Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
(
1
)
Summary of Significant Accounting Policies
MOCON, Inc. and its subsidiaries develops, manufacturers and markets measurement, analytical, monitoring and consulting products for customers in the barrier packaging, food, pharmaceutical, consumer products, industrial hygiene, air quality monitoring, oil and gas exploration and other industries throughout the world.
We report our operating segments in accordance with Financial Accounting Standards Board (“FASB”) Accounting Standards Codification (“ASC”) 280,
Segment Reporting
. Our operating segments are Permeation Products and Services (“Permeation”), Package Testing Products and Services (“Package Testing”), and Industrial Analyzer Products and Services and Other (“Industrial Analyzers and Other”) for financial reporting purposes.
Revision to previously issued financial information
The Company discovered the elimination of intercompany revenue and the related gross profit related to our Permeation Products and Services reporting segment was incorrectly recognized for the three months ended September 30, 2015. We assessed the impact of the error and concluded that it was not material to any of our previously issued financial statements; however, we had chosen to correct the misstatement by revising our previously issued unaudited three months ended September 30, 2015 Consolidated Statement of Operations. The revision had no impact to gross profit, operating income, earnings per share, Consolidated Balance Sheet or Consolidated Statement of Cash Flows. The impact of the misstatement of previously reported revenue and cost of sales was $470,000. The following table represents the effects of the revisions for the year ended December 31, 2015 (expressed in thousands).
|
|
|
As previously
reported
|
|
|
Effect of
Revision
|
|
|
As Revised
|
|
|
Year ended December 31, 2015
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
48,302
|
|
|
$
|
(470
|
)
|
|
$
|
47,832
|
|
|
Services
|
|
|
9,956
|
|
|
|
-
|
|
|
|
9,956
|
|
|
Consulting
|
|
|
2,966
|
|
|
|
-
|
|
|
|
2,966
|
|
|
Total revenue
|
|
$
|
61,224
|
|
|
$
|
(470
|
)
|
|
$
|
60,754
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of Revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Products
|
|
$
|
21,778
|
|
|
$
|
(470
|
)
|
|
$
|
21,308
|
|
|
Services
|
|
|
4,205
|
|
|
|
-
|
|
|
|
4,205
|
|
|
Consulting
|
|
|
2,017
|
|
|
|
-
|
|
|
|
2,017
|
|
|
Total cost of revenue
|
|
|
28,000
|
|
|
|
(470
|
)
|
|
|
27,530
|
|
|
Gross profit
|
|
$
|
33,224
|
|
|
$
|
-
|
|
|
$
|
33,224
|
|
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
The following is a summary of the significant accounting policies used in the preparation of our consolidated financial statements.
|
|
(a)
|
Principles of Consolidation
|
The consolidated financial statements include our accounts and our wholly-owned subsidiaries. All material intercompany balances and transactions have been eliminated in consolidation.
|
|
(b)
|
Foreign Currency Translation
|
The financial statements for operations outside the United States are maintained in their local currencies. All assets and liabilities of our foreign subsidiaries are translated to United States dollars at period-end exchange rates, while revenue and expense accounts are translated at the average exchange rates during the period transactions occurred. Translation adjustments arising from the use of differing exchange rates are included in accumulated other comprehensive income (loss) in shareholders’ equity. Gains and losses on foreign currency transactions are included in other income (expense).
|
|
(c)
|
Cash and Cash Equivalents
|
We consider all highly liquid investments purchased with an original maturity of three months or less to be cash equivalents. Cash equivalents consist of short-term investments which are readily convertible to cash.
|
|
(d)
|
Trade Accounts Receivable
|
Credit is granted to customers in the normal course of business. Receivables are recorded at original carrying value, which approximates fair value, less reserves for estimated uncollectible amounts and sales returns. We evaluate our estimates and assumptions on an ongoing basis using historical experience and other factors that management believes to be reasonable under the circumstances, including the current economic environment. When facts and circumstances dictate, we may need to adjust our estimates and assumptions.
Inventories are stated at the lower of cost or market. Cost is determined by the first-in, first-out (FIFO) method, and market represents the lower of replacement cost or estimated net realizable value. We record an estimate for excess and obsolete inventory which is based on historical usage and sales history.
|
|
(f)
|
Property, Plant and Equipment
|
Property, plant and equipment are carried at cost. Depreciation and amortization are typically computed using the straight-line method. When assets are retired or otherwise disposed of, the cost and related accumulated depreciation are removed from the accounts, and any resulting gain or loss is recognized in income for the period. The cost of maintenance and repairs is charged to income as incurred and significant renewals and betterments are capitalized. The present value of capital lease obligations are classified as long-term debt and the related assets are included in property, plant and equipment. Amortization of equipment under capital leases is included in depreciation expense.
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
|
|
(g)
|
Goodwill and Other Intangible Assets
|
As of December 31, 2016 and 2015, we have recorded approximately $7.2 million and $7.4 million of goodwill, respectively. We test goodwill at least annually for impairment. We completed our annual impairment test of goodwill and concluded that no impairment existed as of December 31, 2016 and 2015.
Intangible assets consist of developed technology, customer relationships, patents, trademarks and other intangibles. Developed technology, patents, trademarks and other intangibles are carried at cost less accumulated amortization. Costs incurred in connection with applications for new patents are deferred until a final determination, with respect to the application, is made by appropriate regulatory agencies. Costs of patents abandoned are charged to income in the period of abandonment. Developed technologies are amortized over 10 years or less. Patent costs, trademarks and trade names are amortized over the lesser of 17 years or their estimated useful lives using the straight-line method. Other intangibles are amortized over 3 to 5 years.
|
|
(h)
|
Software Development Costs
|
We capitalize certain software development costs related to software that is essential to the hardware within certain instruments we sell. Capitalized software development costs consist primarily of purchased materials and services. Software development costs are expensed as incurred until technological feasibility has been established, at which time future costs incurred are capitalized until the product is available for general release to the public. Based on our product development process, technological feasibility is generally established once product and detailed program designs have been completed, uncertainties related to high-risk development issues have been resolved through coding and testing, and we have established that the necessary skills, hardware, and software technology are available for production of the product. Once a software product is available for general release to the public, capitalized development costs associated with that product will begin to be amortized to cost of revenue over the product’s estimated economic life, using the greater of straight-line or a method that results in cost recognition in future periods that is consistent with the anticipated timing of product revenue recognition.
