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FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(Mark One)
[X] Annual report pursuant to Section 13 or 15(d) of the Securities Exchange Act
of 1934
For the fiscal year ended September 30, 1999 or
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[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the transition period from _________ to _________
Commission file number 0-6508
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IEC ELECTRONICS CORP.
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Exact name of registrant as specified in its charter
Delaware 13-3458955
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State or other jurisdiction of IRS Employer ID No.
incorporation or organization
105 Norton Street, Newark, New York 14513
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Address of principal executive offices Zip Code
Registrant's telephone number, including area code: 315-331-7742
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Securities registered pursuant to Section 12(b) of the Act:
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None
Securities registered pursuant to Section 12(g) of the Act:
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Common Stock, $.01 par value
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(Title of Class)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports) and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
-- --
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K [ ].
Page 1 of 46
As of January 3, 2000, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $10,205,505.
(Assumes officers, directors, and any stockholder holding 5% of the outstanding
shares are affiliates.)
As of January 3, 2000, there were outstanding 7,587,251 shares of Common
Stock.
Documents incorporated by reference:
Portions of IEC Electronics Corp.'s Proxy Statement for the Annual Meeting
of Stockholders to be held on February 23, 2000 are incorporated into Part
III of this Form 10-K
Page 2 of 46
TABLE OF CONTENTS
PART I
PAGE
Item 1: Business..................................................... 4
Item 2: Properties................................................... 11
Item 3: Legal Proceedings............................................ 11
Item 4: Submission of Matters to a Vote of Security Holders.......... 12
Executive Officers of Registrant............................. 12
PART II
Item 5: Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 13
Item 6: Selected Consolidated Financial Data......................... 14
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 15
Item 8: Financial Statements and Supplementary Data.................. 19
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...................... 19
PART III
Item 10: Directors and Executive Officers of the Registrant......... 20
Item 11: Executive Compensation..................................... 20
Item 12: Security Ownership of Certain Beneficial Owners and
Management................................................ 20
Item 13: Certain Relationships and Related Transactions............. 20
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.............................................. 21
Page 3 of 46
PART I
ITEM 1. BUSINESS
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IEC Electronics Corp. is an independent contract manufacturer of complex
printed circuit board assemblies and electronic products and systems. The
Company believes that it is a significant provider of contract electronics
manufacturing services based upon its state-of-the-art manufacturing facilities,
volume of production and quality of its services. Utilizing computer controlled
manufacturing and test machinery and equipment, the Company provides
manufacturing services employing surface mount technology ("SMT") and
pin-through-hole ("PTH") interconnection technologies. The Company believes
that, based upon its volume of production, it is one of the larger independent
SMT contract manufacturers in the United States. As a full-service contract
manufacturer, the Company offers it customers a wide range of manufacturing and
management services, on either a turnkey or consignment basis, including design,
material procurement and control, manufacturing and test engineering support,
statistical quality assurance, complete resource management and distribution.
The Company's strategy is to cultivate strong manufacturing relationships with
established and emerging original equipment manufacturers ("OEMs").
IEC Electronics Corp., a Delaware corporation, is the successor by merger
in 1990 to IEC Electronics Corp., a New York corporation which was organized in
1966. In June 1992, the Company acquired all of the then outstanding common
stock of Calidad Electronics, Inc. ("Calidad"), located in Edinburg, Texas.
In September 1997, Calidad's name was changed to IEC Electronics-Edinburg,
Texas Inc. In November 1994, the Company acquired all of the then outstanding
common stock of Accutek, Inc. ("Accutek"), located in Arab, Alabama. In October
1997, Accutek's name was changed to IEC Arab, Alabama Inc. In August 1998, the
Company through its newly created Irish subsidiary, IEC Electronics - Ireland
Limited, acquired certain assets of Ohshima Manufacturing Limited located in
Longford, Ireland. As used herein, "Company" or "IEC" includes IEC Electronics
Corp. and its subsidiaries, unless the context otherwise requires.
The Company announced in September 1999 that it would close its Longford,
Ireland facility and record a restructuring charge of approximately $4.0 million
in the fourth quarter of fiscal 1999. A number of the facility's customers have
since been transferred to the Company's other facilities, the majority of
equipment is currently marketed for sale and the Company is trying to sublet the
facility.
In October 1998 the Company closed its Arab, Alabama facility and had
previously recorded a restructuring charge of $4.7 million in the fourth quarter
of fiscal 1998. The majority of the facility's larger customers have since been
transferred to the Company's other facilities, the equipment has been moved to
the Company's other locations, a certain portion of the Alabama real estate
was sold, and the balance of the real estate is currently marketed for sale.
The Company has leased and commenced operations in a newly constructed
50,000 square foot facility in Reynosa, Mexico. This Maquiladora facility is
manufacturing printed circuit board assemblies and wire harnesses.
The facility's shipments began in April 1999.
The Company has achieved world-class ISO 9002 certification and IEC
Electronics is ISO 9001 certified. This certification is an international
quality assurance standard that most OEMs consider crucial in qualifying their
contract manufacturers.
The Company has received approval from the British Approvals Board for
Telecommunication allowing it to provide manufacturing and test services to
manufacturers producing telecommunication equipment destined for shipment to the
European Common Market.
During 1998 the Company opened a state-of-the-art 8,000 square foot
Technology Center at its Newark, New York manufacturing facility uniting the
Prototype Lab, Design Engineering Group and Advanced Materials Technology
Laboratory.
The Company's executive offices are located at 105 Norton Street, Newark,
New York 14513. The telephone number is (315) 331-7742 and its internet address
is www.iec-electronics.com.
Page 4 of 46
Contract Electronics Manufacturing: The Industry
The contract electronics manufacturing industry specializes in providing
the program management, technical and administrative support and manufacturing
expertise required to take a product from the early design and prototype stages
through volume production and distribution. It provides quality product,
delivered on time and at the lowest cost, to the OEM. This full range of
services gives the OEM an opportunity to avoid large capital investments in
plant, equipment and staff and allows the OEM to concentrate instead on the
areas of its greatest strengths innovation, design and marketing. Utilizing
contract electronics manufacturing services such as those provided by IEC gives
the customer an opportunity to improve return on investment with greater
flexibility in responding to market demands and exploiting new market
opportunities.
In recent years, primarily as a response to rapid technological change and
increased competition in the electronics industry, OEMs have recognized that by
utilizing domestic contract manufacturers they can improve their competitive
position, realize an improved return on investment and concentrate on areas of
their greatest expertise such as research, product design and development and
marketing. In addition, contract manufacturing allows OEMs to bring new products
to market rapidly and adjust more quickly to fluctuations in product demand;
avoid additional investment in plant, equipment and personnel; reduce inventory
and other overhead costs; and establish known unit costs over the life of a
contract. Many OEMs now consider contract manufacturers an integral part of
their business and manufacturing strategy. Accordingly, the contract electronics
manufacturing industry has experienced significant growth as OEMs have
established long-term working arrangements with contract manufacturers such as
IEC.
Two important trends have developed in the contract electronics
manufacturing industry. First, OEMs increasingly require contract manufacturers
to provide complete turnkey manufacturing and material handling services, rather
than working on a consignment basis in which the OEM supplies all materials and
the contract manufacturer supplies labor. Turnkey contracts involve design,
manufacturing and engineering support, the procurement of all materials, and
sophisticated in-circuit and functional testing and distribution. The
manufacturing partnership between OEMs and contract manufacturers involves an
increased use of "just-in-time" inventory management techniques which minimize
the OEM's investment in component inventories, personnel and related facilities,
thereby reducing costs.
A second trend in the industry has been the increasing shift from PTH to
SMT interconnection technologies. PTH technology involves the attachment of
electronic components to printed circuit boards with leads or pins which are
inserted into pre-drilled holes in the boards. The pins are then soldered to the
electronic circuits. The drive for increasingly greater functional density has
resulted in the emergence of SMT, which eliminates the need for holes and allows
components to be placed on both sides of a printed circuit, contributing to size
reductions of up to 50%. SMT requires expensive, highly automated assembly
equipment and significantly more expertise than PTH technology. To achieve high
yields, contract manufacturers must have extensive knowledge and experience in
solder paste, solder reflow, thermal management, metal fatigue, adhesives,
solvents, flux chemistry, surface analysis, intermetallic bonding and testing.
The shift to SMT from PTH technology has increased the use of contract
manufacturers by OEMs seeking to avoid the significant capital investment
required for development and maintenance of SMT expertise.
The Company continually evaluates emerging technology and maintains a
technology road map to ensure relevant processes are available to its customers
when commercial and design factors so indicate. The next generation of
interconnection technologies will include chip scale packaging and ball grid
array (BGA) assembly techniques. The Company has placed millions of BGA's since
1994 and this year added chip scale packaging to its repertoire. Future
advances will be directed by the Company's Technology Center which combines
Design Services, Prototype Services with the capabilities of the Advanced
Materials Technology Laboratory.
Page 5 of 46
The Company's Strategy
The Company's strategy is to cultivate strong manufacturing partnerships
with established and emerging OEMs in the electronics industry. These long-term
business partnerships involve the joint development of manufacturing and support
strategies with OEM customers and promote customer satisfaction. In implementing
this strategy, the Company offers its customers a full range of manufacturing
solutions through flexibility in production, high quality and fast-turnaround
manufacturing services and computer-aided testing.
As part of its strategy, the Company recognizes the need to offer advanced
manufacturing technologies to its customers and, as a consequence, has been
actively involved with SMT since the early 1980's. During fiscal 1999, the
Company invested approximately $2.4 million in capital equipment.
The vast majority of this amount was invested to upgrade equipment and process
automation projects. The Company believes that it operates one of
the largest SMT facilities in the United States. IEC believes that the high cost
of SMT assembly equipment and the increased technical capability necessary to
achieve an efficient, high yield SMT operation are significant competitive
factors in the market for electronic assembly. The Company also believes that
OEMs will increasingly contract for manufacturing on a turnkey basis as they
seek to reduce their capital and inventory costs, as manufacturing technologies
become more complex and as product life cycles shorten. Generally, turnkey
contracts result in stable, close and long-term working relationships with
customers. Since major OEMs require that contract manufacturers demonstrate the
ability to offer SMT assembly services and to manage and support large turnkey
contracts, there are significant barriers to entry in the contract manufacturing
industry.
Assembly Process
The Company generally enters into formal agreements with its significant
customers. These agreements generally provide for fixed prices for one year,
absent any customer changes which impact cost of labor or material, and rolling
forecasts of customer requirements. After establishing an OEM relationship,
the Company offers its consultation services with respect to the
manufacturability and testability of the product design. IEC often recommends
design changes to reduce manufacturing costs and to improve the quality of the
finished assemblies, and in some instances will produce original designs to the
customer's specifications.
Upon receipt, a customer's order is entered into the Company's computer
system by customer service personnel and is reviewed by all departments. The
Production Control Department generates a detailed manufacturing schedule. Bills
of material and approved vendor lists are reviewed by the Engineering
Department, which creates a detailed process to direct the flow of product
through the plant. The Material Control Department utilizes a material
requirement planning (MRP) program to generate the requisitions used by the
Purchasing Department to procure all material and components from approved
vendors in the quantities and at the time required by the production schedule.
All incoming material is inspected to ensure compliance with customer
specifications and delivered to the production floor on a "just-in-time" basis.
Material and product movement are carefully and continuously computer-monitored
throughout the assembly process to meet customer requirements. The placement and
insertion of components on circuit board assemblies are accomplished by
high-speed, vision and computer-controlled PTH or SMT machines. Any manual
operations are performed prior to passage of the assemblies through various
soldering processes. Statistical process control ("SPC") is used to provide
consistent results in all steps of the manufacturing process.
The manufactured assembly then moves into the test phase. IEC's
computer-aided testing ensures delivery of high quality products on a consistent
basis. Computer-driven in-circuit tests verify that all components have been
properly placed or inserted and that the electrical circuits are complete.
Functional tests determine if the board or system assembly is performing to
customer specifications.
Page 6 of 46
IEC assigns a program manager to each customer. The program manager
maintains regular contact with the customer to assure timely and complete flow
of information between the customer and the Company. Many products manufactured
by the Company are in the early stages of their product cycle and therefore
undergo numerous engineering changes. In addition, production quantities and
schedules of certain products must be varied to respond to changes in customers'
marketing opportunities. The Company assesses the impact of such changes on the
production process and takes the appropriate action, such as restructuring bills
of material, expediting procurement of new components and adjusting its
manufacturing and testing plans. IEC believes that its ability to provide
flexible and rapid response to customer needs is critical to its success.
