Document_and_Entity_Informatio
Document and Entity Information (USD $) | 12 Months Ended | ||
Dec. 31, 2014 | Feb. 28, 2015 | Jun. 30, 2014 | |
Document and Entity Information | |||
Entity Registrant Name | NORTECH SYSTEMS INC | ||
Entity Central Index Key | 722313 | ||
Document Type | 10-K | ||
Document Period End Date | 31-Dec-14 | ||
Amendment Flag | FALSE | ||
Current Fiscal Year End Date | -19 | ||
Entity Well-known Seasoned Issuer | No | ||
Entity Voluntary Filers | No | ||
Entity Current Reporting Status | Yes | ||
Entity Filer Category | Smaller Reporting Company | ||
Entity Public Float | $6,197,227 | ||
Entity Common Stock, Shares Outstanding | 2,742,992 | ||
Document Fiscal Year Focus | 2014 | ||
Document Fiscal Period Focus | FY |
CONSOLIDATED_BALANCE_SHEETS
CONSOLIDATED BALANCE SHEETS (USD $) | Dec. 31, 2014 | Dec. 31, 2013 |
Current Assets | ||
Cash | $66,371 | $0 |
Accounts Receivable | 17,367,668 | 16,030,848 |
Inventories | 18,528,418 | 17,427,470 |
Prepaid Expenses | 816,775 | 634,350 |
Income Taxes Receivable | 465,236 | 140,174 |
Deferred Taxes | 436,000 | 683,000 |
Total Current Assets | 37,680,468 | 34,915,842 |
Property and Equipment, Net | 10,888,717 | 11,037,160 |
Other Assets | 117,127 | 122,419 |
Total Assets | 48,686,312 | 46,075,421 |
Current Liabilities | ||
Line of Credit | 7,234,983 | |
Current Maturities of Long-Term Debt | 732,835 | 632,176 |
Accounts Payable | 9,008,426 | 8,185,012 |
Accrued Payroll and Commissions | 2,896,557 | 2,595,393 |
Other Accrued Liabilities | 732,012 | 718,974 |
Total Current Liabilities | 13,369,830 | 19,366,538 |
Long-Term Liabilities | ||
Line of Credit | 7,998,184 | |
Long-Term Debt (Net of Current Maturities) | 4,072,506 | 4,246,914 |
Deferred Taxes | 149,000 | 282,000 |
Other Long-Term Liabilities | 268,400 | 244,521 |
Total Long-Term Liabilities | 12,488,090 | 4,773,435 |
Total Liabilities | 25,857,920 | 24,139,973 |
Shareholders' Equity | ||
Preferred Stock, $1 par value; 1,000,000 Shares Authorized; 250,000 Shares Issued and Outstanding | 250,000 | 250,000 |
Common Stock - $0.01 par value; 9,000,000 Shares Authorized; 2,742,992 Shares Issued and Outstanding | 27,430 | 27,430 |
Additional Paid-In Capital | 15,751,160 | 15,738,233 |
Accumulated Other Comprehensive Loss | -62,936 | -62,936 |
Retained Earnings | 6,862,738 | 5,982,721 |
Total Shareholders' Equity | 22,828,392 | 21,935,448 |
Total Liabilities and Shareholders' Equity | $48,686,312 | $46,075,421 |
CONSOLIDATED_BALANCE_SHEETS_Pa
CONSOLIDATED BALANCE SHEETS (Parenthetical) (USD $) | Dec. 31, 2014 | Dec. 31, 2013 |
CONSOLIDATED BALANCE SHEETS | ||
Preferred Stock, par value (in dollars per share) | $1 | $1 |
Preferred Stock, Shares Authorized | 1,000,000 | 1,000,000 |
Preferred Stock, Shares Issued | 250,000 | 250,000 |
Preferred Stock, Shares Outstanding | 250,000 | 250,000 |
Common Stock - par value (in dollars per share) | $0.01 | $0.01 |
Common Stock - Shares Authorized | 9,000,000 | 9,000,000 |
Common Stock - Shares Issued | 2,742,992 | 2,742,992 |
Common Stock - Shares Outstanding | 2,742,992 | 2,742,992 |
CONSOLIDATED_STATEMENTS_OF_INC
CONSOLIDATED STATEMENTS OF INCOME (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
CONSOLIDATED STATEMENTS OF INCOME | ||
Net Sales | $112,041,650 | $111,058,439 |
Cost of Goods Sold | 98,708,450 | 97,942,444 |
Gross Profit | 13,333,200 | 13,115,995 |
Operating Expenses: | ||
Selling Expenses | 5,064,214 | 4,801,182 |
General and Administrative Expenses | 6,940,379 | 6,859,778 |
Total Operating Expenses | 12,004,593 | 11,660,960 |
Income From Operations | 1,328,607 | 1,455,035 |
Other Income (Expense) | ||
Other Income (Expense), net | 21,134 | |
Interest Expense | -367,590 | -388,793 |
Total Other Expense | -367,590 | -367,659 |
Income Before Income Taxes | 961,017 | 1,087,376 |
Income Tax Expense | 81,000 | 300,000 |
Net Income | $880,017 | $787,376 |
Earnings Per Common Share: | ||
Basic (in dollars per share) | $0.32 | $0.29 |
Weighted Average Number of Common Shares Outstanding - Basic (in shares) | 2,742,992 | 2,742,992 |
Diluted (in dollars per share) | $0.32 | $0.29 |
Weighted Average Number of Common Shares Outstanding - Dilutive (in shares) | 2,748,825 | 2,744,136 |
CONSOLIDATED_STATEMENTS_OF_SHA
CONSOLIDATED STATEMENTS OF SHAREHOLDERS' EQUITY (USD $) | Preferred Stock | Common Stock | Additional Paid-In Capital | Accumulated Other Comprehensive Loss | Retained Earnings | Total |
Balance at Dec. 31, 2012 | $250,000 | $27,430 | $15,725,392 | ($62,936) | $5,195,345 | $21,135,231 |
Increase (Decrease) in Stockholders' Equity | ||||||
Net Income | 787,376 | 787,376 | ||||
Compensation on stock-based awards | 12,841 | 12,841 | ||||
Balance at Dec. 31, 2013 | 250,000 | 27,430 | 15,738,233 | -62,936 | 5,982,721 | 21,935,448 |
Increase (Decrease) in Stockholders' Equity | ||||||
Net Income | 880,017 | 880,017 | ||||
Compensation on stock-based awards | 29,927 | 29,927 | ||||
Excess tax benefit from stock-based awards | -17,000 | -17,000 | ||||
Balance at Dec. 31, 2014 | $250,000 | $27,430 | $15,751,160 | ($62,936) | $6,862,738 | $22,828,392 |
CONSOLIDATED_STATEMENTS_OF_CAS
CONSOLIDATED STATEMENTS OF CASH FLOWS (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
CASH FLOWS FROM OPERATING ACTIVITIES | ||
Net Income | $880,017 | $787,376 |
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities: | ||
Depreciation | 2,024,860 | 2,004,940 |
Amortization | 5,292 | 5,291 |
Compensation on Stock-Based Awards | 29,927 | 12,841 |
Compensation on Equity Appreciation Rights | 178,566 | |
Impairment on Assets Held for Sale | 74,003 | |
Deferred Taxes | 114,000 | 229,000 |
(Gain) Loss on Disposal of Property and Equipment | 2,331 | -1,357 |
Changes in Current Operating Items: | ||
Accounts Receivable | -1,336,820 | -2,422,915 |
Inventories | -1,100,948 | 237,392 |
Prepaid Expenses | -182,425 | -72,774 |
Income Taxes Receivable | -325,062 | -140,174 |
Income Taxes Payable | -60,878 | |
Accounts Payable | 1,121,716 | -1,137,447 |
Accrued Payroll and Commissions | 301,164 | 629,736 |
Other Accrued Liabilities | -131,788 | 130,905 |
Net Cash Provided by Operating Activities | 1,580,830 | 275,939 |
CASH FLOWS FROM INVESTING ACTIVITIES | ||
Proceeds from Sale of Property and Equipment | 250 | 57,160 |
Purchases of Property and Equipment | -2,187,161 | -1,204,681 |
Net Cash Used in Investing Activities | -2,186,911 | -1,147,521 |
CASH FLOWS FROM FINANCING ACTIVITIES | ||
Net Proceeds from (Repayments on) Line of Credit | 763,201 | -688,504 |
Proceeds from Long-Term Debt | 593,000 | 2,174,000 |
Principal Payments on Long-Term Debt | -666,749 | -613,914 |
Excess tax benefits from stock-based awards | -17,000 | |
Net Cash Provided by (Used in) Financing Activities | 672,452 | 871,582 |
NET CHANGE IN CASH | 66,371 | |
Cash - Beginning of Year | 0 | 0 |
CASH-END OF YEAR | 66,371 | 0 |
Supplemental Disclosure of Cash Flow Information: | ||
Cash Paid During the Period for Interest | 359,727 | 366,335 |
Cash Paid During the Period for Income Taxes | 417,615 | 187,300 |
Supplemental Noncash Investing and Financing Activities: | ||
Capital Expenditures in Accounts Payable | $19,604 | $317,906 |
NATURE_OF_BUSINESS_AND_SUMMARY
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | 12 Months Ended | ||||||||||
Dec. 31, 2014 | |||||||||||
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||||||||
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | NOTE 1 NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | ||||||||||
Nature of Business | |||||||||||
Our manufacturing services include complete medical devices, printed circuit board assemblies, wire and cable assemblies, and complex higher level electromechanical assemblies for a wide range of medical, industrial and defense and aerospace industries. We provide a full "turn-key" contract manufacturing service to our customers. All products are built to the customer's design specifications. We also provide engineering services and repair services. | |||||||||||
Our manufacturing facilities are located in Bemidji, Blue Earth, Merrifield, Milaca, Mankato and Baxter, Minnesota as well as Augusta, Wisconsin and Monterrey, Mexico. Products are sold to customers both domestically and internationally. | |||||||||||
A summary of our significant accounting policies follows: | |||||||||||
Principles of Consolidation | |||||||||||
The consolidated financial statements include the accounts of our wholly owned subsidiary, Manufacturing Assembly Solutions of Monterrey, Inc. All significant intercompany accounts and transactions have been eliminated. | |||||||||||
Use of Estimates | |||||||||||
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Estimates also affect the reported amounts of revenue and expense during the reporting period. Significant items subject to estimates and assumptions include the valuation allowance for inventories, allowance for doubtful accounts and realizability of deferred tax assets. Actual results could differ from those estimates. | |||||||||||
Accounts Receivable and Allowance for Doubtful Accounts | |||||||||||
We grant credit to customers in the normal course of business. Accounts receivable are unsecured and are presented net of an allowance for doubtful accounts. The allowance for doubtful accounts was $137,000 and $138,000 at December 31, 2014 and 2013, respectively. We determine our allowance by considering a number of factors, including the length of time accounts receivable are past due, our previous loss history, the customers' current ability to pay their obligations to us, and the condition of the general economy and the industry as a whole. We write-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. | |||||||||||
Inventories | |||||||||||
Inventories are stated at the lower of cost (first-in, first-out method) or market (based on the lower of replacement cost or net realizable value). Costs include material, labor, and overhead required in the production of our products. Inventory reserves are maintained for inventories that may have a lower value than stated or quantities in excess of future production needs. | |||||||||||
Inventories are as follows: | |||||||||||
2014 | 2013 | ||||||||||
Raw materials | $ | 12,745,623 | $ | 12,282,902 | |||||||
Work in process | 3,653,670 | 3,317,573 | |||||||||
Finished goods | 2,861,373 | 2,926,512 | |||||||||
Reserves | (732,248 | ) | (1,099,517 | ) | |||||||
| | | | | | | | ||||
Total | $ | 18,528,418 | $ | 17,427,470 | |||||||
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Property, Equipment and Depreciation | |||||||||||
