<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
----------------------------------
FORM 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 2000
--------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------- ---------------
Commission File Number 0-22529
-------
inTEST Corporation
-----------------------------------------------------------------------------
(Exact Name of Registrant as Specified in its Charter)
Delaware 22-2370659
--------------------------------- ---------------------------------
(State or other jurisdiction of (I.R.S Employer Identification No.)
incorporation or organization)
2 Pin Oak Lane, Cherry Hill, New Jersey 08003
---------------------------------------- --------
(Address of principal executive offices) (Zip Code)
Registrant's Telephone Number, Including Area Code: (856) 424-6886
------------------
Indicate by check X whether the registrants: (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
----- -----
Number of shares of Common Stock, $.01 par value, outstanding as of June 30,
2000:
8,652,961
<PAGE>
inTEST CORPORATION
INDEX
PART 1. FINANCIAL INFORMATION
Page
----
Item 1. Financial Statements
Consolidated Balance Sheets as of June 30, 2000 (unaudited)
and December 31, 1999 1
Consolidated Statements of Earnings (unaudited) for the
three months and six months ended June 30, 2000 and 1999 2
Consolidated Statements of Comprehensive Earnings
(unaudited) for the three months and six months
ended June 30, 2000 and 1999 3
Consolidated Statement of Stockholders' Equity (unaudited)
for the six months ended June 30, 2000 4
Consolidated Statements of Cash Flows (unaudited) for the
six months ended June 30, 2000 and 1999 5
Notes to Consolidated Financial Statements (unaudited) 6-9
Item 2. Management's Discussion and Analysis of Financial Condition
and Results of Operations 10-15
Item 3. Quantitative and Qualitative Disclosures About Market Risk 16
PART II. OTHER INFORMATION
Item 1. Legal Proceedings 17
Item 2. Changes in Securities and Use of Proceeds 17
Item 3. Defaults Upon Senior Securities 17
Item 4. Submission of Matters to a Vote of Securities Holders 17
Item 5. Other Information 17
Item 6. Exhibits and Reports on Form 8-K 17-19
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(In thousands, except share data)
<TABLE>
<CAPTION>
June 30, Dec. 31,
2000 1999
--------- --------
(Unaudited) (Audited)
<S> <C> <C>
ASSETS:
Current assets:
Cash and cash equivalents $10,020 $12,047
Trade accounts and notes receivable, net of allowance for
doubtful accounts of $238 and $239, respectively 14,192 10,020
Inventories 10,761 7,972
Deferred tax asset 1,271 1,271
Other current assets 582 898
------- -------
Total current assets 36,826 32,208
------- -------
Machinery and equipment:
Machinery and equipment 8,457 7,279
Leasehold improvements 1,556 1,420
------- -------
10,013 8,699
Less: accumulated depreciation (6,606) (6,002)
------- -------
Net machinery and equipment 3,407 2,697
------- -------
Cash surrender value of life insurance - 1,067
Deferred tax asset 350 350
Other assets 452 288
Goodwill, net of accumulated amortization of $1,019
and $780, respectively 6,166 6,405
------- -------
Total assets $47,201 $43,015
======= =======
LIABILITIES AND STOCKHOLDERS' EQUITY
Current liabilities:
Notes payable to bank $ - $ 1,241
Accounts payable 5,557 5,195
Accrued expenses 3,083 3,011
Current portion of long-term debt - 123
Domestic and foreign income taxes payable 3,647 1,854
------- -------
Total current liabilities 12,287 11,424
------- -------
Long-term debt, net of current portion - 133
------- -------
Total liabilities 12,287 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;
8,652,961 and 8,630,980 shares issued, respectively 86 86
Additional paid-in capital 21,874 21,872
Retained earnings 16,349 13,077
Accumulated other comprehensive earnings (130) 14
Deferred compensation (112) (139)
Note receivable from Equity Participation Plan (3,153) (3,228)
Treasury stock, at cost; 0 and 55,557 shares, respectively - (224)
------- -------
Total stockholders' equity 34,914 31,458
------- -------
Total liabilities and stockholders' equity $47,201 $43,015
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- 1 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF EARNINGS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ------------------
