UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
X Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange -
- -
Act of 1934
For the quarterly period ended June 28, 2002
Commission file Number 0-6508
IEC ELECTRONICS CORP.
-----------------------------------------------------
(Exact name of registrant as specified in its charter.)
Delaware 13-3458955
----------------------------- -----------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
105 Norton Street, Newark, New York 14513
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices (Zip Code)
(315) 331-7742
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code:
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 the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $0.01 Par Value - 7,692,076 shares as of August 19, 2002.
Page 1 of 20
PART 1 FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Information with Respect to Financial Statements.............. 3
Consolidated Balance Sheets as of:
June 28, 2002 (Unaudited) and September 30, 2001.............. 3
Consolidated Statements of Operations for the three months
ended: June 28, 2002 (Unaudited) and June 29, 2001
(Unaudited)................................................... 4
Consolidated Statements of Operations for the nine months ended:
June 28, 2002 (Unaudited) and June 29,, 2001 (Unaudited)...... 5
Consolidated Statement of Cash Flows for the nine months ended:
June 28, 2002 (Unaudited) and June 29, 2001 (Unaudited)....... 6
Notes to Consolidated Financial Statements (Unaudited)........ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 14
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 19
Item 2. Changes in Securities.......................................... 19
Item 3. Defaults Upon Senior Securities................................ 19
Item 4. Submission of Matters to a Vote of Security Holders............ 19
Item 5. Other Information.............................................. 19
Item 6. Exhibits and Reports on Form 8-K............................... 20
Signature ............................................................. 20
Page 2 of 20
PART 1 FINANCIAL INFORMATION
Item 1 -- Financial Statements
Information With Respect to Financial Statements
- ------------------------------------------------
The financial statements for the quarter ended March 29, 2002 that were
previously filed included unaudited financial statements that had not been
reviewed by an independent public accountant in accordance with Rule 10-01(d) of
Regulation S-X promulgated by the Securities and Exchange Commission, as the
Company had elected not to have its auditors, Arthur Andersen LLP, review such
financial statements. The Company's current auditors, Rotenberg & Company, LLP,
have subsequently reviewed the financial statements for the quarter ended March
29, 2002 and there were no material changes as a result of this review.
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
JUNE 28, 2002 AND SEPTEMBER 30, 2001
(in thousands, except for share data)
JUNE 28,2002 SEPTEMBER 30,2001
---------------- ------------------
ASSETS (Unaudited)
Current Assets:
Accounts receivable $ 5,471 $ 11,114
Inventories 4,661 6,846
Other current assets 188 217
Current assets-discontinued operations 1,363 9,304
---------- ----------
Total current assets 11,683 27,481
---------- ----------
Fixed Assets:
Land and land improvements 768 768
Building and improvements 3,850 4,244
Machinery and equipment 46,557 46,552
Furniture and fixtures 5,794 5,606
---------- ----------
Sub-total gross property 56,969 57,170
Less accumulated depreciation (52,241) (51,335)
---------- ----------
Total fixed assets - net 4,728 5,835
Asset held for sale 497 1,397
Non-current assets - discontinued operations 1,846 3,414
---------- ----------
$ 18,754 $ 38,127
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Current Liabilities:
Current portion of long-term debt $ 6,032 $ 13,382
Accounts payable 7,230 5,283
Accrued payroll and related expenses 931 1,518
Other accrued expenses 2,054 2,038
Other current liabilities -
discontinued operations 3,584 4,097
---------- ----------
Total current liabilities 19,831 26,318
---------- ----------
Long-term debt - -
Shareholders' Equity:
Common stock, par value $.01 per share
Authorized - 50,000,000 shares
Issued and outstanding - 7,692,076 77 77
Treasury stock (11) (11)
Additional paid-in capital 38,418 38,418
Retained earnings (39,523) (26,661)
Accumulated other comprehensive loss -
Cumulative translation adjustments (38) (14)
---------- ----------
Total shareholders' (deficit) equity (1,077) 11,809
---------- ----------
$ 18,754 $ 38,127
========== ==========
The accompanying notes to unaudited consolidated financial statements
are an integral part of these financial statements
Page 3 of 20
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 28, 2002 AND JUNE 29, 2001
(in thousands, except share and per share data)
3 MONTHS ENDED 3 MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001
-------------- ------------------
(Unaudited) (Unaudited)
Net sales $ 6,038 $ 28,191
Cost of sales 5,622 26,487
------- -------
Gross profit 416 1,704
------- -------
Selling and administrative expenses 866 1,628
Restructuring charge 448 -
Writedown of asset held for sale 500 -
------- -------
Operating (loss) profit (1,398) 76
Interest and financing expense (254) (313)
Other expense, net (45) -
------- -------
Net loss before income taxes (1,697) (237)
Income taxes - -
------- -------
Net loss from continuing operations (1,697) (237)
Discontinued operations:
Loss from operations of IEC-
Mexico disposed of (net
of income taxes of $26 in
2002 and $(27) in 2001) (644) (1,572)
Estimated loss on disposal
of IEC-Mexico (net of income
taxes of $0 in 2002 and 2001) (4,527) (1,400)
------- -------
(5,171) (2,972)
------- -------
Net loss $ (6,868) $ (3,209)
========= ==========
Net loss per common and common equivalent share:
Basic and Diluted
Loss from continuing operations $ (0.22) $ (0.03)
Loss from discontinued operations $ (0.67) $ (0.39)
Loss available to common
shareholders $ (0.89) $ (0.42)
Weighted average number of common and common equivalent shares outstanding:
Basic and Diluted 7,691,503 7,658,215
The accompanying notes to unaudited consolidated financial statements
are an integral part of these financial statements.
Page 4 of 20
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 28, 2002 AND JUNE 29, 2001
(in thousands, except share and per share data)
9 MONTHS ENDED 9 MONTHS ENDED
JUNE 28, 2002 JUNE 29, 2001
-------------- ------------------
(Unaudited) (Unaudited)
Net sales $ 30,725 $104,036
Cost of sales 30,199 96,682
------- --------
Gross profit 526 7,354
Selling and administrative expenses 3,620 5,172
Restructuring charge 448 -
Writedown of asset held for sale 900 -
------- --------
Operating (loss) profit (4,442) 2,182
Interest and financing expense (678) (902)
Other (expense) income, net (44) 20
------- --------
Net (loss) income before income taxes (5,164) 1,300
Income taxes - -
------- --------
Net (loss) income from continuing
operations (5,164) 1,300
Discontinued operations:
Loss from operations of IEC-Mexico
disposed of (net of income taxes
of $61 for 2002 and $72 for 2001) (3,169) (5,592)
Estimated loss on disposal of
IEC-Mexico (net of income taxes
of $0 in 2002 and 2001) (4,527) (1,400)
------- --------
(7,696) (6,992)
------- --------
Net loss $(12,860) $ (5,692)
========= =========
Net loss per common and common equivalent share:
Basic and Diluted
Loss from continuing operations $ (0.67) $ 0.17
Loss from discontinued operations $ (1.00) $ (0.92)
Loss available to common
shareholders $ (1.67) $ (0.75)
Weighted average number of common and common equivalent shares outstanding:
Basic and Diluted 7,691,503 7,638,691
The accompanying notes to unaudited consolidated financial statements
are an integral part of these financial statements.