Our capitalized software development costs are included in intangible assets on the consolidated balance sheets and are subject to an ongoing assessment of recoverability, which is impacted by estimates and assumptions of future revenues and expenses for these software products, as well as other factors such as changes in product technologies. Any portion of unamortized capitalized software development costs that are determined to be in excess of net realizable value will be expensed in the period such a determination is made. As of December 31, 2016 and 2015 approximately $1.1 million of software development costs are being amortized over 7 to 10 years. Amortization expense was approximately $108,000, $108,000 and $46,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
The Company capitalizes direct costs of materials and services used in the development and purchase of internal-use software. Amounts capitalized are amortized on a straight-line basis over a period of five years and are reported as a component of property, plant and equipment on the consolidated balance sheets. Depreciation expense was approximately $398,000, $221,000 and $213,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
|
|
(i)
|
Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed of
|
We review our long-lived assets and certain identifiable intangibles for impairment annually or whenever events or changes in circumstances indicate that the carrying amount of an asset may not be recoverable. Recoverability of assets to be held and used is measured by a comparison of the carrying amount of an asset to future undiscounted net cash flows expected to be generated by the asset group. If such assets are considered to be impaired, the impairment to be recognized is measured by the amount by which the carrying amount of the assets exceeds the fair value of the assets. Fair value is determined through various valuation techniques including, but not limited to, discounted cash flow models, quoted market values and third-party independent appraisals. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.
During 2014 we identified an impairment indicator related to our investment in affiliated company, Luxcel Biosciences Limited (Luxcel) and concluded that the carrying value of Luxcel exceeded its fair value. The impairment was determined to be other-than-temporary. As a result, an impairment of $3.2 million, or 100 percent of the carrying value, was recognized within operating expenses of the consolidated statements of income in 2014. The investment in Luxcel has been reported in our unallocated-corporate reporting segment. Likewise, the impairment loss is allocated therein as well.
We have a liability recorded for estimated warranty claims at the time of sale. The amount of the liability is based on the trend in the historical ratio of claims to sales, the historical length of time between the sale and resulting claim, new product introductions and other factors. In the event we determine that its current or future product repair and replacement costs exceed our estimates, an adjustment to these reserves would be charged to earnings in the period such determination is made.
The preparation of the consolidated financial statements, in accordance with generally accepted principles in the United States of America, requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Significant items subject to such estimates and assumptions include the useful lives of property, valuation of plant and equipment, valuation of investment in affiliated company, goodwill and intangible assets, inventory reserves, allowance for doubtful accounts, uncertain tax positions and warranty reserves. Actual results could differ from those estimates
.
Deferred tax assets and liabilities are recognized for the estimated future tax consequences attributable to differences between the financial statement carrying amounts of existing assets and liabilities and their respective tax bases. Deferred tax assets and liabilities are measured using enacted tax rates in effect for the year in which those temporary differences are expected to be recovered or settled. The effect on deferred tax assets and liabilities of a change in tax rates is recognized in income in the period that includes the enactment date. A valuation allowance is provided to offset deferred tax assets if, based on the available evidence, it is more likely than not that some or all of the deferred tax asset will not be realized.
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
In the ordinary course of business there is inherent uncertainty in quantifying our income tax positions. We assess our income tax positions and record tax benefits for all years subject to examination based upon management’s evaluation of the facts, circumstances, and information available at the reporting dates. For those tax positions where it is more likely than not that a tax benefit will be sustained, we have recorded the largest amount of tax benefit with a greater than 50 percent likelihood of being realized upon ultimate settlement with a taxing authority that has full knowledge of all relevant information. For those income tax positions where it is not more likely than not that a tax benefit will be sustained, no tax benefit has been recognized in the financial statements. Potential accrued interest and penalties related to unrecognized tax benefits are recognized as a component of income tax expense.
|
|
(m)
|
Fair Value of Financial Instruments
|
Our financial instruments are recorded in the consolidated balance sheets. The carrying amount for cash and cash equivalents, accounts receivable, line of credit, accounts payable and accrued liabilities approximates fair value due to the immediate or short-term maturity of these financial instruments.
There are three levels within the fair value hierarchy that may be used to measure fair value:
Level 1: Values based on unadjusted quoted prices in active markets that are accessible at the measurement date for identical assets or liabilities.
Level 2: Values based on quoted prices for similar instruments in active markets, quoted prices for identical or similar instruments in markets that are not active, or model-based valuation techniques for which all significant assumptions are observable in the market.
Level 3: Values generated from model-based techniques that use significant assumptions not observable in the market. These unobservable assumptions reflect the Company’s own estimates of assumptions that market participants would use in pricing the asset or liability. Valuation techniques include use of option pricing models, discounted cash flow models and similar techniques.
We recognize revenue when it is realized or realizable and earned. We consider revenue realized or realizable when persuasive evidence of an arrangement exists, the product has been shipped or the services have been provided to the customer, title and risk of loss of products has passed to the customer, the sales price is fixed or determinable, and collectability is reasonably assured. The revenue recognition policy does not differ among the various product lines, the marketing venues, or various geographic destinations. We do not have distributors who stock our equipment. We do not offer rebates, price protection, or other similar incentives, and discounts when offered are recorded as a reduction in revenue.
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Revenue for service arrangements such as maintenance, repair, and technical support are recognized either as the service is provided or ratably over the defined contractual period for service maintenance as noted in the paragraph below. Revenue for preventive maintenance agreements is recognized on a per visit basis and extended warranties on a straight-line basis over the life of the contracts. Unearned revenue related to these contracts is recorded in current liabilities in the consolidated balance sheets.
We periodically have shipments of products to customers in which revenue is recognized under the accounting guidance related to multiple element arrangements. We allocate the overall arrangement fee to each element (both delivered and undelivered items) based on their relative selling price, as demonstrated by vendor – specific evidence (VSOE) or third –party evidence (TPE). Where VSOE or TPE is not available, revenue is allocated using an estimated selling price.
Shipping and handling fees billed to customers are reported within revenue in the consolidated statements of income, and the related costs are included in cost of revenue in the consolidated statements of income.
Revenue is recorded net of taxes collected from customers that are remitted to governmental authorities with the collected taxes recorded as current liabilities in the consolidated balance sheets.