2000 1999 2000 1999
------- ------- -------- --------
<S> <C> <C> <C> <C>
Net revenues $21,317 $10,816 $41,570 $19,039
Cost of revenues 10,811 5,502 21,088 9,973
------- ------- ------- -------
Gross margin 10,506 5,314 20,482 9,066
------- ------- ------- -------
Operating expenses:
Selling expense 2,709 1,873 5,027 3,411
Engineering and product
development expense 1,621 1,185 3,070 2,252
General and administrative expense 1,870 1,289 3,344 2,376
Merger-related costs 115 - 2,672 -
------- ------- ------- -------
Total operating expenses 6,315 4,347 14,113 8,039
------- ------- ------- -------
Operating income 4,191 967 6,369 1,027
------- ------- ------- -------
Other income (expense):
Interest income 133 81 254 151
Interest expense - (52) (30) (118)
Other 30 55 38 55
------- ------- ------- -------
Total other income 163 84 262 88
------- ------- ------- -------
Earnings before income taxes 4,354 1,051 6,631 1,115
Income tax expense 1,560 357 3,359 482
------- ------- ------- -------
Net earnings $ 2,794 $ 694 $ 3,272 $ 633
======= ======= ======= =======
Net earnings per common share-basic $0.34 $0.09 $0.40 $0.08
Weighted average common shares
outstanding-basic 8,190,178 8,071,154 8,163,673 8,066,468
Net earnings per common share-diluted $0.33 $0.08 $0.39 $0.08
Weighted average common and common
share equivalents outstanding-diluted 8,528,166 8,217,571 8,496,884 8,220,990
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- 2 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE EARNINGS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
2000 1999 2000 1999
------- ------- ------ ------
<S> <C> <C> <C> <C>
Net earnings $2,794 $ 694 $3,272 $ 633
Foreign currency translation adjustments (131) (35) (144) (111)
------ ------ ------ ------
Comprehensive earnings $2,663 $ 659 $3,128 $ 522
====== ====== ====== ======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- 3 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF STOCKHOLDERS' EQUITY
FOR THE SIX MONTHS ENDED JUNE 30, 2000
(In thousands, except share data)
(Unaudited except Balance, December 31, 1999)
<TABLE>
<CAPTION>
Accum.
Other
Common Stock Addt'l Comp. Equity Total
---------------- Paid-In Retained Earnings Deferred Part. Treasury Stockholders'
Shares Amount Capital Earnings (Expense) Comp. Plan Note Stock Equity
--------- ------ ---------- -------- --------- -------- --------- -------- -------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Balance, 12/31/99 8,630,980 $ 86 $21,872 $13,077 $ 14 $ (139) $(3,228) $(224) $31,458
Net earnings - - - 3,272 - - - - 3,272
Other comprehensive
expense - - - - (144) - - - (144)
Amortization of
deferred
compensation - - - - - 27 - - 27
Principal payments
by Equity Participation
Plan - - - - - - 75 - 75
Stock options
exercised 77,538 - 226 - - - - - 226
Retirement of
treasury stock (55,557) - (224) - - - - 224 -
--------- ---- ------- ------- ----- ------ ------- ----- -------
Balance, 6/30/00 8,652,961 $ 86 $21,874 $16,349 $(130) $ (112) $(3,153) $ - $34,914
========= ==== ======= ======= ===== ====== ======= ===== =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- 4 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
(In thousands, except share data)
(Unaudited)
<TABLE>
<CAPTION>
Six Months Ended
June 30,
-----------------
2000 1999
------- -------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net earnings $ 3,272 $ 633
Adjustments to reconcile net earnings to net cash
provided by (used in) operating activities:
Depreciation 652 427
Amortization of goodwill 239 239
Foreign exchange (gain) loss (7) 4
Allowance for doubtful accounts, net (1) -
Deferred compensation relating to stock options 27 49
Changes in assets and liabilities:
Trade accounts and notes receivable (4,242) (2,452)
Inventories (2,798) (283)
Proceeds from sale of demonstration equipment,
net of gain 7 28
Refundable domestic and state income taxes - 974
Other current assets 314 14
Accounts payable 407 615
Domestic and foreign income taxes payable 1,815 524
Accrued expenses 90 533
------- -------
Net cash provided by (used in) operating activities (225) 1,305
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of machinery and equipment (1,394) (351)