Property and equipment are stated at cost less accumulated depreciation. Additions, improvements and major renewals are capitalized, while maintenance and minor repairs are expensed as incurred. When assets are retired or disposed of, the assets and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in operations. Leasehold improvements are depreciated over the shorter of their estimated useful lives or their remaining lease terms. All other property and equipment are depreciated by the straight-line method over their estimated useful lives, as follows: | |||||||||||
Buildings | 39 Years | ||||||||||
Leasehold improvements | 3-15 Years | ||||||||||
Manufacturing equipment | 3-7 Years | ||||||||||
Office and other equipment | 3-7 Years | ||||||||||
Property and equipment at December 31, 2014 and 2013: | |||||||||||
2014 | 2013 | ||||||||||
Land | $ | 375,000 | $ | 375,000 | |||||||
Building and Leasehold Improvements | 9,184,710 | 9,116,429 | |||||||||
Manufacturing Equipment | 16,769,847 | 15,953,227 | |||||||||
Office and Other Equipment | 5,386,805 | 4,535,897 | |||||||||
Accumulated Depreciation | (20,827,645 | ) | (18,943,393 | ) | |||||||
| | | | | | | | ||||
Net Property and Equipment | $ | 10,888,717 | $ | 11,037,160 | |||||||
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Other Assets | |||||||||||
Other Assets include capitalized bond issue costs. The value of this asset is $34,395 and $39,687 at December 31, 2014 and 2013, respectively. Related amortization expense for 2014 and 2013 was $5,292 and $5,291, respectively. Estimated future annual amortization expense for the asset is approximately $5,000 per year through 2021 when the related bond matures. | |||||||||||
Impairment Analysis | |||||||||||
We evaluate long-lived assets, primarily property and equipment, as well as the related depreciation periods, whenever current events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability for assets to be held and used is based on our projection of the undiscounted future operating cash flows of the underlying assets. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of related assets, a charge might be required to reduce the carrying amount to equal estimated fair value. Assets held for sale are reported at the lower of the carrying amount or fair value less costs to dispose. We recorded an impairment charge in 2013 of $74,000. The impairment charge has been included in general and administrative expenses in the consolidated statements of income. | |||||||||||
Preferred Stock | |||||||||||
Preferred stock issued is non-cumulative and nonconvertible. The holders of the preferred stock are entitled to a non-cumulative dividend of 12% when and as declared. In liquidation, holders of preferred stock have preference to the extent of $1.00 per share plus dividends accrued but unpaid. No preferred stock dividends were declared or paid during the years ended December 31, 2014 and 2013. | |||||||||||
Revenue Recognition | |||||||||||
We recognize manufacturing revenue when we ship goods or the goods are received by our customer, when title has passed, all contractual obligations have been satisfied, the price is fixed or determinable and collection of the resulting receivable is reasonably assured. Generally, there are no formal substantive customer acceptance requirements or further obligations related to manufacturing services. If such requirements or obligations exist, then we recognize the related revenues at the time when such requirements are completed and the obligations are fulfilled. We also provide engineering services separate from the manufacture of a product. Revenue for engineering services is generally recognized upon completion of the engineering process. In addition, we have another separate source of revenue that comes from short-term repair services, which are recognized when the repairs are completed and the repaired products are shipped back to the customer. Our net sales for services were less than 5% of our total sales for all periods presented, and accordingly, are included in net sales in the consolidated statement of operations. Shipping and handling costs charged to our customers are included in net sales, while the corresponding shipping expenses are included in cost of goods sold. | |||||||||||
Product Warranties | |||||||||||
We provide limited warranty for the replacement or repair of defective product within a specified time period after the sale at no cost to our customers. We make no other guarantees or warranties, expressed or implied, of any nature whatsoever as to the goods including, without limitation, warranties to merchantability, fit for a particular purpose or non-infringement of patent or the like unless agreed upon in writing. We estimate the costs that may be incurred under our limited warranty and provide a reserve based on actual historical warranty claims coupled with an analysis of unfulfilled claims at the balance sheet date. Our warranty claim costs are not material given the nature of our products and services. | |||||||||||
Advertising | |||||||||||
Advertising costs are charged to operations as incurred. The total amount charged to expense was $162,000 and $146,000 for the years ended December 31, 2014 and 2013, respectively. | |||||||||||
Income Taxes | |||||||||||
We account for income taxes under the asset and liability method. Deferred income tax assets and liabilities are recognized annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. | |||||||||||
Incentive Compensation | |||||||||||
We use a Black-Scholes option-pricing model to determine the grant date fair value of our incentive awards and recognize the expense on a straight-line basis over the vesting period less awards expected to be forfeited using estimated forfeiture rates. See Note 6 for additional information. | |||||||||||
Net Income Per Common Share | |||||||||||
Basic net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding. Dilutive net income per common share assumes the exercise and issuance of all potential common stock equivalents in computing the weighted-average number of common shares outstanding, unless their effect is antidilutive. For the years ended December 31, 2014 and 2013, 134,250 and 189,250 option shares were excluded, respectively, because their inclusion would be antidilutive. | |||||||||||
A reconciliation of basic and diluted share amounts for the years ended December 31, 2014 and 2013 is as follows: | |||||||||||
2014 | 2013 | ||||||||||
Basic weighted average common shares outstanding | 2,742,992 | 2,742,992 | |||||||||
Weighted average common stock equivalents from assumed exercise of stock options | 5,833 | 1,144 | |||||||||
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Diluted weighted average common shares outstanding | 2,748,825 | 2,744,136 | |||||||||
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Enterprise-Wide Disclosures | |||||||||||
Our results of operations for the years ended December 31, 2014 and 2013 represent a single operating and reporting segment referred to as Contract Manufacturing within the Electronic Manufacturing Services (EMS) industry. We strategically direct production between our various manufacturing facilities based on a number of considerations to best meet our customers' requirements. We share resources for sales, marketing, engineering, supply chain, information services, human resources, payroll and all corporate accounting functions. Consolidated financial information is available that is evaluated regularly by the chief operating decision maker in assessing performance and allocating resources. | |||||||||||
Export sales represent approximately 13% and 12% of consolidated net sales for the years ended December 31, 2014 and 2013, respectively. | |||||||||||
Net sales by our major EMS industry markets for the years ended December 31, 2014 and 2013 are as follows: | |||||||||||
(in thousands) | 2014 | 2013 | |||||||||
Aerospace and Defense | $ | 14,869 | $ | 19,879 | |||||||
Medical/Life Sciences | 41,402 | 35,429 | |||||||||
Industrial | 55,771 | 55,750 | |||||||||
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Total Net Sales | $ | 112,042 | $ | 111,058 | |||||||
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Noncurrent assets, excluding deferred taxes, by country are as follows: | |||||||||||
United States | Mexico | Total | |||||||||
2014 | |||||||||||
Net property and equipment | $ | 10,214,279 | $ | 822,881 | $ | 10,888,717 | |||||
Other assets | 109,401 | 7,726 | 117,127 | ||||||||
2013 | |||||||||||
Net property and equipment | $ | 10,560,184 | $ | 476,976 | $ | 11,037,160 | |||||
Other assets | 114,693 | 7,726 | 122,419 | ||||||||
Foreign Currency Transactions | |||||||||||
Foreign exchange transaction gains and losses attributable to exchange rate movements related to transactions made in the local currency and on intercompany receivables and payables not deemed to be of a long-term investment nature are recorded in other income (expense). The functional currency for our Mexico subsidiary is the US dollar. | |||||||||||
Recent Accounting Pronouncements | |||||||||||
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). This standard outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Transfer of control is not the same as transfer of risks and rewards, as it is considered in current guidance. We will also need to apply new guidance to determine whether revenue should be recognized over time or at a point in time. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2016, with no early adoption permitted, using either of two methods: (a) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (b) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined in ASU 2014-09. We have not yet selected a transition method and are currently evaluating the impact of the pending adoption of ASU 2014-09 on the consolidated financial statements. | |||||||||||
MAJOR_CUSTOMERS_AND_CONCENTRAT
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK | 12 Months Ended |
Dec. 31, 2014 | |
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK | |
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK | NOTE 2 MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK |
Financial instruments that potentially subject us to concentrations of credit risk consist principally of cash and accounts receivable. With regard to cash, we maintain our excess cash balances in checking accounts at one high-credit quality financial institution. These accounts may at times exceed federally insured limits. | |