Page 5 of 20
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE NINE MONTHS ENDED JUNE 28, 2002 AND JUNE 29, 2001
(in thousands)
9 MONTHS 9 MONTHS
ENDED ENDED
JUNE 28, JUNE 29,
2002 2001
----------- -----------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net loss $(12,860) $ (5,692)
Adjustments to reconcile net loss
to net cash provided by operating activities:
Loss from discontinued operations 3,169 5,592
Loss on sale of discontinued operations 4,527 1,400
Depreciation and amortization 1,223 3,130
Loss (gain) on sale of fixed assets 45 (20)
Goodwill amortization - 264
Common stock issued under Directors Stock Plan - 51
Asset impairment writedown 900
Changes in operating assets and liabilities:
(Increase) decrease
Accounts receivable 5,643 (4,026)
Inventories 2,185 5,811
Other current assets 29 (309)
Increase (decrease)
Accounts payable 2,017 2,974
Accrued payroll and related expenses (587) 121
Accrued income taxes - -
Accrued insurance 84 (46)
Accrued restructuring charges - -
Other accrued expenses (138) 249
------- --------
Net cash provided by operating activities 6,237 9,499
------- --------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and equipment (190) (2,847)
Proceeds from sale of equipment 28 20
Payments related to building/equipment restructuring - (40)
Proceeds from sale of discontinued operations 315 -
-------- --------
Net cash provided by (used in) investing activities 153 (2,867)
-------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Net (decrease) increase in drafts payable (419) 100
(Repayments) borrowings under line of credit agreements (5,352) 7,111
Principal payments on long-term debt (1,579) (1,579)
-------- ---------
Net cash (used in) provided by financing activities (7,350) 5,632
-------- ---------
Cash from (used in) discontinued operations 984 (12,254)
-------- ---------
Net increase in cash and cash equivalents 24 10
Effect of exchange rate changes (24) (10)
Cash and cash equivalents at beginning of period - -
-------- ---------
Cash and cash equivalents at end of period $ - $ -
======== =========
Supplemental Disclosures of Cash Flow Information:
Cash from continuing operations paid during the
period for:
Interest $ 804 $ 963
======== =========
Income taxes $ - $ -
======== =========
The accompanying notes to unaudited consolidated financial statements
are an integral part of these financial statements.
Page 6 of 20
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 2002
(1) Business and Summary of Significant Accounting Policies
Business
- --------
IEC Electronics Corp. (IEC) is an independent electronics manufacturing services
("EMS") provider of complex printed circuit board assemblies and electronic
products and systems. The Company 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.
The Company has suffered recurring net losses. As a result of these losses, the
Company was in violation of certain financial covenants under its credit
agreement as of September 30, 2001. On December 21, 2001, the Company's banks
waived the non-compliance, amended certain covenants to allow the Company more
flexibility and changed the expiration date of the credit agreement to February
15, 2002 from January 31, 2003. As a result of certain charges to inventory and
receivables recorded on January 11, 2002, included in the financial statements
as of September 30, 2001, primarily to reflect contingencies involved in pending
litigation, the Company was again in violation of the amended agreement. The
Company's banks have agreed to a series of extensions, the most recent of which
expires September 30, 2002. The Company is currently in discussions with other
lending institutions with respect to a new credit agreement. While the Company
believes it will be successful, there can be no assurance that it will meet the
September 30, 2002 expiration date. In addition, management has been endeavoring
to increase revenues and reduce expenses in an effort to improve operating cash
flow.
Consolidation
- -------------
The consolidated financial statements include the accounts of IEC and its
wholly-owned subsidiaries, IEC Electronics-Edinburg, Texas Inc. ("Texas") and
IEC Electronics-Arab, Alabama Inc. ("Alabama"), until January 26, 2000 when each
of Texas and Alabama merged into IEC; IEC Electronics-Ireland Limited
("Longford") from August 31, 1998, until September 4, 2001, when it was merged
into IEC; and IEC Electronicos de Mexico ("IEC-Mexico") from February 2001,
(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. The
major classifications of inventories are as follows at period end (in
thousands):
June 28, 2002 September 30, 2001
---------------- ----------------
(Unaudited)
Raw materials $ 2,095 $ 4,318
Work-in-process 1,753 2,528
Finished goods 13 -
---------------- ----------------
$ 4,661 $ 6,846
================ ================
Accounts Payable
- ----------------
Trade accounts payable include drafts payable of $385,000 and $804,000 at June
28, 2002 and September 30, 2001, respectively.
Page 7 of 20
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 2002
Long-lived Assets
- -----------------
In assessing and measuring the impairment of long-lived assets, the Company
applies the provisions of Statement of Financial Accounting Standards (SFAS) No.
121, "Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to Be Disposed Of". This statement requires that long-lived assets and
certain identifiable intangibles be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. Recoverability of assets to be held and used is measured by a
comparison of the carrying amount of an asset to future net cash flows expected
to be generated by the asset. If such assets are considered to be impaired, the
impairment to be recognized is measured by the amount by which the carrying
amount of the assets exceeds the fair value of the assets.
During August 1998, the Company initiated a plan to dispose of its Arab, Alabama
facility. In conjunction with this decision, the asset was written down to its
estimated recoverable sales value, net of commissions. The effect of this
impairment recognition totaled approximately $500,000 in the three months ended
June 28, 2002 and $900,000 in the nine months ended June 28, 2002. The facility
is recorded at its carrying value of $497,000 at June 28, 2002.
During April 2001, the Company initiated a plan to dispose of its Edinburg,
Texas facility. The facility is recorded at a carrying value of $1.8 million at
June 28, 2002.
Foreign Currency Translation
- ----------------------------
The assets and liabilities of the Company's foreign subsidiaries are translated
based on the current exchange rate at the end of the period for the balance
sheet and a 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.
Unaudited Financial Statements
- ------------------------------
The accompanying unaudited financial statements as of June 28, 2002, and for the
three and nine months ended June 28, 2002 have been prepared in accordance with
generally accepted accounting principles for the interim financia1 information.