Other long-term assets 894 (41)
------- -------
Net cash used in investing activities (500) (392)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES
Net repayments of revolving debt (1,241) (714)
Repayment of long-term debt (256) (79)
Note receivable repayments from Equity Participation Plan 75 68
Proceeds from stock options exercised 226 -
------- -------
Net cash used in financing activities (1,196) (725)
------- -------
Effects of exchange rates on cash (106) (95)
------- -------
Net cash provided by (used in) all activities (2,027) 93
Cash and cash equivalents at beginning of period 12,047 8,637
------- -------
Cash and cash equivalents at end of period $10,020 $ 8,730
======= =======
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
- 5 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Information as of June 30, 2000 and for the six months ended
June 30, 2000 and 1999 is unaudited)
(In thousands, except for share data)
(1) NATURE OF OPERATIONS
inTEST Corporation (the "Company") is a leading independent designer,
manufacturer and marketer of interface solutions and temperature
management products that semiconductor manufacturers use in conjunction
with automatic test equipment, or ATE, in the testing of integrated
circuits, or ICs. The Company's interface solutions products include
manipulator, docking hardware, and tester interface products.
The consolidated entity is comprised of inTEST Corporation (parent) and
its nine 100% owned subsidiaries: inTEST Limited (Thame, UK), inTEST
Kabushiki Kaisha (Kichijoji, Japan), inTEST PTE, Limited (Singapore),
inTEST Sunnyvale Corp. (Delaware), Temptronic Corporation (Delaware),
inTEST GmbH (Germany)(established in June 2000 with operations to
commence during the third quarter of 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., 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 95% owned foreign
subsidiary which is consolidated with Temptronic for reporting purposes.
Minority interest in this foreign subsidiary is not material.
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation
---------------------
The 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
- 6 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Basis of Presentation (Continued)
---------------------
preparation of financial statements in conformity with generally
accepted accounting principles 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.
Interim Financial Reporting
---------------------------
In the opinion of management, the accompanying unaudited consolidated
financial statements include all adjustments (consisting only of
normally recurring adjustments) necessary to present fairly the
financial position, results of operations, and changes in cash flows
for the interim periods presented.
Certain footnote information has been condensed or omitted from these
financial statements. Therefore, these financial statements should be
read in conjunction with the consolidated financial statements and
accompanying footnotes included in the Company's Form 8-K/A filed on
May 16, 2000.
Net Earnings Per Common Share
-----------------------------
Basic earnings per common share is computed by dividing net earnings
by the weighted average number of common shares outstanding during
each period. 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 period. Common share
equivalents represent stock options using the treasury stock method.
Weighted average common shares outstanding exclude unallocated shares of
common stock held by the Company's Equity Participation Plan.
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
- 7 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
(2) SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
New Accounting Pronouncements (Continued)
-----------------------------
instruments, including certain derivative instruments embedded in other
contracts (collectively referred to as derivatives) and for hedging
activities. SFAS 133 is effective for all fiscal quarters of fiscal
years beginning after June 15, 2000. The Company plans to adopt this
Statement in the first quarter of 2001, as required. The adoption of
this Statement is not expected to have a material effect on the results
of operations, financial condition or long-term liquidity of the Company.