We incur advertising costs associated with trade shows, print advertising and brochures. Such costs are charged to expense as incurred. Advertising expense was approximately $501,000, $646,000 and $845,000 for the years ended December 31, 2016, 2015 and 2014, respectively.
|
|
(p)
|
Research and Development Costs
|
Research and development costs associated with new products or enhancements are charged to expenses from operations as incurred.
|
|
(q)
|
Net Income Per Common Share
|
Basic net income per common share is computed by dividing net income by the weighted average of common shares outstanding during the year. Diluted net income per share is computed by dividing net income by the weighted average of common and potential dilutive common shares outstanding during the year.
|
|
(r)
|
Share-Based Compensation
|
The Company recognizes share-based compensation expense for its related compensation programs, which include stock incentive plans and the Employee Stock Purchase Plan (ESPP).
Share-based compensation expense is calculated and recognized primarily on a straight-line basis over the vesting periods of the related share-based reward. We generally provide for the vesting of stock options in equal annual installments over a four-year period commencing on the one-year anniversary of the date of grant, or on one installment commencing on the one-year anniversary.
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
The fair value of each option grant is estimated on the date of grant using the Black-Scholes option-pricing model (Black-Scholes). We use historical data to estimate the expected price volatility, expected option life and expected forfeiture rate. We base our estimate of expected volatility for awards granted in 2016, 2015 and 2014 on daily historical trading data of our common stock for a period equivalent to the expected term of the award. The risk-free interest rate is based on the U.S. Treasury yield curve in effect at the time of grant for the estimated life of the option. We estimated the expected term consistent with historical exercise and cancellation activity of our previous share-based grants with a seven-year contractual term. Forfeitures were based on historical experience. The dividend yield is calculated based upon the dividend payments made during the prior four quarters as a percent of the average share price for that period. See Note 10 for additional information on share-based compensation.
(
2
)
Sale of Business
On January 14, 2016, we entered into an Asset Purchase Agreement, as amended on May 18, 2016 (the “Agreement”) with Volatile Analysis Corporation (“VAC”) pursuant to which we agreed to sell to VAC the assets exclusively used in our business of providing equipment and analytical chemistry services and related formulation, product development, and consulting services, primarily focused on identification of odors and aromas. This business was included in our Permeation segment and conducted from our Round Rock, Texas facility. The purchase and sale of the assets was finalized and closed on May 18, 2016. During the year we received proceeds of $701,000 resulting in a realized gain of $553,000, which is included in other income (expense), net on the Consolidated Statement of Income. The remaining $599,000 owed by VAC in accordance with the Agreement will be recognized on the cost recovery method upon receipt. This business does not qualify for discontinued operations or available for sale treatment since it does not represent a strategic shift that had or will have a major effect on our operations and financial results.
(
3
)
Inventories
The major components of inventories at December 31, 2016 and 2015 were as follows (expressed in thousands):
|
|
|
2016
|
|
|
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Finished products
|
|
$
|
1,252
|
|
|
$
|
1,366
|
|
|
Work-in-process
|
|
|
1,991
|
|
|
|
2,375
|
|
|
Raw materials
|
|
|
3,485
|
|
|
|
4,049
|
|
|
Total Inventory
|
|
$
|
6,728
|
|
|
$
|
7,790
|
|
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
(
4
) Property, Plant and Equipment
Property, plant and equipment at December 31, 2016 and 2015 consisted of the following (dollar amounts expressed in thousands):
|
|
|
2016
|
|
|
2015
|
|
|
Estimated
useful
lives (years)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Land
|
|
$
|
200
|
|
|
$
|
200
|
|
|
|
—
|
|
|
|
Buildings
|
|
|
786
|
|
|
|
786
|
|
|
|
27
|
|
|
|
Machinery and equipment
|
|
|
4,975
|
|
|
|
5,178
|
|
|
3
|
to
|
10
|
|
|
Office equipment
|
|
|
5,607
|
|
|
|
5,436
|
|
|
2
|
to
|
15
|
|
|
Leasehold improvements
|
|
|
2,121
|
|
|
|
2,125
|
|
|
1
|
to
|
15
|
|
|
Vehicles
|
|
|
305
|
|
|
|
424
|
|
|
3
|
to
|
5
|
|
|
Total property, plant and equipment
|
|
|
13,994
|
|
|
|
14,149
|
|
|
|
|
|
|
|
Less accumulated depreciation
|
|
|
(8,537
|
)
|
|
|
(8,154
|
)
|
|
|
|
|
|
|
Net property, plant and equipment
|
|
$
|
5,457
|
|
|
$
|
5,995
|
|
|
|
|
|
|
Depreciation of property, plant and equipment was approximately $1.5 million, $1.3 million and $1.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.
(
5
) Goodwill and Other Intangible Assets
Goodwill
As of December 31,
2016 and 2015
, goodwill amounted to approximately $7.2 million and $7.4 million, respectively. We test goodwill for impairment annually at the reporting unit level using a fair value approach, in accordance with the provisions of ASC 350,
Goodwill and Other
. We completed our annual impairment tests during the fourth quarter
2016 and 2015
and determined there was no impairment.