In the opinion of management, all adjustments considered necessary for a fair
presentation, which consist solely of normal recurring adjustments have been
included. The accompanying financial statements should be read in conjunction
with the financial statements and notes thereto included in the Company's
September 30, 2001 Annual Report on Form 10-K.
Page 8 of 20
Net Loss per Common and Common Equivalent Share
- ------------------------------------------------
(in thousands, except for share and per share data)
(Loss) Shares Per Share
Three Months Ended (Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------
June 28, 2002
Basic and diluted EPS
Loss from continuing operations $ (1,697) 7,691,503 $(0.22)
Loss from discontinued operations $ (5,171) 7,691,503 $(0.67)
Loss available to common shareholders $ (6,868) 7,691,503 $(0.89)
June 29, 2001
Basic and diluted EPS
Loss from continuing operations $ (237) 7,658,215 $(0.03)
Loss from discontinued operations $ (2,972) 7,658,215 $(0.39)
Loss available to common shareholders $ (3,209) 7,658,215 $(0.42)
(Loss)Income Shares Per Share
Nine Months Ended (Numerator) (Denominator) Amount
- -------------------------------------------------------------------------------
June 28, 2002
Basic and diluted EPS
Loss from continuing operations $ (5,164) 7,691,503 $(0.67)
Loss from discontinued operations $ (7,696) 7,691,503 $(1.00)
Loss available to common shareholders $(12,860) 7,691,503 $(1.67)
June 29, 2001
Basic and diluted EPS
Income from continuing operations $ 1,300 7,638,691 $ 0.17
Loss from discontinued operations $ (6,992) 7,638,691 $(0.92)
Loss available to common shareholders $ (5,692) 7,638,691 $(0.75)
Basic EPS was computed by dividing reported earnings available to common
shareholders by weighted-average common shares outstanding during the three and
nine month periods. No reconciliation is provided between basic and diluted EPS
as the effect of all common share equivalents would be antidilutive.
New Pronouncements
- ------------------
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, ("SFAS No. 141") "Business Combinations"
and No. 142 ("SFAS No. 142"), "Goodwill and Other Intangible Assets." SFAS No.
141 requires that all business combinations be accounted for under the purchase
method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS No. 142 requires
that ratable amortization of goodwill be replaced with periodic tests of the
goodwill's impairment and that intangible assets other than goodwill be
amortized over their useful lives. SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001 and for all business combinations
accounted for by the purchase method for which the date of acquisition is before
June 30, 2001. The provisions of SFAS No. 142 are effective for fiscal years
beginning after December 15, 2001; however, as the Company wrote-off all
goodwill during fiscal 2001, adoption of this pronouncement will have no impact
on the Company.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" (SFAS No. 143). We will adopt this standard on October 1, 2002.
Upon adoption of SFAS No. 143, the fair value of a liability for an asset
retirement obligation will be recognized in the period in which it is incurred.
The associated retirement costs will be capitalized as part of the carrying
amount of the long-lived asset and subsequently allocated to expense over the
asset's useful life. Management does not expect the adoption of SFAS No. 143 to
have a material effect on the financial results of the Company.
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-lived Assets" ("SFAS No. 144"). SFAS No. 144 supercedes FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets To Be Disposed Of". SFAS No. 144 applies to all long-lived
assets (including discontinued operations) and consequently amends Accounting
Principles Board Opinion No. 30, "Reporting Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business". SFAS No. 144 is effective
for financial statements issued for fiscal years beginning after December 15,
2001, and will thus be adopted by the Company, as required, on October 1, 2002.
Management is currently determining what effect, if any, SFAS No. 144 will have
on its financial position and results of operations.
Page 9 of 20
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 2002
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 145, Rescission of FASB Statements No. 4,
44,and 64, Amendment of FASB Statement No. 13, and technical Corrections (SFAS
No. 145). SFAS No. 145 requires that gains and losses from extinguishment of
debt be classified as extraordinary items only if they meet the criteria in
Accounting Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the
provisions of Opinion No. 30 will distinguish transactions that are part of an
entity's recurring operations from those that are unusual and infrequent and
meet the criteria for classification as an extraordinary item. SFAS No. 145 is
effective for the Company beginning January 1, 2003. Management does not expect
the adoption of SFAS No. 145 to have a material effect on the financial results
of the Company.
In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities,
such as restructuring, involuntarily terminating employees and consolidating
facilities, initiated after December 31, 2002.
(2) Comprehensive Loss
------------------
The Company adopted Statement of Financial Accounting Standards No. 130,
"Reporting Comprehensive Income" (SFAS No. 130) on October 1, 1998. SFAS No. 130
requires comprehensive income and its components to be presented in the
financial statements. Comprehensive income, which includes net (loss) income and
foreign currency translation adjustments, was as follows for the three and nine
months ended June 28, 2002 and June 29, 2001(in thousands):
3 MONTHS 3 MONTHS
ENDED ENDED
June 28, June 29,
2002 2001
---------- -----------
(Unaudited) (Unaudited)
Net loss $ (6,868) $ (3,209)
Other comprehensive loss:
Foreign currency translation adjustments (3) (4)
---------- -----------
Comprehensive loss $ (6,871) $ (3,213)
========== ===========
9 MONTHS 9 MONTHS
ENDED ENDED
June 28, June 29,
2002 2001
---------- -----------
(Unaudited) (Unaudited)
Net loss $ (12,860) $ (5,692)
Other comprehensive loss:
Foreign currency translation adjustments (24) (10)
---------- -----------
Comprehensive loss $ (12,884) $ (5,702)
========== ===========
Page 10 of 20
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 2002
(3) Discontinued Operations
-----------------------
On June 18, 2002, the Company signed an Asset Purchase Agreement to sell
substantially all of the assets of IEC-Mexico to Electronic Product Integration
Corporation (EPI) for $730,000 plus payments of an Earn-out Amount, based upon
sales revenues received by EPI from certain former customers of the Company
during the period between July 1, 2002 and January 31, 2003, in an amount up to
$700,000. In addition, EPI will pay to the Company commissions based on the net
selling price of products shipped to certain former customers of the Company
during various time periods between June 18, 2002 and March 31, 2003. Under the
terms of a related agreement, the Company and IEC-Mexico were also released of
all of their lease obligations to the landlord of the Mexican facility. EPI paid
the Company $315,000 in June 2002 and $265,000 in July 2002. The remaining
amount of $150,000 is expected to be received by September 30, 2002. The Company
recorded an after-tax loss on the sale of the business of approximately $4.5
million and reflected this business as a discontinued operation in the 2002
third quarter. The Consolidated Financial Statements and related notes have been
restated, where applicable, to reflect IEC-Mexico as a discontinued operation.