(3) SEGMENT INFORMATION
The various products the Company designs, manufactures and markets, which
include manipulator, docking hardware, tester interface and
temperature management products, are considered by management to be a
single product segment. Included in this segment are products the
Company designs and markets that are manufactured by third parties, which
include high performance test sockets and interface boards. The Company
operates its business worldwide and divides the world into three
geographic segments: North America, Asia-Pacific and Europe. The North
America segment includes the Company's manufacturing, design and service
facilities in New Jersey, California and Massachusetts; the Asia-Pacific
segment includes the Company's manufacturing, design and service
facilities in Singapore and the Company's design and service facilities
in Japan; and the Europe segment includes the Company's manufacturing,
design and service facility in the U.K. and the Company's design and
service facility in Germany (operations to commence during the third
quarter of 2000). Each segment sells Company designed and manufactured
products, while products produced by third party manufacturers are
primarily distributed by the Company's Asia-Pacific segment. All three
segments sell to semiconductor manufacturers and automatic test equipment
manufacturers. The North America segment sells through Company account
managers, independent sales representatives and distributors; the Asia-
Pacific segment sells through Company account managers and independent
sales representatives; and the Europe segment sells through Company
account managers and distributors.
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 segments.
- 8 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
(Unaudited)
(3) SEGMENT INFORMATION (Continued)
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
------------------ -----------------
2000 1999 2000 1999
------- ------- ------- -------
<S> <C> <C> <C> <C>
Net revenues from unaffiliated customers:
North America $18,486 $ 8,865 $34,633 $15,720
Asia-Pacific 1,706 1,425 3,807 2,383
Europe 1,125 526 3,130 936
------ ------ ------- -------
$21,317 $10,816 $41,570 $19,039
====== ====== ======= =======
Affiliate sales or transfers from:
North America $ 617 $ 469 $ 1,497 $ 885
Asia-Pacific - - 10 -
Europe 181 342 305 435
------ ------ ------- -------
$ 798 $ 811 $ 1,812 $ 1,320
====== ====== ======= =======
Operating income:
North America $ 3,362 $ 695 $ 4,035 $ 720
Asia-Pacific 476 127 937 204
Europe 353 145 1,397 103
------ ------ ------- -------
$ 4,191 $ 967 $ 6,369 $ 1,027
====== ====== ======= =======
Earnings before income taxes:
North America $ 3,509 $ 744 $ 4,259 $ 762
Asia-Pacific 521 159 1,007 245
Europe 324 147 1,365 108
------ ------ ------- -------
$ 4,354 $ 1,051 $ 6,631 $ 1,115
====== ====== ======= =======
Net earnings:
North America $ 2,160 $ 496 $ 1,545 $ 447
Asia-Pacific 380 76 688 83
Europe 254 123 1,039 103
------ ------ ------- -------
$ 2,794 $ 694 $ 3,272 $ 633
====== ====== ======= =======
</TABLE>
The $2.7 million of merger-related costs were incurred by the North
America segment.
-9-
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS.
Overview
--------
We are a leading independent designer, manufacturer and marketer of
interface solutions and temperature management products that semiconductor
manufacturers use in conjunction with automatic test equipment, or ATE, in the
testing of integrated circuits, or ICs. Our interface solutions products
include manipulator, docking hardware and tester interface products. 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 revenues depend substantially upon the demand for ATE by
semiconductor manufacturers and, therefore, fluctuate generally in response to
the cyclicality in the semiconductor manufacturing industry. During the past
several years, the demand for ATE by the semiconductor industry has exhibited
a high degree of cyclicality. Our second quarter 2000 results reflect the
continuation of a period of growth in the semiconductor industry which has
been evidenced by our sequential quarterly growth in net revenues which grew
from $10.8 million for the quarter ended June 30, 1999 to a record $21.3
million for the quarter ended June 30, 2000. Orders for our products
("bookings") were a record $25.3 million for the quarter ended June 30, 2000
compared with $15.9 million for the quarter ended June 30, 1999. As a result
of our increased bookings, our backlog increased from $13.1 million at June
30, 1999 to $21.3 million at June 30, 2000. We believe that the increases in
our net revenues, bookings, and backlog reflect the increased demand for ATE
by semiconductor manufacturers. Although we calculate bookings and backlog on
the basis of firm orders, we cannot give any assurance that customers will
purchase the equipment subject to such orders. As a result, our bookings for
any period and backlog at any particular date do not necessarily serve as an
indicator of actual sales for any succeeding period.