Our largest customer has two divisions that together accounted for 10% or more of our net sales during the past two years. One division accounted for 23% and 20% of net sales for the years ended December 31, 2014 and 2013, respectively. The other division accounted for 6% of net sales for the years ended December 31, 2014 and 2013. Together, they accounted for 29% and 26% of net sales for the years ended December 31, 2014 and 2013, respectively. Accounts receivable from the customer at December 31, 2014 and 2013 represented 19% and 20% of our total accounts receivable, respectively. We do not require collateral on our accounts receivable. | |
FINANCING_AGREEMENTS
FINANCING AGREEMENTS | 12 Months Ended | |||||||
Dec. 31, 2014 | ||||||||
FINANCING AGREEMENTS | ||||||||
FINANCING AGREEMENTS | NOTE 3 FINANCING AGREEMENTS | |||||||
We have a credit agreement with Wells Fargo Bank (WFB) which was most recently amended on May 16, 2014 and provides for a line of credit arrangement of $13.5 million that expires, if not renewed, on May 31, 2018. The credit arrangement also has a $1.8 million real estate term note outstanding with a maturity date of March 31, 2027, an additional $1.7 million real estate term note outstanding that is due, if not renewed, on December 31, 2027, an equipment loan for $1.6 million and a new term loan facility of up to $1.0 million for capital expenditures, both with maturity dates of May 31, 2018. As of December 31, 2014, we have borrowed $0.3 million against the $1.0 million capital term note. | ||||||||
Under the credit agreement, both the line of credit and real estate term notes are subject to variations in the LIBOR rate. Our line of credit bears interest at three-month LIBOR + 2.5% (approximately 2.75% at December 31, 2014) while our real estate term notes bear interest at three-month LIBOR + 3.0% (approximately 3.25% at December 31, 2014). The weighted-average interest rate on our line of credit and real estate term note were 2.9% and 3.4%, respectively for the year ended December 31, 2014. We had borrowings on our line of credit of $7,998,184 and $7,234,983 outstanding as of December 31, 2014 and 2013, respectively. | ||||||||
The credit agreement contains certain covenants which, among other things, require us to adhere to regular reporting requirements, abide by annual shareholder dividend limitations, maintain certain financial performance, and limit the amount of annual capital expenditures. | ||||||||
The availability under the line is subject to borrowing base requirements, and advances are at the discretion of the lender. At December 31, 2014, we have net unused availability under our line of credit of approximately $5.1 million. The line is secured by substantially all of our assets. | ||||||||
A summary of long-term debt balances at December 31, 2014 and 2013 is as follows: | ||||||||
Description | 2014 | 2013 | ||||||
Term notes payable—Wells Fargo Bank, N.A. | ||||||||
Real estate term notes bearing interest at three month LIBOR + 3.0% (approx. 3.25%), maturing March 31, 2027, and December 31, 2017 with combined monthly payments of approximately $19,000 plus interest, secured by substantially all assets. | $ | 2,875,560 | $ | 3,105,627 | ||||
Equipment notes bearing interest at three month LIBOR + 3.0% (approx. 3.25%) maturing May 2018 with a combined monthly payments of approximately $27,000 plus interest, secured by substantially all assets | 1,569,781 | 1,333,463 | ||||||
Industrial revenue bond payable to the City of Blue Earth, Minnesota which bears a variable interest rate (approx. 0.24% at December 31, 2014), and has a maturity date of June 1, 2021, with principal of $80,000 payable annually on June 1 | 360,000 | 440,000 | ||||||
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Total long-term debt | 4,805,341 | 4,879,090 | ||||||
Current maturities of long-term debt | (732,835 | ) | (632,176 | ) | ||||
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Long-term debt—net of current maturities | $ | 4,072,506 | $ | 4,246,914 | ||||
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Future maturity requirements for long-term debt outstanding as of December 31, 2014, are as follows: | ||||||||
Years Ending December 31, | Amount | |||||||
2015 | $ | 732,835 | ||||||
2016 | 645,752 | |||||||
2017 | 637,835 | |||||||
2018 | 793,625 | |||||||
2019 | 270,067 | |||||||
Future | 1,725,227 | |||||||
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$ | 4,805,341 | |||||||
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INCOME_TAXES
INCOME TAXES | 12 Months Ended | |||||||
Dec. 31, 2014 | ||||||||
INCOME TAXES | ||||||||
INCOME TAXES | NOTE 4 INCOME TAXES | |||||||
The income tax expense for the years ended December 31, 2014 and 2013 consists of the following: | ||||||||
2014 | 2013 | |||||||
Current taxes—Federal | $ | (106,000 | ) | $ | 72,000 | |||
Current taxes—State | 39,000 | (21,000 | ) | |||||
Current taxes—Foreign | 51,000 | 20,000 | ||||||
Deferred taxes—Federal | 137,000 | 194,000 | ||||||
Deferred taxes—State | (40,000 | ) | 35,000 | |||||
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Income tax expense | $ | 81,000 | $ | 300,000 | ||||
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The statutory rate reconciliation for the years ended December 31, 2014 and 2013 is as follows: | ||||||||
2014 | 2013 | |||||||
Statutory federal tax provision | $ | 327,000 | $ | 370,000 | ||||
State income taxes | 45,000 | 45,000 | ||||||
Effect of foreign operations | (9,000 | ) | (3,000 | ) | ||||
Uncertain tax positions | (88,000 | ) | 41,000 | |||||
Income tax credits | (215,000 | ) | (167,000 | ) | ||||
Permanent differences | 21,000 | 14,000 | ||||||
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Income tax expense | $ | 81,000 | $ | 300,000 | ||||
| | | | | | | | |
| | | | | | | | |
Income from operations before income taxes was derived from the following sources: | ||||||||
2014 | 2013 | |||||||
Domestic | $ | 816,840 | $ | 1,074,572 | ||||
Foreign | 144,177 | 12,804 | ||||||
| | | | | | | | |
Total | $ | 961,017 | $ | 1,087,376 | ||||
| | | | | | | | |
| | | | | | | | |
Deferred tax assets (liabilities) at December 31, 2014 and 2013, consist of the following: | ||||||||
2014 | 2013 | |||||||
Allowance for uncollectable accounts | $ | 50,000 | $ | 51,000 | ||||
Inventories reserve | 267,000 | 404,000 | ||||||
Accrued vacation | 334,000 | 386,000 | ||||||
Non-compete amortization | 222,000 | 281,000 | ||||||
Stock-based compensation and equity appreciation rights | 148,000 | 100,000 | ||||||
State Tax NOL | 95,000 | 117,000 | ||||||
Other | 167,000 | 144,000 | ||||||
| | | | | | | | |
Deferred tax assets | 1,283,000 | 1,483,000 | ||||||
| | | | | | | | |
Prepaid expenses | (292,000 | ) | (246,000 | ) | ||||
Property and equipment | (704,000 | ) | (836,000 | ) | ||||
| | | | | | | | |
Deferred tax liabilities | (996,000 | ) | (1,082,000 | ) | ||||
| | | | | | | | |
Net deferred tax assets | $ | 287,000 | $ | 401,000 | ||||
| | | | | | | | |
| | | | | | | | |
The net deferred taxes summarized above have been classified on the accompanying consolidated balance sheets as follows: | ||||||||
Net current deferred tax assets | $ | 436,000 | $ | 683,000 | ||||
Net non-current deferred tax liabilities | (149,000 | ) | (282,000 | ) | ||||
| | | | | | | | |
Net deferred tax assets | $ | 287,000 | $ | 401,000 | ||||
| | | | | | | | |
| | | | | | | | |
We have determined that it is more likely than not that our deferred tax assets will be realized, principally through anticipated taxable income in future tax years. As a result, we have determined that establishing a valuation allowance on our deferred tax assets is not necessary. | ||||||||
The tax effects from an uncertain tax position can be recognized in our consolidated financial statements, only if the position is more likely than not to be sustained on audit, based on the technical merits of the position. We recognize the financial statement benefit of a tax position only after determining that the relevant tax authority would more likely than not sustain the position following an audit. For tax positions meeting the more likely than not threshold, the amount recognized in the financial statements is the largest benefit that has a greater than 50 percent likelihood of being realized upon ultimate settlement with the relevant tax authority. The following table sets forth changes in our total gross unrecognized tax benefit liabilities, excluding accrued interest, for the years ended December 31, 2014 and 2013: | ||||||||
Balance as of December 31, 2012 | $ | 140,000 | ||||||
Tax positions related to 2013: | ||||||||
Additions | 53,000 | |||||||
Reductions | — | |||||||
| | | | | ||||
Balance as of December 31, 2013 | 193,000 | |||||||
Tax positions related to current year: | ||||||||
Additions | 23,000 | |||||||
Reductions | (160,000 | ) | ||||||
| | | | | ||||
Balance as of December 31, 2014 | $ | 56,000 | ||||||
| | | | | ||||
| | | | | ||||
The $56,000 of unrecognized tax benefits as of December 31, 2014 includes amounts which, if ultimately recognized, will reduce our annual effective tax rate. It is included in Other Long-Term Liabilities on the accompanying consolidated balance sheets. | ||||||||
Our policy is to accrue interest related to potential underpayment of income taxes within the provision for income taxes. The liability for accrued interest as of December 31, 2014 and 2013 was not significant. Interest is computed on the difference between our uncertain tax benefit positions and the amount deducted or expected to be deducted in our tax returns. | ||||||||
We are subject to income taxes in the U.S. federal jurisdiction and various state jurisdictions. Tax regulations within each jurisdiction are subject to the interpretation of the related tax laws and regulations and require significant judgment to apply. | ||||||||
With few exceptions, we are no longer subject to U.S. federal, state or local income tax examinations by tax authorities for the years before 2010. | ||||||||
401K_RETIREMENT_PLAN
401(K) RETIREMENT PLAN | 12 Months Ended |
Dec. 31, 2014 | |
401(K) RETIREMENT PLAN | |
401(K) RETIREMENT PLAN | NOTE 5 401(K) RETIREMENT PLAN |
We have a 401(k) profit sharing plan (the "Plan") for our employees. The Plan is a defined contribution plan covering substantially all of our U.S. employees. Employees are eligible to participate in the Plan after completing three months of service and attaining the age of 18. Employees are allowed to contribute up to 60% of their wages to the Plan. Historically we have matched 25% of the employees' contributions up to 6% of covered compensation. We made contributions of approximately $223,000 and $203,000 during the years ended December 31, 2014 and 2013, respectively. | |
