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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, 1996 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 45
As of December 19, 1996, the aggregate market value of the voting stock held by
non-affiliates of the registrant was approximately $19,891,971.
(Assumes officers, directors, and any stockholder holding 5% of the outstanding
shares are affiliates.)
As of December 19, 1996, there were outstanding 7,415,070 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 26, 1997 is incorporated into Part
III of this Form 10-K
Page 2 of 45
TABLE OF CONTENTS
PART I
PAGE
Item 1: Business..................................................... 4
Item 2: Properties................................................... 9
Item 3: Legal Proceedings............................................ 9
Item 4: Submission of Matters to a Vote of Security Holders.......... 10
Executive Officers of Registrant............................. 10
PART II
Item 5: Market for Registrant's Common Equity and Related
Stockholder Matters......................................... 11
Item 6: Selected Consolidated Financial Data......................... 12
Item 7: Management's Discussion and Analysis of Financial
Condition and Results of Operations......................... 14
Item 8: Financial Statements and Supplementary Data.................. 17
Item 9: Changes in and Disagreements with Accountants
on Accounting and Financial Disclosure...................... 17
PART III
Item 10: Directors and Executive Officers of the Registrant......... 18
Item 11: Executive Compensation..................................... 18
Item 12: Security Ownership of Certain Beneficial Owners and
Management................................................ 18
Item 13: Certain Relationships and Related Transactions............. 18
PART IV
Item 14: Exhibits, Financial Statement Schedules, and Reports
on Form 8-K.............................................. 19
Page 3 of 45
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 leader in the contract electronics manufacturing
industry 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 ten largest
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
November 1994, the Company acquired all of the then outstanding common stock of
Accutek, Inc. ("Accutek"), located in Arab, Alabama. As used herein, "Company"
or "IEC" includes IEC Electronics Corp. and its subsidiaries, Calidad and
Accutek, unless the context otherwise requires.
The Company completed a public offering of its Common Stock in February
1993, the net proceeds from which, amounting to $29,744,573, were utilized to
reduce debt and increase working capital.
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.
The Company's executive offices are located at 105 Norton Street, Newark,
New York 14513. Its telephone number is (315) 331-7742.
Page 4 OF 45
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 strength: 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.
Historically, OEMs in the computer and electronics industries relied on
internal manufacturing capabilities to support their growth. Local job shops
were given short-term overloads and specialty work as required, creating
unstable and unpredictable business levels for these manufacturers. 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 recently 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 intends to make
new processes available to its customers when commercial factors so indicate.
The next generation of interconnection technologies may include tape automated
bonding ("TAB") and chip on board ("COB") assembly techniques. TAB and COB are
relatively recent approaches to achieving greater density on printed circuit
boards. The Company's customers do not currently require the utilization of TAB
or COB.
Page 5 OF 45
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 1996, the
Company invested approximately $9,100,000 in capital equipment and facility
expansion. The vast majority of this amount was invested in new SMT and testing
equipment to support the increased demand for this modern technology. 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
twelve month 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 45
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 over 500 different assemblies which are
incorporated into over 100 different products. The Company provides contract
manufacturing services primarily for micro, mini and mainframe computers;
computer peripheral equipment; industrial photography and imaging equipment;
office equipment; telecommunications equipment; measuring devices; and medical
instrumentation. During the fiscal year ended September 30, 1996 the Company
provided contract manufacturing services to 98 different customers, including
Compaq Computer Corporation ("Compaq"), Matrox Graphics, Inc. ("Matrox"), K-Tec
Electronics ("K-Tec), a division of a Kent Electronics company, Itronix
Corporation ("Itronix"), a division of Telxon Corporation, Stratus Corporation
("Stratus"), Symbol Technologies, Inc. ("Symbol") and ADC Video Systems ("ADC
Video"). 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 1994, 1995, and 1996, turnkey contracts, under which the Company
provided materials in addition to a value-added labor component, represented
73%, 64% and 85% of sales, respectively. Materials and the associated material
handling expense often represent more than 85% 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 provide for cancellation charges equal to all costs which
are incurred by the Company as a result of a customer's cancellation of
contracted quantities, including but not limited to all labor and material
costs. 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.