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. The following discussion describes
our results of operations and financial condition on a pooled basis.
- 10 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Results of Operations
---------------------
Three Months Ended June 30, 2000 Compared to Three Months Ended June 30, 1999:
Net Revenues. Net revenues were a record $21.3 million for the quarter
ended June 30, 2000 compared to $10.8 million for the same period in 1999, an
increase of $10.5 million or 97%. We believe that the increase in net
revenues over the comparable prior period is principally the result of
continued growth in the demand for ATE in 2000 compared to 1999.
Gross Margin. Gross margin was 49% for the quarters ended June 30, 2000
and 1999. The positive impact of higher net revenues on the absorption of
fixed manufacturing costs was offset by additions to these costs resulting
from increased capacity, primarily at our domestic manufacturing facilities.
Selling Expense. Selling expense was $2.7 million for the quarter ended
June 30, 2000 compared to $1.9 million for the same period in 1999, an
increase of $836,000 or 45%. We attribute the increase primarily to increased
commission expense resulting from the higher sales levels in 2000, as well as
higher levels of warranty costs, advertising expenditures and increases in
salary expense resulting from new sales and marketing staff hired in 1999.
Engineering and Product Development Expense. Engineering and product
development expense was $1.6 million for the quarter ended June 30, 2000
compared to $1.2 million for the same period in 1999, an increase of $436,000
or 37%. We attribute the increase primarily to the salary expense of
additional engineering and technical staff, as well as increased expenditures
for product development materials associated with new product development.
General and Administrative Expense. General and administrative expense
was $1.9 million for the quarter ended June 30, 2000 compared to $1.3 million
for the same period in 1999, an increase of $581,000 or 45%. We attribute the
increase primarily to increases in incentive compensation for existing staff
and higher administrative salary expense resulting from staffing additions and
salary increases for existing staff.
Merger-related Costs. Merger-related costs resulting from the Company's
merger with Temptronic Corporation were $115,000 for the quarter ended June
30, 2000. These costs relate to the shut-down of Temptronic's U.K.
subsidiary, which will be completed in the third quarter of 2000. We do not
expect to record any further significant costs related to the merger in future
periods.
Income Tax Expense. Income tax expense increased to $1.6 million for the
quarter ended June 30, 2000 from $357,000 for the comparable period in
1999, an increase of $1.2 million. Our effective tax rate for the second
quarter of 2000 was 36% compared to 34% for the comparable prior period. The
increase in the effective tax rate was primarily due to the fact that no taxes
were accrued in the second quarter of 1999 on Temptronic's operating income
for that period because no benefit had been recorded for Temptronic's
operating loss in the first quarter of 1999. This loss was approximately
equivalent to Temptronic's operating income for the second quarter.
- 11 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Six Months Ended June 30, 2000 Compared to the Six Months Ended June 30, 1999
Net Revenues. Net revenues were $41.6 million for the six months ended
June 30, 2000 compared to $19.0 million for the same period in 1999, an
increase of $22.5 million or 118%. We believe that the increase in net
revenues over the comparable prior period is principally the result of
continued growth in the demand for ATE in 2000 compared to 1999.
Gross Margin. Gross margin increased to 49% for the six months ended
June 30, 2000 from 48% for the comparable period in 1999. The improvement in
gross margin primarily resulted from the absorption of fixed manufacturing
costs over significantly higher net revenue levels in 2000 compared to 1999.
Selling Expense. Selling expense was $5.0 million for the six months
ended June 30, 2000 compared to $3.4 million for the same period in 1999, an
increase of $1.6 million or 47%. We attribute the increase primarily to
increased commission expense resulting from the higher sales levels in 2000,
as well as higher levels of warranty costs, advertising expenditures, travel
costs and freight expenses and increases in salary expense resulting from new
sales and marketing staff hired in 1999.
Engineering and Product Development Expense. Engineering and product
development expense was $3.1 million for the six months ended June 30, 2000
compared to $2.3 million for the same period in 1999, an increase of $818,000
or 36%. We attribute the increase primarily to the salary expense of
additional engineering and technical staff, as well as increased expenditures
for product development materials and travel expenses associated with new
product development.
