by the Bank. This letter is not a pre-advice for the issuance of a letter of credit and is not irrevocable.
2. Note. The obligation of the Borrower to repay advances under the Line of Credit shall be evidenced by a promissory note (the "Note") in form and content satisfactory to the Bank.
This letter (the "Letter Agreement"), the Note and the other loan documents delivered pursuant hereto will constitute the "Loan Documents." Capitalized terms not defined herein shall have the meaning ascribed to them in the Loan Documents.
3. Interest Rate. Interest on the unpaid balance of the Line of Credit advances will be charged at the rates, and be payable on the dates and times, set forth in the Note evidencing the Loan.
4. Repayment. Subject to the terms and conditions of this letter, the Borrower may borrow, repay and reborrow under the Line of Credit until the Expiration Date, on which date the outstanding principal balance and any accrued
but unpaid interest shall be due and payable. Interest will be due and payable on a monthly basis, and will be computed on the basis of a year of 360 days and paid on the actual number of days elapsed.
5. Cross-Default. The Loan will be cross-defaulted with all other present and future Obligations of the Borrower to the Bank.
6. Covenants. Unless compliance is waived in writing by the Bank or until payment in full of the Loan and termination of the commitment for the Line of Credit:
(a) The Borrower will promptly submit to the Bank such information relating to the Borrower's affairs (including but not limited to annual financial statements and tax returns for the Borrower and any
guarantor) or any security for the Loan as the Bank may reasonably request.
(b) The Borrower will not make or permit any change in the nature of its business as carried on as of the date of this Letter Agreement or in its senior management or equity ownership.
(c) The Borrower will notify the Bank in writing of the occurrence of an Event of Default or an act or condition which, with the passage of time, the giving of notice or both might become an Event of
Default.
inTEST Corporation
November 16, 2000
Page 3
(d) The Borrower will comply with the financial and other covenants included in Exhibit "A" hereto.
7. Representations and Warranties. To induce the Bank to extend the Loan and upon the making of any advance to the Borrower under the Line of Credit, the Borrower represents and warrants as follows:
(a) The Borrower's latest financial statements provided to the Bank are true, complete and accurate in all material respects and fairly present the financial condition, assets and liabilities, whether
accrued, absolute, contingent or otherwise, and the results of the Borrower's operations for the period specified therein. The Borrower's financial statements have been prepared in accordance with generally accepted accounting principles consistently
applied from period to period subject in the case of interim statements to normal year-end adjustments. Since the date of the latest financial statements provided to the Bank, the Borrower has not suffered any damage, destruction or loss which has
materially adversely affected its business, assets, operations, financial condition or results of operations.
(b) There are no actions, suits, proceedings or governmental investigations pending or, to the knowledge of the Borrower, threatened against the Borrower which could result in a material adverse change in
its business, assets, operations, financial condition or results of operations and there is no basis known to the Borrower or its officers, directors or shareholders for any such action, suit, proceedings or investigation.
(c) The Borrower has filed all returns and reports that are required to be filed by it in connection with any federal, state or local tax, duty or charge levied, assessed or imposed upon the Borrower or
its property, including unemployment, social security and similar taxes and all of such taxes have been either paid or adequate reserve or other provision has been made therefor.
(d) The Borrower is duly organized, validly existing and in good standing under the laws of the state of its incorporation or organization and has the power and authority to own and operate its assets and
to conduct its business as now or proposed to be carried on, and is duly qualified, licensed and in good standing to do business in all jurisdictions where its ownership of property or the nature of its business requires such qualification or licensing.
(e) The Borrower has full power and authority to enter into the transactions provided for in this Letter Agreement and has been duly authorized to do so by all necessary and appropriate action and when
executed and delivered by the Borrower, this Letter Agreement and the other Loan Documents will constitute the legal, valid and binding obligations of the Borrower, enforceable in accordance with their terms.
inTEST Corporation
November 16, 2000
Page 4
(f) There does not exist any default or violation by the Borrower of or under any of the terms, conditions or obligations of: (i) its organizational documents; (ii) any indenture, mortgage, deed of trust,
franchise, permit, contract, agreement, or other instrument to which it is a party or by which it is bound; or (iii) any law, regulation, ruling, order, injunction, decree, condition or other requirement applicable to or imposed upon the Borrower by any
law or by any governmental authority, court or agency.
(g) Prior to the year 2000, the Borrower reviewed the areas within its business and operations which could be adversely affected by, and developed or is developing a program to address on a timely basis
the risk that certain computer applications used by the Borrower may be unable to recognize and perform properly date-sensitive functions involving dates prior to and after December 31, 1999 (the "Year 2000 Problem"). The Year 2000 Problem did not result in, and is not reasonably expected to result in, any material adverse effect on the business, properties, assets, financial condition, results of operations or prospects of the Borrower, or
the ability of the Borrower to duly and punctually pay or perform its obligations hereunder and under the other Loan Documents. The Borrower continues to monitor for effects of the Year 2000 Problem pursuant to its established program.