Products and Services
The Company manufactures a wide range of assemblies which are incorporated
into hundreds of different products. The Company provides contract manufacturing
services primarily for micro, mini and mainframe computers; computer peripheral
equipment; imaging equipment; office equipment; telecommunications equipment;
measuring devices; and medical instrumentation. During the fiscal year ended
September 30, 1999 the Company provided contract manufacturing services to
approximately 75 different customers, including Compaq Computer Corporation
("Compaq"), Symbol Technologies, Inc.("Symbol"), Stratus Corporation
("Stratus"), Lucent Technologies, Inc.("Lucent"), GenRad, Inc.("GenRad") and
General Electric Company.("GE") The Company provides its services to multiple
divisions and product lines of many of its customers and typically manufactures
for a number of each customer's successive product generations.
Materials Management
In fiscal 1999, 1998, and 1997, turnkey contracts, under which the Company
provided materials in addition to a value-added labor component, represented
95 percent, 98 percent and 95 percent of sales, respectively. Materials and the
associated material handling expense often represent a very substantial portion
of the total manufacturing cost of turnkey products. The Company generally
procures material only to meet specific contract requirements. In addition, the
Company's agreements with its significant customers generally provide for
cancellation charges equal to the costs which are incurred by the Company as a
result of a customer's cancellation of contracted quantities. The Company's
internal systems provide effective controls for all materials, whether purchased
by the Company or provided by the customer, through all stages of the
manufacturing process, from receiving to final shipment.
Suppliers
Materials and components used in contract manufacturing, whether supplied by
the OEM or by the Company, are available generally from a number of suppliers at
negotiated prices which are firm for the life of the purchase order. However, at
various times in the electronics industry there have been industry-wide
shortages of components which have temporarily delayed the Company's manufacture
and shipment of products. The Company's business is not dependent upon any one
supplier.
In 1997, Master Distribution Programs were put in place with Arrow/Schweber
Electronics and Pioneer-Standard Electronics. These alliances have the
benefit of reducing lead time on program parts, reducing the quotation process
timetable, providing competitive pricing, providing some protection during
allocation, providing better payment terms, reducing overhead cost and providing
access to global resources.
Marketing and Sales
The Company markets its services through a direct sales force of 5
individuals, 15 program managers and 9 independent manufacturers'
representatives, who currently employ approximately 30 sales people. In addition
to the sales and marketing staff, the Company's executives are closely involved
with marketing efforts. The Company conducts extensive market research to
identify industries and to target companies where the opportunity exists to
provide contract manufacturing services across a number of product lines and
product generations.
Page 7 of 46
The Company's sales effort is supported by advertising in numerous trade
media, sales literature, internet website, video presentations, participation in
trade shows and direct mail promotions. Inquiries resulting from these
advertising and public relations activities are assigned to the manufacturers'
representative covering the customer's location. IEC's direct sales force
coordinates all such activity and monitors the performance of the manufacturers'
representatives. In addition, referrals by existing customers are an important
source of new opportunities. The Company's objective is to further diversify the
customers and industries which it serves.
Backlog
The Company's backlog as of December 30, 1999 and December 16, 1998 was
approximately $125 million and $107 million, respectively. Backlog consists of
contracts or purchase orders with delivery dates scheduled within the next 18
months. Substantially all of the current backlog is expected to be shipped
within the Company's current fiscal year. Variations in the magnitude and
duration of contracts received by the Company and customer delivery requirements
may result in substantial fluctuations in backlog from period to period. Because
customers may cancel or reschedule deliveries, backlog is not a meaningful
indicator of future financial results.
Governmental Regulation
The Company's operations are subject to certain federal, state and local
regulatory requirements relating to environmental, waste management, health and
safety matters. Management believes that the Company's business is operated in
compliance with applicable regulations promulgated by the Occupational Safety
and Health Administration and the Environmental Protection Agency and
corresponding state agencies which, respectively, pertain to health and safety
in the workplace and the use, discharge, and storage of chemicals employed in
the manufacturing process. Current costs of compliance are not material to the
Company. However, new or modified requirements, not presently anticipated, could
be adopted creating additional expense for the Company.
Employees
The Company's employees numbered approximately 1,315 at December 21,
1999, including 111 employees engaged in engineering, 1,092 in manufacturing and
112 in administrative and marketing functions. None of the Company's U.S.
employees are covered by a collective bargaining agreement and the Company has
not experienced any work stoppages. Management believes that its employee
relations are good. The Company has access to a large work force by virtue of
its northeast location midway between Rochester and Syracuse, two upstate New
York industrial cities, and by virtue of its Texas location in the Rio Grande
Valley.
Patents and Trademarks
The Company holds patents unrelated to contract manufacturing and also
employs various registered trademarks. The Company does not believe that either
patent or trademark protection is material to the operation of its business.
Page 8 of 46
Safe Harbor for Forward-looking Statements under Securities Litigation
Reform act of 1995: Certain Cautionary Statements
From time to time, the Company or its representatives have made or may make
forward-looking statements, orally or in writing. Such forward-looking
statements may be included in, but not limited to, press releases, oral
statements made with the approval of an authorized executive officer or in
various filings made by the Company with the Securities and Exchange commission.
The words or phrases "will likely result," "are expected to," "will continue,"
"is anticipated," "estimate," "project," or similar expressions are intended to
identify "forward-looking statements" within the meaning of the Private
Securities Litigation Reform Act of 1995 (the Reform Act). The Company wishes to
ensure that such statements are accompanied by meaningful cautionary statements,
so as to maximize to the fullest extent possible the protections of the Safe
Harbor established in the Reform Act. Accordingly, such statements are qualified
in their entirety by reference to and are accompanied by the following
discussion of certain important factors that could cause actual results to
differ materially from such forward looking statements.
The risks included here are not exhaustive. Furthermore, reference is also
made to other sections of this report which include additional factors which
could adversely impact the Company's business and financial performance.
Moreover, the Company operates in a very competitive and rapidly changing
environment. New risk factors emerge from time to time and it is not possible
for management to predict all of such risk factors, nor can it assess the
impact of all such risk factors on the Company's business or the extent to
which any factor, or a combination of factors may cause actual results to
differ materially from those contained in any forward-looking statements.
Accordingly, forward-looking statements should not be relied upon as a
prediction of actual results.
Stockholders should be aware that while the Company does, from time to
time, communicate with securities analysts, it is against the Company's policy
to disclose to such analysts any material non-public information or other
confidential commercial information. Accordingly, stockholders should not assume
that the Company agrees with any statement or report issued by any analyst
regardless of the content of such statement or report. Accordingly, to the
extent that reports issued by a securities analyst contain any projections,
forecasts, or opinions, such reports are not the responsibility of the
Company.
Customer Concentration; Dependence On the Electronics Industry
A small number of customers are currently responsible for a significant
portion of the Company's net sales. During fiscal 1999, the Company's ten
largest customers accounted for 75% of consolidated net sales, and in the fiscal
years 1998 and 1997, the Company's ten largest customers accounted for 72% and
73%, respectively, of consolidated net sales. During fiscal 1999, GenRad,
Lucent and Compaq, accounted for 23%, 18% and 10%, respectively, of
consolidated net sales. In fiscal years 1998 and 1997, Compaq accounted for 38%
and 29% and Matrox accounted for 15% and 12% of the Company's consolidated net
sales, respectively. The Company is dependent upon continued revenues from its
top customers. The percentage of the Company's sales to its major customers may
fluctuate from period to period. Significant reductions in sales to any of these
customers could have a material adverse effect on the Company's results of
operations. The Company has no firm long-term volume purchase commitments from
its customers, and over the past few years has experienced reduced lead-times
in customer orders. In addition, customer contracts can be canceled and volume
levels can be changed or delayed. The timely replacement of canceled, delayed or
reduced contracts with new business cannot be assured. These risks are increased
because a majority of the Company's sales are to customers in the electronics
industry, which is subject to rapid technological change and product
obsolescence. The factors affecting the electronics industry, in general, or
any of the Company's major customers in particular, could have a material
adverse effect on the Company's results of operations.
Page 9 of 46
Revenue Flucuations
The Company's revenue growth has fluctuated over the last seven fiscal
years, with net sales increasing from $43.2 million in fiscal 1992 to a high of
$260.7 million in fiscal 1997. Net sales were $248.2 million in fiscal 1998 and
$157.5 million in fiscal 1999. Although the Company continues to broaden its
portfolio of customers there can be no assurance that its revenues will
increase. There can also be no assurance that the Company will successfully
manage the integration of any business it may acquire in the future. As the
Company manages its existing operations and expands its operation in Mexico, it
may experience certain inefficiencies as it integrates new operations and
manages geographically dispersed operations. In addition, the Company's results
of operations could be adversely affected if any of its facilities do not
achieve growth sufficient to offset increased expenditures associated with
geographic expansion. Should the Company increase its expenditures in
anticipation of a future level of sales which does not materialize, its
profitability would be adversely affected. On occasion, customers may require
rapid increases in production which can place an excessive burden on the
Company's resources.
Potential Fluctuations in Operating Results
The Company's margins and operating results are affected by a number of
factors, including product mix, additional costs associated with new projects,
price erosion within the electronics industry, capacity utilization, price
competition, the degree of automation that can be used in the assembly process,
the efficiencies that can be achieved by the Company in managing inventories and
fixed assets, the timing of orders from major customers, fluctuations in demand
for customer products, the timing of expenditures in anticipation of increased
sales, customer product delivery requirements, and increased costs and shortages
of components or labor. The Company's turnkey manufacturing, which typically
results in higher net sales and gross profits but lower gross profit margins
than consignment assembly and testing services, represents a substantial
percentage of net sales. All of these factors can cause fluctuations in the
Company's operating results over time. Because of these factors, there can be no
assurance that the Company's margins or results of operations will not fluctuate
or decrease in the future.
Competition
The electronics assembly and manufacturing industry is comprised of a large
number of domestic and off-shore companies, several of which have achieved
substantial market share. The Company also faces competition from current and
prospective customers which evaluate its capacities against the merits of
manufacturing products internally. The Company competes with different companies
depending on the type of service or geographic area. Certain of the Company's
competitors have broader geographic breadth. They also may have greater
manufacturing, financial, research and development, and marketing resources than
the Company. The Company believes that the primary basis of competition in its
targeted markets is manufacturing technology, quality, responsiveness, the
provision of value-added services, and price. To be competitive, the Company
must provide technologically advanced manufacturing services, high product
quality levels, flexible delivery schedules, and reliable delivery of finished
products on a timely and price-competitive basis. The Company currently may be
at a competitive disadvantage as to price when compared to manufacturers with
lower cost structures, particularly with respect to manufacturers with
facilities established where labor costs are lower.
Availability of Components
A substantial portion of the Company's net sales are derived from turnkey
manufacturing in which the Company provides both materials procurement and
assembly services. In turnkey manufacturing, the Company potentially bears the
risk of component price increases, which could adversely affect the Company's
gross profit margins. At various times there have been shortages of components
in the electronics industry. If significant shortages of components should
occur, the Company may be forced to delay manufacturing and shipments, which
could have a material adverse effect on the Company's results of operations.
Availability of customer-consigned parts and unforeseen shortages of
components on the world market are beyond the Company's control and could
adversely affect revenue levels and operating efficiencies.
Page 10 of 46
Year 2000
While the Company has developed and implemented a plan to address Year 2000
issues, as discussed in "Management's Discussion of Operations", there may be
risk connected with the identification of the Year 2000 issues of the Company
and with the ability of the Company's vendors to identify and address
successfully their own Year 2000 issues in a timely manner.
Environment Compliance
The Company is subject to a variety of environmental regulations relating
to the use, storage, discharge and disposal of hazardous chemicals used during
its manufacturing process. Any failure by the Company to comply with present or
future regulations could subject it to future liabilities or the suspension of
production which could have a material adverse effect on the Company's business.
In addition, such regulations could restrict the Company's ability to expand its
facilities or could require the Company to acquire costly equipment or to incur
other expenses to comply with environmental regulations.