INCENTIVE_PLANS
INCENTIVE PLANS | 12 Months Ended | |||||||||||||
Dec. 31, 2014 | ||||||||||||||
INCENTIVE PLANS | ||||||||||||||
INCENTIVE PLANS | NOTE 6 INCENTIVE PLANS | |||||||||||||
Employee Profit Sharing | ||||||||||||||
During 1993, we adopted an employee profit sharing plan (the "Plan"). The purpose of the Plan is to provide a bonus for increased output, improved quality and productivity and reduced costs. We have authorized 50,000 common shares to be available under this Plan. In accordance with the terms of the Plan, employees could acquire newly issued shares of common stock for 90% of the current market value. During 2014 and 2013 no common shares were issued in connection with this plan. Through December 31, 2014, 22,118 common shares had been issued under this Plan. | ||||||||||||||
Stock Options | ||||||||||||||
On May 3, 2005, the shareholders approved the 2005 Incentive Compensation Plan (the "2005 Plan") and eliminated the remaining 172,500 option shares available for grant under the prior 2003 Plan effective February 23, 2005. The total number of shares of common stock that may be granted under the 2005 Plan is 200,000, of which 19,000 remain available for grant at December 31, 2014. The 2005 Plan provides that option shares granted come from our authorized but unissued common stock. The price of the option shares granted under the plan will not be less than 100% of the fair market value of the common shares on the date of grant. Options are generally exercisable after one or more years and expire no later than 10 years from the date of grant. | ||||||||||||||
We estimate the fair value of share-based awards on the date of grant using an option-pricing model. The value of the portion of the award that is ultimately expected to vest is recognized as expense in the consolidated statements of income over the requisite service periods. Because share-based compensation expense is based on awards that are ultimately expected to vest, share-based compensation expense will be reduced to account for estimated forfeitures. We estimate forfeitures at the time of grant and revise the estimate, if necessary, in subsequent periods if actual forfeitures differ from those estimates. | ||||||||||||||
We used the Black-Scholes option-pricing model to calculate the fair value of option-based awards. Our determination of fair value of option-based awards on the date of grant using the Black-Scholes model is affected by our stock price as well as assumptions regarding a number of subjective variables as noted in the following table. These variables include, but are not limited to, our expected stock price, volatility over the term of the awards, risk-free interest rate, and the expected life of the options. The risk-free interest rate is based on a treasury instrument whose term is consistent with the expected life of our stock options. The expected volatility and holding period are based on our historical experience. For all grants, the amount of compensation expense recognized has been adjusted for an estimated forfeiture rate, which is based on historical data. There were no grants during the year ended December 31, 2014. The variables used for the grants for the year ended December 31, 2013 are below. | ||||||||||||||
2013 | ||||||||||||||
Expected volatility | 49.67% - 53.06% | |||||||||||||
Expected dividends | None | |||||||||||||
Expected term (in years) | 5.5 - 7 | |||||||||||||
Risk-free rate | 1.43% - 1.50% | |||||||||||||
Total compensation expense related to stock options for the years ended December 31, 2014 and 2013 was $29,927 and $12,841, respectively. As of December 31, 2014 there was approximately $17,000 of unrecognized compensation related to unvested option awards that we expect to recognize over a weighted-average period of 1.12 years. | ||||||||||||||
A summary of option activity as of December 31, 2014, and changes during the year then ended is presented below. | ||||||||||||||
Options | Weighted- | Weighted- | Aggregate | |||||||||||
Average | Average | Intrinsic Value | ||||||||||||
Exercise | Remaining | |||||||||||||
Price Per | Contractual | |||||||||||||
Share | Term | |||||||||||||
(in years) | ||||||||||||||
Outstanding—January 1, 2014 | 216,000 | $ | 6.46 | |||||||||||
Granted | — | — | ||||||||||||
Cancelled | (35,000 | ) | 6.99 | |||||||||||
| | | | | | | | | | | | | | |
Outstanding—December 31, 2014 | 181,000 | $ | 6.36 | 2.92 | $ | 75,250 | ||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Exercisable on December 31, 2014 | 163,168 | $ | 6.7 | 2.35 | $ | 31,027 | ||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
There were no options exercised during the years ended December 31, 2014 and 2013. The weighted average fair value of options granted during the year ended December 31, 2013 was $1.84 per share. There were no grants during the year ended December 31, 2014. | ||||||||||||||
Equity Appreciation Rights Plan | ||||||||||||||
In November 2010, the Board of Directors approved the adoption of the Nortech Systems Incorporated Equity Appreciation Rights Plan (the "2010 Plan"). The total number of Equity Appreciation Right Units (Units) the Plan can issue shall not exceed an aggregate of 750,000 Units. There are no units available to be issued at December 31, 2014. The 2010 Plan provides that Units issued shall fully vest three years from the base date as defined in the agreement unless terminated earlier. Units give the holder a right to receive a cash payment equal to the appreciation in book value per share of common stock from the base date, as defined, to the redemption date. Unit redemption payments under this plan shall be paid in cash within 90 days after we determine the book value of the Units as of the calendar year immediately preceding the redemption date. | ||||||||||||||
During the year ended December 31, 2010, 100,000 Units were issued with a vesting date of December 31, 2012. On March 7, 2012, we granted an additional 250,000 Units with vesting dates ranging from December 31, 2014 through December 31, 2016. On February 13, 2013, we granted an additional 350,000 Units with vesting dates ranging from December 31, 2015 through December 31, 2019. On January 1, 2014, we granted an additional 50,000 Units with vesting dates ranging from December 31, 2016 to December 31, 2017. | ||||||||||||||
Total compensation expense related to the vested outstanding Units based on the estimated appreciation over their remaining terms was approximately $178,000 and $67,000 for the years ended December 31, 2014 and 2013, respectively. | ||||||||||||||
A summary of the liability as of December 31 and changes during the years then ended, is presented below. | ||||||||||||||
2014 | 2013 | |||||||||||||
Beginning Balance | $ | 81,000 | $ | 101,000 | ||||||||||
Additions | 178,000 | 67,000 | ||||||||||||
Payments | — | (87,000 | ) | |||||||||||
| | | | | | | | |||||||
Ending Balance | $ | 259,000 | $ | 81,000 | ||||||||||
| | | | | | | | |||||||
| | | | | | | | |||||||
As of December 31, 2013, approximately $29,000 of this balance was included in Other Accrued Liabilities and the remaining $52,000 balance was included in Other Long-term Liabilities. As of December 31, 2014, approximately $47,000 of this balance was included in Other Accrued Liabilities and the remaining $212,000 balance was included in Other Long-term Liabilities. | ||||||||||||||
COMMITMENTS_AND_CONTINGENCIES
COMMITMENTS AND CONTINGENCIES | 12 Months Ended | ||||
Dec. 31, 2014 | |||||
COMMITMENTS AND CONTINGENCIES | |||||
COMMITMENTS AND CONTINGENCIES | NOTE 7 COMMITMENTS AND CONTINGENCIES | ||||
Operating Leases | |||||
We have various operating leases for production and office equipment, office space, and buildings under non-cancelable lease agreements expiring on various dates through 2016. | |||||
Rent expense for the years ended December 31, 2014 and 2013 amounted to approximately $661,000 and $687,000 respectively. | |||||
Approximate future minimum lease payments under non-cancelable leases are as follows: | |||||
Years Ending December 31, | Amount | ||||
2015 | $ | 444,799 | |||
2016 | 299,207 | ||||
2017 | 249,344 | ||||
2018 | 249,344 | ||||
2019 | 248,786 | ||||
| | | | | |
Total | $ | 1,491,480 | |||
| | | | | |
| | | | | |
Litigation | |||||
We are subject to various legal proceedings and claims that arise in the ordinary course of business. In our opinion, the amount of any ultimate liability with respect to these actions will not materially affect our consolidated financial statements or results of operations. On August 8, 2013 we made a demand for arbitration against a third party to protect our market interest and non-compete agreement. We settled our claims on February 12, 2014. This settlement did not have a material impact on our results of operations. | |||||
Executive Life Insurance Plan | |||||
During 2002, we set up an Executive Bonus Life Insurance Plan (the "Plan") for our key employees ("participants"). Pursuant to the Plan, we will pay a bonus to officer participants of 15% and a bonus to all other participants of 10% of the participants' base annual salary, as well as an additional bonus to cover federal and state taxes incurred by the participants. The participants are required to purchase life insurance and retain ownership of the life insurance policy once it is purchased. The Plan provides a five-year graded vesting schedule in which the participants vest at a rate of 20% each year. Should a participant terminate employment prior to the fifth year of vesting, that participant may be required to reimburse us for any unvested amounts, under certain circumstances. Expenses under the Plan were $282,000 and $333,000 for the years ended December 31, 2014 and 2013, respectively. | |||||
Change of Control Agreements | |||||
Since 2002, we entered into Change of Control Agreements (the "Agreement(s)") with certain key executives ("the Executive(s)"). The Agreements provide an inducement for each Executive to remain as an employee in the event of any proposed or anticipated change of control in the organization, including facilitating an orderly transition, and to provide economic security for the Executive after a change in control has occurred. | |||||
In the event of an involuntarily termination in connection with a change of control as defined in the agreements, each Executive would receive their base salary, annual bonus at time of termination, and continued participation in health, disability and life insurance plans for a period of three years for officers and two years for all other participants. Participants would also receive professional outplacement services up to $10,000, if applicable. Each Agreement remains in full force until the Executive terminates employment or we terminate the employment of the Executive | |||||