Net sales of IEC-Mexico for the three and nine months ended June 28, 2002 were
$2.1 million and $10.8 million, respectively; and for the three and nine months
ended June 29, 2001 were $11.8 million and $41.2 million, respectively. These
amounts are not included in net sales in the accompanying consolidated
statements of operations.
Assets and liabilities of IEC-Mexico to be disposed of consisted of the
following:
June 28, 2002 September 30, 2001
------------- ------------------
Accounts receivable $1,130,486 $3,812,779
Inventories - 5,185,977
Other current assets 232,347 305,147
--------- ----------
Total current assets 1,362,833 9,303,903
Property, plant and equipment, net 1,837,312 3,405,005
Other assets 9,166 9,166
--------- ----------
Total non-current assets 1,846,478 3,414,171
--------- ----------
Total assets $3,209,311 $12,718,074
========== ===========
Accounts payable $ 932,306 $ 2,183,941
Accrued payroll and related expenses 137,826 496,916
Other accrued expenses 2,514,365 1,416,496
---------- -----------
Total current liabilities $3,584,497 $4,097,353
========== ===========
Net assets to be disposed of $ (375,186) $8,620,721
========== ===========
(4) Restructuring
-------------
In June 2002, the Company's Board of Directors approved a restructuring and
reduction of workforce plan at its Newark, NY facility. At this time, the
Company's President, Chief Executive Officer and a director of the Company and
the Company's Chief Financial Officer and Treasurer also resigned their
positions with the Company. Each elected not to continue in the management of a
restructured and downsized company.
In connection with this restructuring, the Company recorded a $448,000 charge to
earnings in the third quarter of fiscal 2002 relating primarily to severance. As
of June 28, 2002, a reserve balance of approximately $381,000 still remained. It
is anticipated that all remaining charges against the accrual will be made by
March 2003. There have been no significant reallocations or re-estimates of the
restructuring charge to date.
In April 2001, the Company's Board of Directors approved a restructuring plan to
consolidate its Texas and Mexico business operations including reducing its cost
structure and improving working capital. As part of the business-restructuring
plan, the Company recorded a charge to earnings of $1.4 million in the third
quarter of fiscal 2001. The charge related to facility consolidations ($1.0
million) and headcount reductions ($400,000). This restructuring plan was
intended to allow the Company to concentrate its investments, resources and
management attention on lower cost, high volume production at its Mexico
operations. On June 18, 2002, the Company sold its Mexican assets and closed its
Mexican plant. See Footnote (3) - "Discontinued Operations". As of June 28,
2002, a reserve balance of approximately $290,000 still remained. It is
anticipated that all remaining charges against the accrual will be made within
the next twelve months. There have been no significant reallocations or
re-estimates of this restructuring charge to date.
Page 11 of 20
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 2002
(5) Financing Arrangements
----------------------
As of September 30, 2001, the Company was not in compliance with certain
financial covenants under its secured asset-based credit agreement. As of
December 21, 2001, the Company's banks waived the non-compliance, amended
certain covenants to allow the Company more flexibility and changed the
expiration date of the credit agreement from January 31, 2003 to February 15,
2002. Subsequent amendments were made to the credit agreement as of February 15,
2002, February 28, 2002, March 15, 2002, April 8, 2002 and June 20, 2002, which,
among other things, continued to extend the expiration date of the credit
agreement. As a result of the June 20, 2002 amendment, the expiration date of
the credit agreement is currently September 30, 2002.
As currently amended, the credit agreement provides for a revolving credit
facility component of $3.5 million. Amounts borrowed are limited to 85% of
qualified accounts receivable, a certain percentage of raw materials (20%
through March 14, 2002; 15% from March 15, 2002 through March 24, 2002; 10% from
March 25, 2002 through March 31, 2002; 5% from April 1, 2002 through April 7,
2002; and 0% from April 8, 2002 and thereafter) and a certain percentage of work
in process inventory (30% through March 14, 2002 and 0% from March 15, 2002 and
thereafter). In no event could the inventory borrowing base be greater than $1
million. The interest rate on the revolving credit facility was increased from
prime rate plus 0.50% (from December 21, 2001 through January 31, 2002) to prime
rate plus 0.75% (from February 1, 2002 through February 27, 2002), prime rate
plus 1.00% (from February 28, 2002 through March 14, 2002), prime rate plus
2.00% (from March 15, 2002 through April 8, 2002), prime rate plus 2.25% (from
April 8, 2002 through April 30, 2002), prime rate plus 2.50% (from May 1, 2002
through May 31, 2002), prime rate plus 2.75% (from June 1, 2002 through June 30,
2002), prime rate plus 3.00% (from July 1, 2002 through July 31, 2002), prime
rate plus 3.25% (from August 1, 2002 through August 31, 2002) and prime rate
plus 3.50% (from September 1, 2002 through September 30, 2002).
The second component of the credit facility consists of a $10 million three-year
term loan with monthly principal installments based on a five-year amortization
which began in April 2000. The interest rate on the term loan facility was
increased from prime rate plus 0.75% (from December 21, 2001 through January 31,
2002) to prime rate plus 1.00% (from February 1, 2002 through February 27,
2002), prime rate plus 1.25% (from February 28, 2002 through March 15, 2002),
prime rate plus 2.50% (from March 15, 2002 through April 8, 2002), prime rate
plus 2.75% (from April 8, 2002 through April 30, 2002), prime rate plus 3.00%
percent (from May 1, 2002 through May 31, 2002), prime rate plus 3.25% (from
June 1, 2002 through June 30, 2002), prime rate plus 3.50% (from July 1, 2002
through July 31, 2002), prime rate plus 3.75% (from August 1, 2002 through
August 31, 2002) and prime rate plus 4.00% (from September 1, 2002 through
September 30, 2002).
At June 28, 2002, $6.0 million was outstanding, consisting of $769,000 and $5.3
million relating to the revolving credit facility and term loan, respectively,
with an additional $426,000 available under the revolving credit facility. At
August 14, 2002, the availability under the revolver was $265,000, and $899,000
was outstanding on the revolver and $4.8 million was outstanding on the term
loan.
The credit facility contains specific affirmative and negative covenants,
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 require the Company to maintain a minimum
tangible net worth, maximum debt-to-tangible net worth ratio, and a minimum
earnings before interest and taxes (EBIT). As a result of certain charges to
inventory and receivables to reflect contingencies involved in pending
litigation recorded on January 11, 2002, and included in the financial
statements as of September 30, 2001, the Company was in violation of the amended
credit agreement. The February, March, April and June amendments and extensions
described above were made notwithstanding said violation. The Company is
currently in discussions with other lending institutions with respect to a new
credit agreement. While the Company believes it will be successful, there can be
no assurance that it will meet the September 30, 2002 expiration of the current
agreement.