Dependence on Key Personnel and Skilled Employees
The Company's continued success depends to a large extent upon the efforts
and abilities of key managerial and technical employees. The loss of services of
certain key personnel could have a material adverse effect on the Company. The
Company's business also depends upon its ability to continue to attract and
retain senior managers and skilled employees. Failure to do so could adversely
affect the Company's operations. The Company's President and Chief Executive
Officer died suddenly on December 11, 1999. The Company's Chairman of the Board
and former Chief Executive Officer is serving as interim Chief Executive
Officer, while an executive search is underway.
ITEM 2. PROPERTIES
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The Company's administrative and principal manufacturing facility is
located in Newark, New York and contains an aggregate of approximately
250,000 square feet. The IEC Edinburg, Texas manufacturing facility consists of
approximately 87,000 square feet. The Reynosa Mexican facility consists of
approximately 50,000 square feet, which is leased under an agreement expiring
in 2004.
ITEM 3. LEGAL PROCEEDINGS
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During fiscal 1999, the Company received a Notice of Infringement, along
with an offer of a license, from the Lemelson Foundation. The Notice alleged
that the Company has infringed certain patents of the Lemelson Foundation
relating to machine vision and bar-code technolgy. To date, approximately 480
companies, large and small, have signed licenses with the Lemelson Foundation,
believing that a known royalty rate which could be built into the cost of the
product was preferable to ongoing litigation with uncertain results. The Company
is a member of an industry association, which, on behalf of the electronics
manufacturing services industry, negotiated a form license agreement which
affords its members the ability to obtain rights to all of the relevant Lemelson
patents for a one time paid up royalty. The Company is settling the infringement
claim for approximately $530,000, payable, without interest, one-half by
February 29,2000 and one half by August 31, 2001.
There are no other material legal proceedings pending to which the Company
or any of its subsidiaries is a party or to which any of the Company's or
subsidiaries' property is subject. To the Company's knowledge, there are no
material legal proceedings to which any director, officer or affiliate of the
Company, or any beneficial owner of more than 5 percent (5%) of Common Stock, or
any associate of any of the foregoing, is a party adverse to the Company or any
of its subsidiaries.
Page 11 of 46
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
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During the fourth quarter of fiscal 1999, no matters were submitted to a
vote of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers as of September 30, 1999, were as follows:
Name Age Position
Russell E. Stingel 68 Chairman of the Board and
Chief Executive Officer
David W. Fradin 53 President and Chief Operating Officer
Richard L. Weiss 55 Director of Finance
Lawrence W. Swol 44 Vice President and General Manager -
International Operations
Bruce C. Barton 53 Vice President, Technology and Quality
Stephen B. Pudles 40 Vice President of Business Development
Stephen H. Hotchkiss 48 Vice President, Sales and Marketing
Patricia A. Bird 39 Corporate Controller
Russell E. Stingel has served as Chairman of the Board of Directors since
February 1997, and as a director since October 1996. From July 1996 until his
retirement on September 30, 1999, he was Chief Executive Officer of the Company.
As a result of Dr. Fradin's death, he was named interim Chief Executive Officer
on December 12, 1999. Mr. Stingel also served as President of the Company
(February 1996 - June 1997)and as Executive Vice President, Secretary and
General Manager of the Company (1977 - February 1996). He was previously
employed as President of the Ward Hydraulics Division of Figgee International
Holdings, Inc. and in various management positions by General Dynamics
Corporation.
David W. Fradin became Chief Executive Officer and a director of the Company
on October 1, 1999 and had been President since June 1997. From June 1997
until October 1, 1999 he was also Chief Operating Officer of the Company. Dr.
Fradin died suddenly on December 11, 1999. Prior to June 1997, he was previously
employed as President and Chief Operating Officer of Harvard Custom
Manufacturing LLC, an electronics manufacturing services company
(July 1996 - June 1997),and President and Chief Executive Officer of EMD
Associates, Inc. (Winnona, MN), an electronics contract manufacturer
(1993 - July 1996).
Richard L. Weiss became Vice President and Chief Financial Officer of the
Company on October 1, 1999, having joined the Company as Director of Finance in
August 1999. Prior thereto, he had been Vice President, Finance of Microwave
Data Systems, a division of California Microwave, Inc.(1990-1998). From 1974-
1990, Mr. Weiss was employed by the RF Communications Group of Harris Corp. as a
Manager of Finance and Operations and in various other managerial positions.
Lawrence W. Swol has served as Vice President and General Manager -
International Operations since April 1999. Prior thereto, he was Vice President/
General Manager - Texas (November 1997-April 1999). He was previously employed
as General Manager of Ogden Atlantic Design - Mexico Operations, an electronics
manufacturing services company (October 1995 - November 1997). and by Miltope
Corporation as Vice President, Operations (1992 - 1995).
Bruce C. Barton became Vice President and General Manager of Newark
Operations on October 1, 1999. Prior thereto, he was Vice President, Technology
and Quality (February 1998 - October 1999), Director of Technology and Quality
(January 1997-February 1998), Director Advanced Engineering and Quality
(January 1996 - 1997), Director Advanced Engineering (January 1994 -
January 1996), and Senior Manager Test and Manufacturing Engineering
(January 1991 - January 1994).
Stephen B. Pudles served as Vice President of Business Development from
May 1999 until December 1999, when he left the Company. He was previously
employed as President, East Coast Division and at other senior management
positions at Tanon Manufacturing (1997-1999).
Stephen H. Hotchkiss has served as Vice President, Sales and Marketing
since November 1997. Prior thereto he had been Director of Sales and Marketing
(November 1996 - November 1997), Sales Manager (March 1996 - November 1996),
and Sales Representative (1977 - 1996).
Page 12 of 46
Patricia A. Bird has served as Corporate Controller since September 1987.
She was previously employed by Arthur Andersen LLP (1982 - 1987). Ms. Bird has
announced her resignation, which will take effect in the second quarter of
fiscal year 2000.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
- --------------------------------------------------
RELATED STOCKHOLDER MATTERS
---------------------------
(a) Market Information.
The Company's Common Stock is traded on the Nasdaq National Market
under the symbol IECE.
The following table sets forth, for the period stated, the high and
low closing sales prices for the Common Stock as reported on the Nasdaq National
Market.
Closing Sales Price
Period High Low
October 1, 1997 - December 31, 1997 $21.750 $12.750
January 1, 1998 - March 30, 1998 $13.875 $ 7.438
April 1, 1998 - June 30, 1998 $ 9.188 $ 6.875
July 1, 1998 - September 30, 1998 $ 7.750 $ 4.250
October 1, 1998 - December 31, 1998 $ 6.188 $ 3.500
January 1, 1999 - March 30, 1999 $ 5.000 $ 3.250
April 1, 1999 - June 30, 1999 $ 3.875 $ 3.250
July 1, 1999 - September 30, 1999 $ 5.500 $ 2.625
The closing price of the Company's Common Stock on the Nasdaq National
Market on January 3, 2000 was $2.50.
(b) Holders.
As of January 3, 2000, there were approximately 125 holders of
record of the Company's Common Stock.
(c) Dividends.
The Company did not pay any dividends on its Common Stock during the
fiscal years ended September 30, 1999 and 1998. It is the current
policy of the Board of Directors of the Company to retain earnings for use in
the business of the Company. Certain financial covenants set forth in the
Company's current loan agreement prohibit the Company from paying cash
dividends. The Company does not plan to pay cash dividends on its Common Stock
in the foreseeable future.
Page 13 of 46
Item 6. SELECTED CONSOLIDATED FINANCIAL DATA
- -----------------------------------------------
SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
Years Ended September 30,
Income Statement Data 1999 1998(1) 1997 1996 1995(2)
- ---------------------- ------------------------------------------------
Net Sales $157,488 $248,159 $260,686 $179,707 $127,610
------------------------------------------------
Gross (Loss) Profit $(5,766) $13,640 $28,094 $15,219 $18,327
------------------------------------------------
Operating (Loss) Income $(22,051) $(7,554) $12,321 $2,333 $7,603
------------------------------------------------
Net (Loss) Income $(20,565) $(6,160) $6,958 $2,498 $4,688
------------------------------------------------
Net (Loss) Income per Common
and common equivalent share:
Basic $(2.72) $(0.82) $0.93 $0.34 $0.64
Diluted $(2.72) $(0.82) $0.91 $0.33 $0.64
------------------------------------------------
Common and Common
equivalent shares
Basic 7,563 7,542 7,442 7,412 7,359
Diluted 7,563 7,542 7,617 7,496 7,389
-----------------------------------------------
Balance Sheet Data:
Working Capital $33,424 $31,764 $34,622 $25,959 $23,074
-----------------------------------------------
Total Assets $93,919 $98,665 $152,070 $109,521 $103,014
-----------------------------------------------
Long-term debt, less current
maturities $16,547 $7,138 $6,988 $7,409 $6,857
-----------------------------------------------
Shareholders' equity $48,845 $69,568 $75,461 $67,457 $64,899
-----------------------------------------------
(1) The results of operations and financial position as of and for the year
ended September 30, 1998, include the operations of IEC Electronics - Ireland
Limited, as of the acquisition date, August 31, 1998.
(2) The results of operations and financial position as of and for the year
ended September 30, 1995, include the operations of IEC Arab, Alabama Inc.
as of the acquisition date, November 21, 1994.
Page 14 of 46
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
-----------------------------------------------------------
AND RESULTS OF OPERATIONS
--------------------------
MANAGEMENT'S DISCUSSION OF OPERATIONS
The information in this Management's Discussion & Analysis should be read in
conjunction with the accompanying consolidated financial statements, the related
Notes to Financial Statements and the Five-Year Summary of Financial Data.
Forward-looking statements in this Management's Discussion and Analysis are
qualified by the cautionary statement in Item 1 of this Form 10K.
Overview
- --------
IEC had a challenging year in fiscal 1999 as it continued its transition
from heavy reliance on customers in the personal computer industry to
establishing a more diverse portfolio of customers. The Company took a number of
important steps in 1999, including a strong emphasis on new business development
for new and existing customers, starting of production at the Mexican facility,
and the closure of its Ireland facility, resulting in the recording of a
restructuring charge of approximately $4.0 million in the fourth quarter of
fiscal 1999.
Analysis of Operations
----------------------
(dollars in millions)
% %
For Year Ended September 30, 1999 1998 Change 1997 Change
---- ---- ------ ---- ------
Net Sales $157.5 $248.2 (36.5%) $260.7 (4.8%)
The 36.5% decrease in fiscal 1999 net sales compared to fiscal year 1998
was mainly attributable to the loss of one major customer and the movement of a
significant portion of another customer's production, both, to offshore
facilities. Additionally, the Company is continuing to experience a shift from
long-run, lower complexity customer contracts to shorter-run, higher complexity
contracts. The 4.8% decrease in fiscal 1998 sales compared to fiscal year 1997
resulted from shifts in certain customers' demands, and a shift from long-run,
lower complexity customer contracts to shorter-run, higher complexity contracts.
Demand in the overall electronics manufacturing services industry remains
generally strong and is being driven both by growth in the electronics industry
and even more importantly, by increased outsourcing from OEMs. The Company's
percentage of turnkey sales has remained steady. Such sales represented 95%,98%
and 95% of net sales in fiscal 1999, 1998, and 1997, respectively.
Gross Profit and Selling and Administrative Expenses
----------------------------------------------------
(as a % of Net Sales)
For Year Ended September 30, 1999 1998 1997
---- ---- ----
Gross Profit (3.7%) 5.5% 10.8%
Selling and Administrative Expenses 7.8% 6.2% 6.1%
Gross profit as a percentage of sales decreased more than 9 percentage
points in fiscal 1999 compared to fiscal 1998. This decrease was a result of
lower overhead absorption due to underutilized capacity, increased depreciation
from a revaluation and reduction of the useful lives of production equipment,
change of customer mix, greater customer product complexity with requests for
design changes, and multiple new customer and product launches. Frequent design
changes and customer start-ups caused manufacturing production interruptions,
restarts, increase set-up expenses, creating excess production downtime.
The Company's gross profit percentage decreased over 5 percentage points
between fiscal 1998 and fiscal 1997. This decrease was a result of lower
overhead absorption due to underutilized capacity, a sizeable loss at the
Alabama facility, customer mix, greater customer complexity with requests for
design changes, and multiple new customer and product launches. Frequent design
changes and customer start-ups cause manufacturing production interruptions,
restarts, and increase set-up expense, creating excess production downtime.