SCHEDULE_II_Valuation_and_Qual
SCHEDULE II - Valuation and Qualifying Accounts | 12 Months Ended | |||||||||||||
Dec. 31, 2014 | ||||||||||||||
Valuation and Qualifying Accounts | ||||||||||||||
Valuation and Qualifying Accounts | SCHEDULE II—Valuation and Qualifying Accounts | |||||||||||||
FOR THE YEARS ENDED DECEMBER 31, 2014 AND 2013 | ||||||||||||||
Classification | Balance at | Additions Charged | Deductions | Balance at | ||||||||||
Beginning | to Costs | End of | ||||||||||||
of Year | and Expenses | Year | ||||||||||||
Year Ended December 31, 2014: | ||||||||||||||
Allowance for Uncollectible Accounts | $ | 138,000 | $ | 52,000 | $ | (53,000 | ) | $ | 137,000 | |||||
Inventory Reserves | 1,100,000 | 524,000 | (892,000 | ) | 732,000 | |||||||||
Year Ended December 31, 2013: | ||||||||||||||
Allowance for Uncollectible Accounts | $ | 157,000 | $ | 41,000 | $ | (60,000 | ) | $ | 138,000 | |||||
Inventory Reserves | 1,474,000 | 718,000 | (1,092,000 | ) | 1,100,000 | |||||||||
NATURE_OF_BUSINESS_AND_SUMMARY1
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Policies) | 12 Months Ended | ||||||||||
Dec. 31, 2014 | |||||||||||
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||||||||
Principles of Consolidation | Principles of Consolidation | ||||||||||
The consolidated financial statements include the accounts of our wholly owned subsidiary, Manufacturing Assembly Solutions of Monterrey, Inc. All significant intercompany accounts and transactions have been eliminated. | |||||||||||
Use of Estimates | Use of Estimates | ||||||||||
The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires us to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of our consolidated financial statements. Estimates also affect the reported amounts of revenue and expense during the reporting period. Significant items subject to estimates and assumptions include the valuation allowance for inventories, allowance for doubtful accounts and realizability of deferred tax assets. Actual results could differ from those estimates. | |||||||||||
Accounts Receivable and Allowance for Doubtful Accounts | Accounts Receivable and Allowance for Doubtful Accounts | ||||||||||
We grant credit to customers in the normal course of business. Accounts receivable are unsecured and are presented net of an allowance for doubtful accounts. The allowance for doubtful accounts was $137,000 and $138,000 at December 31, 2014 and 2013, respectively. We determine our allowance by considering a number of factors, including the length of time accounts receivable are past due, our previous loss history, the customers' current ability to pay their obligations to us, and the condition of the general economy and the industry as a whole. We write-off accounts receivable when they become uncollectible, and payments subsequently received on such receivables are credited to the allowance for doubtful accounts. | |||||||||||
Inventories | Inventories | ||||||||||
Inventories are stated at the lower of cost (first-in, first-out method) or market (based on the lower of replacement cost or net realizable value). Costs include material, labor, and overhead required in the production of our products. Inventory reserves are maintained for inventories that may have a lower value than stated or quantities in excess of future production needs. | |||||||||||
Inventories are as follows: | |||||||||||
2014 | 2013 | ||||||||||
Raw materials | $ | 12,745,623 | $ | 12,282,902 | |||||||
Work in process | 3,653,670 | 3,317,573 | |||||||||
Finished goods | 2,861,373 | 2,926,512 | |||||||||
Reserves | (732,248 | ) | (1,099,517 | ) | |||||||
| | | | | | | | ||||
Total | $ | 18,528,418 | $ | 17,427,470 | |||||||
| | | | | | | | ||||
| | | | | | | | ||||
Property, Equipment and Depreciation | Property, Equipment and Depreciation | ||||||||||
Property and equipment are stated at cost less accumulated depreciation. Additions, improvements and major renewals are capitalized, while maintenance and minor repairs are expensed as incurred. When assets are retired or disposed of, the assets and related accumulated depreciation are removed from the accounts and the resulting gain or loss is reflected in operations. Leasehold improvements are depreciated over the shorter of their estimated useful lives or their remaining lease terms. All other property and equipment are depreciated by the straight-line method over their estimated useful lives, as follows: | |||||||||||
Buildings | 39 Years | ||||||||||
Leasehold improvements | 3-15 Years | ||||||||||
Manufacturing equipment | 3-7 Years | ||||||||||
Office and other equipment | 3-7 Years | ||||||||||
Property and equipment at December 31, 2014 and 2013: | |||||||||||
2014 | 2013 | ||||||||||
Land | $ | 375,000 | $ | 375,000 | |||||||
Building and Leasehold Improvements | 9,184,710 | 9,116,429 | |||||||||
Manufacturing Equipment | 16,769,847 | 15,953,227 | |||||||||
Office and Other Equipment | 5,386,805 | 4,535,897 | |||||||||
Accumulated Depreciation | (20,827,645 | ) | (18,943,393 | ) | |||||||
| | | | | | | | ||||
Net Property and Equipment | $ | 10,888,717 | $ | 11,037,160 | |||||||
| | | | | | | | ||||
| | | | | | | | ||||
Other Assets | Other Assets | ||||||||||
Other Assets include capitalized bond issue costs. The value of this asset is $34,395 and $39,687 at December 31, 2014 and 2013, respectively. Related amortization expense for 2014 and 2013 was $5,292 and $5,291, respectively. Estimated future annual amortization expense for the asset is approximately $5,000 per year through 2021 when the related bond matures. | |||||||||||
Impairment Analysis | Impairment Analysis | ||||||||||
We evaluate long-lived assets, primarily property and equipment, as well as the related depreciation periods, whenever current events or changes in circumstances indicate that the carrying amount of an asset or asset group may not be recoverable. Recoverability for assets to be held and used is based on our projection of the undiscounted future operating cash flows of the underlying assets. To the extent such projections indicate that future undiscounted cash flows are not sufficient to recover the carrying amounts of related assets, a charge might be required to reduce the carrying amount to equal estimated fair value. Assets held for sale are reported at the lower of the carrying amount or fair value less costs to dispose. We recorded an impairment charge in 2013 of $74,000. The impairment charge has been included in general and administrative expenses in the consolidated statements of income. | |||||||||||
Preferred Stock | Preferred Stock | ||||||||||
Preferred stock issued is non-cumulative and nonconvertible. The holders of the preferred stock are entitled to a non-cumulative dividend of 12% when and as declared. In liquidation, holders of preferred stock have preference to the extent of $1.00 per share plus dividends accrued but unpaid. No preferred stock dividends were declared or paid during the years ended December 31, 2014 and 2013. | |||||||||||
Revenue Recognition | Revenue Recognition | ||||||||||
We recognize manufacturing revenue when we ship goods or the goods are received by our customer, when title has passed, all contractual obligations have been satisfied, the price is fixed or determinable and collection of the resulting receivable is reasonably assured. Generally, there are no formal substantive customer acceptance requirements or further obligations related to manufacturing services. If such requirements or obligations exist, then we recognize the related revenues at the time when such requirements are completed and the obligations are fulfilled. We also provide engineering services separate from the manufacture of a product. Revenue for engineering services is generally recognized upon completion of the engineering process. In addition, we have another separate source of revenue that comes from short-term repair services, which are recognized when the repairs are completed and the repaired products are shipped back to the customer. Our net sales for services were less than 5% of our total sales for all periods presented, and accordingly, are included in net sales in the consolidated statement of operations. Shipping and handling costs charged to our customers are included in net sales, while the corresponding shipping expenses are included in cost of goods sold. | |||||||||||
Product Warranties | Product Warranties | ||||||||||
We provide limited warranty for the replacement or repair of defective product within a specified time period after the sale at no cost to our customers. We make no other guarantees or warranties, expressed or implied, of any nature whatsoever as to the goods including, without limitation, warranties to merchantability, fit for a particular purpose or non-infringement of patent or the like unless agreed upon in writing. We estimate the costs that may be incurred under our limited warranty and provide a reserve based on actual historical warranty claims coupled with an analysis of unfulfilled claims at the balance sheet date. Our warranty claim costs are not material given the nature of our products and services. | |||||||||||
Advertising | Advertising | ||||||||||
Advertising costs are charged to operations as incurred. The total amount charged to expense was $162,000 and $146,000 for the years ended December 31, 2014 and 2013, respectively. | |||||||||||
Income Taxes | Income Taxes | ||||||||||
We account for income taxes under the asset and liability method. Deferred income tax assets and liabilities are recognized annually for differences between the financial statement and tax basis of assets and liabilities that will result in taxable or deductible amounts in the future based on enacted tax laws and rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established when necessary to reduce deferred tax assets to the amount expected to be realized. | |||||||||||
Stock-Based Compensation | Incentive Compensation | ||||||||||
We use a Black-Scholes option-pricing model to determine the grant date fair value of our incentive awards and recognize the expense on a straight-line basis over the vesting period less awards expected to be forfeited using estimated forfeiture rates. See Note 6 for additional information. | |||||||||||
Net Income Per Common Share | Net Income Per Common Share | ||||||||||