Marketing and Sales
The Company markets its services through a direct sales force of 5
individuals headquartered at the Company's facilities in Newark, New York, 20
program managers and 11 independent manufacturers' representatives, who
currently employ approximately 55 sales people in 35 states and Canada. 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 45
The Company's sales effort is supported by advertising in numerous trade
media, sales literature, 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 17, 1996 and December 15, 1995 was
approximately $136,683 and $87,013,000, respectively. Backlog consists of
contracts or purchase orders with delivery dates scheduled within the next 12
months. Approximately 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.
Customers
Compaq, Matrox, K-Tec and Itronix were the Company's four largest
customers during the fiscal year ended September 30, 1996 and accounted for 22%,
13%, 9% and 6%, respectively, of the Company's net sales for such period. During
fiscal 1996, the Company produced over 500 different assemblies which in turn
were incorporated into over 100 products for its customers. The Company provides
its services to multiple divisions and product groups of many of its customers
and typically manufactures for a number of each customer's product generations.
Historically, the Company has had substantial recurring sales from its
customers. Customer contracts can be cancelled and purchase levels can be
changed or delayed at any time. The timely replacement of cancelled, delayed or
reduced contracts with new orders cannot be assured. During the fiscal year
ended September 30, 1996, the Company provided services to approximately 74% of
the customers for which it provided services in fiscal 1995.
Compaq, Stratus, Symbol and ADC Video were the Company's four largest
customers during the fiscal year ended September 30, 1995 and accounted for 43%,
8%, 4% and 4%, respectively, of the Company's net sales for such period.
Competition
Once an OEM has decided to utilize the services of a contract
manufacturer, competition for the OEM's manufacturing business is intense and is
based upon technology, quality, service, price and the ability to deliver
finished products on an expeditious and reliable basis. The Company believes
that it competes favorably with respect to such factors. In the domestic
contract manufacturing industry, the Company estimates that there are
approximately 150 competitors and that it is among the ten largest independent
companies in the industry based upon volume of product manufactured. Among the
Company's larger competitors are Solectron Corporation and divisions of SCI
Systems, Inc., both of which have greater resources than the Company.
The Company also faces significant offshore competition. Although such
competitors may offer low bid prices, the Company believes that because of
additional costs and risks associated with utilizing offshore services such as
delays in shipping, long lead times, inflexibility with respect to production
and engineering changes and difficulty in communication, many OEMs choose to
utilize domestic services, including those provided by the Company.
Page 8 OF 45
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 2,155 at December 17, 1996,
including 142 employees engaged in engineering, 1914 in manufacturing and 99 in
administrative and marketing functions. None of the Company's employees is
covered by a collective bargaining agreement and the Company has experienced no
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,
by virtue of its Texas location in the Rio Grande valley, and by virtue of its
Alabama location 70 miles north of Birmingham and 30 miles south of Huntsville.
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.
ITEM 2. PROPERTIES
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The Company's principal manufacturing facility, acquired with the aid of
industrial revenue bond financing (see Note 5 of Notes to Consolidated Financial
Statements), is located in Newark, New York and contains an aggregate of
approximately 250,000 square feet, of which the Company currently utilizes
approximately 230,000 square feet for its operations. Approximately 20,000
square feet of the building complex are available for business expansion. The
Calidad manufacturing facility located in Edinburg, Texas consists of
approximately 87,000 square feet of space of which approximately 60,000 square
feet are currently utilized, leaving 27,000 square feet for expansion. The
Accutek facility located in Arab, Alabama consists of approximately 125,000
square feet of which approximately 75,000 square feet are currently utilized,
leaving 50,000 square feet for expansion.
ITEM 3. LEGAL PROCEEDINGS
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On March 23, 1994, three class action complaints were filed against the
Company and certain of its officers and directors in the United States District
Court for the Western District of New York located in Rochester, New York. The
respective plaintiffs were Jacqueline Bowkey, Jeffrey Sandler and Maude Thompson
and the defendants in each action were the Company, Roger E. Main (now
deceased), the former Chairman and Chief Executive Officer of the Company,
Timothy J. Kennedy, Vice President, Treasurer and Chief Financial Officer of the
Company, Russell E. Stingel, President and current Chief Executive Officer of
the Company, and Edward Butka, Vice President of the Company. The defendants
were the same in the other two actions. In action no. 2, the plaintiff was
Jeffrey Sandler and action no. 3, the plaintiff was Maude Thompson.