The changes in the carrying amount of goodwill for the year ended December 31,
2016
is as follows (expressed in thousands):
|
|
|
Package
Testing
|
|
|
Permeation
|
|
|
Industrial
Analyzers &
Other
|
|
|
Total
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Balance as of December 31, 2014
|
|
$
|
5,508
|
|
|
$
|
2,029
|
|
|
$
|
610
|
|
|
$
|
8,147
|
|
|
Foreign currency translation
|
|
|
(541
|
)
|
|
|
(169
|
)
|
|
|
-
|
|
|
|
(710
|
)
|
|
Balance as of December 31, 2015
|
|
|
4,967
|
|
|
|
1,860
|
|
|
|
610
|
|
|
|
7,437
|
|
|
Sale of business (see Note 2)
|
|
|
-
|
|
|
|
(57
|
)
|
|
|
-
|
|
|
|
(57
|
)
|
|
Foreign currency translation
|
|
|
(148
|
)
|
|
|
(52
|
)
|
|
|
-
|
|
|
|
(200
|
)
|
|
Balance as of December 31, 2016
|
|
$
|
4,819
|
|
|
$
|
1,751
|
|
|
$
|
610
|
|
|
$
|
7,180
|
|
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Other Intangible Assets
Other intangible assets (all of which are being amortized except projects in process) are as follows (expressed in thousands):
|
|
|
As of December 31, 2016
|
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
2,021
|
|
|
$
|
(508
|
)
|
|
$
|
1,513
|
|
|
Trademarks and trade names
|
|
|
3,219
|
|
|
|
(886
|
)
|
|
|
2,333
|
|
|
Developed technology
|
|
|
5,923
|
|
|
|
(3,125
|
)
|
|
|
2,798
|
|
|
Customer relationships
|
|
|
693
|
|
|
|
(366
|
)
|
|
|
327
|
|
|
Internally developed software
|
|
|
1,085
|
|
|
|
(263
|
)
|
|
|
822
|
|
|
Other intangibles
|
|
|
214
|
|
|
|
(176
|
)
|
|
|
38
|
|
|
|
|
$
|
13,155
|
|
|
$
|
(5,324
|
)
|
|
$
|
7,831
|
|
|
|
|
As of December 31, 2015
|
|
|
|
|
Cost
|
|
|
Accumulated
Amortization
|
|
|
Net
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Patents
|
|
$
|
1,844
|
|
|
$
|
(439
|
)
|
|
$
|
1,405
|
|
|
Trademarks and trade names
|
|
|
3,321
|
|
|
|
(751
|
)
|
|
|
2,570
|
|
|
Developed technology
|
|
|
6,121
|
|
|
|
(2,551
|
)
|
|
|
3,570
|
|
|
Customer relationships
|
|
|
716
|
|
|
|
(298
|
)
|
|
|
418
|
|
|
Internally developed software
|
|
|
1,085
|
|
|
|
(154
|
)
|
|
|
931
|
|
|
Other intangibles
|
|
|
214
|
|
|
|
(122
|
)
|
|
|
92
|
|
|
|
|
$
|
13,301
|
|
|
$
|
(4,315
|
)
|
|
$
|
8,986
|
|
Amortization expense was approximately $1.1 million, $1.2 million and $1.3 million for the years ended December 31, 2016, 2015 and 2014, respectively.
Estimated amortization expense for the fiscal years ending December 31, 2017 to 2021, and thereafter is approximately $1.1 million, $1.1 million, $1.1 million, $1.1 million, $0.5 million and $2.3 million, respectively.
(
6
) Warrant
ies
We provide warranties for most of our products. Warranties are for periods ranging from ninety days to one year, and cover parts and labor for non-maintenance repairs, at our location. Operator abuse, improper use, alteration, damage resulting from accident, or failure to follow manufacturer’s directions are excluded from warranty coverage.
Warranty expense is accrued at the time of sale based on historical claims experience. Warranty reserves are also accrued for special rework campaigns for known major product modifications. We also offer extended warranty service contracts for select products when the factory warranty period expires.
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Warranty provisions and claims for the years ended December 31, 2016, 2015 and 2014 were as follows (expressed in thousands):
|
Description
|
|
Balance at
Beginning
of Year
|
|
|
Warranty
Provisions
|
|
|
Warranty
Claims
|
|
|
Balance at
End of
Year
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for product warranties
|
|
$
|
223
|
|
|
|
331
|
|
|
|
345
|
|
|
$
|
209
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for product warranties
|
|
$
|
285
|
|
|
|
288
|
|
|
|
350
|
|
|
$
|
223
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Year ended December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Allowance for product warranties
|
|
$
|
336
|
|
|
|
297
|
|
|
|
348
|
|
|
$
|
285
|
|
(
7
) Commitments and Contingencies
We lease our facilities and certain equipment pursuant to operating and capital leases. The facility leases expire at various times through June 2028 and require us to pay operating costs, including real estate taxes. Equipment under capital lease consists of service vehicles, a phone system, and servers net of accumulated depreciation totaling approximately $211,000 and $195,000 for the years ended December 31, 2016 and 2015, respectively.
Rental expense for operating leases, including charges for operating costs, were approximately $1.1 million, $1.1 million and $1.2 million for years ended December 31, 2016, 2015 and 2014, respectively.
The following is a schedule of future minimum lease payments, excluding charges for operating costs, as of December 31, 2016 (expressed in thousands):
|
Year Ending December 31:
|
|
|
|
|
|
|
|
|
|
|
|
Operating Leases
|
|
|
Capital Leases
|
|
|
2017
|
|
$
|
1,058
|
|
|
$
|
85
|
|
|
2018
|
|
|
900
|
|
|
|
60
|
|
|
2019
|
|
|
807
|
|
|
|
21
|
|
|
2020
|
|
|
741
|
|
|
|
-
|
|
|
2021
|
|
|
1,947
|
|
|
|
-
|
|
|
Thereafter
|
|
|
1,922
|
|
|
|
-
|
|
|
|
|
$
|
7,375
|
|
|
|
166
|
|
|
|
|
|
|
|
|
|
|
|
|
Less amounts representing interest
|
|
|
|
|
|
|
3
|
|
|
Present value of minimum lease commitments
|
|
|
|
|
|
$
|
163
|
|
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
We have severance agreements with our four executive officers and two vice presidents which provides for the payment to the officer of a lump sum amount upon the occurrence of certain termination events.
On September 9, 2014, we entered into a Confidential Separation and Release Agreement (“Separation Agreement”) with former Chief Financial Officer at that time. In connection with the Separation Agreement, we recognized approximately $107,000 in expense during the year ended December 31, 2014 related to severance costs. As of December 31, 2014, approximately $72,000 was included in accrued compensation and related expenses on the consolidated balance sheets. This balance was paid in full in 2015.
On August 5, 2016, MOCON entered into a Separation Agreement and General Release “(the “Separation Agreement”) with former Chief Operating Officer at that time. In connection with the Separation Agreement, we recognized approximately $305,000 in expense during the year ended December 31, 2016 related to severance costs, which is included in realignment expense on the Consolidated Statement of Income. As of December 31, 2016, $191,000 is included in accrued compensation .
|
|
(c)
|
Inventory Purchase Obligations
|
At December 31, 2016, we had approximately $5.6 million of purchase order commitments to our suppliers for delivery of inventory primarily during 2017.
(
8
) Realignment Expenses
During 2016, management concluded to eliminate the chief operating officer position and a divisional executive position in addition to other personnel changes. As a result, $903,000 of realignment expense was recognized during 2016.