Basic net income per common share is computed by dividing net income by the weighted-average number of common shares outstanding. Dilutive net income per common share assumes the exercise and issuance of all potential common stock equivalents in computing the weighted-average number of common shares outstanding, unless their effect is antidilutive. For the years ended December 31, 2014 and 2013, 134,250 and 189,250 option shares were excluded, respectively, because their inclusion would be antidilutive. | |||||||||||
A reconciliation of basic and diluted share amounts for the years ended December 31, 2014 and 2013 is as follows: | |||||||||||
2014 | 2013 | ||||||||||
Basic weighted average common shares outstanding | 2,742,992 | 2,742,992 | |||||||||
Weighted average common stock equivalents from assumed exercise of stock options | 5,833 | 1,144 | |||||||||
| | | | | | | | ||||
Diluted weighted average common shares outstanding | 2,748,825 | 2,744,136 | |||||||||
| | | | | | | | ||||
| | | | | | | | ||||
Enterprise-Wide Disclosures | Enterprise-Wide Disclosures | ||||||||||
Our results of operations for the years ended December 31, 2014 and 2013 represent a single operating and reporting segment referred to as Contract Manufacturing within the Electronic Manufacturing Services (EMS) industry. We strategically direct production between our various manufacturing facilities based on a number of considerations to best meet our customers' requirements. We share resources for sales, marketing, engineering, supply chain, information services, human resources, payroll and all corporate accounting functions. Consolidated financial information is available that is evaluated regularly by the chief operating decision maker in assessing performance and allocating resources. | |||||||||||
Export sales represent approximately 13% and 12% of consolidated net sales for the years ended December 31, 2014 and 2013, respectively. | |||||||||||
Net sales by our major EMS industry markets for the years ended December 31, 2014 and 2013 are as follows: | |||||||||||
(in thousands) | 2014 | 2013 | |||||||||
Aerospace and Defense | $ | 14,869 | $ | 19,879 | |||||||
Medical/Life Sciences | 41,402 | 35,429 | |||||||||
Industrial | 55,771 | 55,750 | |||||||||
| | | | | | | | ||||
Total Net Sales | $ | 112,042 | $ | 111,058 | |||||||
| | | | | | | | ||||
| | | | | | | | ||||
Noncurrent assets, excluding deferred taxes, by country are as follows: | |||||||||||
United States | Mexico | Total | |||||||||
2014 | |||||||||||
Net property and equipment | $ | 10,214,279 | $ | 822,881 | $ | 10,888,717 | |||||
Other assets | 109,401 | 7,726 | 117,127 | ||||||||
2013 | |||||||||||
Net property and equipment | $ | 10,560,184 | $ | 476,976 | $ | 11,037,160 | |||||
Other assets | 114,693 | 7,726 | 122,419 | ||||||||
Foreign Currency Transactions | Foreign Currency Transactions | ||||||||||
Foreign exchange transaction gains and losses attributable to exchange rate movements related to transactions made in the local currency and on intercompany receivables and payables not deemed to be of a long-term investment nature are recorded in other income (expense). The functional currency for our Mexico subsidiary is the US dollar. | |||||||||||
Recent Accounting Pronouncements | Recent Accounting Pronouncements | ||||||||||
In May 2014, the Financial Accounting Standards Board issued Accounting Standards Update ("ASU") 2014-09, Revenue from Contracts with Customers (Topic 606). This standard outlines a single comprehensive model for companies to use in accounting for revenue arising from contracts with customers and supersedes most current revenue recognition guidance, including industry-specific guidance. The core principle of the revenue model is that revenue is recognized when a customer obtains control of a good or service. A customer obtains control when it has the ability to direct the use of and obtain the benefits from the good or service. Transfer of control is not the same as transfer of risks and rewards, as it is considered in current guidance. We will also need to apply new guidance to determine whether revenue should be recognized over time or at a point in time. This standard will be effective for the first interim period within annual reporting periods beginning after December 15, 2016, with no early adoption permitted, using either of two methods: (a) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (b) retrospective with the cumulative effect of initially applying ASU 2014-09 recognized at the date of initial application and providing certain additional disclosures as defined in ASU 2014-09. We have not yet selected a transition method and are currently evaluating the impact of the pending adoption of ASU 2014-09 on the consolidated financial statements. | |||||||||||
NATURE_OF_BUSINESS_AND_SUMMARY2
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Tables) | 12 Months Ended | ||||||||||
Dec. 31, 2014 | |||||||||||
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES | |||||||||||
Schedule of inventories | |||||||||||
2014 | 2013 | ||||||||||
Raw materials | $ | 12,745,623 | $ | 12,282,902 | |||||||
Work in process | 3,653,670 | 3,317,573 | |||||||||
Finished goods | 2,861,373 | 2,926,512 | |||||||||
Reserves | (732,248 | ) | (1,099,517 | ) | |||||||
| | | | | | | | ||||
Total | $ | 18,528,418 | $ | 17,427,470 | |||||||
| | | | | | | | ||||
| | | | | | | | ||||
Schedule of estimated useful lives of property and equipment | |||||||||||
Buildings | 39 Years | ||||||||||
Leasehold improvements | 3-15 Years | ||||||||||
Manufacturing equipment | 3-7 Years | ||||||||||
Office and other equipment | 3-7 Years | ||||||||||
Schedule of property and equipment | |||||||||||
2014 | 2013 | ||||||||||
Land | $ | 375,000 | $ | 375,000 | |||||||
Building and Leasehold Improvements | 9,184,710 | 9,116,429 | |||||||||
Manufacturing Equipment | 16,769,847 | 15,953,227 | |||||||||
Office and Other Equipment | 5,386,805 | 4,535,897 | |||||||||
Accumulated Depreciation | (20,827,645 | ) | (18,943,393 | ) | |||||||
| | | | | | | | ||||
Net Property and Equipment | $ | 10,888,717 | $ | 11,037,160 | |||||||
| | | | | | | | ||||
| | | | | | | | ||||
Schedule of reconciliation of basic and diluted share amounts | |||||||||||
2014 | 2013 | ||||||||||
Basic weighted average common shares outstanding | 2,742,992 | 2,742,992 | |||||||||
Weighted average common stock equivalents from assumed exercise of stock options | 5,833 | 1,144 | |||||||||
| | | | | | | | ||||
Diluted weighted average common shares outstanding | 2,748,825 | 2,744,136 | |||||||||
| | | | | | | | ||||
| | | | | | | | ||||
Schedule of net sales by markets | |||||||||||
(in thousands) | 2014 | 2013 | |||||||||
Aerospace and Defense | $ | 14,869 | $ | 19,879 | |||||||
Medical/Life Sciences | 41,402 | 35,429 | |||||||||
Industrial | 55,771 | 55,750 | |||||||||
| | | | | | | | ||||
Total Net Sales | $ | 112,042 | $ | 111,058 | |||||||
| | | | | | | | ||||
| | | | | | | | ||||
Schedule of noncurrent assets, excluding deferred taxes, by country | |||||||||||
United States | Mexico | Total | |||||||||
2014 | |||||||||||
Net property and equipment | $ | 10,214,279 | $ | 822,881 | $ | 10,888,717 | |||||
Other assets | 109,401 | 7,726 | 117,127 | ||||||||
2013 | |||||||||||
Net property and equipment | $ | 10,560,184 | $ | 476,976 | $ | 11,037,160 | |||||
Other assets | 114,693 | 7,726 | 122,419 | ||||||||
FINANCING_AGREEMENTS_Tables
FINANCING AGREEMENTS (Tables) | 12 Months Ended | |||||||
Dec. 31, 2014 | ||||||||
FINANCING AGREEMENTS | ||||||||
Summary of long-term debt balances | ||||||||
Description | 2014 | 2013 | ||||||
Term notes payable—Wells Fargo Bank, N.A. | ||||||||
Real estate term notes bearing interest at three month LIBOR + 3.0% (approx. 3.25%), maturing March 31, 2027, and December 31, 2017 with combined monthly payments of approximately $19,000 plus interest, secured by substantially all assets. | $ | 2,875,560 | $ | 3,105,627 | ||||
Equipment notes bearing interest at three month LIBOR + 3.0% (approx. 3.25%) maturing May 2018 with a combined monthly payments of approximately $27,000 plus interest, secured by substantially all assets | 1,569,781 | 1,333,463 | ||||||
Industrial revenue bond payable to the City of Blue Earth, Minnesota which bears a variable interest rate (approx. 0.24% at December 31, 2014), and has a maturity date of June 1, 2021, with principal of $80,000 payable annually on June 1 | 360,000 | 440,000 | ||||||
| | | | | | | | |
Total long-term debt | 4,805,341 | 4,879,090 | ||||||
Current maturities of long-term debt | (732,835 | ) | (632,176 | ) | ||||
| | | | | | | | |
Long-term debt—net of current maturities | $ | 4,072,506 | $ | 4,246,914 | ||||
| | | | | | | | |
| | | | | | | | |
Schedule of future maturity requirements for long-term debt | ||||||||
Years Ending December 31, | Amount | |||||||
2015 | $ | 732,835 | ||||||
2016 | 645,752 | |||||||
2017 | 637,835 | |||||||
2018 | 793,625 | |||||||
2019 | 270,067 | |||||||
Future | 1,725,227 | |||||||
| | | | | ||||
$ | 4,805,341 | |||||||
| | | | | ||||
| | | | | ||||
INCOME_TAXES_Tables
INCOME TAXES (Tables) | 12 Months Ended | |||||||
Dec. 31, 2014 | ||||||||
INCOME TAXES | ||||||||
Schedule of income tax expense | ||||||||
2014 | 2013 | |||||||
Current taxes—Federal | $ | (106,000 | ) | $ | 72,000 | |||
Current taxes—State | 39,000 | (21,000 | ) | |||||
Current taxes—Foreign | 51,000 | 20,000 | ||||||
Deferred taxes—Federal | 137,000 | 194,000 | ||||||
Deferred taxes—State | (40,000 | ) | 35,000 | |||||
| | | | | | | | |
Income tax expense | $ | 81,000 | $ | 300,000 | ||||
| | | | | | | | |
| | | | | | | | |
Schedule of statutory rate reconciliation | ||||||||
2014 | 2013 | |||||||
Statutory federal tax provision | $ | 327,000 | $ | 370,000 | ||||
State income taxes | 45,000 | 45,000 | ||||||
Effect of foreign operations | (9,000 | ) | (3,000 | ) | ||||
Uncertain tax positions | (88,000 | ) | 41,000 | |||||
Income tax credits | (215,000 | ) | (167,000 | ) | ||||
Permanent differences | 21,000 | 14,000 | ||||||
| | | | | | | | |
Income tax expense | $ | 81,000 | $ | 300,000 | ||||
| | | | | | | | |
| | | | | | | | |
Schedule of income from operations before income taxes | ||||||||
2014 | 2013 | |||||||
Domestic | $ | 816,840 | $ | 1,074,572 | ||||
Foreign | 144,177 | 12,804 | ||||||
| | | | | | | | |
Total | $ | 961,017 | $ | 1,087,376 | ||||
| | | | | | | | |
| | | | | | | | |
Schedule of deferred tax assets (liabilities) | ||||||||
2014 | 2013 | |||||||
Allowance for uncollectable accounts | $ | 50,000 | $ | 51,000 | ||||
Inventories reserve | 267,000 | 404,000 | ||||||