Since the Company's credit agreement currently expires on September 30, 2002, it
has classified the entire term loan and revolver as current debt. The Company's
liquidity is dependent on the ability to generate positive cash flow. If the
Company obtains a new credit agreement by September 30, 2002 or obtains an
extension of its existing credit agreement and meets its performance targets,
management believes the Company will generate sufficient cash flows in 2003 to
continue its current operations. To assist with its liquidity, the Company has
generally extended the payment dates of its accounts payable and in the case of
certain of its principal vendors has negotiated extended payment terms. However,
the Company's recurring losses and liquidity issues raise substantial doubts
about the Company's ability to continue as a going concern. The financial
statements do not include any adjustments relating to the recoverability and
classification of asset carrying amounts or the amount and classification of
liabilities that might result should the Company be unable to continue as a
going concern.
Page 12 of 20
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
JUNE 28, 2002
(6) Litigation
- --------------
The Company is from time to time subject to routine legal proceedings and claims
which arise in the ordinary course of its business. Although occasional adverse
decisions, or settlements, may occur, IEC believes that the final disposition of
such matters will not have a material adverse effect on the financial position
or operations of the Company.
On November 16, 2001, the Company commenced an action in New York State Supreme
Court against Acterna Corporation. The complaint asserts claims for unpaid
invoices, breach of contract and consequential attorneys' fees for which the
Company seeks approximately $7.0 million. The defendant's answer was served on
January 8, 2002 and consisted of a general denial and various affirmative
defenses. The Company moved for summary judgment, and oral arguments were heard
on February 13, 2002. On February 21, 2002, a New York State Supreme Court
Justice granted the Company's summary judgment motion against Acterna
Corporation in the amount of $1,580,077.13 on its First Cause of Action for an
account stated. Acterna Corporation filed a motion to reargue, which was denied.
It also filed a Notice of Appeal and has posted the necessary bond to stay
execution during the appeal process. Acterna's time to perfect the appeal
process was extended by the Court to September 17, 2002. If it fails to do so,
the appeal will be dismissed. As to the other causes of action enumerated by the
Company against Acterna Corporation, a discovery scheduling Order has been
executed by the Court, discovery is ongoing and the trial is scheduled to
commence with jury selection on October 25, 2002. The Company continues to
vigorously prosecute the action against Acterna Corporation, as management
firmly believes its case to be meritorious and regards Acterna Corporation's
actions as stall tactics and legal posturing. The Company and Acterna
Corporation are currently in active negotiations regarding the possible
settlement of the action and the Company believes that it is nearing a complete
settlement.
(7) Strategic Planning
------------------
Effective March 25, 2002, the Company retained the services of Lincoln Partners,
LLC, an investment banking firm specializing in merger and acquisition services,
capital raising and financial advisory services particularly for firms in the
electronic manufacturing services industry, to assist the Company in reviewing
strategic alternatives to enhance shareholder value. In July 2002, the Company
retained the Capital Formation Group, an investment banking firm specializing in
raising capital, to assist the Company in that endeavor. The Company's
facilities in Edinburg, Texas and Arab, Alabama have been listed for sale with
The Binswanger Companies.
Page 13 of 20
Item 2 -- Management's Discussion and Analysis of Financial Condition
and Results of Operations
-----------------------------------------------------------
Results of Operations - Three Months Ended June 28, 2002,
Compared to the Three Months Ended June 29, 2001.
-----------------------------------------------------------
Net sales for the three month period ended June 28, 2002, were $6.0 million,
compared to $28.2 million for the comparable period of the prior fiscal year, a
decrease of 78.6 percent. The decrease in sales is due to the prolonged overall
softening in the telecommunications and industrial sectors of the U.S. economy
and the consequential impact on IEC's financial position. Turnkey sales were
87.4 percent of net sales in the quarter as compared to 97.4 percent for the
comparable period of the prior year. The decrease was primarily due to
consignment sales remaining relatively stable while turnkey sales have dropped
significantly.
Gross profit was $0.4 million or 6.9 percent of sales for the three month period
ended June 28, 2002, versus $1.7 million or 6.0 percent of sales in the
comparable period of the prior year. The increase in gross profit percentage is
primarily due to an adjustment in an accounting reserve recorded during the
current quarter.
Selling and administrative expenses decreased to $0.9 million in the three
months ended June 28, 2002, from $1.6 million in the comparable period of the
prior year, a decrease of 46.8 percent. This decrease is primarily due to lower
commission expense from lower sales volume as well as a decrease in the number
of employees. As a percentage of net sales, selling and administrative expenses
increased to 14.3 percent from 5.8 percent in comparison to the same quarter of
the prior fiscal year as certain costs remained fixed with a significantly lower
sales volume.
IEC recorded a pre-tax charge of $448,000 in the three months ended June 28,
2002. This was due to the restructuring and reduction in workforce at IEC's
Newark, NY facility.
IEC also recorded a pre-tax charge of $500,000 in the three months ended June
28, 2002. This was due to an additional writedown of IEC's Alabama building held
for sale as a result of a softening in the commercial real estate market.
IEC recorded approximately $334,000 of special charges in the three months ended
June 28, 2002, due to bank and consulting fees incurred to comply with new bank
requirements under the current amendment to the banking agreement, of which
$199,000 is included in interest and financing expense. These expenses are
continuing during the current quarter.
IEC has recorded no benefit from income tax as a result of the net loss, and
accordingly, has a full valuation allowance against its net deferred tax asset
including the net operating loss carry-forward.
Net loss from continuing operations for the three months ended June 28, 2002 was
$(1.7) million versus $(237,000) in the comparable quarter of the prior year.
Diluted loss per share from continuing operations was $(0.22) as compared to
diluted loss per share from continuing operations of $(0.03) in the comparable
quarter of the prior fiscal year.
Page 14 of 20
Management's Discussion and Analysis of Financial Condition and
Results of Operations
- --------------------------------------------------------------------
Results of Operations - Nine Months Ended June 28, 2002, Compared to
Nine Months Ended June 29, 2001.
- --------------------------------------------------------------------
Net sales for the nine month period ended June 28, 2002, were $30.7 million,
compared to $104.1 million for the comparable period of the prior year, a
decrease of 70.5%. The decrease in sales is due to the prolonged overall
softening in the telecommunications and industrial sectors of the U.S. economy
and the consequential impact on IEC's financial position. Turnkey sales were
91.6 percent of net sales in the nine month period as compared to 96 percent for
the comparable period of the prior fiscal year.
Gross profit was $0.5 million or 1.7 percent of sales for the nine month period
ended June 28, 2002, versus $7.4 million or 7.1 percent of sales in the
comparable period of the prior year. The decrease in gross profit percentage was
primarily due to fixed manufacturing overhead costs being absorbed by a
significantly lower sales volume.