8. Fees. Beginning on the last day of the month after the date of the Note and continuing on the last day of each month thereafter until the Expiration Date, the Borrower shall pay a commitment fee to the Bank, in arrears, at
the rate of one-quarter percent (.25%) per annum on the average daily balance of the Line of Credit which is undisbursed and uncancelled during the preceding month. The commitment fee shall be computed on the basis of a year of 360 days and paid on the
actual number of days elapsed.
9. Expenses. The Borrower shall also reimburse the Bank for the Bank's expenses (including the reasonable fees and expenses of the Bank's outside and in-house counsel) in connection with any amendments, modifications or renewals
of the Loan, and in connection with the collection of all of the Borrower's obligations to the Bank, including but not limited to enforcement actions relating to the Loan.
10. Depository. The Borrower will establish and maintain at the Bank the Borrower's primary depository accounts with balances at all times of not less than $50,000.
11. Additional Provisions. Before the first advance under the Loan, the Borrower shall execute and deliver to the Bank the Note and other required Loan Documents and such other instruments and documents as the Bank may
reasonably request, such as certified resolutions, incumbency certificates or other evidence of authority. The Bank will not be obligated to make any advance under the Line of Credit if any Event of Default or event which with the passage of time,
provision of notice or both would constitute an Event of Default shall have occurred and be continuing.
inTEST Corporation
November 16, 2000
Page 5
Prior to execution of the final Loan Documents, the Bank may terminate this Letter Agreement if a material adverse change occurs with respect to the Borrower, any guarantor, any collateral for the Loan or any other person or entity connected in any way
with the Loan, or if the Borrower fails to comply with any of the terms and conditions of this Letter Agreement, or if the Bank reasonably determines that any of the conditions cannot be met.
This Letter Agreement is governed by the laws of the State of New Jersey. No modification, amendment or waiver of any of the terms of this Letter Agreement, nor any consent to any departure by the Borrower therefrom, will be effective unless made in a
writing signed by the party to be charged, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given. When accepted, this Letter Agreement and the other Loan Documents will constitute the entire
agreement between the Bank and the Borrower concerning the Loan, and shall replace all prior understandings, statements, negotiations and written materials relating to the Loan.
THE BORROWER AND THE BANK IRREVOCABLY WAIVE ANY AND ALL RIGHTS THEY MAY HAVE TO A TRIAL BY JURY IN ANY ACTION, PROCEEDING OR CLAIM OF ANY NATURE ARISING OUT OF THIS LETTER AGREEMENT AND THE TRANSACTIONS CONTEMPLATED HEREBY AND ACKNOWLEDGE THAT THE
FOREGOING WAIVER IS KNOWING AND VOLUNTARY.
If and when a loan closing occurs, this Letter Agreement (as the same may be amended from time to time) shall survive the closing and will serve as our loan agreement throughout the term of the Loan.
To accept these terms, please sign the enclosed copy of this Letter Agreement as set forth below and the Loan Documents and return them to the Bank within ten (10) days from the date of this Letter Agreement, or this Letter Agreement may be terminated at
the Bank's option without liability or further obligation of the Bank.
Thank you for giving PNC Bank this opportunity to work with your business. We look forward to other ways in which we may be of service to your business or to you personally.
Very truly yours,
PNC BANK, NATIONAL ASSOCIATION
By: Denise Viola Monahan
Denise Viola Monahan
Vice President
inTEST Corporation
November 16, 2000
Page 6
ACCEPTANCE
With the intent to be legally bound hereby, the above terms and conditions are hereby agreed to and accepted as of this ________ day of ___________________, 2000.
INTEST CORPORATION |
INTEST SUNNYVALE CORPORATION |
|
|
|
|
By: /s/Hugh T. Regan, Jr. |
By: /s/Hugh T. Regan, Jr. |
(SEAL) |
(SEAL) |
Print Name: Hugh T. Regan, Jr. |
Print Name: Hugh T. Regan, Jr. |
Title: CFO |
Title: CFO |
|
|
|
|
TEMPTRONIC CORPORATION |
INTEST INVESTMENTS, INC. |
|
|
|
|
By: /s/Hugh T. Regan, Jr. |
By: /s/Hugh T. Regan, Jr. |
(SEAL) |
(SEAL) |
Print Name: Hugh T. Regan, Jr. |
Print Name: Hugh T. Regan, Jr. |
Title: CFO |
Title: CFO |
|
|
|
|
INTEST LICENSING CORP. |
INTEST IP CORP. |
|
|
|
|
By: /s/Hugh T. Regan, Jr. |
By: /s/Hugh T. Regan, Jr. |
(SEAL) |
(SEAL) |
Print Name: Hugh T. Regan, Jr. |
Print Name: Hugh T. Regan, Jr. |
Title: CFO |
Title: CFO |
EXHIBIT A
A. FINANCIAL REPORTING COVENANTS:
(1) The Borrower will deliver to the Bank:
(a) Financial Statements for its fiscal year, within ninety (90) days after fiscal year end, audited and certified without qualification by a certified public accountant acceptable to the Bank.
(b) Financial Statements for each fiscal quarter, within forty-five (45) days after the quarter end, together with year-to-date and comparative figures for the corresponding periods of the prior year,
certified as true and correct by its chief financial officer.