Page 15 of 46
Selling and administrative expenses as a percentage of sales increased to
7.8% compared to 6.2% in fiscal 1998 and from 6.1% in fiscal 1997. The primary
reason for the fiscal 1999 increase in SG&A expenses as a percentage of sales is
the decrease in the sales base. Actual selling and administrative expenditures
decreased in fiscal 1999 to $12.4 million from $15.3 million in fiscal 1998, as
a result of decreases in commissions expense related to decreased net sales, and
other cost-cutting measures. This was offset by increased depreciation due to
the revaluation of the useful lives of the Company's equipment. Selling and
administrative expenses of $15.3 million in fiscal 1998 were lower than $15.7
million in fiscal 1997. This decrease is primarily due to decreases in
salaries, bonuses and related costs and to decreases in commission expense
related to decreased net sales.
Other Income and Expense
------------------------
(dollars in millions)
For Year Ended September 30, 1999 1998 1997
---- ---- ----
Interest Expense $1.1 $1.8 $1.6
Other Income - .3 .5
Interest Expense decreased $644,000 to $1.1 million in fiscal 1999 from
$1.8 million in fiscal 1998, due to lower borrowing levels thoughout the year.
Interest expense remained nearly constant at $1.8 million and $1.6 million in
1998 and 1997. Other income is composed primarily of investment earnings.
Income Taxes
------------
For Year Ended September 30, 1999 1998 1997
---- ---- ----
Effective Tax Rate (11.1%) (31.9%) 37.9%
The Company's low effective tax (benefit) rate of (11.1%)in 1999 resulted
largely from the federal income tax benefit from operating losses. This benefit
was impacted by the valuation allowance on the net operating loss as well
as state income tax expense. The Company's low effective tax (benefit) rate of
(31.9%) in 1998 resulted largely from the federal income tax benefit from
operating losses offset by state income tax expense. The 1997 effective tax rate
of 37.9% reflects a more typical rate based on the Company's current mix of
federal, state and foreign jurisdictions.
Restructuring Charge
- --------------------
(dollars in millions)
For Year Ended September 30, 1999 1998 1997
---- ---- ----
Restructuring Charge $4.0 $4.7 -
In September 1999, the Company announced its plan to close its
underutilized Irish operation (Ireland) and transfer some of the customers
served there to its other operations in New York and Texas. Accordingly, a
restructuring charge of approximately $4.0 million was recorded in the fourth
quarter of fiscal 1999. The components of the charge are as follows: the
write-down of assets to be disposed of to their fair market value
($1.1 million), the write-down of goodwill ($670,000), severance and employee
benefits ($619,000), accrual of the remaining lease payments and related
building maintenance costs ($895,000) and repayment of a grant provided by the
Irish Development Agency ($681,000).
The Irish plant was closed in December 1999. Following the transfer of
a number of Ireland's customers, a majority of the equipment is
currently being marketed for sale and the Company is trying to sublet the
facility.
Page 16 of 46
In October 1998, the Company closed its underutilized Alabama facility and
transferred many of the customers to its other operations in New York and Texas.
Accordingly, a restructuring charge of $4.7 million was recorded in
the fourth quarter of fiscal 1998. The components of the charge are as follows:
the write-down of assets to be disposed of to their fair market value
($2.2 million), the write-down of goodwill ($1.3 million), and severance and
employee benefits ($1.2 million). The Company recorded charges of $1.4 million
and $1.3 million in fiscal 1999 and 1998, repectively. There have been no
significant reallocations or reestimates of the restructuring charges to date.
Liquidity and Capital Resources
- -------------------------------
As reflected in the Consolidated Statement of Cash Flows for 1999, the
$10.4 million of cash provided by financing activities was used to fund $6.5
million used in operating activities and $2.1 million used in net investing
activities, thus increasing cash by $1.8 million. The increase in cash used by
operating activities for fiscal 1999 was primarly due to increased levels in
accounts receivables, inventory, and accounts payable resulting from higher
inventories.
Capital additions were $2.4 million in 1999 and $8.1 million in 1998. These
expenditures were primarily used to upgrade the manufacturing capabilities of
the Company.
During May 1998, the Company refinanced its $33 million of available lines
of credit with a three-year $65 million senior credit facility with a bank
group. In June 1999, the Company reduced the credit facilty by $15 million to a
$50 million senior credit facility as well as changing the rates and terms of
borrowings. The credit facility was collateralized by the majority of assets of
the Company. The Company was required to maintain certain financial ratios as
well as being subject to other restrictions described in "Notes to Consolidated
Financial Statements". The Company was not in compliance with all financial
covenants as of September 30, 1999, and therefore entered into a forbearance
agreement with the participating banks until an asset-based facility was in
place. During the forbearance period, the lenders continued to make revolving
loans pursuant to the amended Credit Agreement, upon payment of a forbearance
fee and the revision to the interest and facility fee rate calculations.
On December 28, 1999, the Company closed on an asset based facility of $30
million, increasing to $35 million in the second year. The credit facility
consists of two components, the first being a $20 million revolving credit
facility (increasing to $25 million in the second year) based on eligibility
criteria for receivables and inventory. Amounts borrowed are limited to 85% of
qualified accounts receivable, 20% of raw materials, and 30% of finished goods
inventory, repectively. The second component consists of a $10 million
three-year term loan with monthly principal installments based on a five-year
amortization with principal payments beginning in April 2000.
Interest on this revolving credit facility is determined at the Company's
option on a LIBOR or prime rate basis, plus a margin. Additionally, a facility
fee is paid on the unused portion of the facility.
The new credit facility contains specific affirmative and negative
covenants binding the Company, including, among others, the maintenance of
certain financial covenants, as well as limitations on amounts available under
the lines of credit relating to the borrowing base, capital expenditures, lease
payments and additional debt. The more restrictive of the covenants provide that
the Company maintains a minimum net worth, minimum net income after taxes,
maximum debt-to-worth ratio, and minimum cash flow coverage. Covenant
compliance begins with the quarter ending December 31, 1999.
The balance outstanding at September 30, 1999 was $17.6 million under the
Company's senior credit facility with a weighted average interest rate of
8.25 percent.
The Company's President and Chief Executive Officer died suddenly on
December 11, 1999. In the second quarter of fiscal 2000, the Company will be
receiving non-taxable income from life insurance proceeds of approximately
$2 million.
The Company believes its cash balances, funds generated from operations and
its credit facilities will be sufficient for the Company to meet its capital
expenditures and working capital needs for its operations as presently
conducted. As part of its overall business strategy, the Company may from time
to time evaluate acquisition opportunities. The funding of these future
transactions, if any, may require the Company to obtain additional sources of
financing.
Page 17 of 46
Impact of Inflation
- -------------------
The impact of inflation on the Company's operations for the last three
years has been minimal due to the fact that it is able to adjust its bids to
reflect any inflationary increases in cost.
Year 2000 Conversion
- --------------------
The Year 2000 issue is the result of many existing computer programs
written to handle two digits, rather than four, to define the applicable year.
Accordingly, date-sensitive software or hardware may not be able to distinguish
between the year 1900 and year 2000, and programs that perform arithmetic
operations, comparisons or sorting of date fields may begin yielding incorrect
results. This could potentially cause a system failure or miscalculations that
could disrupt operations, including, among other things, an inability to
process transactions, send invoices, or engage in normal business activities.
These Year 2000 issues affect virtually all companies and organizations.
The Company developed plans to address the potential risks it faces as a
result of Year 2000 issues. These risks included, among other things, the
possible failure or malfunction of the Company's internal information systems,
possible problems with the products and services the Company has provided its
customers, and possible problems arising from the failure of the Company's
supplier systems.
The Company developed a plan to address its Year 2000 issues by initially
identifying and assessing Year 2000 compliance for all of its applications and
information technology equipment (including all mainframe, network and desktop
software and hardware, custom and packaged applications, and IT embedded
systems), as well as its non-information technology embedded systems,
(including non-IT equipment and machinery such as security, fire prevention
and climate control systems).
During calendar year 1999, the Company completed an inventory, assessment,
remediation and testing of all information technology equipment as well as all
non-information technology. The Company believed that its testing was
comprehensive. The Company's main operating system was tested on three different
occasions. All of the Company's network servers have been upgraded to Year 2000
compliant versions. All other systems have been upgraded to Year 2000 compliant
versions or replaced. Although no Year 2000 problems have arisen to the date of
this filing, there can be no assurance that all Year 2000 compliance issues have
been identified.
A key to our ability to successfully manage our operations is our ability
to manage our inventory, both consigned and turnkey. The inventory system is
controlled by computer systems. While some of these systems are under the
Company's control, systems of our vendors, our customers, transportation
companies, and other service providers that are outside the Company's control
could fail, delaying shipment or receipt of previously ordered components,
causing the Company to delay, cancel or modify orders from customers. This could
have a material adverse effect on the Company's results of operations, financial
position or cash flow. At this point, the Company has not been advised by any
significant supplier that it is not Year 2000 compliant or that any problems
have arisen to date.
The Company has collected numerous documents and statements regarding the
status of software and hardware in use at the Company. This documentation has
been provided upon request to the Company's customers to document the
Company's Year 2000 compliance.
The Company's incremental out-of-pocket costs of its Year 2000 compliance
have not been material. Costs incurred in the remediation of existing computer
software and hardware were approximately $500,000. Such costs do not include
internal management time, which the Company does not separately track, nor the
deferral of other projects, the effects of which are not expected to be material
to the Company's results of operations or financial condition.
Recently Issued Accounting Standards
- ------------------------------------
In June 1998, SFAS No. 137,"Accounting for Derivative Instruments
and Hedging Activies - Deferral of Effective Date of FASB Statement No. 133",
was issued. With issuance of SFAS No. 137, the Company is required to adopt SFAS
No. 133 on a prospective basis for interim periods and fiscal years beginning
March 1, 2001. The Company believes that the effect of adoption of SFAS No. 133
will not be material based on the Company's current risk management strategies.
Page 18 of 46
.
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
- ----------------------------------------------------
The information required by this item is incorporated herein by reference
to pages 23 through 43 of this Form 10-K and is indexed under Item 14(a)(1) and
(2).
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
- ---------------------------------------------------------
ACCOUNTING AND FINANCIAL DISCLOSURE
-----------------------------------
There have been no disagreements on accounting and financial disclosure
matters.
Page 19 of 46
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
- ------------------------------------------------------------
The information required by this item is presented under the caption
entitled "Election of Directors - Nominees for Election as Directors" contained
in the definitive proxy statement issued in connection with the Annual Meeting
of Stockholders to be held February 23, 2000 and is incorporated in this report
by reference thereto. The information regarding Executive Officers of the
Registrant is found in Part I of this report.
ITEM 11. EXECUTIVE COMPENSATION
- --------------------------------
The information required by this item is presented under the caption
entitled "Executive Officer Compensation" contained in the definitive proxy
statement issued in connection with the Annual Meeting of Stockholders to be
held February 23, 2000 and is incorporated in this report by reference thereto,
except, however, the sections entitled "Performance Graph" and "Report of the
Compensation Committee of the Board of Directors" are not incorporated in this
report by reference.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
- -------------------------------------------------------------
MANAGEMENT
----------
The information required by this item is presented under the caption
entitled "Security Ownership of Certain Beneficial Owners and Management"
contained in the definitive proxy statement issued in connection with the Annual
Meeting of Stockholders to be held February 23, 2000 and is incorporated in this
report by reference thereto.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
- --------------------------------------------------------
The information required by this item is presented under the caption
"Executive Officer Compensation - Certain Transactions" contained in the
definitive proxy statement issued in connection with the Annual Meeting of
Stockholders to be held February 23, 2000 and is incorporated in this report
by reference thereto.
Page 20 of 46
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
- ----------------------------------------------------------------
FORM 8-K
--------
(a) The following documents are filed as part of this report and as
response to Item 8:
Page
(1) and (2) Financial Statements and Supplementary Schedule
Report of Independent Public Accountants...................... 25
Consolidated Balance Sheets as of
September 30, 1999 and 1998.................................. 26
Consolidated Statements of Operations for the years
ended September 30, 1999, 1998 and 1997 .................... 28
Consolidated Statements of Comprehensive Income (Loss) and
Shareholders' Equity for the years ended September 30, 1999,
1998 and 1997................................................ 29
Consolidated Statements of Cash Flows for the years
ended September 30, 1999, 1998 and 1997...................... 30
Notes to Consolidated Financial Statements.................... 31
Schedule II Valuation and Qualifying Accounts................. 44
All other schedules are either inapplicable or the information is
included in the financial statements and, therefore, have been
omitted.