General and Administrative Expense. General and administrative expense
was $3.3 million for the six months ended June 30, 2000 compared to $2.4
million for the same period in 1999, an increase of $968,000 or 41%. We
attribute the increase primarily to increases in incentive compensation for
existing staff and higher administrative salary expense resulting from
staffing additions and salary increases for existing staff. To a lesser
extent, increases in investor relations expense and professional fees
contributed to the increase in general and administrative expenses. This was
partially offset by $200,000 received during the first quarter from the
settlement of patent infringement litigation.
Merger-related Costs. Merger-related costs resulting from the Company's
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. We do not expect to record any further
significant costs related to the merger in future periods.
Income Tax Expense. Income tax expense increased to $3.4 million for the
six months ended June 30, 2000 from $482,000 for the comparable prior period
in 1999, an increase of $2.9 million. Our effective tax rate for the first
six months of 2000 was 51% due to the recognition of $2.3 million of non-tax
deductible merger-related costs. In addition, we recognized a $237,000
- 12 -
<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
taxable gain on the liquidation of life insurance policies held on certain
former Temptronic officers and directors. The effective tax rate for the
first six months of 1999 was 43% primarily due to a higher effective tax rate
in Japan, caused by certain recurring expenses that are not deductible for tax
purposes, coupled with the reduced profitability of our Japanese operations
during that period.
Liquidity and Capital Resources
-------------------------------
Net cash used in operations for the six months ended June 30, 2000 was
$225,000. Accounts receivable increased $4.2 million from December 31, 1999
to June 30, 2000 due to the increase in sales activity during the first six
months of 2000. Inventories increased $2.8 million, also as a result of the
increased sales activity as we made purchases for future product shipments.
Other current assets decreased $314,000, primarily as a result of the
expensing of previously capitalized merger-related costs. Accounts payable
increased $407,000 due to the higher production levels during the first six
months of 2000. Accrued expenses increased $90,000 primarily as a result of
additional accruals for salary and incentive compensation as well as merger-
related restructuring costs. This was partially offset by the payment of
previously accrued professional fees, primarily related to the merger with
Temptronic. Domestic and foreign income taxes payable increased $1.8 million
as a result of the accrual of income taxes on the earnings for the first six
months of 2000.
Purchases of machinery and equipment were $1.4 million for the six months
ended June 30, 2000, which consisted primarily of improvements to the
Company's facilities in the United States. During this period we spent
approximately $451,000 on equipment, $236,000 on leasehold improvements and
$230,000 on furnishings at our new facility for our inTEST Sunnyvale
operation. We spent approximately $395,000 on manufacturing and computer
equipment at various other domestic operations during the quarter, including
approximately $123,000 for demonstration equipment related to a recently
redesigned product of our Temptronic subsidiary. We plan to relocate our
headquarters and primary manufacturing facility during the third quarter of
2000. Our current estimate of the total cost of leasehold improvements and
other costs associated with the move is approximately $1.5 million, however,
we are continuing to review the plans for this facility and may incur
additional costs if management determines additional improvements are
desirable.
Other long-term assets decreased $894,000 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 six months ended June 30,
2000 was $1.2 million. During the 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 six months ended June
30, 2000 we received $226,000 from the exercise of stock options held by
employees.
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<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
We believe that our existing cash balances and lines 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.
International Operations
------------------------
Net revenues generated by our foreign subsidiaries were 17% of
consolidated net revenues for each of the six months ended June 30, 2000 and
1999. We anticipate that net revenues generated by our foreign subsidiaries
will continue to account for a significant portion of consolidated net
revenues in the foreseeable future. The net revenues generated by our foreign
subsidiaries will continue to be subject to certain risks, including political
and economic instability of foreign countries, the imposition of financial and
operational controls or regulatory restrictions by foreign governments, the
need to comply with a variety of U. S. and foreign export and import laws,
trade restrictions, changes in tariffs and taxes, longer payment cycles,
fluctuations in foreign currency exchange rates, and the greater difficulty of
administering business abroad. We cannot predict whether quotas, duties,
taxes or other charges or restrictions will be implemented by the United
States or any other country upon the importation or exportation of our
products in the future. Any of these factors or the adoption of restrictive
policies could have a material adverse effect on our business, financial
condition or results of operations.