During 2015, we implemented a Realignment Plan in order to simplify our business structure by reducing the number of legal entities and by combining the sales and marketing teams of our Package Testing and Permeation segments under common leadership. The realignment expenses incurred in 2015 were $1.0 million. Realignment Plan activities completed during 2015 included:
|
|
●
|
The elimination of approximately 10 positions across all areas
|
|
|
●
|
Costs associated with legal and professional fees of $414,000
|
|
|
●
|
Separation costs of $635,000
|
These expenses were recognized in the Consolidated Statement of Incomes as Realignment expenses during the year ended December 31, 2015. These expenses were paid in full during 2016.
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Amounts accrued, realignment expenses and cash payments for the year ended December 31, 2016 and 2015 were as follows (expressed in thousands):
|
|
|
Year ending December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
Beginning Balance
|
|
$
|
620
|
|
|
$
|
-
|
|
|
Realignment Expense
|
|
|
903
|
|
|
|
1,049
|
|
|
Cash Payments
|
|
|
(976
|
)
|
|
|
(429
|
)
|
|
Ending Balance
|
|
$
|
547
|
|
|
$
|
620
|
|
(
9
) Income Taxes
Income before income taxes was as follows (expressed in thousands):
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Income before income taxes:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic
|
|
$
|
1,635
|
|
|
$
|
2,314
|
|
|
$
|
968
|
|
|
Foreign
|
|
|
5,031
|
|
|
|
2,145
|
|
|
|
2,490
|
|
|
Total
|
|
$
|
6,666
|
|
|
$
|
4,459
|
|
|
$
|
3,458
|
|
The provision (benefit) for income taxes consists of the following (expressed in thousands):
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Current tax expense:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
$
|
787
|
|
|
$
|
1,208
|
|
|
$
|
1,076
|
|
|
State
|
|
|
71
|
|
|
|
48
|
|
|
|
95
|
|
|
Foreign
|
|
|
1,456
|
|
|
|
1,009
|
|
|
|
893
|
|
|
Total current expense
|
|
|
2,314
|
|
|
|
2,265
|
|
|
|
2,064
|
|
|
Deferred tax expense (benefit):
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Federal
|
|
|
(539
|
)
|
|
|
(508
|
)
|
|
|
171
|
|
|
State
|
|
|
(10
|
)
|
|
|
(15
|
)
|
|
|
(27
|
)
|
|
Foreign
|
|
|
(99
|
)
|
|
|
(255
|
)
|
|
|
(286
|
)
|
|
Total deferred expense (benefit)
|
|
|
(648
|
)
|
|
|
(778
|
)
|
|
|
(142
|
)
|
|
Provision for income taxes
|
|
$
|
1,666
|
|
|
$
|
1,487
|
|
|
$
|
1,922
|
|
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
The effective income tax rate varies from the federal statutory tax rate for the following reasons:
|
|
|
Percentage of pretax income
|
|
|
|
|
for years ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Tax at statutory federal income tax rate
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
|
34.0
|
%
|
|
Increases (reductions) in taxes resulting from:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
State income taxes, net of federal benefit
|
|
|
0.6
|
|
|
|
0.8
|
|
|
|
0.4
|
|
|
Change in valuation allowance
|
|
|
1.0
|
|
|
|
0.9
|
|
|
|
32.8
|
|
|
Domestic manufacturing deduction
|
|
|
(1.5
|
)
|
|
|
(1.8
|
)
|
|
|
(3.5
|
)
|
|
Effect of foreign operations
|
|
|
(5.3
|
)
|
|
|
(2.3
|
)
|
|
|
(7.0
|
)
|
|
Foreign dividend income
|
|
|
27.5
|
|
|
|
-
|
|
|
|
-
|
|
|
Unremitted earnings
|
|
|
(10.0
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Foreign tax credit
|
|
|
(18.5
|
)
|
|
|
-
|
|
|
|
-
|
|
|
Changes in unrecognized tax benefits
|
|
|
(0.8
|
)
|
|
|
(2.6
|
)
|
|
|
0.0
|
|
|
Stock option compensation
|
|
|
1.1
|
|
|
|
2.9
|
|
|
|
3.0
|
|
|
Research credit
|
|
|
(3.4
|
)
|
|
|
(4.7
|
)
|
|
|
(4.3
|
)
|
|
Other, including provision to return adjustments
|
|
|
0.3
|
|
|
|
6.3
|
|
|
|
0.2
|
|
|
Effective income tax rate
|
|
|
25.0
|
%
|
|
|
33.5
|
%
|
|
|
55.6
|
%
|
The tax effect of significant temporary differences representing deferred tax assets and liabilities at December 31, 2016 and 2015 were as follows (expressed in thousands):
|
|
|
2016
|
|
|
2015
|
|
|
Deferred tax assets:
|
|
|
|
|
|
|
|
|
|
Allowance for doubtful accounts
|
|
$
|
18
|
|
|
$
|
3
|
|
|
Inventory items
|
|
|
530
|
|
|
|
576
|
|
|
Reserves and accruals
|
|
|
226
|
|
|
|
413
|
|
|
Compensation expense - stock options
|
|
|
348
|
|
|
|
274
|
|
|
Foreign tax credit carryover
|
|
|
-
|
|
|
|
170
|
|
|
Unremitted Earnings
|
|
|
665
|
|
|
|
-
|
|
|
R&D credit carryover
|
|
|
237
|
|
|
|
171
|
|
|
Impairment
|
|
|
1,127
|
|
|
|
1,123
|
|
|
Other
|
|
|
209
|
|
|
|
220
|
|
|
Subtotal
|
|
|
3,360
|
|
|
|
2,950
|
|
|
Less: Valuation allowance
|
|
|
(1,363
|
)
|
|
|
(1,294
|
)
|
|
Total deferred tax assets
|
|
|
1,997
|
|
|
|
1,656
|
|
|
|
|
|
|
|
|
|
|
|
|
Deferred tax liabilities:
|
|
|
|
|
|
|
|
|
|
Fixed assets
|
|
|
(979
|
)
|
|
|
(1,071
|
)
|
|
Intangibles
|
|
|
(1,386
|
)
|
|
|
(1,601
|
)
|
|
Total deferred tax liabilities
|
|
|
(2,365
|
)
|
|
|
(2,672
|
)
|
|
|
|
|
|
|
|
|
|
|
|
Net deferred tax liability
|
|
$
|
(368
|
)
|
|
$
|
(1,016
|
)
|
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
As of December 31, 2016, we have established a valuation allowance of $1.4 million against the deferred tax assets associated with the capital loss related to the impairment of investment in an affiliated company and from the carry-forward of state R&D tax credits, as these will not be realized through generating future income of appropriate character. However, we believe it is more likely than not that the remainder of our deferred tax assets at December 31, 2016 will be realized primarily through carryback potential, reversing taxable temporary differences, and generating future income.