(c) With each delivery of Financial Statements, the Borrower's chief financial officer shall also deliver a certificate as to the Borrower's compliance with the financial covenants, if any, for the period
then ended and whether any Event of Default exists, and, if so, the nature thereof and the corrective measures the Borrower proposes to take. This certificate shall set forth all detailed calculations necessary to demonstrate such compliance.
"Financial Statements" means the consolidated balance sheet and statements of income and cash flows prepared in accordance with generally accepted accounting principles in effect from time to time ("GAAP") applied on a consistent basis
(subject in the case of interim statements to normal year-end adjustments).
In the event that any financial information submitted to the Bank has been prepared by an outside accountant, the same shall be accompanied by a statement in writing signed by the accountant disclosing that the accountant is aware that the information
prepared by the accountant would be submitted to and relied upon by the Bank in connection with the Bank's determination to grant or continue credit.
B. FINANCIAL COVENANTS:
(1) The Borrower will maintain at all times a ratio of current assets to current liabilities of at least 1.50 to 1.00.
(2) The Borrower will maintain at all times a ratio of total liabilities to Tangible Net Worth of less than 1.00 to 1.00.
(3) The Borrower will not make capital expenditures in excess of $500,000 in any one fiscal year of the Borrower.
A-1
"Tangible Net Worth" means stockholder's equity in the Borrower less any advances to third parties and all items properly classified as intangibles, in accordance with GAAP.
C. NEGATIVE COVENANTS:
(1) The Borrower will not create, assume, incur or suffer to exist any mortgage, pledge, encumbrance, security interest, lien or charge of any kind upon any of its property, now owned or hereafter acquired, or acquire or agree to
acquire any kind of property under conditional sales or other title retention agreements; provided, however, that the foregoing restrictions shall not prevent the Borrower from:
(a) incurring liens for taxes, assessments or governmental charges or levies which shall not at the time be due and payable or can thereafter be paid without penalty or are being contested in good faith by
appropriate proceedings diligently conducted and with respect to which it has created adequate reserves;
(b) making pledges or deposits to secure obligations under workers' compensation laws or similar legislation; or
(c) granting additional liens or security interests to secure existing or future indebtedness in an aggregate principal amount not to exceed $100,000 at any time;
(d) entering into leases, as lessee, for real or personal property with an aggregate annual rental value in excess of $50,000, excluding leases existing on the date hereof; or
(e) granting liens or security interests in favor of the Bank.
(2) The Borrower will not create, incur, guarantee, endorse (except endorsements in the course of collection), assume or suffer to exist any indebtedness, except:
(a) indebtedness to the Bank;
(b) open account trade debt incurred in the ordinary course of business and not past due, or
(c) indebtedness in respect of which liens are permitted under subparagraph (1)(c) and (1)(d) above, and any refinancings thereof; provided that the amount of the refinancing indebtedness is not more than
the outstanding amount of the refinanced indebtedness, and the terms of the refinancing indebtedness are no more favorable to the lender than the terms of the refinanced indebtedness.
A-2
(3) The Borrower will not liquidate, or dissolve, or merge or consolidate with any person, firm, corporation or other entity, or sell, lease, transfer or otherwise dispose of all or any substantial part of its property or assets, whether
now owned or hereafter acquired which at the time of such disposition has a fair market value in excess of $100,000.
(4) The Borrower will not make acquisitions of all or substantially all of the property or assets of any person, firm, corporation or other entity.
(5) The Borrower will not declare or pay any dividends on or make any distribution with respect to any class of its equity, or purchase, redeem, retire or otherwise acquire any of its equity.
(6) The Borrower will not make or have outstanding any loans or advances to or otherwise extend credit to any person, firm, corporation or other entity, except in the ordinary course of business.
A-3
EXHIBIT 10.2
SECOND AMENDED AND RESTATED
COMMITTED LINE OF CREDIT NOTE
$5,000,000.00
November 1, 2000
FOR VALUE RECEIVED, INTEST CORPORATION, INTEST SUNNYVALE CORPORATION, TEMPTRONIC CORPORATION, INTEST INVESTMENTS, INC., INTEST LICENSING CORP. and INTEST IP CORP. (collectively, the "Borrower"), with an address at Seven Esterbrook
Lane, Cherry Hill, New Jersey 08003, jointly and severally promise to pay to the order of PNC BANK, NATIONAL ASSOCIATION (the "Bank"), in lawful money of the United States of America in immediately available funds at its offices located at 1950 East Route 70, Cherry Hill, New Jersey 08003, or at such other location as the
Bank may designate from time to time, the principal sum of FIVE MILLION DOLLARS ($5,000,000.00) (the "Facility") or such lesser amount as may be advanced to or for the benefit of the Borrower hereunder, together with interest accruing on the outstanding principal balance from the date hereof, all
as provided below:
1. Advances. The Borrower may request advances, repay and request additional advances hereunder until the Expiration Date, subject to the terms and conditions of this Note and the Loan Documents (as hereinafter defined). The
"Expiration Date" shall mean June 30, 2001, or such later date as may be designated by the Bank by written notice from the Bank to the Borrower. The Borrower acknowledges and agrees that in no event will the Bank be under any obligation to extend or renew the Facility
or this Note beyond the Expiration Date. The Borrower may request advances hereunder upon giving oral or written notice to the Bank by 11:00 a.m. (Philadelphia, Pennsylvania time) (a) on the day of the proposed advance, in the case of advances to bear
interest under the Base Rate Option (as hereinafter defined) and (b) three (3) Business Days prior to the proposed advance, in the case of advances to bear interest under the Euro-Rate Option (as hereinafter defined), followed promptly thereafter by
the Borrower's written confirmation to the Bank of any oral notice. The aggregate unpaid principal amount of advances under this Note shall not exceed the face amount of this Note.