Net revenues denominated in foreign currencies were 12% and 11% of
consolidated net revenues for the six months ended June 30, 2000 and 1999,
respectively. Although we seek to operate our business such that a
significant portion of our product costs are denominated in the same currency
that the associated sales are made in, we may be adversely affected in the
future due to our exposure to foreign operations. Moreover, net revenues
denominated in currencies other than U.S. dollars expose us to currency
fluctuations, which can adversely affect results of operations.
The portion of our consolidated net revenues that were derived from sales
to the Asia-Pacific region were 9% and 13% for the six months ended June 30,
2000 and 1999, respectively. Countries in the Asia-Pacific region, including
Japan, have experienced economic instability resulting in weaknesses in their
currency, banking and equity markets. Although the past economic instability
in the Asia-Pacific region has not materially adversely affected our order
backlog, financial position, or results of operations to date, continued
economic instability could have a material adverse effect on demand for our
products and our consolidated results of operations.
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<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS (Continued)
Cautionary Statement Regarding Forward-Looking Statements
---------------------------------------------------------
This Report contains statements of a forward-looking nature relating to
future events, such as statements regarding the anticipated market for our
products throughout the balance of 2000; costs related to our merger with
Temptronic Corporation; expenditures for leasehold improvements and moving
costs for our new headquarters and primary manufacturing facility; anticipated
net revenues generated by foreign operations; sufficiency of cash balances,
lines of credit and net cash from operations; and use of forward exchange rate
contracts. Forward-looking statements typically can be identified by the use
of terminology such as "believes," expects," "may," "will," "should" or
"anticipates" or the negative thereof or other variations thereon or
comparable terminology, or by discussions of strategy that involve risks and
uncertainties. Investors and prospective investors are cautioned that such
statements are only projections and that actual events or results may differ
materially from those expressed in any such forward-looking statements. In
addition to the factors described in this Report, our actual consolidated
quarterly or annual operating results have been affected in the past, or could
be affected in the future, by additional factors, including, without
limitation: changes in business conditions and the economy, generally; our
ability to obtain patent protection, and enforce our patent rights, for
existing and developing proprietary technologies; our ability to integrate
successfully businesses, technologies or products which we may acquire; the
effect of the loss of, or reduction in orders from, a major customer;
cancellation, or delays in shipment, of orders in our backlog; competition
from other manufacturers of docking hardware, manipulators, tester interfaces
and related ATE interface products and temperature management products; cost
overruns relating to leasehold improvements and moving costs for our new
headquarters and primary manufacturing facility; unanticipated exchange rate
fluctuations; and capital requirements relating to future acquisitions.
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<PAGE>
inTEST CORPORATION AND SUBSIDIARIES
Item 3. 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 will have a similar exposure in
our Singapore operations as our manufacturing operations, which commenced in
September 1999, expand, because our sales will be in U.S. dollars but our
manufacturing costs will be primarily in 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.
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 June 30, 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 expect that the results of our operations or our liquidity will be
materially affected by these risk management activities. 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.
- 16 -
<PAGE>
inTEST CORPORATION
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
Not applicable
Item 2. Changes in Securities and Use of Proceeds
Not applicable
Item 3. Defaults Upon Senior Securities
None
Item 4. Submission of Matters to a Vote of Securities Holders
None
Item 5. Other Information
None
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits:
3.1 Articles of Incorporation: Previously filed by the
Company as an Exhibit to the Company's Registration
Statement on Form S-1, File No. 333-26457, and
Incorporated herein by reference.
3.2 By-Laws: Previously filed by the Company as an Exhibit
to the Company's Registration Statement on Form S-1,
File No. 333-26457, and incorporated herein by
reference.
10.1 Lease Agreement between First Industrial, L.P. and inTEST
Corporation, dated June 6, 2000.