(3) Exhibits
Exhibit No. Title Page
3.1 Amended and Restated Certificate of Incorporation
of DFT Holdings Corp. (Incorporated by reference to
Exhibit 3.1 to the Company's Registration Statement
on Form S-1, Registration No. 33-56498)
3.2 Amended Bylaws of IEC Electronics Corp. (Incorporated
by reference to Exhibit 3.2 to the Company's Quarterly
Report on Form 10-Q for the quarter ended March 27, 1998)
3.3 Agreement and Plan of Merger of IEC Electronics into DFT
Holdings Corp. (Incorporated by reference to Exhibit 3.3 to the
Company's Registration Statement on Form S-1, Registration No.
33-56498)
3.4 Certificate of Merger of IEC Electronics Corp.
into DFT Holdings Corp. - New York. (Incorporated by
reference to Exhibit 3.4 to the Company's Registration
Statement on Form S-1, Registration No. 33-56498)
3.5 Certificate of Ownership and Merger merging IEC
Electronics Corp. into DFT Holdings Corp. - Delaware.
(Incorporated by reference to Exhibit 3.5 to the
Company's Registration Statement on Form S-1,
Registration No. 33-56498)
3.6 Certificate of Merger of IEC Acquisition Corp. into
IEC Electronics Corp. (Incorporated by reference to
Exhibit 3.6 to the Company's Registration Statement
on Form S-1, Registration No. 33-56498)
3.7 Certificate of Admendment of Certificate of Incorporation of
IEC Electronics Corp. filed with the Secretary of State of the
State of Delaware on Feb. 26, 1998 (Incorporated by reference to
Exhibit 3.1 to the Company's Quarterly Report on Form 10-Q for
the Quarter ended March 27, 1998)
3.8 Certificate of Designations of the Series A
Preferred Stock of IEC Electronics Corp. filed with the
Secretary of State of the State of Delaware on June 3, 1998.
3.9 Articles of Incorporation of Calidad Electronics, Inc.
(Incorporated by reference to Exhibit 3.7 to the
Company's Registration Statement on Form S-1,
Registration No. 33-56498)
3.10 Articles of Amendments to the Articles of Incorporation
of Calidad Electronics, Inc. (Incorporated by reference to
Exhibit 3.8 to the Company's Registration Statement on
Form S-1, Registration No. 33-56498)
3.11 Statement of Change of Registered Office or Registered Agent or
both by a Profit Corporation. (Incorporated by reference to
Exhibit 3.9 to the Company's Registration Statement on Form S-1,
Registration No. 33-56498)
3.12 By-laws of Calidad Electronics, Inc. (Incorporated by
reference to Exhibit 3.10 to the Company's Registration
Statement on Form S-1, Registration No. 33-56498)
Page 21 of 46
4.1 Specimen of Certificate for Common Stock. (Incorporated by
reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-1, Registration No. 33-56498)
4.2 Rights Agreement dated as of June 2, 1998 between IEC
Electronics Corp. and ChaseMellon Shareholder Services. LLC.,
as Rights Agents(Incorporated by reference to Exhibit 4.1 to the
Company's Curent Report on Form 8-K dated June 2, 1998)
10.1* IEC Electronics Corp. Stock Option Plan, as amended.
(Incorporated by reference to Exhibit 10.1 to the Company's
Registration Statement on Form S-1, Registration
No. 33-56498)
10.2* Form of Amended and Restated Incentive Stock Option
Agreement. (Incorporated by reference to Exhibit 10.2 to
the Company's Registration Statement on Form S-1,
Registration No. 33-56498)
10.3* Form of Non-Qualified Stock Option Agreement. (Incorporated
by reference to Exhibit 10.3 to the Company's Registration
Statement on Form S-1, Registration No. 33-56498)
10.4 Documents Executed in Connection with the Acquisition of Certain
Real Estate: (i) Agreement for Purchase of Shares, for the
Purchase of Certain Real Estate, and for Certain Other Matters
among IEC Electronics Corp., Rettel Corporation, Rodney J.
Graybill, Jacob A. Graybill and Robert M. Tyle, dated as of
August 29, 1983. (ii) Bond Purchase Agreement among IEC
Electronics Corp., Wayne County Industrial Development Agency,
Rodney J. Graybill, Robert M. Tyle and the Estate of Jacob A.
Graybill, dated as of December 1, 1983. (iii) Mortgage from the
Wayne County Industrial Development Agency to Rodney J.
Graybill, Robert M. Tyle and the Estate of Jacob A. Graybill,
dated as of December 1, 1983. (iv) Lease Agreement between the
Wayne County Industrial Development Agency and IEC Electronics
Corp., dated as of December 1, 1983. (v) Amendment to Agreement
for Purchase of Shares, for the Purchase of Certain Real Estate,
and for Certain Other Matters among IEC Electronics Corp.,
Rettel Corporation, Rodney J. Graybill, the Estate of Jacob A.
Graybill and Robert M. Tyle, dated as of December 28, 1983. (vi)
Loan Agreement between IEC Electronics Corp. and The Village of
Newark, dated as of December 28, 1983. (vii) Mortgage between
Wayne County Industrial Development Agency and IEC Electronics
Corp., as mortgagors, and Wayne County Industrial Development
Agency, as mortgagee, dated December 28, 1983. (viii) Mortgage
between Wayne County Industrial Development Agency and The
Village of Newark, dated December 28, 1983. (ix) First Agreement
of Amendment to Loan Agreement of December 28, 1983, between IEC
Electronics Corp. and The Village of Newark, dated as of
December 30, 1983. (x) Loan and Use Agreement among Wayne County
Economic Development Corp., Wayne County Industrial Development
Agency, IEC Electronics Corp. and New York Job Development
Authority, dated December 30, 1983.
(Incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1, Registration No. 33-56498)
10.5* Form of Indemnity Agreement. (Incorporated by reference to
Exhibit 10.2 to the Company's Quarterly Report on Form 10-Q
for the quarter ended July 2, 1993)
10.6 Credit Agreement dated as of May 16, 1998 among IEC Electronics
Corp. and Any Designed Borrower(s) as "Borrowers" with the
Lenders signatory thereto and The Chase Manhattan Bank as
Adminstrative Agent (Incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter
ended June 26, 1998)
10.7 Consent and Waiver dated as of July 10, 1998 to Credit Agreement
dated May 15, 1998. (Incorporated by reference to Exhibit 10.7 to
the Company's Annual Report on Form 10-K for the year ended
September 30, 1998)
10.8 Amendment No. 1 and Consent dated as of November 6, 1998 to
Credit Agreement dated as May 15, 1998. (Incorporated by
reference to Exhibit 10.8 to the Company's Annual Report on Form
10-K for the year ended September 30, 1998)
Page 22 of 46
10.9* IEC Electronics Corp. 1993 Stock Option Plan, as amended
(Incorporated by reference to Exhibit 10.9 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1998)
10.10* Form of Incentive Stock Option Agreement (Incorporated by
reference to Exhibit 4.2 to the Company's Registration Statement
on Form S-8, Registration No. 33-79360)
10.11* Form of Non-Statutory Stock Option Agreement (Incorporated by
reference to Exhibit 4.3 to the Company's Registration Statement
on Form S-8, Registration No. 33-79360)
10.12* Form of Non-Employee Director Stock Option Agreement
(Incorporated by reference to Exhbit 4.4 to the Company's
Registration Statement on Form S-8, Registration No. 33-79360)
10.13* Employment Agreement between IEC Electronics Corp. and
David W. Fradin (Incorporated by reference to Exhibit 10.18 to the
Company's Annual Report on Form 10-K for the year ended September 30,
1997)
10.14* Employment Agreement between IEC Electronics Corp. and
Diana R. Kurty, dated September 5, 1997 (Incorporated by reference to
Exhibit 10.14 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1998)
10.15* Consulting Agreement between IEC Electronics and Edward Butka,
dated as of March 1, 1998 (Incorporated by reference to Exhibit
10.15 to the Company's Annual Report on Form 10-K for the year ended
September 30, 1998)
10.16* Change in Control Agreement between IEC Electronics Corp. and
Russell E. Stingel, dated as of May 1, 1998 (Incorporated by
reference to Exhibit 10.16 to the Company's Annual Report on Form
10-K for the year ended September 30, 1998)
10.17* Admendment No.1 to Employment Agreement, Restatement of
Non Compete Agreement and Change in Control Agreement between IEC
Electronics Corp. and David W. Fradin, dated as of May 1, 1998
(Incorporated by reference to Exhibit 10.17 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1998)
10.18* Admendment No.1 to Employment Agreement, Restatement of Non
Compete Agreement and Change in Control Agreement between IEC
Electronics Corp. and Diana R. Kurty, dated as of May 1, 1998
(Incorporated by reference to Exhibit 10.18 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1998)
10.19* Form of Change-in-Control Agreement between IEC Electronics
Corp and each of its Vice Presidents, dated as of May 1, 1998.
(Incorporated by reference to Exhibit 10.19 to the Company's Annual
Report on Form 10-K for the year ended September 30, 1998)
10.20* Severance Agreement between IEC Electronics Corp. and Joseph S.
Schadeberg, dated as of November 12, 1998. (Incorporated by reference
to Exhibit 10.20 to the Company's Annual Report on Form 10-K for the
year ended September 30, 1998)
10.21* IEC Electronics Corp. Savings and Security Plan effective June 1,
1997 (Incorporated by reference to Exhibit 10.17 to the Company's
Annual Report on Form 10-K for the year ended September 30, 1997.)
10.22* Admendment to IEC Electronics Corp. Savings and Security
Plan effective June 1, 1998. (Incorporated by reference to Exhibit
10.22 to the Company's Annual Report on Form 10-K for the year ended
September 30, 1998)
10.23* IEC Electronics Corp. Director Compensation Plan (Incorporated by
reference to Exhibit 10.23 to the Company's Annual Report on Form
10-K for the year ended September 30, 1998)
10.24* Amendment No. 2 and Consent (Mexico) dated as of November 19, 1998
to Credit Agreement dated as of May 15, 1998. (Incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report on Form
10-Q for the quarter ended December 25, 1998)
10.25* Amendment No. 3 (Ireland) and Waiver dated as of June 11, 1999 to
Credit Agreement dated as May 15, 1998. (Incorporated by reference
to Exhibit 3.4 to the Company's Quarterly Report on Form 10-Q for
the quarter ended June 28, 1999)
11.1 Statement relating to computation of per share earnings. See Note
8 to the Notes to the Company's Consolidated Financial
Statements contained herein.
11.2 Statement relating to Valuation and Qualifing Accounts. See Note
8 to the Notes to the Company's Consolidated Financial
Statements contained herein.
22.1 Subsidiaries of IEC Electronics Corp. 45
24.1 Consent of Arthur Andersen LLP 46
(b) Reports on Form 8-K:
None
*Management contract or compensatory plan or arrangement
Page 23 of 46
SIGNATURES
Pursuant to the requirement of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
Dated: January 5, 2000.
IEC Electronics Corp..
By:/s/Russell E. Stingel
-----------------------
Russell E. Stingel
Chairman of the Board and
Interim Chief Executive Officer
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
/s/Russell E. Stingel Chairman of the Board and
- ---------------------- Interim Chief Executive Officer
(Russell E. Stingel) (Principal Executive Officer) January 5, 2000
/s/Richard Weiss Vice President and
- ----------------- Chief Financial Officer
(Richard Weiss) (Principal Financial
and Accounting Officer) January 5, 2000
/s/David J. Beaubien Director January 5, 2000
- --------------------
(David J. Beaubien)
/s/Thomas W. Folger Director January 5, 2000
- --------------------
(Thomas W. Folger)
/s/W.Barry Gilbert Director January 5, 2000
- -------------------
(W.Barry Gilbert)
/s/Robert P. B. Kidd Director January 5, 2000
- -------------------
(Robert P. B. Kidd)
/s/Eben S. Mouilon Director January 5, 2000
- ------------------
(Eben S. Moulton)
/s/Justin L. Vigdor Director January 5, 2000
- -------------------
(Justin L. Vigdor)
Page 24 of 46
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To IEC Electronics Corp.:
We have audited the accompanying consolidated balance sheets of IEC Electronics
Corp. and subsidiaries as of September 30, 1999 and 1998, and the related
consolidated statements of operations, comprehensive income(loss) and
shareholders' equity, and cash flows for each of the three years in the period
ended September 30, 1999. These financial statements and schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these financial statements and schedule based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of IEC Electronics Corp. and
subsidiaries as of September 30, 1999 and 1998, and the results of their
operations and their cash flows for each of the three years in the period ended
September 30, 1999, in conformity with generally accepted accounting principles.