2. Rate of Interest. Each advance outstanding under this Note will bear interest at a rate or rates per annum as may be selected by the Borrower from the interest rate options set forth below (each, an "Option"):
(i) Base Rate Option. A rate of interest per annum which is at all times equal to the sum of (A) the Prime Rate minus (B) one hundred (100) basis points (1.00%) ("Base Rate"
). For purposes hereof, the term "Prime Rate" shall mean the rate publicly announced by the Bank from time to time as its prime rate. The Prime Rate is determined from time to time by the Bank as a means of pricing some loans to its borrowers. The Prime Rate is not tied to any
external rate of interest or index, and does not necessarily reflect the lowest rate of interest actually charged by the Bank to any particular class or category of customers. If and when the Prime Rate changes, the rate of interest with respect to any
advance to which the Base Rate Option applies will change automatically without notice to the Borrower, effective on the date of any such change. There are no required minimum interest periods for advances bearing interest under the Base Rate Option.
(ii) Euro-Rate Option. A rate per annum equal to the sum of (A) the Euro-Rate plus (B) one hundred fifty (150) basis points (1.50%), for the applicable Euro-Rate Interest Period.
For purposes hereof, the following terms shall have the following meanings:
"Business Day" shall mean any day other than a Saturday or Sunday or a legal holiday on which commercial banks are authorized or required to be closed for business in Philadelphia, Pennsylvania.
"Euro-Rate" shall mean, with respect to any advance to which the Euro-Rate Option applies for the applicable Euro-Rate Interest Period, the interest rate per annum determined by the Bank by dividing (the resulting quotient rounded upwards, if
necessary, to the nearest 1/100th of 1%) (i) the rate of interest determined by the Bank in accordance with its usual procedures (which determination shall be conclusive absent manifest error) to be the eurodollar rate two (2) Business Days prior to the
first day of such Euro-Rate Interest Period for an amount comparable to such advance and having a borrowing date and a maturity comparable to such Euro-Rate Interest Period by (ii) a number equal to 1.00 minus the Euro-Rate Reserve Percentage.
"Euro-Rate Interest Period" shall mean the period of one (1), three (3) or six (6) months selected by the Borrower commencing on the date of disbursement of an advance (or the date of conversion of an advance to the Euro-Rate Option, as the case
may be) and each successive period selected by the Borrower thereafter; provided, that if a Euro-Rate Interest Period would end on a day which is not a Business Day, it shall end on the next succeeding Business Day, unless such day falls in the succeeding calendar month in which case the Euro-Rate Interest Period shall
end on the next preceding Business Day. In no event shall any Euro-Rate Interest Period end on a day after the Expiration Date.
"Euro-Rate Reserve Percentage" shall mean the maximum effective percentage in effect on such day as prescribed by the Board of Governors of the Federal Reserve System (or any successor) for determining the reserve requirements (including, without
limitation, supplemental, marginal and emergency reserve requirements) with respect to eurocurrency funding (currently referred to as "Eurocurrency liabilities").
The Euro-Rate shall be adjusted with respect to any advance to which the Euro-Rate Option applies on and as of the effective date of any change in the Euro-Rate Reserve Percentage. The Bank shall give prompt notice to the Borrower of the Euro-Rate as
determined or adjusted in accordance herewith, which determination shall be conclusive absent manifest error.
If the Bank determines (which determination shall be final and conclusive) that, by reason of circumstances affecting the eurodollar market generally, deposits in dollars (in the applicable amounts) are not being offered to banks in the eurodollar market
for the selected term, or adequate means do not exist for ascertaining the Euro-Rate, then the Bank shall give notice thereof to the Borrower. Thereafter, until the Bank notifies the Borrower that the circumstances giving rise to such suspension no longer
exist, (a) the availability of the Euro-Rate Option shall be suspended, and (b) the interest rate for all advances then bearing interest under the Euro-Rate Option shall be converted at the expiration of the then current Euro-Rate Interest Period(s) to
the Base Rate Option.
