Thanks, Bob. Fourth quarter 2016 end-user net revenues were $9.6 million or 93% of net revenues compared with $10.5 million or 97% of net revenues in the third quarter. OEM net revenues were $692,000 or 7% of net revenues, up from $341,000 or 3% for the third quarter. Net revenues from markets outside of semiconductor test were $4.3 million or 42% of net revenues compared with $2.8 million or 26% of net revenues in the third quarter.
The Company's fourth quarter gross margin was $5.4 million or 53% as compared with $5.6 million or 52% in the third quarter. The improvement in the gross margin was primarily the result of a reduction in our consolidated component material costs, which declined from 33% in the third quarter to 32.1% in the fourth quarter. While there were decreases in component material costs of all three of our product segments, the reduction in consolidated component material costs in the fourth quarter was primarily the result of a reduction in the component material cost of our Mechanical Product segment whose component material costs decreased from 36.4% in the third quarter to 32.7% in the fourth quarter, while our Thermal Products segment saw its component material costs decline from 30.7% to 30.5% sequentially, and our Electrical Product segment experienced a reduction from 36.9% to 36.8%. These improvements were both the result of a more favorable product mix and customer mix in the fourth quarter as compared to the third.
Selling expense is relatively unchanged at $1.4 million for both the fourth and third quarters. A reduction in commission expense was almost fully offset by increases in warranty, advertising and travel. Engineering and product development expense was $782,000 for the fourth quarter compared to $905,000 for the third quarter, a decrease of $123,000 or 14% sequentially. The decrease was related to reductions in vacation accruals, patent legal expense, product development materials and travel.
General and administrative expense was relatively unchanged at $1.6 million for both the fourth and third quarters. Higher levels of officer and employee bonuses as well as increased compliance costs were partially offset by reduced travel expenses.
Other expense was $2,000 in the fourth quarter compared to other income of $17,000 for the third quarter. During the third quarter, interest and other income exceeded our foreign transaction losses. However, our foreign exchange losses increased to $22,000 in the fourth quarter, which exceeded our interest and other income for the period, resulting in net other expense for the quarter.
We accrued an income tax expense of $612,000 in the fourth quarter compared to $631,000 accrued in the third quarter. Our effective tax rate increased to 38% in the fourth quarter from 37% in the third quarter. The increase in our effective tax rate was the result of a higher level of domestic earnings versus foreign earnings during the fourth quarter. In addition, we had higher than expected deemed dividend income, which also drove the higher effective tax rate. At December 31, 2016, our deferred tax assets were $1.1 million and our remaining net loss carry forward was $1.3 million for domestic state, primarily California, and $39,000 for foreign related to our German operation. We expect our tax rate for 2017 to be in the range of 36% to 37%.
Fourth quarter net income was $1 million or $0.10 per diluted share compared with third quarter net income of $1.1 million or $0.11 per diluted share. Diluted average shares outstanding were 10,297,000 at December 31st. During the fourth quarter, we repurchased 32,534 shares at a net cost of $136,000 or $4.15 per share. As of December 31, 2016, we have repurchased a cumulative total of 283,137 shares or approximately 2.5% of our outstanding common stock at a net cost of $1.1 million or $3.97 per share.
Amortization and depreciation expense was $149,000 for the fourth quarter and EBITDA was $1.8 million for the fourth quarter, down slightly from the $1.9 million in EBITDA reported for the third quarter. EBITDA for 2016 was $4.8 million compared to $3.3 million for 2015. Consolidated headcount at the end of December, which includes temporary staff, was 119, an increase of one staff from the level we had at September 30th.
Before I turn to our balance sheet, let me remind you that during 2016, we were in the process of reorganizing our businesses from three product segments -- Thermal, Mechanical and Electrical -- into two product segments, InTEST Thermal Solutions and inTEST EMS, or electromechanical semiconductor products. This reorganization was substantially completed as of December 31, 2016, and effective January 1, 2017, we will report information about our segments based upon two product segments, ITS and EMS, with prior period information reclassified to be comparable to the presentation for 2017.
I will now turn to our balance sheet. Cash and cash equivalents at the end of the fourth quarter were $28.6 million, up $2.3 million from September 30. We currently expect cash and cash equivalents to increase throughout 2017. Accounts receivable decreased $1.3 million sequentially to $5.4 million at December 31. And inventory increased $279,000 to $3.7 million at the end of the quarter. Capital expenditures during the fourth quarter were $57,000, down approximately half from $118,000 in the third quarter. For 2016, capital expenditures were $339,000, down from $599,000 spent in 2015. Bob provided consolidated and segment revenue and booking data earlier. The backlog at the end of December was $7.4 million, up from $6.1 million at the end of September.
In terms of our financial outlook, as noted in our earnings release, we expect that net revenue for the quarter-ended March 31, 2017 will be in the range of $13.5 million to $14.5 million and that our net earnings will range from $0.13 to $0.18 per diluted share. We currently expect that our Q1 2017 product mix will be less favorable as compared with Q4 and that our first quarter gross margin will range from 50% to 52%.
Operator, that concludes our formal remarks. We can now take questions.