Our audits were made for the purpose of forming an opinion on the basic
financial statements taken as a whole. The schedule listed in Item 14(a)2 is
presented for the purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
schedule has been subjected to the auditing procedures applied in the audit of
the basic financial statements and, in our opinion, is fairly stated in all
material repects in relation to the basic financial statements taken as a whole.
/s/Arthur Andersen LLP
Rochester, New York,
December 28, 1999
Page 25 of 46
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
(in thousands, except share data)
ASSETS
1999 1998
----------------------
CURRENT ASSETS:
Cash and cash equivalents $ 4,007 $ 2,278
Accounts receivable, net of allowance for doubtful
accounts of $176 in 1999 and $1,975 in 1998 23,734 22,842
Inventories 30,728 20,072
Income taxes receivable 2,966 1,960
Deferred income taxes - 3,226
Other current assets 516 441
----------------------
Total current assets 61,951 50,819
----------------------
PROPERTY, PLANT, AND EQUIPMENT, net 21,778 36,321
----------------------
OTHER ASSETS:
Costs in excess of net assets acquired, net 10,173 11,310
Other assets 17 215
----------------------
10,190 11,525
----------------------
$ 93,919 $ 98,665
======================
The accompanying notes to consolidated financial statements are an
integral part of these balance sheets
Page 26 of 46
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30, 1999 AND 1998
(in thousands, except share data)
LIABILITIES AND SHAREHOLDERS' EQUITY
1999 1998
-------------------------
CURRENT LIABILITIES:
Current portion of long-term debt $ 1,053 $ 20
Accounts payable 21,819 13,424
Accrued payroll and related expenses 3,867 3,878
Accrued insurance 798 1,353
Other accrued expenses 990 380
-------------------------
Total current liabilities 28,527 19,055
-------------------------
DEFERRED INCOME TAXES - 2,904
-------------------------
LONG-TERM DEBT 16,547 7,138
-------------------------
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.01 per
share, authorized - 500,000 shares;
issued and outstanding - none - -
Common stock, par value $.01 per
share, authorized - 50,000,000
shares; issued and outstanding -
7,583,965 and 7,583,076 shares,
respectively 76 76
Additional paid-in capital 38,566 38,563
Retained earnings 10,642 31,207
Accummulated other comprehensive (loss) income (28) 133
Treasury stock, at cost - 20,573 shares (411) (411)
-------------------------
Total shareholders' equity 48,845 69,568
--------------------------
$ 93,919 $ 98,665
=========================
The accompanying notes to consolidated financial statements are
an integral part of these balance sheets
Page 27 of 46
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(in thousands, except share data)
1999 1998 1997
------------------------------
Net sales $ 157,488 $ 248,159 $ 260,686
Cost of sales 163,254 234,519 232,592
------------------------------
Gross (loss) profit (5,766) 13,640 28,094
Selling and administrative expenses 12,422 15,319 15,773
Customer (recovery)bankruptcy (102) 1,130 -
Restructuring charge 3,965 4,745 -
------------------------------
Total operating expenses 16,285 21,194 15,773
------------------------------
Operating (loss)income (22,051) (7,554) 12,321
Interest expense 1,124 1,768 1,586
Other income, net 19 283 472
------------------------------
(Loss)income before income taxes (23,156) (9,039) 11,207
(Benefit from)provision for income taxes (2,591) (2,879) 4,249
------------------------------
Net (loss)income $ (20,565)$ (6,160)$ $6,958
==============================
Net (loss)income per common and
common equivalent share
Basic $ (2.72)$ ( .82)$ .93
==============================
Diluted $ (2.72)$ ( .82)$ .91
==============================
Weighted average number of common
and common equivalent shares outstanding
Basic 7,562,727 7,541,541 7,441,881
========= ========= =========
Diluted 7,562,727 7,541,541 7,617,345
========= ========= =========
The accompanying notes to consolidated financial statements are
an integral part of these statements.
Page 28 of 46
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF COMPREHENSIVE INCOME(LOSS)AND SHAREHOLDERS' EQUITY
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(in thousands)
Accumulated
Other
Comprehensive Additional Comprehensive Total
Income Common Paid-In Retained Income Treasury Shareholders'
(Loss) Stock Capital Earnings (Loss) Stock Equity
----------------------------------------------------------------------------------------------
BALANCE, September 30, 1996 $ 74 $36,974 $30,409 - - $67,457
Exercise of stock options 1 1,456 - - - 1,457
Purchase of treasury shares - - - - $(411) $(411)
Net income $ 6,958 - - 6,958 - - 6,958
Other comprehensive income - - - - - - -
----------------------------------------------------------------------------------------------
Comprehensive income $ 6,958
=========
BALANCE, September 30, 1997 75 38,430 37,367 - (411) 75,461
Exercise of stock options 1 133 - - - 134
Net loss $ (6,160) - - (6,160) - - (6,160)
Other comprehensive income,
currency translation
adjustments 133 - - - 133 - 133
------------------------------------------------------------------------------------------------------
Comprehensive loss $ (6,027)
=========
BALANCE, September 30, 1998 76 38,563 31,207 133 (411) 69,568
Shares issued under Directors
Stock Plan - 3 - - - 3
Net loss $(20,565) - - (20,565) - - (20,565)
Other comprehensive income,
currency translation
adjustments (166) - - - (161) - (161)
------------------------------------------------------------------------------------------------------
Comprehensive loss $(20,726)
=========
BALANCE, September 30, 1999 $ 76 $38,566 $10,642 $ (28) $ (411) $48,845
====================================================================================
The accompanying notes to consolidated financial statements are an integral part of these statements.
Page 29 of 46
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(in thousands)
1999 1998 1997
-------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net (loss) income $(20,565) $(6,160) $ 6,958
Adjustments to reconcile net (loss) income
to net cash (used in) provided by operating
activities:
Depreciation and amortization 15,145 10,013 9,252
Deferred income taxes 322 (2,341) (570)
Gain on sale of fixed assets (33) (165) (53)
Amortization of costs in excess of net assets
acquired 400 475 474
Common stock issued under Directors Stock Plan 3 - -
Goodwill, equipment and building writedown
related to restructuring 2,137 2,376 -
Changes in operating assets and liabilities:
(Increase)Decrease
Accounts receivable (930) 26,211 (20,834)
Inventories (10,687) 25,538 (19,354)
Income taxes receivable (1,009) (1,960) 757
Other current assets ( 85) (307) 67
Other assets 252 (206) 355
Increase (Decrease)
Accounts payable 8,474 (30,617) 26,929
Accrued payroll and related expenses 17 (1,783) 2,839
Accrued income taxes - (1,887) 1,887
Accrued insurance (555) 1,353 -
Other accrued expenses 610 (99) 174
------------------------
Net cash (used in) provided by
operating activities (6,504) 20,441 8,881
-------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (2,434) (8,092) (9,912)
Purchase of certain assets of Ohshima Manufacturing - (1,173) -
Proceeds from sale of equipment 310 655 335
-------------------------
Net cash used in investing activities (2,124) (8,610) (9,577)
-------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options and warrants - 134 1,457
Purchase of treasury stock - - (411)
Net borrowings(repayments) under revolving credit
facilities 10,600 (10,530) 2,000
Proceeds from long-term debt - 16,380 3,150
Principal payments on long-term debt (158) (19,501) (3,061)
--------------------------
Net cash provided by (used in)
financing activities 10,442 (13,517) 3,135
--------------------------
NET INCREASE(DECREASE) IN CASH AND CASH EQUIVALENTS 1,814 (1,686) 2,439
Effect of exchange rate changes (85) 43 -
CASH AND CASH EQUIVALENTS, beginning of year 2,278 3,921 1,482
-------------------------
CASH AND CASH EQUIVALENTS, end of year $ 4,007 $ 2,278 $ 3,921
=========================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW INFORMATION:
Cash paid during the year for:
Interest $ 926 $ 1,645 $ 1,586
=========================
Income taxes, net of refunds received $(1,907) $ 3,261 $ 1,769
=========================
The accompanying notes to consolidated financial statements are
an integral part of these statements.
Page 30 of 46
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
SEPTEMBER 30, 1999, 1998 AND 1997
1. BUSINESS AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
- -- --------------------------------------------------------
Business
IEC Electronics Corp. (IEC) is an independent contract manufacturer of complex
printed circuit board assemblies and electronic products and systems. IEC offers
its customers a wide range of manufacturing and management services, on either a
turnkey or consignment basis, including material procurement and control,
manufacturing and test engineering support, statistical quality assurance, and
complete resource management.
Consolidation
The consolidated financial statements include the accounts of IEC and its
wholly-owned subsidiaries, IEC Electronics-Edinburg, Texas Inc.(Edinburg),
IEC Arab, Alabama Inc. (Arab)and also includes from August 31, 1998,
IEC Electronics - Ireland Ltd. (Longford)(collectively, the Company). All
significant intercompany transactions and accounts have been eliminated.
Revenue Recognition
The Company recognizes revenue upon shipment of product for both turnkey and
consignment contracts.
Cash and Cash Equivalents
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less. The Company's cash and cash equivalents are
held and managed by institutions which follow the Company's investment policy.
The fair value of the Company's financial instruments approximates carrying
amounts due to the relatively short maturities and variable interest rates of
the instruments, which approximate current market interest rates.
Inventories
Inventories are stated at the lower of cost (first-in, first-out) or market.
Page 31 of 46
Property, Plant, and Equipment
Property, plant, and equipment are stated at cost and are depreciated over
various estimated useful lives using the straight-line method.
During the fourth quarter of 1999, the Company completed a review of its fixed
asset lives and, in turn, shortened the estimated lives of certain categories of
equipment, effective July 1, 1999. The change in estimate was based on the
following: the downsizing of the business; the loss of certain "large run"
customers which have forced the Company to utilize a quick change-over
mentality; and changing technology, therefore obsoleting production equipment
more quickly. The effect of this change in estimate increased depreciation for
the year ended September 30, 1999 by approximately $4.7 million.
Maintenance and repairs are charged to expense as incurred; renewals and
improvements are capitalized. At the time of retirement or other disposition of
property, plant, and equipment, the cost and accumulated depreciation are
removed from the accounts and any gain or loss is reflected in other income.
Long-Lived Assets
The Company reviews its long-lived assets and certain identifiable intangibles
to be held and used for impairment whenever events or changes in circumstances
indicate that the carrying amount of an asset may not be recoverable. If such
events or changes in circumstances are present, a loss is recognized to the
extent the carrying value of the asset is in excess of the sum of the
undiscounted cash flows expected to result from the use of the asset and its
eventual disposition.
During the fourth quarter of 1999, certain fixed assets were no longer in use
and indentified as impaired. The equipment has been marketed for sale, and as
such, the carrying value of these assets was written down to the estimated
recoverable sales value, net of commissions obtained from appraisals and
used equipment quotations. The effect of this impairment recoqnition totalled
approximately $400,000 and was included with depreciation expense for the year
ended September 30, 1999.
Fair Value of Financial Instruments
The following methods and assumptions were used to estimate the fair value of
each class of financial instruments for which it is practical to estimate that
value.
Current Assets and Liabilities - The carrying amount of cash and cash
equivalents, accounts receivable, accounts payable and accrued liabilities
approximate fair value because of the short maturity of those instruments.
Debt - The fair value of the Company's debt is estimated based upon the quoted
market prices for the same or similar issues which approximates carrying amount.
Costs in Excess of Net Assets Acquired
Costs in excess of net assets acquired of $14.1 million is being amortized on a
straight-line basis over 40 years. The balance is presented net of accumulated
amortization of $3.9 million and $3.5 million at September 30, 1999 and 1998,
respectively. Amortization of $400,000, $475,000, and $474,000 was charged
against operations for the years ended September 30, 1999, 1998, and 1997,
respectively.
The write-off of net goodwill in the amount of $670,000, related to the
Longford operations was charged to the restructuring reserve in fiscal 1999. The
write-off of net goodwill of approximately $1.3 million during fiscal 1998
related to the Alabama facility and was charged to the restructuring reserve.
See Note 2.