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In addition, if, after the date of this Note, the Bank shall determine (which determination shall be final and conclusive) that any enactment, promulgation or adoption of or any change in any applicable law, rule or regulation, or any change in the
interpretation or administration thereof by a governmental authority, central bank or comparable agency charged with the interpretation or administration thereof, or compliance by the Bank with any guideline, request or directive (whether or not having
the force of law) of any such authority, central bank or comparable agency shall make it unlawful or impossible for the Bank to make or maintain or fund loans under the Euro-Rate Option, the Bank shall notify the Borrower. Upon receipt of such notice,
until the Bank notifies the Borrower that the circumstances giving rise to such determination no longer apply, (a) the availability of the Euro-Rate Option shall be suspended, and (b) the interest rate on all advances then bearing interest under the
Euro-Rate Option shall be converted to the Base Rate Option either (i) on the last day of the then current Euro-Rate Interest Period(s) if the Bank may lawfully continue to maintain advances under the Euro-Rate Option to such day, or (ii) immediately
if the Bank may not lawfully continue to maintain advances under the Euro-Rate Option.
The foregoing notwithstanding, it is understood that the Borrower may select different Options to apply simultaneously to different portions of the advances and may select up to three (3) different interest periods to apply simultaneously to different
portions of the advances bearing interest under the Euro-Rate Option. Interest hereunder will be calculated on the basis of a year of 360 days for the actual number of days elapsed. In no event will the rate of interest hereunder exceed the maximum rate
allowed by law.
3. Interest Rate Election. Subject to the terms and conditions of this Note, at the end of each interest period applicable to any advance, the Borrower may renew the Option applicable to such advance or convert such advance to a
different Option; provided that, during any period in which any Event of Default (as hereinafter defined) has occurred and is continuing, any advances bearing interest under the Euro-Rate Option shall, at the Bank's sole discretion, be converted at the end of
the applicable Euro-Rate Interest Period to the Base Rate Option and the Euro-Rate Option will not be available to Borrower with respect to any new advances until such Event of Default has been cured by the Borrower or waived by the Bank. The Borrower
shall notify the Bank of each election of an Option, each conversion from one Option to another, the amount of the advances then outstanding to be allocated to each Option and where relevant the interest periods therefor. In the case of converting to the
Euro-Rate Option, such notice shall be given at least three (3) Business Days prior to the commencement of any Euro-Rate Interest Period. If no notice of conversion or renewal is timely received by the Bank, the Borrower shall be deemed to have converted
such advance to the Base Rate Option. Any such election shall be promptly confirmed in writing by such method as the Bank may require.
4. Advance Procedures. A request for advance made by telephone must be promptly confirmed in writing by such method as the Bank may require. The Borrower authorizes the Bank to accept telephonic requests for advances, and the
Bank shall be entitled to rely upon the authority of any person providing such instructions. The Borrower hereby indemnifies and holds the Bank harmless from and against any and all damages, losses, liabilities, costs and expenses (including reasonable
attorneys' fees and expenses) which may arise or be created by the acceptance of such telephone requests or making such advances. The Bank will enter on its books and records, which entry when made will be presumed correct, the date and amount of each
advance, the interest rate and interest period applicable thereto, as well as the date and amount of each payment.
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5. Payment Terms. The Borrower shall pay accrued interest on the unpaid principal balance of this Note in arrears: (a) for the portion of advances bearing interest under the Base Rate Option, on the first day of each month during
the term hereof, (b) for the portion of advances bearing interest under the Euro-Rate Option, on the last day of the respective Euro-Rate Interest Period for such advance, (c) if any Euro-Rate Interest Period is longer than three (3) months, then also on
the three (3) month anniversary of such interest period and every three (3) months thereafter, and (d) for all advances, at maturity, whether by acceleration of this Note or otherwise, and after maturity, on demand until paid in full. All outstanding
principal and accrued interest hereunder shall be due and payable in full on the Expiration Date.
If any payment under this Note shall become due on a Saturday, Sunday or public holiday under the laws of the State where the Bank's office indicated above is located, such payment shall be made on the next succeeding business day and such extension of
time shall be included in computing interest in connection with such payment. The Borrower hereby authorizes the Bank to charge the Borrower's deposit account at the Bank for any payment when due hereunder. Payments received will be applied to charges,
fees and expenses (including attorneys' fees), accrued interest and principal in any order the Bank may choose, in its sole discretion.
6. Late Payments; Default Rate. If the Borrower fails to make any payment of principal, interest or other amount coming due pursuant to the provisions of this Note within fifteen (15) calendar days of the date due and payable,
the Borrower also shall pay to the Bank a late charge equal to the lesser of five percent (5%) of the amount of such payment or $100.00 (the "Late Charge"). Such fifteen (15) day period shall not be construed in any way to extend the due date of any such payment. Upon maturity, whether by acceleration, demand or otherwise, and at the Bank's option upon the occurrence of any Event of
Default (as hereinafter defined) and during the continuance thereof, this Note shall bear interest at a rate per annum (based on a year of 360 days and actual days elapsed) which shall be three percentage points (3%) in excess of the interest rate in
effect from time to time under this Note but not more than the maximum rate allowed by law (the "Default Rate"). The Default Rate shall continue to apply whether or not judgment shall be entered on this Note. Both the Late Charge and the Default Rate are imposed as liquidated damages for the purposes of defraying the Bank's expenses incident
to the handling of delinquent payments, but are in addition to, and not in lieu of, the Bank's exercise of any rights and remedies hereunder, under the other Loan Documents or under applicable law, and any fees and expenses of any agents or attorneys
which the Bank may employ. In addition, the Default Rate reflects the increased credit risk to the Bank of carrying a loan that is in default. The Borrower agrees that the Late Charge and Default Rate are reasonable forecasts of just compensation for
anticipated and actual harm incurred by the Bank, and that the actual harm incurred by the Bank cannot be estimated with certainty and without difficulty.