Selling and administrative expenses decreased to $3.6 million in the nine months
ended June 28, 2002, from $5.2 million in the comparable period of the prior
fiscal year, a decrease of 30.0%. This decrease is primarily due to lower
commission expense from lower sales volume, as well as a decrease in the number
of employees. As a percentage of net sales, selling and administrative expenses
increased to 11.8 percent from 5.0 percent in comparison to the same quarter of
the prior fiscal year as certain costs remained fixed with a significantly lower
sales volume.
IEC recorded a pre-tax charge of $448,000 in the nine months ended June 28,
2002. This was due to the restructuring and reduction in workforce at IEC's
Newark, NY facility.
IEC also recorded a pre-tax charge of $900,000 in the nine months ended June 28,
2002. This was due to an additional writedown of IEC's Alabama building held for
sale as a result of a softening in the commercial real estate market.
IEC recorded approximately $677,000 of special charges in the nine months ended
June 28, 2002, due to bank and consulting fees incurred to comply with new bank
requirements under the current amendment to the banking agreement, of which
$382,000 is included in interest and financing expense. These expenses are
continuing during the current quarter.
Interest and financing expense decreased to $0.7 million in the nine months
ended June 28, 2002, from $0.9 million in the comparable period of the prior
year, a decrease of 24.9%. This decrease is related to a decrease in the
weighted average debt balance of $6.6 million and a weighted average rate
decrease of 2.7%, offset by additional bank financing charges of approximately
$382,000.
IEC has recorded no benefit from income tax as a result of the net loss, and
accordingly, has a full valuation allowance against its net deferred tax asset
including the net operating loss carry-forward.
Net loss from continuing operations for the nine month period was $(5.2) million
versus net income from continuing operations of $1.3 million in the comparable
period of the prior fiscal year. Diluted loss per share from continuing
operations was $(0.67) as compared to diluted income per share from continuing
operations of $0.17 in the comparable period of the prior fiscal year.
Discontinued Operations
- -----------------------
On June 18, 2002, IEC signed an Asset Purchase Agreement to sell substantially
all of the assets of IEC-Mexico to Electronic Product Integration Corporation
(EPI) for $730,000 plus payments of an Earn-out Amount, based upon sales
revenues received by EPI from certain former customers of IEC during the period
between July 1, 2002 and January 31, 2003, in an amount up to $700,000. In
addition, EPI will pay to IEC commissions based on the net selling price of
products shipped to certain former customers of IEC during various time periods
between June 18, 2002 and March 31, 2003. Under the terms of a related
agreement, IEC and IEC-Mexico were also released of all of their lease
obligations to the landlord of the Mexican facility. EPI paid IEC $315,000 in
June 2002 and $265,000 in July 2002. The remaining amount of $150,000 is
expected to be received by September 30, 2002. IEC recorded an after-tax loss on
the sale of the business of approximately $4.5 million and reflected this
business as a discontinued operation in the 2002 third quarter. The Consolidated
Financial Statements and related notes have been restated, where applicable, to
reflect IEC-Mexico as a discontinued operation.
Page 15 of 20
Restructuring
- -------------
In June 2002, IEC's Board of Directors approved a restructuring and reduction of
workforce plan at its Newark, NY facility. At this time, IEC's President, Chief
Executive Officer and a director of the Company and it's Chief Financial officer
and Treasurer also resigned their positions with IEC. Each elected not to
continue in the management of a restructured and downsized company.
In connection with this restructuring, IEC recorded a $448,000 charge to
earnings in the third quarter of fiscal 2002 relating primarily to severance. As
of June 28, 2002, a reserve balance of approximately $381,000 still remained. It
is anticipated that all remaining charges against the accrual will be made by
March 2003. There have been no significant reallocations or re-estimates of the
restructuring charge to date.
In April 2001, IEC's Board of Directors approved a restructuring plan to
consolidate its Texas and Mexico business operations including reducing its cost
structure and improving working capital. As part of the business-restructuring
plan, IEC recorded a charge to earnings of $1.4 million in the third quarter of
fiscal 2001. The charge related to facility consolidations ($1.0 million) and
headcount reductions ($400,000). This restructuring plan would allow IEC to
concentrate its investments, resources and management attention on lower cost,
high volume production at its Mexico operations. As of June 28, 2002, a reserve
balance of approximately $290,000 still remained. It is anticipated that all
remaining charges against the accrual will be made within the next twelve
months. There have been no significant reallocations or re-estimates of this
restructuring charge to date.
Liquidity and Capital Resources
- -------------------------------
Net sales for the month of June 2002 were $1.7 million, representing 28.2
percent of the total net sales for the three month period ending June 28, 2002.
Net sales for the month of June 2001 were $10.6 million, representing 37.6
percent of the total net sales for the three month period ending June 29, 2001.
IEC operates on a fiscal quarter consisting of four weeks in the first and
second months and five weeks in the third month.
As reflected in the Consolidated Statements of Cash Flows for the nine months
ending June 28, 2002, net cash was provided by: operating activities ($6.2
million), discontinued operations ($1.0 million) and sale of discontinued
operations ($315,000). Net cash was used to pay down bank debt ($7.4 million)
and purchase equipment ($190,000). Depreciation for the nine month period ending
June 28, 2002 was $1.2 million, as compared to $3.1 million for the comparable
period of the prior fiscal year. This decrease is primarily attributable to
fewer purchases of property, plant and equipment the last three years and a $3.0
million writedown of impaired property, plant and equipment taken in the 4th
quarter of last year. The overall decrease in sales caused by the slowdown in
the Electronic Manufacturing Services industry has resulted in accounts
receivable collections, including those of inventory sold back to customers,
outpacing new billings by $5.6 million. The lower sales volume has also resulted
in reducing inventory levels by $2.2 million since inventory is not being
replaced as existing orders are being filled or inventory is being sold back to
customers. An additional $2.0 million of cash flow was generated from an
increase in accounts payable.
As of September 30, 2001, IEC was not in compliance with certain financial
covenants under its secured asset-based credit agreement. As of December 21,
2001, IEC's banks waived the non-compliance, amended certain covenants to allow
IEC more flexibility and changed the expiration date of the credit agreement
from January 31, 2003 to February 15, 2002. Subsequent amendments were made to
the credit agreement as of February 15, 2002, February 28, 2002, March 15, 2002,
April 8, 2002 and June 20, 2002, which, among other things, continued to extend
the expiration date of the credit agreement. As a result of the June 20, 2002
amendment, the expiration date of the credit agreement is currently September
30, 2002.