Page 32 of 46
Net Income per Common and Common Equivalent Share
(Loss)Income Shares Per Share
Year-Ended (Numerator) (Denominator) Amount
- ------------------------ ------------ ------------ ---------
September 30, 1999
Basic EPS
Loss available to
common shareholders $ (20,565) 7,562,727 $ (2.72)
=========== ========= =========
September 30, 1998
Basic EPS
Loss available to
common shareholders $ (6,160) 7,541,541 $ (.82)
=========== ========= =========
September 30, 1997
Basic EPS
Income available to
common shareholders $ 6,958 7,441,881 $ .93
=========
Effect of dilutive options - 175,464
----------- ----------
Diluted EPS
Income available to
common shareholders and
and assumed conversions $ 6,958 7,617,345 $ .91
========== ========= ========
Basic EPS was computed by dividing reported earnings available to common
shareholders by weighted-average common shares outstanding during the year. No
reconcilation is provided for 1999 and 1998 as the effect would be antidilutive.
Options to purchase 36,000 common shares at an average price of $20 per share
were outstanding for the year ending September 30, 1997 but were not included
in the computation of diluted EPS since the options' exercise price was greater
than the average market price of common shares.
Page 33 of 46
Foreign Currency Translation
The assets and liabilities of the Company's foreign subsidiary are translated
based on the current exchange rate at the end of the period for the balance
sheet and weighted-average rate for the period of the consolidated statement of
operations. Translation adjustments are recorded as a separate component of
equity. Transaction gains or losses are included in operations.
Comprehensive Income
During 1999, the Company adopted SFAS No. 130, "Reporting Comprehensive Income."
This statement establishes rules for the reporting of comprehensive income and
its components. Comprehensive income consists of foreign currency translation
adjustments and is presented in the statements of comprehensive income (loss)
and shareholders' equity. The adoption of SFAS No. 130 had no impact on total
shareholders' equity.
Use of Estimates
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates that affect the
reported amounts of assets and liabilities and the reported amounts of revenues
and expenses during the reporting period. Actual results could differ from those
estimates.
2. RESTRUCTURING:
In September 1999, the Company announced its plan to close its underutilized
Longford operations and transfer some of the customers served there to its other
operations in New York and Texas. Accordingly, a restructuring charge of
approximately $4.0 million was recorded in the fourth quarter of fiscal 1999.
The components of the charge are as follows: the write-down of assets to be
disposed of to their fair market value ($1.1 million), the write-down of
goodwill ($670,000), severance and employee benefits ($619,000), accrual of the
remaining lease payments and related building maintenance costs ($895,000), and
repayment of a grant provided by the Irish Development Agency ($681,000).
The Company recorded charges against the accrual of approximately $900,000
during fiscal 1999. There were no significant reallocations or reestimates to
date.
Orginally, in August 1998, the Company acquired certain assets of Ohshima
Electronics Manufacturing Limited (Ohshima) located in Longford, Ireland, for an
initial purchase price of approximately $1.2 million. The acquistion was funded
through the Company's existing senior credit facility and accounted for as a
purchase. The purchase price exceeded the fair market value of net assets by
approximately $740,000, which was being amortized on a straight-line basis over
15 years. The accompanying financial results include the results of Longford
from the date of acquistion (August 31, 1998).
In August 1998, the Company announced plans to close its Alabama operations
(Arab) and to transfer many of the customers served in that facility to the
Company's other operations in New York and Texas. The restructuring charge of
$4.7 million relates primarily to the write-down of assets to be disposed of, to
their fair market value ($2.2 million), the write-down of goodwill ($1.3
million), and severance and employee benefits ($1.2 million). The Company
recorded charges against the accrual of $1.4 million and $1.3 million during
fiscal 1999 and fiscal 1998, respectively. There were no significant
reallocations or reestimates to date.
Page 34 of 46
3. INVENTORIES:
The major classifications of inventories are as follows at September 30
(in thousands):
1999 1998
-------- --------
Raw materials $23,226 $14,170
Work-in-process 7,502 5,902
-------- --------
$30,728 $20,072
======== ========
4. PROPERTY, PLANT, AND EQUIPMENT:
The major classifications of property, plant, and equipment are as follows at
September 30 (in thousands):
1999 1998
-------- --------
Land and land improvements $ 1,199 $ 1,166
Buildings and improvements 11,271 11,341
Machinery and Equipment 66,873 65,756
Furniture and fixtures 6,266 6,640
-------- --------
85,609 84,903
Less- Accumulated depreciation
and amortization (63,831) (48,582)
-------- --------
$ 21,778 $ 36,321
======== ========
Depreciation and amortization was $15.1 million, $10.0 million, and $9.3 million
for the years ended September 30, 1999, 1998 and 1997, respectively.
Included in property, plant and equipment are land and land improvements with a
net book value of approximately $100,000, buildings and improvements with a net
book value of approximately $1.2 million, and machinery and equipment with a net
book value of approximately $1.8 million which are currently available for sale.
The principal depreciation and amortization lives used are as follows:
Estimated
Description Useful
Lives
- ---------------------------- ------------
Land improvements 10 years
Buildings and improvements 10 to 40 years
Machinery and equipment 3 to 5 years
Furniture and fixtures 3 to 7 years
Page 35 of 46
5. LONG-TERM DEBT:
Long-term debt consists of the following at September 30 (in thousands):
1999 1998
-------- -------
Senior debt facility obtained through revolving line of
credit. $17,600 $ 7,000
Mortgage note payable - 158
-------- -------
17,600 7,158
Less- Current portion, based on the terms of the new
credit facility 1,053 20
-------- -------
$16,547 $ 7,138
======== =======
During May 1998, the Company refinanced its $33 million of available lines of
credit with a three-year $65 million senior credit facility with a bank group.
In June 1999, the Company reduced the credit facility by $15 million to a
$50 million senior credit facility as well as changing the rates and terms of
the borrowings. Interest on this revolving credit facility was determined at the
Company's option on a LIBOR or prime rate basis, plus a margin. Additionally, a
facility fee was paid on the unused portion of the facility. Based on the dates
of the related borrowings as of September 30, 1999 and 1998, the interest rates
related to the revolving credit facility ranged from 7.025 percent to 8.25
percent and 6.08 percent to 6.64 percent in 1999 and 1998, repectively.
The 30-day LIBOR rate was 5.4375% and the prime rate was 8.25% at September
30, 1999.
The credit facility was collaterlized by the majority of assets of the Company.
The Company was required to maintain certain financial ratios as well as to
comply with certain restrictions including: limits on incurring additional
indebtness; creating liens or other encumbrances; making certain payments,
investments or loans; guarantees; selling or otherwise disposing of a
substantial portion of assets, or merging or consolidating with an unaffiliated
entity. The most significant financial covenants included a leverage ratio, an
interest coverage ratio, and a ratio of consolidated current assets to
consolidated total indebtedness. The Company was not in compliance with all
financial covenants as of September 30, 1999 and therefore entered into a
forbearance agreement with the participating banks until a new secured debt
asset facility was in place. During the forbearance period, the lenders
continued to make revolving loans pursuant to the amended credit agreement, upon
payment of a forbearance fee, and a revision to the interest and facility fee
rate calculations.
On December 28, 1999, the Company refinanced its existing credit facility with a
new bank group. The new agreement is a three year secured asset based facility
for $30 million, increasing to $35 million in year two. The credit facility
consist of two components, the first a $20 million revolving credit facility
(increasing to $25 million in year two) based on eligibility critera for
receivables and inventory. Amounts borrowed are limited to 85 percent of
qualified accounts receivable, 20 percent of raw materials, and 30 percent of
finished goods inventory, repectively. The second component consists of a $10
million three-year term loan with monthly principal installments based on a
five year amortization beginning in April 2000.
Page 36 of 46
At closing, the Company had available for borrowing $28.8 million pursuant to
the terms of its new facility. A portion of the net proceeds was used to repay
its outstanding obligations under its prior credit facility, leaving
approximately $9.0 million available for future borrowings.
The interest rate on the revolving credit facility is calulated based on the
Company's debt-to-worth ratio as defined in the credit facility agreement.
Accordingly, the interest rate will range from a minimum of prime rate or LIBOR
plus 185 basis points to a maximum of prime rate plus 3 1/4 percent or LIBOR
plus 600 basis points. Based on the Company's debt-to-worth ratio at the date of
the bank's closing, the interest rate is either the prime rate or LIBOR plus 200
basis points. Additionally, a facility fee is paid on the unused portion of the
facility.
The interest rate on the term note is calculated based on the Company's
debt-to-worth ratio as defined in the credit facility agreement. Accordingly,
the interest rate will range from a minimum of prime rate plus 1/8 percent or
LIBOR plus 200 basis points to a maximum of prime rate plus 3 1/2 percent or
LIBOR plus 625 basis points. Based on the Company's debt-to-worth ratio at the
date of the bank's closing, the interest rate is either the prime rate plus 1/8
or LIBOR plus 215 basis points.
The Company is required to make an election to select either the prime rate or
LIBOR, as the basis for the interest rate calulation, any change in election is
subject to the terms of the credit agreement.
The new credit facility contains specific affirmative and negative covenants
binding the Company, including, among others, the maintenance of certain
financial covenants, as well as limitations on amounts available under the
lines of credit relating to the borrowing base, capital expenditures, lease
payments and additional debt. The more restrictive of the covenants provide that
the company maintain a minimum tangible net worth, minimum net income after
taxes, maximum debt-to-worth ratio, and minimum cash flow coverage. Covenant
compliance begins with the quarter ending December 31, 1999.
Based on the terms of the new asset based facility, the aggregate annual
maturities of long-term debt at September 30, 1999 are as follows
(in thousands):
Year Amount
---- ------
2000 $ 1,053
2001 2,105
2002 2,105
2003 12,337
------
$ 17,600
======
Based on borrowing rates currently available to the Company for bank loans with
similar terms and average maturities, the fair value of long-term debt
approximates its recorded value.
Page 37 of 46
6. INCOME TAXES:
The (benefit from)provision for income taxes in fiscal 1999, 1998 and 1997 is
summarized as follows(in thousands):
1999 1998 1997
------- ------- -------
Current
Federal $ (3,083) $ (747) $ 4,462
State 170 209 357
Deferred 322 (2,341) (570)
-------- --------- --------
(Benefit from)provision
for income taxes, net $ (2,591) $(2,879) $ 4,249
======= ========= ========
The components of the deferred tax asset (liability) at September 30 are as
follows(in thousands):
1999 1998
---- ----
Ireland losses $2,040 $ -
Net operating loss and AMT credit carryovers 714 -
Accelerated depreciation (1,746) (4,323)
New York state investment tax credits 3,301 3,036
Compensated absences 349 587
Inventories 1,836 1,781
Receivables 62 671
Restructuring reserve 637 1,020
Other 463 186
------- -------
7,656 2,958
Valuation allowance (7,656) (2,636)
------- -------
$ - $ 322
======= =======
A full valuation allowance has been established against the net deferred tax
asset due to recent losses and tax carryback limitations. The Company has a net
operating loss carryforward of $1.1 million (expiring in fiscal 2019) and
alternative minimum tax carryforwards of $331,000.
The Company has available approximately $5 million in New York State investment
tax credits through 2008. A valuation allowance has been recorded at
September 30, 1999 and 1998 to offset a majority of the deferred tax assets
generated by New York state investment tax credits since the Company anticipates
generating additional investment tax credits each year during the carryforward
period, which limits the utilization of the tax credit carryforward.
Page 38 of 46
The differences between the effective tax rates and the statutory federal income
tax rates for fiscal years 1999, 1998 and 1997 are summarized as follows:
1999 1998 1997
----- ----- -----
(Benefit)provision for income taxes
at statutory rates (34.0)% (34.0%)% 34.0%
Amortization of cost in excess
of net assets acquired 0.5 1.3 1.1
Provision for state taxes,net 0.5 1.5 2.1
Other 0.2 (0.7) 0.7
Deferred Current Valuation Allowance 21.7 - -
----- ----- -----
(11.1)% (31.9)% 37.9%
===== ===== =====
7. SHAREHOLDERS' EQUITY:
Stock-Based Compensation Plans
In November 1993, the Company adopted the 1993 Stock Option Plan (SOP) which
replaced and superseded the 1989 Stock Option Plan. However, any outstanding
options under the 1989 Stock Option Plan remain in effect in accordance with and
subject to the terms of the 1989 Stock Option Plan.