7. Prepayment. The Borrower shall have the right to prepay at any time and from time to time, in whole or in part, without penalty, any advance hereunder which is accruing interest under the Base Rate Option. If the Borrower
prepays (whether voluntary, on default or otherwise) all or any part of any advance which is accruing interest under the Euro-Rate Option on other than the last day of the applicable Euro-Rate Interest Period, the Borrower shall pay to the Bank, on demand
therefor, all amounts due pursuant to paragraph 8 below, including the Cost of Prepayment, if any.
8. Yield Protection. The Borrower shall pay to the Bank, on written demand therefor, together with the written evidence of the justification therefor, all direct costs incurred, losses suffered or payments made by Bank by reason
of any change in law or regulation or its interpretation imposing any reserve, deposit,
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allocation of capital, or similar requirement (including without limitation, Regulation D of the Board of Governors of the Federal Reserve System) on the Bank, its holding company or any of their respective assets. In addition, the Borrower agrees to
indemnify the Bank against any liabilities, losses or expenses (including loss of margin, any loss or expense sustained or incurred in liquidating or employing deposits from third parties, and any loss or expense incurred in connection with funds acquired
to effect, fund or maintain any advance (or any part thereof) bearing interest under the Euro-Rate Option) which the Bank sustains or incurs as a consequence of either (i) the Borrower's failure to make a payment on the due date thereof, (ii) the
Borrower's revocation (expressly, by later inconsistent notices or otherwise) in whole or in part of any notice given to Bank to request, convert, renew or prepay any advance, or (iii) the Borrower's payment, prepayment or conversion of any advance
bearing interest under the Euro-Rate Option on a day other than the last day of the applicable Euro-Rate Interest Period, including but not limited to the Cost of Prepayment. "Cost of Prepayment" means an amount equal to the present value, if positive, of the product of (a) the difference between (i) the yield, on the beginning date of the applicable interest period, of a U.S. Treasury obligation with a
maturity similar to the applicable interest period minus (ii) the yield, on the prepayment date, of a U.S. Treasury obligation with a maturity similar to the remaining maturity of the applicable interest period, and (b) the principal amount to be prepaid, and (c) the number of years,
including fractional years from the prepayment date to the end of the applicable interest period. The yield on any U.S. Treasury obligation shall be determined by reference to Federal Reserve Statistical Release H.15(519) "Selected Interest Rates".
For purposes of making present value calculations, the yield to maturity of a similar maturity U.S. Treasury obligation on the prepayment date shall be deemed the discount rate. The Cost of Prepayment shall also apply to any payments made after
acceleration of the maturity of this Note. The Bank's determination of an amount payable under this paragraph shall, in the absence of manifest error, be conclusive and shall be payable on demand.
9. Other Loan Documents. This Note is issued in connection with a Letter Agreement between the Borrower and the Bank dated on or before the date hereof, and the other agreements and documents executed in connection therewith or
referred to therein, the terms of which are incorporated herein by reference (as amended, modified or renewed from time to time, collectively the "Loan Documents"), and is secured by the property described in the Loan Documents (if any) and by such other collateral as previously may have been or may in the future be granted to the Bank to secure this Note.
10. Events of Default. The occurrence of any of the following events will be deemed to be an "Event of Default" under this Note: (i) the nonpayment of any principal, interest or other indebtedness under this Note when due;
(ii) the occurrence of any event of default or default and the lapse of any notice or cure period under any Loan Document or any other debt, liability or obligation to the Bank of any Obligor; (iii) the filing by or against any Obligor of any
proceeding in bankruptcy, receivership, insolvency, reorganization, liquidation, conservatorship or similar proceeding (and, in the case of any such proceeding instituted against any Obligor, such proceeding is not dismissed or stayed within sixty (60)
days of the commencement thereof, provided that the Bank shall not be obligated to advance additional funds during such period); (iv) any assignment by any Obligor for the benefit of creditors, or any levy, garnishment, attachment or similar proceeding is
instituted against any property of any Obligor held by or deposited with the Bank; (v) a default with respect to any other indebtedness of any Obligor for borrowed money, if the effect of such default is to cause or permit the acceleration of such debt;
(vi) the commencement of any foreclosure or forfeiture proceeding, execution or attachment against any collateral securing the obligations of any Obligor to the Bank; (vii) the entry of a final judgment (not fully covered by insurance) against any Obligor
in excess of $50,000 (or judgments aggregating $75,000) and the failure of such Obligor to discharge the judgment within ten days of the entry thereof; (viii) if
- - 5 -
this Note or any guarantee executed by any Guarantor is secured, the failure of any Obligor to provide the Bank with additional collateral if in the Bank's opinion at any time or times, the market value of any of the collateral securing this Note or any
guarantee has depreciated below that required pursuant to the Loan Documents (if any) or, if no specific value is so required, then in an amount deemed material by the Bank; (ix) any material adverse change in any Obligor's business, assets, operations,
financial condition or results of operations; (x) any Obligor ceases doing business as a going concern; (xi) the revocation or attempted revocation, in whole or in part, of any guarantee by any Guarantor; (xii) the death, incarceration, indictment or
legal incompetency of any individual Obligor or, if any Obligor is a partnership or limited liability company, the death, incarceration, indictment or legal incompetency of any individual general partner or member; (xiii) any representation or warranty
made by any Obligor to the Bank in any Loan Document, or any other documents now or in the future evidencing or securing the obligations of any Obligor to the Bank, is false, erroneous or misleading in any material respect; or (xiv) any Obligor's failure
to observe or perform any covenant or other agreement with the Bank contained in any Loan Document or any other documents now or in the future evidencing or securing the obligations of any Obligor to the Bank. As used herein, the term "Obligor" means any Borrower and any Guarantor, and the term "Guarantor" means any guarantor of the Borrower's obligations to the Bank existing on the date of this Note or arising in the future.