As currently amended, the credit agreement provides for a revolving credit
facility component of $3.5 million. Amounts borrowed are limited to 85% of
qualified accounts receivable, a certain percentage of raw materials (20%
through March 14, 2002; 15% from March 15, 2002 through March 24, 2002; 10% from
March 25, 2002 through March 31, 2002; 5% from April 1, 2002 through April 7,
2002; and 0% from April 8, 2002 and thereafter) and a certain percentage of work
in process inventory (30% through March 14, 2002 and 0% from March 15, 2002 and
thereafter). In no event could the inventory borrowing base be greater than $1
million. The interest rate on the revolving credit facility was increased from
prime rate plus 0.50% (from December 21, 2001 through January 31, 2002) to prime
rate plus 0.75% (from February 1, 2002 through February 27, 2002), prime rate
plus 1.00% (from February 28, 2002 through March 14, 2002), prime rate plus
2.00% (from March 15, 2002 through April 8, 2002), prime rate plus 2.25% (from
April 8, 2002 through April 30, 2002), prime rate plus 2.50% (from May 1, 2002
through May 31, 2002), prime rate plus 2.75% (from June 1, 2002 through June 30,
2002), prime rate plus 3.00% (from July 1, 2002 through July 31, 2002), prime
rate plus 3.25% (from August 1, 2002 through August 31, 2002) and prime rate
plus 3.50% (from September 1, 2002 through September 30, 2002).
Page 16 of 20
The second component of the credit facility consists of a $10 million three-year
term loan with monthly principal installments based on a five-year amortization
which began in April 2000. The interest rate on the term loan facility was
increased from prime rate plus 0.75% (from December 21, 2001 through January 31,
2002) to prime rate plus 1.00% (from February 1, 2002 through February 27,
2002), prime rate plus 1.25% (from February 28, 2002 through March 15, 2002),
prime rate plus 2.50% (from March 15, 2002 through April 8, 2002), prime rate
plus 2.75% (from April 8, 2002 through April 30, 2002), prime rate plus 3.00%
percent (from May 1, 2002 through May 31, 2002), prime rate plus 3.25% (from
June 1, 2002 through June 30, 2002), prime rate plus 3.50% (from July 1, 2002
through July 31, 2002), prime rate plus 3.75% (from August 1, 2002 through
August 31, 2002) and prime rate plus 4.00% (from September 1, 2002 through
September 30, 2002).
At June 28, 2002, $6.0 million was outstanding, consisting of $769,000 and $5.3
million relating to the revolving credit facility and term loan, respectively,
with an additional $426,000 available under the revolving credit facility. At
August 14, 2002, the availability under the revolver was $265,000, and $899,000
was outstanding on the revolver and $4.8 million was outstanding on the term
loan.
The credit facility contains specific affirmative and negative covenants,
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 require IEC to maintain a minimum tangible net
worth, maximum debt-to-tangible net worth ratio, and a minimum earnings before
interest and taxes (EBIT). As a result of certain charges to inventory and
receivables to reflect contingencies involved in pending litigation recorded on
January 11, 2002, and included in the financial statements as of September 30,
2001, IEC was in violation of the amended credit agreement. The February, March,
April and June amendments and extensions described above were made
notwithstanding said violation. IEC is currently in discussions with other
lending institutions with respect to a new credit agreement. While IEC believes
it will be successful, there can be no assurance that it will meet the September
30, 2002 expiration of the current agreement.
Since IEC's credit agreement currently expires on September 30, 2002, it has
classified the entire term loan and revolver as current debt. IEC's liquidity is
dependent on the ability to generate positive cash flow. Provided IEC obtains a
new credit agreement by September 30, 2002 or obtains an extension of its
existing credit agreement and meets its performance targets, management believes
IEC will generate sufficient cash flows in 2003 to continue its current
operations. To assist with its liquidity, IEC has generally extended the payment
dates of its accounts payable and in the case of certain of its principal
vendors has negotiated extended payment terms. However, IEC's recurring losses
and liquidity issues raise substantial doubts about IEC's ability to continue as
a going concern. The financial statements do not include any adjustments
relating to the recoverability and classification of asset carrying amounts or
the amount and classification of liabilities that might result should IEC be
unable to continue as a going concern.
Page 17 of 20
Impact of Inflation
- -------------------
The impact of inflation on IEC's operations has been minimal due to the fact
that it is able to adjust its bids to reflect any inflationary increases in
cost.
New Pronouncements
- ------------------
In July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141, ("SFAS 141") "Business Combinations" and
No. 142 ("SFAS 142"), "Goodwill and Other Intangible Assets." SFAS No. 141
requires that all business combinations be accounted for under the purchase
method only and that certain acquired intangible assets in a business
combination be recognized as assets apart from goodwill. SFAS No. 142 requires
that ratable amortization of goodwill be replaced with periodic tests of the
goodwill's impairment and that intangible assets other than goodwill be
amortized over their useful lives. SFAS No. 141 is effective for all business
combinations initiated after June 30, 2001 and for all business combinations
accounted for by the purchase method for which the date of acquisition is before
June 30, 2001. The provisions of SFAS No. 142 will be effective for fiscal years
beginning after December 15, 2001; however, as IEC wrote-off all goodwill during
fiscal 2001, adoption of this pronouncement will have no impact on IEC.
In June 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 143, "Accounting for Asset Retirement
Obligations" (SFAS No. 143). We will adopt this standard on October 1, 2002.
Upon adoption of SFAS No. 143, the fair value of a liability for an asset
retirement obligation will be recognized in the period in which it is incurred.
The associated retirement costs will be capitalized as part of the carrying
amount of the long-lived asset and subsequently allocated to expense over the
asset's useful life. Management does not expect the adoption of SFAS No. 143 to
have a material effect on the financial results of IEC.
In October 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 144 "Accounting for the Impairment or
Disposal of Long-Lived Assets" ("SFAS No. 144"). SFAS No. 144 supercedes FASB
Statement No. 121, "Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of". SFAS No. 144 applies to all long-lived
assets (including discontinued operations) and consequently amends Accounting
Principles Board Opinion No. 30, "Reporting Results of Operations - Reporting
the Effects of Disposal of a Segment of a Business". SFAS No. 144 is effective
for financial statements issued for fiscal years beginning after December 15,
2001, and will thus be adopted by IEC, as required, on October 1, 2002.
Management is currently determining what effect, if any, SFAS No. 144 will have
on its financial position and results of operations.
In April 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standard No. 145, Rescission of FASB Statements No. 4, 44
and 64, Amendment of FASB Statement No. 13, and Technical Corrections (SFAS No.