Accrued vacation | 334,000 | 386,000 | ||||||
Non-compete amortization | 222,000 | 281,000 | ||||||
Stock-based compensation and equity appreciation rights | 148,000 | 100,000 | ||||||
State Tax NOL | 95,000 | 117,000 | ||||||
Other | 167,000 | 144,000 | ||||||
| | | | | | | | |
Deferred tax assets | 1,283,000 | 1,483,000 | ||||||
| | | | | | | | |
Prepaid expenses | (292,000 | ) | (246,000 | ) | ||||
Property and equipment | (704,000 | ) | (836,000 | ) | ||||
| | | | | | | | |
Deferred tax liabilities | (996,000 | ) | (1,082,000 | ) | ||||
| | | | | | | | |
Net deferred tax assets | $ | 287,000 | $ | 401,000 | ||||
| | | | | | | | |
| | | | | | | | |
Schedule of net deferred taxes that have been classified on the consolidated balance sheets | ||||||||
Net current deferred tax assets | $ | 436,000 | $ | 683,000 | ||||
Net non-current deferred tax liabilities | (149,000 | ) | (282,000 | ) | ||||
| | | | | | | | |
Net deferred tax assets | $ | 287,000 | $ | 401,000 | ||||
| | | | | | | | |
| | | | | | | | |
Schedule of changes in total gross unrecognized tax benefit liabilities, excluding accrued interest | ||||||||
Balance as of December 31, 2012 | $ | 140,000 | ||||||
Tax positions related to 2013: | ||||||||
Additions | 53,000 | |||||||
Reductions | — | |||||||
| | | | | ||||
Balance as of December 31, 2013 | 193,000 | |||||||
Tax positions related to current year: | ||||||||
Additions | 23,000 | |||||||
Reductions | (160,000 | ) | ||||||
| | | | | ||||
Balance as of December 31, 2014 | $ | 56,000 | ||||||
| | | | | ||||
| | | | | ||||
INCENTIVE_PLANS_Tables
INCENTIVE PLANS (Tables) | 12 Months Ended | |||||||||||||
Dec. 31, 2014 | ||||||||||||||
INCENTIVE PLANS | ||||||||||||||
Summary of assumptions used under stock options activity | ||||||||||||||
2013 | ||||||||||||||
Expected volatility | 49.67% - 53.06% | |||||||||||||
Expected dividends | None | |||||||||||||
Expected term (in years) | 5.5 - 7 | |||||||||||||
Risk-free rate | 1.43% - 1.50% | |||||||||||||
Summary of option activity | . | |||||||||||||
Options | Weighted- | Weighted- | Aggregate | |||||||||||
Average | Average | Intrinsic Value | ||||||||||||
Exercise | Remaining | |||||||||||||
Price Per | Contractual | |||||||||||||
Share | Term | |||||||||||||
(in years) | ||||||||||||||
Outstanding—January 1, 2014 | 216,000 | $ | 6.46 | |||||||||||
Granted | — | — | ||||||||||||
Cancelled | (35,000 | ) | 6.99 | |||||||||||
| | | | | | | | | | | | | | |
Outstanding—December 31, 2014 | 181,000 | $ | 6.36 | 2.92 | $ | 75,250 | ||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Exercisable on December 31, 2014 | 163,168 | $ | 6.7 | 2.35 | $ | 31,027 | ||||||||
| | | | | | | | | | | | | | |
| | | | | | | | | | | | | | |
Summary of the liability and changes during the years | ||||||||||||||
2014 | 2013 | |||||||||||||
Beginning Balance | $ | 81,000 | $ | 101,000 | ||||||||||
Additions | 178,000 | 67,000 | ||||||||||||
Payments | — | (87,000 | ) | |||||||||||
| | | | | | | | |||||||
Ending Balance | $ | 259,000 | $ | 81,000 | ||||||||||
| | | | | | | | |||||||
| | | | | | | | |||||||
COMMITMENTS_AND_CONTINGENCIES_
COMMITMENTS AND CONTINGENCIES (Tables) | 12 Months Ended | ||||
Dec. 31, 2014 | |||||
COMMITMENTS AND CONTINGENCIES | |||||
Schedule of future minimum lease payments under non-cancelable leases | |||||
Years Ending December 31, | Amount | ||||
2015 | $ | 444,799 | |||
2016 | 299,207 | ||||
2017 | 249,344 | ||||
2018 | 249,344 | ||||
2019 | 248,786 | ||||
| | | | | |
Total | $ | 1,491,480 | |||
| | | | | |
| | | | | |
NATURE_OF_BUSINESS_AND_SUMMARY3
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Accounts Receivable and Allowance for Doubtful Accounts | ||
Allowance for doubtful accounts | 137,000 | $138,000 |
Inventories | ||
Raw materials | 12,745,623 | 12,282,902 |
Work in process | 3,653,670 | 3,317,573 |
Finished goods | 2,861,373 | 2,926,512 |
Reserve | -732,248 | -1,099,517 |
Total | 18,528,418 | 17,427,470 |
Property, Equipment and Depreciation | ||
Accumulated Depreciation | 20,827,645 | 18,943,393 |
Net Property and Equipment | 10,888,717 | 11,037,160 |
Land | ||
Property, Equipment and Depreciation | ||
Property and equipment | 375,000 | 375,000 |
Building and Leasehold Improvements | ||
Property, Equipment and Depreciation | ||
Property and equipment | 9,184,710 | 9,116,429 |
Buildings | ||
Property, Equipment and Depreciation | ||
Estimated useful lives | 39 years | |
Leasehold improvements | Minimum | ||
Property, Equipment and Depreciation | ||
Estimated useful lives | 3 years | |
Leasehold improvements | Maximum | ||
Property, Equipment and Depreciation | ||
Estimated useful lives | 15 years | |
Manufacturing equipment | ||
Property, Equipment and Depreciation | ||
Property and equipment | 16,769,847 | 15,953,227 |
Manufacturing equipment | Minimum | ||
Property, Equipment and Depreciation | ||
Estimated useful lives | 3 years | |
Manufacturing equipment | Maximum | ||
Property, Equipment and Depreciation | ||
Estimated useful lives | 7 years | |
Office and other equipment | ||
Property, Equipment and Depreciation | ||
Property and equipment | 5,386,805 | $4,535,897 |
Office and other equipment | Minimum | ||
Property, Equipment and Depreciation | ||
Estimated useful lives | 3 years | |
Office and other equipment | Maximum | ||
Property, Equipment and Depreciation | ||
Estimated useful lives | 7 years |
NATURE_OF_BUSINESS_AND_SUMMARY4
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 2) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Finite Life Intangible Assets | ||
Amortization expense | $5,292 | $5,291 |
Estimated future annual amortization expense | ||
Estimated future annual amortization expense per annum until maturity | 5,000 | |
Impairment Analysis | ||
Impairment charges recognized | 74,000 | |
Revenue Recognition | ||
Net sales for services as a maximum percentage of total sales (as a percent) | 5.00% | |
Preferred Stock | ||
Non-cumulative dividend rate (as a percent) | 12.00% | |
Liquidation preference (in dollars per share) | $1 | |
Preferred stock dividends declared (in dollars per share) | $0 | $0 |
Preferred stock dividends paid (in dollars per share) | $0 | $0 |
Product Warranties | ||
Cost of defective product | 0 | |
Advertising | ||
Advertising expense charged | 162,000 | 146,000 |
Net Income Per Common Share | ||
Outstanding options included computation of dilutive per-share amounts as effect of all outstanding stock-based awards were antidilutive | 134,250 | 189,250 |
Reconciliation of basic and diluted share amounts | ||
Basic weighted average common shares outstanding | 2,742,992 | 2,742,992 |
Weighted average common stock equivalents from assumed exercise of stock options (in shares) | 5,833 | 1,144 |
Diluted weighted average common shares outstanding | 2,748,825 | 2,744,136 |
Bond Issue Costs | ||
Finite Life Intangible Assets | ||
Amortized cost | $34,395 | $39,687 |
NATURE_OF_BUSINESS_AND_SUMMARY5
NATURE OF BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Details 3) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Enterprise-Wide Disclosures | ||
Percentage of export sales to consolidated net sales | 13.00% | 12.00% |
Total Net Sales | $112,041,650 | $111,058,439 |
Net property and equipment | 10,888,717 | 11,037,160 |
Other assets | 117,127 | 122,419 |
United States | ||
Enterprise-Wide Disclosures | ||
Net property and equipment | 10,214,279 | 10,560,184 |
Other assets | 109,401 | 114,693 |
Mexico | ||
Enterprise-Wide Disclosures | ||
Net property and equipment | 822,881 | 476,976 |
Other assets | 7,726 | 7,726 |
Aerospace and Defense | ||
Enterprise-Wide Disclosures | ||
Total Net Sales | 14,869,000 | 19,879,000 |
Medical/Life Sciences | ||
Enterprise-Wide Disclosures | ||
Total Net Sales | 41,402,000 | 35,429,000 |
Industrial | ||
Enterprise-Wide Disclosures | ||
Total Net Sales | $55,771,000 | $55,750,000 |
MAJOR_CUSTOMERS_AND_CONCENTRAT1
MAJOR CUSTOMERS AND CONCENTRATION OF CREDIT RISK (Details) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
Major customers and concentration of credit risk | ||
Percentage of concentration risk | 5.00% | |
Largest customer | ||
Major customers and concentration of credit risk | ||
Number of divisions | 2 | |
Period of concentration risk | 2 years | |
Credit concentration risk | ||
Major customers and concentration of credit risk | ||
Excess cash balance, number of high credit quality financial institution | 1 | |
Net sales | Customer concentration risk | Division one of largest customer | ||
Major customers and concentration of credit risk | ||
Percentage of concentration risk | 23.00% | 20.00% |
Net sales | Customer concentration risk | Division two of largest customer | ||
Major customers and concentration of credit risk | ||
Percentage of concentration risk | 6.00% | 6.00% |
Net sales | Customer concentration risk | Divisions one & two | ||
Major customers and concentration of credit risk | ||
Percentage of concentration risk | 29.00% | 26.00% |
Accounts receivable | Divisions one & two | ||
Major customers and concentration of credit risk | ||
Percentage of concentration risk | 19.00% | 20.00% |
FINANCING_AGREEMENTS_Details
FINANCING AGREEMENTS (Details) (USD $) | 12 Months Ended | |||
Dec. 31, 2014 | Dec. 31, 2013 | 2-May-12 | 16-May-14 | |
Financing arrangements | ||||
Outstanding balance | $7,234,983 | |||
Total long-term debt | 4,805,341 | 4,879,090 | ||
Current maturities of long-term debt | -732,835 | -632,176 | ||
Long-term debt - net of current maturities | 4,072,506 | 4,246,914 | ||
Future maturity requirements for long-term debt | ||||
2015 | 732,835 | |||
2016 | 645,752 | |||
2017 | 637,835 | |||
2018 | 793,625 | |||
2019 | 270,067 | |||
Future | 1,725,227 | |||
Total long-term debt | 4,805,341 | 4,879,090 | ||
Line of credit | ||||
Financing arrangements | ||||
Maximum borrowing capacity | 13,500,000 | |||
Variable rate basis | three-month LIBOR | |||
Interest rate margin on variable rate basis (as a percent) | 2.50% | |||
Interest rate (as a percent) | 2.75% | |||
Weighted-average interest rate (as a percent) | 2.90% | |||
Outstanding balance | 7,998,184 | 7,234,983 | ||
Unused availability supported by entity's borrowing base | 5,100,000 | |||
Real estate term note | ||||
Financing arrangements | ||||
Variable rate basis | three-month LIBOR | |||
Interest rate margin on variable rate basis (as a percent) | 3.00% | |||
Interest rate (as a percent) | 3.25% | |||
Weighted-average interest rate (as a percent) | 3.40% | |||
Real estate term note maturing on March 31, 2027 | ||||
Financing arrangements | ||||
Debt instrument, face amount | 1,800,000 | |||
Real estate term note expiring on May 31, 2012 | ||||