10.2 Letter Agreement with William M. Stone, dated June 22, 2000.
27 Financial Data Schedule
17
<PAGE>
inTEST CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Continued)
(b) Reports on Form 8-K
On April 6, 2000, the Company filed a report on Form 8-K providing
information responsive to the requirements of Item 5 and 7 of that
form regarding the settlement of the Company's patent infringement
suit against Reid Ashman Manufacturing, Inc.
On May 16, 2000, the Company filed a report on Form 8-K
providing information responsive to the requirements of Item 5 of
that form regarding the financial results of the Company for the
month ended April 30, 2000 in accordance with Accounting Series
Release No. 135.
A report on Form 8-K/A was filed on May 16,2000, amending the
initial Form 8-K filed on March 20, 2000 reporting the merger with
Temptronic Corporation, to include the following financial
statements required by Item 7 of that form:
(i) Financial Statements of Temptronic Corporation
(A) The consolidated financial statements of Temptronic
Corporation at June 30, 1998 and 1999:
Consolidated Balance Sheets as of June 30, 1999 and 1998
Consolidated Statements of Operations for the years ended
June 30, 1999, 1998 and 1997
Consolidated Statements of Comprehensive Income (Loss) for
the years ended June 30, 1999, 1998 and 1997
Consolidated Statements of Stockholders' Equity for the years
ended June 30, 1999, 1998 and 1997
Consolidated Statements of Cash Flows for the years ended
June 30, 1999, 1998 and 1997
(B) The consolidated financial statements of Temptronic
Corporation at December 31, 1999 and for the six months
ended December 31, 1999 and 1998
Condensed Consolidated Balance Sheet as of December 31, 1999
(Unaudited)
Condensed Consolidated Statements of Operations for the six
months ended December 31, 1999 and 1998 (Unaudited)
Condensed Consolidated Statements of Comprehensive Income
(Loss) for the six months ended December 31, 1999 and 1998
(Unaudited)
Condensed Consolidated Statement of Stockholders' Equity for
the six months ended December 31, 1999 (Unaudited)
Condensed Consolidated Statements of Cash Flows for the six
months ended December 31, 1999 and 1998 (Unaudited)
- 18 -
<PAGE>
inTEST CORPORATION
PART II. OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K (Continued)
(b) Reports on Form 8-K (Continued)
(ii) Restated Consolidated Financial Statements to reflect the
pooling of interests with Temptronic Corporation
Restated Consolidated Balance Sheets as of December 31,
1999 and 1998
Restated Consolidated Statements of Earnings for the years
ended December 31, 1999, 1998 and 1997
Restated Consolidated Statements of Comprehensive Earnings
for the years ended December 31, 1999, 1998 and 1997
Restated Consolidated Statements of Stockholders' Equity
for the years ended December 31, 1999, 1998 and 1997
Restated Consolidated Statements of Cash Flows for the years
ended December 31, 1999, 1998 and 1997
-19 -
<PAGE>
Signatures
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
inTEST Corporation
Date: August 14, 2000 /s/ Robert E. Matthiessen
------------------ -------------------------------------
Robert E. Matthiessen
President and Chief Executive Officer
Date: August 14, 2000 /s/ Hugh T. Regan, Jr.
------------------ -------------------------------------
Hugh T. Regan, Jr.
Treasurer and Chief Financial Officer
<PAGE>
Index to Exhibits
Item 6. Exhibits and Reports on Form 8-K
3.1 Articles of Incorporation: Previously filed by the
Company as an Exhibit to the Company's Registration
Statement on Form S-1, File No. 333-26457, and
Incorporated herein by reference.
3.2 By-Laws: Previously filed by the Company as an Exhibit
to the Company's Registration Statement on Form S-1,
File No. 333-26457, and incorporated herein by
reference.
10.1 Lease Agreement between First Industrial, L.P. and inTEST
Corporation, dated June 6, 2000.
10.2 Letter Agreement with William M. Stone, dated June 22, 2000.
27 Financial Data Schedule