145). SFAS No. 145 requires that gains and losses from extinguishment of debt be
classified as extraordinary items only if they meet the criteria in Accounting
Principles Board Opinion No. 30 ("Opinion No. 30"). Applying the provisions of
Opinion No. 30 will distinguish transactions that are part of an entity's
recurring operations from those that are unusual and infrequent and meet the
criteria for classification as an extraordinary item. SFAS No. 145 is effective
for IEC beginning January 1, 2003. Management does not expect the adoption of
SFAS No. 145 to have a material effect on financial results of IEC.
In July 2002, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 146, "Accounting for Costs Associated with
Exit or Disposal Activities" ("SFAS No. 146"). SFAS No. 146 addresses financial
accounting and reporting for costs associated with exit or disposal activities,
such as restructuring, involuntarily terminating employees and consolidating
facilities, initiated after December 31, 2002.
Quantitative and Qualitative Disclosures About Market Risk
- ----------------------------------------------------------
Quantitative and Qualitative Disclosures about Market Risk represents the risk
of loss that may impact the consolidated financial position, results of
operations or cash flows of IEC due to adverse changes in financial rates. IEC
is exposed to market risk in the area of interest rates. This exposure is
directly related to its Term Loan and Revolving Credit borrowings under the
Credit Agreement, due to their variable interest rate pricing. Management
believes that interest rate fluctuations will not have a material impact on
IEC's results of operations.
Forward-looking Statements
- --------------------------
Except for historical information, statements in this quarterly report are
forward-looking made pursuant to the safe harbor created by the Private
Securities Litigation Reform Act of 1995 and are therefore subject to certain
risks and uncertainties including timing of orders and shipments, availability
of material, product mix and general market conditions that could cause actual
results to differ materially from those projected in the forward looking
statements. Investors should consider the risks and uncertainties discussed in
the September 30, 2001, Form 10K and its other filings with the Securities and
Exchange Commission.
Page 18 of 20
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
The description of IEC's legal proceedings set forth in Item 3 of IEC's Annual
Report on Form 10-K for the fiscal period ended September 30, 2001, and in Item
1. of Part II of the Company's Forms 10-Q for the quarterly periods ended
December 31, 2001 and March 29, 2002, are incorporated herein by reference.
Acterna Corporation
- -------------------
On November 16, 2001, the Company commenced an action (the "Action") in New York
State Supreme Court against Acterna Corporation ("Acterna"). The complaint
asserts claims for unpaid invoices, breach of contract and consequential
attorneys' fees for all of which the Company seeks approximately $7.0 million.
The defendant's answer was served on January 8, 2002 and consisted of a general
denial and various affirmative defenses. The Company moved for summary judgment,
and oral arguments were heard on February 13, 2002. On February 21, 2002, a New
York State Supreme Court Justice granted IEC's summary judgment motion against
Acterna in the amount of $1,580,077.13 on its First Cause of Action for an
account stated. Acterna filed a motion to reargue, which was denied. It also
filed a Notice of Appeal and has posted the necessary bond to stay execution
during the appeal process. Acterna's time to perfect the appeal on a timely
basis was extended by the Court to September 17, 2002. If Acterna fails to do
so, the appeal will be dismissed. As to the other causes of action enumerated by
the Company against Acterna, a discovery scheduling Order has been executed by
the Court, discovery is ongoing and the trial is scheduled to commence with jury
selection on October 25, 2002. The Company continues to vigorously prosecute the
action against Acterna, as management firmly believes its case to be meritorious
and regards Acterna's actions as stall tactics and legal posturing. The Company
and Acterna are currently involved in active negotiations regarding the possible
settlement of the Action and the Company believes that it is nearing a
complete settlement.
Item 2 -- Changes in Securities
None.
Item 3 -- Defaults Upon Senior Securities
None.
Item 4 -- Submission of Matters to a Vote of Security Holders
None.
Item 5 -- Other Information
The Company has received notification that its common stock has not maintained a
minimum market value of publicly held shares ("MVPHS") of $1,000,000 over the
previous 30 consecutive trading days as required for continued listing on The
Nasdaq SmallCap Market. In accordance with the Nasdaq Marketplace Rules (the
"Rules"), the Company will be provided 90 calendar days (or until October 21,
2002) to regain compliance. If at any time prior to October 21, 2002, the MVPHS
is $1,000,000 or more for a minimum of 10 consecutive trading days, the Company
will have achieved compliance with this Rule. There can be no assurance that the
Company will be able to achieve compliance with this Rule. If the Company is
unable to regain compliance with this Rule by October 21, 2002, its common stock
will be delisted.
The Company has also received notification that its common stock has not
maintained a minimum bid price of $1.00 per share over the previous 30
consecutive trading days as required for continued listing on The Nasdaq
SmallCap Market. In accordance with the Rules, the Company will be provided 180
calendar days (or until February 10, 2003) to regain compliance. If at any time
prior to February 10, 2003, the bid price for the Company's common stock closes
at $1.00 per share or more for a minimum of 10 consecutive trading days, the
Company will have achieved compliance with this Rule. There can be no assurance
that the Company will be able to achieve compliance with this Rule. If the
Company is unable to regain compliance with this Rule by February 10, 2003, its
common stock will be delisted. This 180-day period relates exclusively to price
deficiency. The Company may be delisted sooner for failure to maintain
compliance with the MVPHS, as noted in the preceding paragraph.
Page 19 of 20
Item 6 -- Exhibits and Reports on Form 8-K
a. Exhibits
The following documents are filed as exhibits to this Report:
99.1 A certification of the Chief Executive Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350.
99.2 A certification of the Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section
1350.
b. Reports on Form 8-K
(i) Current reports on Form 8-K and FOrm 8-K/A were filed with the
Securities and Exchange Commission on May 29, 2002 and June 4, 2002,
respectively. The reports contained information about changes in the
Company's certifying accountants.
(ii) A current report on Form 8-K was filed with the Securities and
Exchange Commission on June 13, 2002. The report contained
information about the Company's restructuring and reduction in its
Newark, NY workforce, the departure of the Chief Executive Officer
and Chief Financial Officer, and the appointment of new officers.
(iii) A current report on Form 8-K was filed with the Securities and
Exchange Commission on June 28, 2002. The report contained
information about the sale of assets of the Company's Mexican
manufacturing facility in Reynosa, Mexico and about Amendment No. 9
to the Company's Loan and Security Agreement.
(iv) A current report on Form 8-K was filed with the Securities and
Exchange Commission on August 12, 2002. The report contained
information about the engagement of new independent accountants.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IEC ELECTRONICS CORP.
REGISTRANT
Dated: August 19, 2002 /s/W. Barry Gilbert
-----------------------------
W. Barry Gilbert
Chairman and Acting Chief Executive Officer
Dated: August 19, 2002 /s/Kevin J. Monacelli
------------------------------
Kevin J. Monacelli
Controller
(Chief Accounting Officer)
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