Upon the occurrence of an Event of Default: (a) the Bank shall be under no further obligation to make advances hereunder; (b) if an Event of Default specified in clause (iii) or (iv) above shall occur, the outstanding principal balance and accrued
interest hereunder together with any additional amounts payable hereunder shall be immediately due and payable without demand or notice of any kind; (c) if any other Event of Default shall occur, the outstanding principal balance and accrued interest
hereunder together with any additional amounts payable hereunder, at the Bank's option and without demand or notice of any kind, may be accelerated and become immediately due and payable; (d) at the Bank's option, this Note will bear interest at the
Default Rate from the date of the occurrence of the Event of Default; and (e) the Bank may exercise from time to time any of the rights and remedies available under the Loan Documents or under applicable law.
11. Right of Setoff. In addition to all liens upon and rights of setoff against the Borrower's money, securities or other property given to the Bank by law, the Bank shall have, with respect to the Borrower's obligations to the
Bank under this Note and to the extent permitted by law, a contractual possessory security interest in and a contractual right of setoff against, and the Borrower hereby assigns, conveys, delivers, pledges and transfers to the Bank all of the Borrower's
right, title and interest in and to, all of the Borrower's deposits, moneys, securities and other property now or hereafter in the possession of or on deposit with, or in transit to, the Bank or any other direct or indirect subsidiary of The PNC Financial
Services Group, Inc., whether held in a general or special account or deposit, whether held jointly with someone else, or whether held for safekeeping or otherwise, excluding, however, all IRA, Keogh, and trust accounts. Every such security interest and
right of setoff may be exercised without demand upon or notice to the Borrower. Every such right of setoff shall be deemed to have been exercised immediately upon the occurrence of an Event of Default hereunder without any action of the Bank, although the
Bank may enter such setoff on its books and records at a later time.
12. Miscellaneous. All notices, demands, requests, consents, approvals and other communications required or permitted hereunder must be in writing (except as may be agreed otherwise above with respect to borrowing requests) and
will be effective upon receipt. Such notices and other communications may be hand-delivered, sent by facsimile transmission with confirmation of delivery and a copy sent by first-class mail, or sent by nationally recognized overnight courier service, to
the addresses
- - 6 -
for the Bank and the Borrower set forth above or to such other address as either may give to the other in writing for such purpose. No delay or omission on the Bank's part to exercise any right or power arising hereunder will impair any such right or
power or be considered a waiver of any such right or power, nor will the Bank's action or inaction impair any such right or power. No modification, amendment or waiver of any provision of this Note nor consent to any departure by the Borrower therefrom
will be effective unless made in a writing signed by the Bank. The Borrower agrees to pay on demand, to the extent permitted by law, all costs and expenses incurred by the Bank in the enforcement of its rights in this Note and in any security therefor,
including without limitation reasonable fees and expenses of the Bank's counsel. If any provision of this Note is found to be invalid by a court, all the other provisions of this Note will remain in full force and effect. The Borrower and all other makers
and indorsers of this Note hereby forever waive presentment, protest, notice of dishonor and notice of non-payment. The Borrower also waives all defenses based on suretyship or impairment of collateral. If this Note is executed by more than one Borrower,
the obligations of such persons or entities hereunder will be joint and several. This Note shall bind the Borrower and its heirs, executors, administrators, successors and assigns, and the benefits hereof shall inure to the benefit of the Bank and its
successors and assigns; provided, however, that the Borrower may not assign this Note in whole or in part without the Bank's written consent and the Bank at any time may assign this Note in whole or in part.