As of December 31, 2016, there was approximately $3.4 million of accumulated undistributed earnings remaining at our foreign subsidiaries. During the fourth quarter of 2016, we changed our assertion related to unremitted earnings of foreign subsidiaries and are no longer asserting permanent reinvestment of unremitted earnings. The remittance of these earnings is expected in the foreseeable future, defined within one year, and will result in a benefit from excess foreign tax credits. We have a repatriation plan to remit earnings and associated tax pools during 2017. As such, the Company has recorded the related deferred tax asset related to repatriation. The Company expects to realize the benefit of excess foreign tax credits through carryback potential and generating future foreign source income. As a result of the change in assertion, we will accrue applicable deferred tax for these unremitted earnings going forward.
A reconciliation of the beginning and ending amount of gross unrecognized tax benefits is as follows (expressed in thousands):
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
Balance at January 1
|
|
$
|
187
|
|
|
$
|
302
|
|
|
$
|
264
|
|
|
Additions based on tax positions related to the current year
|
|
|
-
|
|
|
|
-
|
|
|
|
61
|
|
|
Additions based on tax positions related to the prior year
|
|
|
-
|
|
|
|
-
|
|
|
|
-
|
|
|
Reductions due to closing of statute of limitations
|
|
|
(62
|
)
|
|
|
(25
|
)
|
|
|
(23
|
)
|
|
Reductions based on tax positions related to the prior year
|
|
|
-
|
|
|
|
(90
|
)
|
|
|
-
|
|
|
Balance at December 31
|
|
$
|
125
|
|
|
$
|
187
|
|
|
$
|
302
|
|
Included in the balance of total unrecognized tax benefits at December 31, 2016 are potential benefits of approximately $99,000 that if recognized would affect the effective tax rate on income before income taxes. The difference between this amount and the corresponding amount of gross unrecognized tax benefits related primarily to the deferred federal benefit for state income tax related amounts.
The gross unrecognized tax benefit is expected to decrease due to statute closures in the next twelve months. Absent the decrease of the unrecognized tax benefit as a result of statute close we do not anticipate that the total amount of unrecognized tax benefits will change significantly in the next twelve months.
We recognize accrued interest and penalties related to unrecognized tax benefits as a component of income tax expense. Total accrued interest and penalties amounted to approximately $8,000 and $13,000 on a gross basis at December 31, 2016 and 2015, respectively, and are excluded from the reconciliation of unrecognized tax benefits presented above.
We file income tax returns in the U.S. federal jurisdiction, several state jurisdictions, China, France, Germany, Denmark, Italy, Luxembourg, Spain and the Netherlands. With limited exceptions, we are no longer subject to income tax examinations by taxing authorities for taxable years before 2012.
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
(
10
) Share-Based Compensation
Employee Stock Purchase Plan
The Company’s Employee Stock Purchase Plan (“ESPP”) allows eligible employees to purchase newly issued shares of the Company’s common stock at a discount through payroll deductions. The Purchase Plan consists of a 6-month offering period whereby employees can purchase shares at a price equal to 85 percent of the market value at either the beginning of the offering period or the end of the offering period, whichever price is lower. The 15 percent discount is expensed over the offering period as share-based compensation expense. A maximum of 50,000 common shares can be purchased through the ESPP. During the year ended December 31, 2016, 3,585 shares were purchased under the ESPP. As of the year ended December 31, 2016, the Company had 46,415 shares of common stock available for future purchases under the ESPP. The weighted average grant date fair value of the Company’s ESPP purchase right was $2.35.
Stock Incentive
Plan
s
As of December 31, 2016, we have reserved 180,500 shares of common stock for options and other share-based incentive awards that are still available for grant under our 2015 stock incentive plan, and 814,544 shares for options that have been granted under either our 2006 or 2015 stock incentive plans but have not yet been exercised. We issue new shares of common stock upon exercise of stock options.
Under our share-based incentive plans, option exercise prices are 100 percent of the market value of the common stock at the date of grant, except if incentive options granted under the 2006 and 2015 plans were granted to persons owning more than 10 percent of our stock, in which case the option price would be 110 percent of the market value. Exercise periods are generally for seven years. The plans allow for the granting of nonqualified stock options. Upon the exercise of these nonqualified options, we may realize a compensation deduction allowable for income tax purposes. The after-tax effect of these tax deductions is included in the accompanying consolidated financial statements as an addition to additional paid-in capital.