Under the SOP, a total of 1,400,000 shares, inclusive of the foregoing, were
reserved for key employees, officers, directors and consultants as of September
30, 1999. The option price for incentive options must be at least 100 percent of
the fair market value at date of grant, or if the holder owns more than 10
percent of total common stock outstanding at the date of grant, then not less
than 110 percent of the fair market value at the date of grant. Stock options
issued prior to 1992 terminate 10 years from date of grant, while incentive and
nonqualified stock options issued subsequent to 1991 terminate seven and five
years from date of grant, respectively.
Incentive stock options granted during the period between July 1995 through
September 1999 vest in increments of 25 percent. Nonqualified stock options
granted during fiscal year 1999, 1998 and 1997 vest in increments of
33 1/3 percent.
Page 39 of 46
Changes in the status of options under the SOP at September 30, are summarized
as follows:
Weighted
Shares Average
Under Exercise Available
September 30, Option Price for Grant Exercisable
------------- --------- -------- -------- -----------
1996 504,542 $10.53 306,504 306,542
Options granted 376,500 8.56
Options exercised (137,131) 7.67
Options forfeited (105,000) 11.89
---------
1997 638,911 9.75 35,004 199,661
Options granted 113,500 11.89
Options exercised (30,875) 4.33
Options forfeited (69,500) 11.96
---------
1998 652,036 10.23 491,004 338,911
Options granted 123,000 3.75
Options exercised - -
Options forfeited (150,539) 12.48
---------
1999 624,497 8.38 518,543 367,372
=========
The following table summarizes information about stock options outstanding as of
September 30, 1999:
Options Outstanding Options Exercisable
-------------------------------------- --------------------------
Number Weighted Number
Outstanding Average Weighted Exercisable Weighted
Range of at Remaining Average at Average
Exercise September 30, Contractual Exercise September 30, Exercise
Prices 1999 Life Price 1999 Price
- -------------- ---------------- ---------- --------- ---------------- ---------
$ 3.25-$3.875 114,500 6.405 $ 3.728 - $ -
$ 5.00-$6.25 139,747 3.567 $ 6.040 80,247 $ 5.903
$ 7.625-$9.75 185,000 3.366 $ 8.774 143,000 $ 8.659
$10.825-$13.00 162,750 2.472 $ 12.174 137,750 $ 12.419
$14.375-$16.50 22,500 4.735 $ 15.850 6,375 $ 15.868
---------------- -----------------
624,497 367,372
================ ================
The weighted average fair value of options granted during fiscal 1999, 1998 and
1997 was $3.74, $11.34 and $4.80, respectively. The fair value of options is
estimated on the date of grant using the Black-Scholes option pricing model with
the following weighted average assumptions: risk-free interest rate of 5.00
percent, 5.75 percent and 6.43 percent, for fiscal 1999, 1998 and 1997,
respectively; volatility of 53 percent for fiscal 1999 and 1998 and 50 percent
for fiscal 1997, respectively; and expected option life of 7 years for fiscal
1999 and 1998, and 5.8 years for fiscal 1997, respectively. The dividend yield
was 0 percent. Forfeitures are recognized as they occur.
Page 40 of 46
The Company applies Accounting Principles Board Opinion No. 25, "Accounting for
Stock Issued to Employees," and the disclosure only provisions of SFAS No. 123
"Accounting for Stock-Based Compensation." Accordingly, no compensation expense
has been recognized for its stock-based compensation plans. Had the Company
recognized compensation cost based upon the fair value at the date of grant for
awards under its plans consistent with the methodology prescribed by SFAS No.
123, net income(loss) and net income(loss) per common and common equivalent
share would have been as follows for years ended September 30 (in thousands,
except per share data):
1999 1998 1997
---------------- --------------- ---------------
As Pro As Pro As Pro
Reported Forma Reported Forma Reported Forma
-------- ------ -------- ------- ------- -------
Net (loss) income $(20,565) $(20,726) $(6,160) $(6,412) $6,958 $6,683
========= ======== ======= ======== ======= =======
Net (loss)income per
common and common
equivalent share:
Basic $(2.72) $(2.74) $(.82) $(.85) $0.93 $0.90
======== ========= ======== ======== ======= =======
Diluted $(2.72) $(2.74) $(.82) $(.85) $0.91 $0.88
======== ======== ======== ======== ======= =======
Because the SFAS No. 123 method of accounting had not been applied to options
granted prior to October 1, 1995, the resulting pro forma compensation cost may
not be representative of that to be expected in future years.
Treasury Stock
On August 25, 1997, a note receivable from an officer was paid in full,
including accrued interest, by the surrender of Company stock held by the
officer. Accordingly, the Company reacquired 20,573 shares at the fair market
value of $411,000.
8. MAJOR CUSTOMERS AND CREDIT RISK CONCENTRATIONS:
Financial instruments which potentially subject the Company to concentrations of
credit risk consist primarily of cash, cash equivalents, and trade accounts
receivable. The Company has concentrations of credit risk due to sales to its
major customers.
The Company's revenues are derived primarily from sales to North American
customers in the industial and telecommunications industries and are
concentrated among specific companies. For the fiscal year ended September 30,
1999, three customers accounted for 23 percent, 18 percent and 10 percent,
respectively, of the Company's net sales. For the fiscal year ended September
30, 1998, two customers accounted for 38 percent and 15 percent, respectively,
of the Company's net sales. For the fiscal year ended September 30, 1997, two
customers accounted for 26 perent and 20 percent, respectively, of the Company's
net sales.
At September 30, 1999, amounts due from the three customers represented
36 percent, 20 percent and 4 percent, respectively, of trade accounts
receivable. At September 30, 1998, amounts due from the two customers
represented 29 percent and 12 percent, respectively, of trade accounts
receivable. The Company performs ongoing credit evaluation of its customers'
financial positions and generally does not require collateral.
Sales to foreign source customers (primarily in Europe) totaled approximately
16 percent, 34 percent, and 32 percent of total net sales in fiscal years 1999,
1998 and 1997, respectively.
Page 41 of 46
9. COMMITMENTS AND CONTINGENCIES:
Mexico
During 1999, the Company entered into an agreement for the production and
distribution of electronic assemblies in Reynosa, Mexico. The term of the
agreement is three years and requires the Company to maintain a minimum of 25
employees. Based on current labor rates, the Company's annual commitment is
approximately $300,000. In addition, the Company has entered into a five
year lease which expires in April 2004 for a 50,000 aquare foot facility
located in Reynosa, Mexico.
The lease contains renewal provisions and generally requires the Company to pay
utilities, insurance, taxes, and other operating expenses. Beginning in year
three, the lease is subject to minimum increases of 1.5 percent which is
reflected in the commitment detail below, however the maximum increase is 3
percent.
The minimum annual rental commintment at September 30, 1999 is payable as
follows: (in thousands)
Year Amount
---- ------
2000 $312
2001 314
2002 319
2003 323
2004 190
Lemelson
During fiscal 1999, the Company received a notice of infringement, along with
an offer of a licence, from the Lemelson Foundation. The notice alleged that the
Company has infinged certain of the Lemelson Foundation patents relating to
machine vision and bar-code technology. To date, approximately 480 companies,
large and small have signed licenses with the Lemelson Foundation believing that
a known royalty rate which could be built into the cost of the product was
preferable to ongoing litigation with uncertain results. An industry
association, on behalf of the electronics manufacturing services industry, has
negotiated a form license agreement which obtained rights to all of the
relevant Lemelson patents for a a one-time paid-up royalty. As of September 30,
1999, the Company has calculated the cost of the corresponding royalty to
be approxiately $530,000 based on a licensing period from 1991 though 2001 and
recorded a liability to reflect the prior and current years' impact against cost
of goods sold.
Litigation
The Company is also subject to other legal proceedings and claims which arise
in the ordinary course of its business. Although occasional adverse decisions
(or settlements) may occur, the Company believes that the final disposition of
such matters will not have a material adverse effect on the financial position
or results of operations of the Company.
10. RETIREMENT PLAN:
The Company has a retirement savings plan, established pursuant to Sections
401(a) and 401(k) of the Internal Revenue Code. This plan is for the exclusive
benefit of its eligible employees and beneficiaries. Eligible employees may
elect to contribute a portion of their compensation each year to the plan.
Effective June 1, 1998, The Board of Directors approved a change in the employer
match from 33 percent of the amount contributed by participant to 100 percent of
the first 3 percent of employee contributions, and 50 percent of the next 3
percent of employee contributions. The matching Company contributions were
approximately $744,000, $717,000 and $524,000 for the years ended
September 30, 1999, 1998 and 1997, respectively. The plan also allows the
Company to make an annual discretionary contribution determined by the Board of
Directors. There were no discretionary contributions for fiscal 1999, 1998, or
1997.
Page 42 of 46
11. ACCOUNTING PRONOUNCEMENTS:
In June 1999, the Finanncial Accounting Standards Board issued SFAS No. 137,
"Accounting for Derivative Instruments and Hedging Activies - Deferral of
Effective Date of FASB Statement No. 133 for one year". With issuance of SFAS
No. 137, the Company is required to adopt SFAS No. 133 on a prospective basis
for interim periods and fiscal years beginning March 1, 2001. The Company
believes that the effect of adoption of SFAS No. 133 will not be material based
on the Company's current risk management strategies.
12. SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
First Second Third Fourth
Quarter Quarter Quarter Quarter
-------- -------- -------- ----------
(in thousands, except share data)
YEAR ENDED SEPTEMBER 30,1999:
Net sales $36,281 $34,854 $37,522 $48,831
Gross profit (loss) (602) 474 558 (6,196)
Net income (loss) (2,305) (1,760) (1,706) (14,794)
Net income (loss) per common
and common equivalent share:
Basic (0.30) (0.23) (0.23) (1.96)
Diluted (0.30) (0.23) (0.23) (1.96)
YEAR ENDED SEPTEMBER 30, 1998:
Net sales $94,115 $71,045 $43,125 $39,874
Gross profit(loss) 8,688 4,307 1,258 (613)
Net income (loss) 2,327 (891) (1,337) (6,259)
Net income (loss) per common
and common equivalent share:
Basic 0.31 (0.12) (0.18) (0.83)
Diluted 0.30 (0.12) (0.18) (0.83)
YEAR ENDED SEPTEMBER 30, 1997:
Net sales $50,522 $61,103 $62,798 $86,263
Gross profit 4,708 7,088 7,904 8,394
Net income 912 1,873 1,823 2,350
Net income per common and
common equivalent share:
Basic 0.12 0.25 0.25 0.31
Diluted 0.12 0.25 0.24 0.30
Page 43 of 46
SCHEDULE II
IEC ELECTRONICS CORP. AND SUBSIDARIES
VALUATION AND QUALIFYING ACCOUNTS
FOR THE YEARS ENDED SEPTEMBER 30, 1999, 1998 AND 1997
(All amounts in thousands)
1999 1998 1997
------------------------------
Accounts receivable reserve balance, $ 1,975 $ 722 $ 100
at beginning, of year
Provision for doubtful accounts - 1,639 672
Write-off of doubtful accounts, net of
recoveries 1,799 386 -
-------------------------------
Balance, at end of year $ 176 $1,975 $ 772
===============================
1999 1998 1997
------------------------------
Restructuring reserve balance, $ 3,396 $ - $ -
at beginning, of year
Provision for restructuring 3,965 4,745 -
Deductions 2,294 1,349 -
-------------------------------
Balance, at end of year $ 5,067 $3,396 -
===============================
Page 44 of 46
EXHIBIT 22.1
Subsidiaries of IEC Electronics Corp.
IEC Electronics-Edinburg, Texas Inc., a Texas corporation, wholly-owned by
IEC Electronics Corp.
IEC Arab, Alabama Inc., a Alabama corporation, wholly-owned by IEC Electronics
Corp.
IEC Electronics-Ireland Limited., an Irish corporation, wholly-owned by IEC
Electronics Corp
IEC Electronics Foreign Sales Corporation, a Barbados corporation, wholly-
owned by IEC Electronics Corp.
Page 45 of 46
Exhibit 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As independent public accountants, we hereby consent to the incorporation of our
report included in this Form 10-K, into the Company's previously filed
Registration Statements on Form S-8 File Nos. 33-63816, 33-79360, 333-4634,
333-84471 and 333-84469.
/s/ Arthur Andersen LLP
Rochester, New York,
December 28, 1999
Page 46 of 46