Financing arrangements | ||||
Debt instrument, face amount | 1,700,000 | |||
Term loan | ||||
Financing arrangements | ||||
Long-term debt - net of current maturities | 300,000 | |||
Term loan | Maximum | ||||
Financing arrangements | ||||
Debt instrument, face amount | 1,000,000 | |||
Term loan maturing on May 31, 2018 | ||||
Financing arrangements | ||||
Debt instrument, face amount | 1,000,000 | |||
Equipment loan maturing on May 31, 2018 | ||||
Financing arrangements | ||||
Debt instrument, face amount | 1,600,000 | |||
Industrial revenue bond payable to the City of Blue Earth, Minnesota | ||||
Financing arrangements | ||||
Interest rate (as a percent) | 0.24% | |||
Amount of annual principal payments | 80,000 | |||
Total long-term debt | 360,000 | 440,000 | ||
Future maturity requirements for long-term debt | ||||
Total long-term debt | 360,000 | 440,000 | ||
Equipment notes maturing in May 2015 | ||||
Financing arrangements | ||||
Variable rate basis | three-month LIBOR | |||
Interest rate margin on variable rate basis (as a percent) | 3.00% | |||
Interest rate (as a percent) | 3.25% | |||
Amount of monthly principal payments | 27,000 | |||
Total long-term debt | 1,569,781 | 1,333,463 | ||
Future maturity requirements for long-term debt | ||||
Total long-term debt | 1,569,781 | 1,333,463 | ||
Real estate term notes | ||||
Financing arrangements | ||||
Variable rate basis | three-month LIBOR | |||
Total long-term debt | 2,875,560 | 3,105,627 | ||
Future maturity requirements for long-term debt | ||||
Total long-term debt | $2,875,560 | $3,105,627 |
INCOME_TAXES_Details
INCOME TAXES (Details) (USD $) | 12 Months Ended | ||
Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2011 | |
Components of income tax expense | |||
Current taxes - Federal | ($106,000) | $72,000 | |
Current taxes - State | 39,000 | -21,000 | |
Current taxes - Foreign | 51,000 | 20,000 | |
Deferred taxes - Federal | 137,000 | 194,000 | |
Deferred taxes - State | -40,000 | 35,000 | |
Income tax expense | 81,000 | 300,000 | |
Reconciliation of federal income taxes and reported income taxes | |||
Statutory federal tax provision | 327,000 | 370,000 | |
State income taxes | 45,000 | 45,000 | |
Effect of foreign operations | -9,000 | -3,000 | |
Uncertain tax positions | -88,000 | 41,000 | |
Income tax credits | -215,000 | -167,000 | |
Permanent differences | 21,000 | 14,000 | |
Income tax expense | 81,000 | 300,000 | |
Income from operations before income taxes | |||
Domestic | 816,840 | 1,074,572 | |
Foreign | 144,177 | 12,804 | |
Income Before Income Taxes | 961,017 | 1,087,376 | |
Components of deferred tax assets (liabilities) | |||
Allowance for uncollectable accounts | 50,000 | 51,000 | |
Inventories reserve | 267,000 | 404,000 | |
Accrued vacation | 334,000 | 386,000 | |
Non-compete amortization | 222,000 | 281,000 | |
Stock-based compensation and equity appreciation rights | 148,000 | 100,000 | |
State Tax NOL carryforwards | 95,000 | 117,000 | |
Other | 167,000 | 144,000 | |
Deferred tax assets | 1,283,000 | 1,483,000 | |
Prepaid expenses | -292,000 | -246,000 | |
Property and equipment | -704,000 | -836,000 | |
Deferred tax liabilities | -996,000 | -1,082,000 | |
Net deferred tax assets | 287,000 | 401,000 | |
Net current deferred tax assets | 436,000 | 683,000 | |
Net non-current deferred tax liabilities | -149,000 | -282,000 | |
Changes in total gross unrecognized tax benefit liabilities, excluding accrued interest | |||
Balance at the beginning of the period | 193,000 | 140,000 | |
Additions | 23,000 | 53,000 | |
Reductions | 0 | 0 | |
Balance at the end of the period | $56,000 | $193,000 | $140,000 |
401K_RETIREMENT_PLAN_Details
401(K) RETIREMENT PLAN (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
401(K) RETIREMENT PLAN | ||
Requisite service period for employees to be eligible for the defined contribution plan | 3 months | |
Requisite age for employees to be eligible for the defined contribution plan | 18 years | |
Employee contributions limit as a percentage of wages, maximum | 60.00% | |
Employer match of employee contributions for 6% of eligible compensation (as a percent) | 25.00% | |
Maximum percentage of covered compensation matched 25% by employer | 6.00% | |
Contributions made | $223,000 | $203,000 |
INCENTIVE_PLANS_Details
INCENTIVE PLANS (Details) (USD $) | 12 Months Ended | 0 Months Ended | 12 Months Ended | ||||||
Dec. 31, 2014 | Dec. 31, 2013 | Jan. 02, 2014 | Feb. 13, 2013 | Dec. 31, 2010 | Dec. 31, 1993 | 3-May-05 | Dec. 31, 2011 | Nov. 30, 2010 | |
Stock Options | |||||||||
Variables used for the grants | |||||||||
Expected volatility, minimum | 49.67% | ||||||||
Expected volatility, maximum | 53.06% | ||||||||
Expected dividends | 0.00% | ||||||||
Risk-free rate, minimum | 1.43% | ||||||||
Risk-free rate, maximum | 1.50% | ||||||||
Compensation expense | $29,927 | $12,841 | |||||||
Unrecognized compensation related to unvested awards | 17,000 | ||||||||
Weighted-average period over which unrecognized compensation costs expected to be recognized | 1 year 1 month 13 days | ||||||||
Options | |||||||||
Balance at the beginning of the period(in shares) | 216,000 | ||||||||
Granted (in shares) | 0 | ||||||||
Cancelled | -35,000 | ||||||||
Balance at the end of the period (in shares) | 181,000 | 216,000 | |||||||
Exercisable at the end of the period (in shares) | 163,168 | ||||||||
Weighted-Average Exercise Price Per Share | |||||||||
Outstanding at the beginning of the period (in dollars per share) | $6.46 | ||||||||
Expired or forfeited (in dollars per share) | $6.99 | ||||||||
Outstanding at the end of the period (in dollars per share) | $6.36 | $6.46 | |||||||
Exercisable at the end of the period (in dollars per share) | $6.70 | ||||||||
Weighted-Average Remaining Contractual Term | |||||||||
Outstanding at the end of the period | 2 years 11 months 1 day | ||||||||
Exercisable at the end of the period | 2 years 4 months 6 days | ||||||||
Aggregate Intrinsic Value | |||||||||
Outstanding at the end of the period | 75,250 | ||||||||
Exercisable at the end of the period | 31,027 | ||||||||
Additional disclosures | |||||||||
Awards exercised (in shares) | 0 | 0 | |||||||
Weighted-average fair value of options granted (in dollars per share) | $1.84 | ||||||||
Stock Options | Minimum | |||||||||
Incentive plans | |||||||||
Exercisable period | 1 year | ||||||||
Variables used for the grants | |||||||||
Expected term (in years) | 5 years 6 months | ||||||||
Stock Options | Maximum | |||||||||
Incentive plans | |||||||||
Expiration term | 10 years | ||||||||
Variables used for the grants | |||||||||
Expected term (in years) | 7 years | ||||||||
Plan | |||||||||
Incentive plans | |||||||||
Number of common shares authorized | 50,000 | ||||||||
Purchase price as a percentage of market value | 90.00% | ||||||||
Common shares issued | 22,118 | 0 | |||||||
2003 Plan | Stock Options | |||||||||
Incentive plans | |||||||||
Number of shares eliminated | 172,500 | ||||||||
2005 Plan | Stock Options | |||||||||
Incentive plans | |||||||||
Shares available for grant | 19,000 | 200,000 | |||||||
2005 Plan | Stock Options | Minimum | |||||||||
Incentive plans | |||||||||
Purchase price as a percentage of market value | 100.00% | ||||||||
2010 Plan | Equity Appreciation Rights Plan | |||||||||
Variables used for the grants | |||||||||
Compensation expense | 178,000 | 67,000 | |||||||
Equity Appreciation Rights Plan | |||||||||
Vesting period from the base date | 3 years | ||||||||
Shares issued (in units) | 100,000 | ||||||||
Shares granted (in units) | 250,000 | 50,000 | 350,000 | ||||||
Units available for grant | 0 | ||||||||
Accrued compensation included in other accrued liabilities | 47,000 | 29,000 | |||||||
Accrued compensation included in Other Long-term Liabilities | 212,000 | 52,000 | |||||||
Accrued compensation liability | |||||||||
Beginning Balance | 81,000 | 101,000 | |||||||
Additions | 178,000 | 67,000 | |||||||
Payments | -87,000 | ||||||||
Ending Balance | 259,000 | 81,000 | 101,000 | ||||||
Accrued compensation liability | |||||||||
Compensation liability included in other accrued liabilities | 47,000 | 29,000 | |||||||
Accrued compensation included in Other Long-term Liabilities | $212,000 | $52,000 | |||||||
2010 Plan | Equity Appreciation Rights Plan | Maximum | |||||||||
Incentive plans | |||||||||
Number of common shares authorized | 750,000 | ||||||||
Equity Appreciation Rights Plan | |||||||||
Redemption cash payment period | 90 days |
COMMITMENTS_AND_CONTINGENCIES_1
COMMITMENTS AND CONTINGENCIES (Details) (USD $) | 12 Months Ended | |
Dec. 31, 2014 | Dec. 31, 2013 | |
COMMITMENTS AND CONTINGENCIES | ||
Rent expense | $661,000 | $687,000 |
Operating Leases | ||
2015 | 444,799 | |
2016 | 299,207 | |
2017 | 249,344 | |
2018 | 249,344 | |
2019 | 248,786 | |
Maximum | ||
Commitment and contingencies | ||
Professional outplacement services that would be received by the participants | 10,000 | |
2002 Plan | ||
Commitment and contingencies | ||
Period of graded vesting schedule | 5 years | |
Annual vesting by the participants (as a percent) | 20.00% | |
Expenses incurred | $282,000 | $333,000 |
2002 Plan | Officer participants | ||
Commitment and contingencies | ||
Bonus to be paid as a percentage of the participants base annual salary | 15.00% | |
2002 Plan | Other participants | ||
Commitment and contingencies | ||
Bonus to be paid as a percentage of the participants base annual salary | 10.00% | |
Agreement(s) | Officer participants | ||
Commitment and contingencies | ||
Period of continued participation in health, disability and life insurance plans after involuntary termination | 3 years | |
Agreement(s) | Other participants | ||
Commitment and contingencies | ||
Period of continued participation in health, disability and life insurance plans after involuntary termination | 2 years |
SCHEDULE_II_Valuation_and_Qual1
SCHEDULE II - Valuation and Qualifying Accounts (Details) (USD $) | 12 Months Ended | ||
Dec. 31, 2014 | Dec. 31, 2013 | Dec. 31, 2011 | |
Allowance for Uncollectible Accounts | |||
Changes in valuation and qualifying accounts | |||
Balance at Beginning of Year | $138,000 | $157,000 | |
Additions Charged to Costs and Expenses | 52,000 | 41,000 | |
Deductions | -53,000 | -60,000 | |
Balance at End of Year | 137,000 | 138,000 | 157,000 |
Inventory Reserves | |||
Changes in valuation and qualifying accounts | |||
Balance at Beginning of Year | 1,100,000 | 1,474,000 | |
Additions Charged to Costs and Expenses | 524,000 | 718,000 | |
Deductions | -892,000 | -1,092,000 | |
Balance at End of Year | $732,000 | $1,100,000 | $1,474,000 |