Share-based compensation expense recognized in the consolidated financial statements for 2016, 2015 and 2014 was as shown below (expressed in thousands):
|
|
|
Years Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Cost of share-based compensation - stock incentive plans
|
|
$
|
733
|
|
|
$
|
668
|
|
|
$
|
591
|
|
|
Cost of share-based compensation - ESPP
|
|
|
17
|
|
|
|
-
|
|
|
|
-
|
|
|
Amount of income tax benefit recognized in earnings
|
|
|
11
|
|
|
|
(39
|
)
|
|
|
(104
|
)
|
|
Amount charged against net income
|
|
$
|
761
|
|
|
$
|
629
|
|
|
$
|
487
|
|
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
The following assumptions were used to estimate the fair value of options granted during 2016, 2015 and 2014 using the Black-Scholes model:
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Dividend yield
|
|
|
2.7
|
%
|
|
|
2.8
|
%
|
|
|
3.4
|
%
|
|
Expected volatility
|
|
|
25
|
%
|
|
|
32
|
%
|
|
|
37
|
%
|
|
Risk-free interest rate
|
|
|
1.6
|
%
|
|
|
1.6
|
%
|
|
|
1.7
|
%
|
|
Expected lives (in years)
|
|
|
5.9
|
|
|
|
6.8
|
|
|
|
6.4
|
|
Information regarding our stock option plans for 2014, 2015 and 2016 is as follows:
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted
|
|
|
Average
|
|
|
Aggregate
|
|
|
|
|
|
|
|
|
Average
|
|
|
Remaining
|
|
|
Intrinsic
|
|
|
|
|
|
|
|
|
Exercise
|
|
|
Contractual
|
|
|
Value
|
|
|
|
|
Shares
|
|
|
Price
|
|
|
Term
|
|
|
(in thousands)
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2013
|
|
|
622,300
|
|
|
$
|
12.34
|
|
|
|
3.7
|
|
|
$
|
2,175
|
|
|
Granted
|
|
|
298,500
|
|
|
|
16.60
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(175,800
|
)
|
|
|
10.97
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
(22,325
|
)
|
|
|
15.04
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2014
|
|
|
722,675
|
|
|
|
14.35
|
|
|
|
4.6
|
|
|
|
2,555
|
|
|
Granted
|
|
|
206,300
|
|
|
|
14.30
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(115,922
|
)
|
|
|
10.24
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
(15,675
|
)
|
|
|
15.51
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2015
|
|
|
797,378
|
|
|
|
14.91
|
|
|
|
4.7
|
|
|
$
|
453
|
|
|
Granted
|
|
|
187,200
|
|
|
|
18.51
|
|
|
|
|
|
|
|
|
|
|
Exercised
|
|
|
(124,291
|
)
|
|
|
12.89
|
|
|
|
|
|
|
|
|
|
|
Cancelled or expired
|
|
|
(45,743
|
)
|
|
|
15.27
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Options outstanding, December 31, 2016
|
|
|
814,544
|
|
|
$
|
16.04
|
|
|
|
4.6
|
|
|
$
|
2,820
|
|
|
Options exercisable, December 31, 2016
|
|
|
575,469
|
|
|
$
|
15.20
|
|
|
|
3.8
|
|
|
$
|
2,472
|
|
The weighted average grant date fair value based on the Black-Scholes model for options granted in 2016, 2015 and 2014 was $4.11, $3.40 and $4.28, respectively. The total intrinsic value of options exercised was $550,000, $585,000 and $979,000 during the years ended December 31, 2016, 2015 and 2014, respectively. The aggregate intrinsic values are based upon the closing price of our common stock on the last day of the respective fiscal year.
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
A summary of the status of our unvested option shares as of December 31, 2016 is as follows:
|
|
|
|
|
|
|
Weighted
|
|
|
|
|
|
|
|
|
Average
|
|
|
|
|
Number of
|
|
|
Grant Date
|
|
|
|
|
Shares
|
|
|
Fair Value
|
|
|
|
|
|
|
|
|
|
|
|
|
Unvested at December 31, 2015
|
|
|
289,400
|
|
|
$
|
3.43
|
|
|
Options granted
|
|
|
187,200
|
|
|
|
4.11
|
|
|
Options cancelled
|
|
|
(31,925
|
)
|
|
|
3.22
|
|
|
Options vested
|
|
|
(205,600
|
)
|
|
|
3.37
|
|
|
Unvested at December 31, 2016
|
|
|
239,075
|
|
|
$
|
4.05
|
|
As of December 31, 2016, there was $938,000 of total unrecognized compensation cost related to unvested share-based compensation granted under our plans. That cost is expected to be recognized over a weighted-average period of 1.6 years. The total fair value of option shares vested during the years 2016, 2015 and 2014 was $692,000, $630,000 and $550,000, respectively.
|
(
11
)
|
Other Income
(Expense), net
|
Other income (expense), net for 2016, 2015 and 2014 was as follows (expressed in thousands):
|
|
|
Years Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Interest income
|
|
$
|
-
|
|
|
$
|
2
|
|
|
$
|
3
|
|
|
Interest expense
|
|
|
(56
|
)
|
|
|
(119
|
)
|
|
|
(186
|
)
|
|
Foreign currency exchange gain (loss)
|
|
|
(116
|
)
|
|
|
209
|
|
|
|
(136
|
)
|
|
Other
|
|
|
(10
|
)
|
|
|
1
|
|
|
|
13
|
|
|
Gain on sale of business
|
|
|
553
|
|
|
|
-
|
|
|
|
-
|
|
|
Total other income (expense), net
|
|
$
|
371
|
|
|
$
|
93
|
|
|
$
|
(306
|
)
|
(1
2
)
Net Income per Common Share
The following table presents a reconciliation of the denominators used in the computation of net income per common share – basic and net income per common share – diluted for the years ended December 31, 2016, 2015 and 2014 (expressed in thousands):
|
|
|
Years Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Weighted shares of common stock outstanding - basic
|
|
|
5,802
|
|
|
|
5,753
|
|
|
|
5,665
|
|
|
Dilutive impact of share-based awards
|
|
|
33
|
|
|
|
65
|
|
|
|
89
|
|
|
Weighted shares of common stock outstanding - diluted
|
|
|
5,835
|
|
|
|
5,818
|
|
|
|
5,754
|
|
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Outstanding stock options totaling 662,700, 610,153 and 147,100 options for years ended December 31, 2016, 2015 and 2014, respectively, were excluded from the net income per common share – diluted calculation because the shares would be anti-dilutive.
(1
3
)
Savings and Retirement Plan
We have a 401(k) Savings and Retirement Plan covering our U.S. employees and several defined contribution pension plans covering certain employees outside of the U.S. We provide matching contributions in accordance with the plans. Our contributions to these plans in 2016, 2015 and 2014 were approximately $964,000, $925,000 and $882,000, respectively.
(14
)
Debt
Long-term notes payable consists of the following (expressed in thousands):
|
|
|
December 31,
2016
|
|
|
December 31,
2015
|
|
|
|
|
|
|
|
|
|
|
|
|
Capital leases (Note 7)
|
|
$
|
163
|
|
|
$
|
158
|
|
|
Total long-term notes payable
|
|
|
163
|
|
|
|
158
|
|
|
Less current portion of long-term notes payable
|
|
|
83
|
|
|
|
65
|
|
|
Total long-term notes payable
|
|
$
|
80
|
|
|
$
|
93
|
|
In the U.S., we have a $10.0 million secured line of credit which was amended on August 28, 2015 with a maturity date of August 26, 2018. As of December 31, 2016 the outstanding balance is zero. The amendment increased the principal amount from $6.0 million to $10.0 million, modified the maturity date, decreased the interest rate from 1.75 basis plus one-month LIBOR to 1.50 basis plus one-month LIBOR and revised certain debt covenants. Interest is charged monthly at one-month LIBOR (0.62 percent) plus 1.50 basis points which totaled 2.12 percent and 1.74 percent at December 31, 2016 and 2015, respectively. The line of credit is secured by our assets with the exception of the number of Dansensor shares of outstanding stock that exceeds 65 percent of the total shares outstanding. We had $0 and $2.8 million outstanding on the line of credit at December 31, 2016 and December 31, 2015, respectively. Additionally, Dansensor has a DKK 5 million (approximately $0.7 million) available line of credit of which no amount was outstanding as of December 31, 2016 and 2015. Outstanding borrowings are charged interest at a fixed rate of 4.35 percent per year.