This Note has been delivered to and accepted by the Bank and will be deemed to be made in the State where the Bank's office indicated above is located. This Note will be interpreted and the rights and liabilities of the Bank and the Borrower
determined in accordance with the laws of the State where the Bank's office indicated above is located, excluding its conflict of laws rules. The Borrower hereby irrevocably consents to the exclusive jurisdiction of any state or federal court in the county or judicial district where the Bank's office indicated above is located; provided that nothing contained in this Note will prevent the
Bank from bringing any action, enforcing any award or judgment or exercising any rights against the Borrower individually, against any security or against any property of the Borrower within any other county, state or other foreign or domestic
jurisdiction. The Borrower acknowledges and agrees that the venue provided above is the most convenient forum for both the Bank and the Borrower. The Borrower waives any objection to venue and any objection based on a more convenient forum in any action
instituted under this Note.
13. Amendment and Restatement. This Note amends and restates, and is in substitution for, that certain Amended and Restated Committed Line of Credit Note in the original principal amount of $1,500,000.00 payable to the order of
the Bank and dated June 30, 1996 (the "Existing Note"). However, without duplication, this Note shall in no way extinguish, cancel or satisfy Borrower's unconditional obligation to repay all indebtedness evidenced by the Existing Note or constitute a novation of the Existing Note.
Nothing herein is intended to extinguish, cancel or impair the lien priority or effect of any security agreement, pledge agreement or mortgage with respect to any Obligor's obligations hereunder and under any other document relating hereto.
14. WAIVER OF JURY TRIAL. The Borrower irrevocably waives any and all rights the Borrower may have to a trial by jury in any action, proceeding or claim of any nature relating to this Note, any documents executed in connection
with this Note or any transaction contemplated in any of such documents. The Borrower acknowledges that the foregoing waiver is knowing and voluntary.
The Borrower acknowledges that it has read and understood all the provisions of this Note, including the waiver of jury trial, and has been advised by counsel as necessary or appropriate.
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WITNESS the due execution hereof as a document under seal, as of the date first written above, with the intent to be legally bound hereby.
[CORPORATE SEAL] |
INTEST CORPORATION |
|
|
By: /s/Denise Monahan |
By: /s/Hugh T. Regan, Jr. |
Print Name: Denise Monahan |
Print Name: Hugh T. Regan, Jr. |
Title: Vice President |
Title: CFO |
|
|
|
|
[CORPORATE SEAL] |
INTEST SUNNYVALE CORPORATION |
|
|
By: /s/Denise Monahan |
By: /s/Hugh T. Regan, Jr. |
Print Name: Denise Monahan |
Print Name: Hugh T. Regan, Jr. |
Title: Vice President |
Title: CFO |
|
|
|
|
[CORPORATE SEAL] |
TEMPTRONIC CORPORATION |
|
|
By: /s/Denise Monahan |
By: /s/Hugh T. Regan, Jr. |
Print Name: Denise Monahan |
Print Name: Hugh T. Regan, Jr. |
Title: Vice President |
Title: CFO |
|
|
|
|
[CORPORATE SEAL] |
INTEST INVESTMENTS, INC. |
|
|
By: /s/Denise Monahan |
By: /s/Hugh T. Regan, Jr. |
Print Name: Denise Monahan |
Print Name: Hugh T. Regan, Jr. |
Title: Vice President |
Title: CFO |
|
|
- 8 - |
|
|
|
[CORPORATE SEAL] |
INTEST LICENSING CORP. |
|
|
By: /s/Denise Monahan |
By: /s/Hugh T. Regan, Jr. |
Print Name: Denise Monahan |
Print Name: Hugh T. Regan, Jr. |
Title: Vice President |
Title: CFO |
|
|
|
|
[CORPORATE SEAL] |
INTEST IP CORP. |
|
|
By: /s/Denise Monahan |
By: /s/Hugh T. Regan, Jr. |
Print Name: Denise Monahan |
Print Name: Hugh T. Regan, Jr. |
Title: Vice President |
Title: CFO |
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EXHIBIT 21
Subsidiaries of the Registrant
Name of Subsidiaries and Names |
Jurisdiction |
|
|
inTEST Limited |
England |
inTEST Kabushiki Kaisha |
Japan |
inTEST PTE, Ltd. |
Singapore |
inTEST GmbH* |
Germany |
inTEST Investments, Inc. |
Delaware |
inTEST IP Corp. |
Delaware |
inTEST Licensing Corp. |
Delaware |
inTEST Sunnyvale Corp. |
Delaware |
Temptronic Corporation |
Delaware |
* Commenced operations in August, 2000.
EXHIBIT 23
Consent of Independent Accountants
The Board of Directors
inTEST Corporation:
We consent to the incorporation by reference in the registration statements (No. 333-44059, No. 333-33733 and No. 333-43096) on Form S-8 of inTEST Corporation of our report dated February 19, 2001, relating to the consolidated balance sheets of inTEST
Corporation and subsidiaries as of December 31, 2000 and 1999, and the related consolidated statements of earnings, comprehensive earnings, stockholders' equity and cash flows for each of the years in the three-year period ended December 31, 2000, and the
related financial statement schedule, which report appears in the December 31, 2000 annual report on Form 10-K of inTEST Corporation.
KPMG LLP
Philadelphia, Pennsylvania
March 29, 2001