We are subject to various financial and restrictive covenants in the bank Credit Agreement, including maintaining certain financial ratios and limits on incurring additional indebtedness, acquisitions, making capital and lease expenditures and making share repurchases.
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
As of December 31, 2016, the future minimum principal payments of the long-term notes payable for each fiscal year thereafter is as follows (expressed in thousands):
|
2017
|
|
$
|
83
|
|
|
2018
|
|
|
59
|
|
|
2019
|
|
|
21
|
|
|
|
|
|
|
|
|
Total
|
|
$
|
163
|
|
(15) Business Segments
We have four operating segments, structured by differences in products and services, that are regularly reviewed by our chief operating decision maker to make decisions about allocating resources and assessing segment performance. The segment performance is evaluated at segment operating income which is defined as gross profit less selling, general and administrative expenses and research and development expenses. General corporate expenses, including costs associated with various support functions such as human resources, information technology, finance and accounting, and general and administrative costs, are allocated to the reportable segments primarily on the basis of segment gross margin. Our four operating segments have been aggregated into three reportable segments based on the authoritative guidance. We aggregated our Other Products and Services operating segment into the Industrial Analyzers Products and Services segment based on minimal business activity and materiality.
The Package Testing segment provides customers with the ability to assess package performance, shelf-life, package improvement, cost reduction, sustainability and product safety using Modified Atmosphere Packaging and other technologies. The Permeation segment includes instruments and services that measure the rate at which various gases and vapors permeate through a variety of materials. The Industrial Analyzers and Other segment includes advanced gas analysis and monitoring instrumentation used in applications such as oil and gas exploration, beverage and specialty gas analysis, industrial hygiene and safety, food safety, environmental air monitoring and homeland security.
The accounting policies of the reportable segments are the same as those described in Note 1. There were no significant intersegment revenue for the years ended December 31, 2016, 2015 and 2014.
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
Segment information for the years ended December 31, 2016, 2015 and 2014 are as follows (expressed in thousands):
|
|
|
Package
Testing
|
|
|
Permeation
|
|
|
Industrial Analyzers and Other
|
|
|
Unallocated - Corporate
|
|
|
Consolidated
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
December 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
30,257
|
|
|
|
23,039
|
|
|
|
10,015
|
|
|
$
|
-
|
|
|
$
|
63,311
|
|
|
Gross profit
|
|
|
17,229
|
|
|
|
13,902
|
|
|
|
4,526
|
|
|
|
-
|
|
|
|
35,657
|
|
|
Operating income
|
|
|
4,310
|
|
|
|
4,059
|
|
|
|
(1,171
|
)
|
|
|
(903
|
)
|
|
|
6,295
|
|
|
December 31, 2015:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
26,583
|
|
|
$
|
24,599
|
|
|
$
|
9,572
|
|
|
$
|
-
|
|
|
$
|
60,754
|
|
|
Gross profit
|
|
|
14,445
|
|
|
|
14,415
|
|
|
|
4,364
|
|
|
|
-
|
|
|
|
33,224
|
|
|
Operating income
|
|
|
2,792
|
|
|
|
4,342
|
|
|
|
(1,719
|
)
|
|
|
(1,049
|
)
|
|
|
4,366
|
|
|
December 31, 2014:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Revenue
|
|
$
|
28,071
|
|
|
$
|
23,380
|
|
|
$
|
13,024
|
|
|
$
|
-
|
|
|
$
|
64,475
|
|
|
Gross profit
|
|
|
13,850
|
|
|
|
14,985
|
|
|
|
7,279
|
|
|
|
-
|
|
|
|
36,114
|
|
|
Operating income
|
|
|
1,699
|
|
|
|
4,418
|
|
|
|
818
|
|
|
|
(3,171
|
)
|
|
|
3,764
|
|
Property, Plant and Equipment, net of accumulated depreciation, by geographic location as of December 31, 2016, 2015 and 2014 is as follows (expressed in thousands):
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
United States
|
|
$
|
3,882
|
|
|
$
|
4,232
|
|
|
$
|
4,010
|
|
|
Foreign countries:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Germany
|
|
|
225
|
|
|
|
285
|
|
|
|
336
|
|
|
Denmark
|
|
|
1,123
|
|
|
|
1,353
|
|
|
|
1,020
|
|
|
Other European counties
|
|
|
227
|
|
|
|
125
|
|
|
|
196
|
|
|
Total foreign countries
|
|
|
1,575
|
|
|
|
1,763
|
|
|
|
1,552
|
|
|
Consolidated total
|
|
$
|
5,457
|
|
|
$
|
5,995
|
|
|
$
|
5,562
|
|
MOCON, INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
December 31, 2016, 2015 and 2014
The following table summarizes total revenue, based upon the region to which revenue to external customers were made for fiscal years 2016, 2015 and 2014 (expressed in thousands).
|
|
|
Years Ended December 31,
|
|
|
|
|
2016
|
|
|
2015
|
|
|
2014
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Domestic revenue
|
|
$
|
21,660
|
|
|
$
|
20,872
|
|
|
$
|
19,836
|
|
|
Foreign revenue:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Europe
|
|
|
26,190
|
|
|
|
23,203
|
|
|
|
26,324
|
|
|
Asia
|
|
|
12,790
|
|
|
|
12,762
|
|
|
|
14,166
|
|
|
Other
|
|
|
2,671
|
|
|
|
3,917
|
|
|
|
4,149
|
|
|
Total foreign revenue
|
|
|
41,651
|
|
|
|
39,882
|
|
|
|
44,639
|
|
|
Total revenue
|
|
$
|
63,311
|
|
|
$
|
60,754
|
|
|
$
|
64,475
|
|
Our products are marketed outside of North America through our offices in foreign locations and various independent representatives.
MOCON, INC.