Page 9 OF 45
In each action the plaintiff, claiming to represent a class of
shareholders who purchased common stock of the Company between January 24, 1994
and March 22, 1994 (the "Class"), alleged (1) that defendants violated the
federal securities laws by making misrepresentations regarding the future
earnings and business prospects of the Company, and (2) that plaintiff and the
Class purchased common stock of the Company at artificially inflated prices in
reliance upon said statements and that they were damaged thereby. In each
action, plaintiff sought unspecified damages.
The three actions were consolidated in March 1995. The consolidated action
was voluntarily discontinued in September 1996 without any payment to the
plaintiffs or their counsel by any of the defendants. No Class had ever been
certified by the Court.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
- ------------------------------------------------------------
During the fourth quarter of fiscal 1996, no matters were submitted to a
vote of security holders.
EXECUTIVE OFFICERS OF THE REGISTRANT
The Company's executive officers as of September 30, 1996, were as follows:
Name Age Position
Russell E. Stingel 65 Chairman of the Board,
President, Chief Executive
Officer and Director
Timothy J. Kennedy 56 Vice President, Treasurer and
Chief Financial Officer and Secretary
Edward Butka 58 Vice President and Assistant
General Manager
J. Darrell Cottle 50 President, Accutek, Inc.
Russell E. Stingel has served as President since February 1996, as Chief
Executive Officer since July 1996, and as a director since October 1996. Prior
thereto, he had been the Executive Vice President, Secretary and General Manager
of the Company since 1977. 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.
Timothy J. Kennedy has served as Vice President, Treasurer and Chief
Financial Officer of the Company since 1981, as Secretary since February 1996
and in other capacities since 1979. He was previously employed by Titeflex
Corp. as Controller and by General Instrument Corp. as Chief Accountant.
Edward Butka has served as Vice President since October 1990, as Assistant
General Manager since 1988 and in various other capacities since 1970. He was
previously employed by General Dynamics Corporation in various capacities.
J. Darrell Cottle has served as President and as a director of the
Company's subsidiary, Accutek, Inc., since its acquisition by the Company on
November 21, 1994. Mr. Cottle had been a major shareholder, officer and
director of Accutek, Inc. from the time of its incorporation in May 1982
until its acquisition by the Company.
Page 10 OF 45
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND
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RELATED STOCKHOLDER MATTERS
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(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, 1994 - December 31, 1994 $16.50 $7.50
January 1, 1995 - March 31, 1995 $10.75 $7.25
April 1, 1995 - June 30, 1995 $ 8.00 $6.375
July 1, 1995 - September 30, 1995 $11.25 $7.125
October 1, 1995 - December 31, 1995 $ 9.75 $8.625
January 1, 1996 - March 30, 1996 $10.75 $8.125
April 1, 1996 - June 30, 1996 $ 8.8125 $7.00
July 1, 1996 - September 30, 1996 $ 8.375 $6.25
The closing price of the Company's Common Stock on the Nasdaq National
Market on December 19, 1996 was $8.25.
(b) Holders.
As of December 19, 1996, there were approximately 145 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, 1996 and September 30, 1995. 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 11 OF 45
Item 6. Selected Consolidated Financial Data
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SELECTED CONSOLIDATED FINANCIAL DATA
(in thousands, except per share data)
Years Ended September 30
Income Statement Data 1992(1) 1993(1) 1994(1) 1995(1)(2)1996(1)(2)
- --------------------- ------- ------- ------- --------- ----------
Net Sales $43,170 $102,959 $130,296 $127,610 $179,707
--------- ------- -------- -------- -------- --------
Gross Profit 7,822 25,469 27,281 18,327 15,219
------- -------- -------- -------- --------
Operating Income 3,310 16,086 17,565 7,603 2,333
----- ------ ------ ----- -----
Income before extraordinary 126 9,106 10,960 4,688 2,498
--- ----- ------ ----- -----
item
Extraordinary item - early - (663) - - -
---- ---- ---- ---- ----
extinguishment of debt, net
ofincome tax benefit of $110
Net Income $126 $8,443 $10,960 $4,688 $2,498
---- ------ ------- ------ ------
Net income per common and $.03 $1.45 $1.51 $.63 $.33
---- ----- ----- ---- ----
common equivalent share:
Income before
extraordinary item - (.11) - - -
----- ----- ----- ----- -----
Extraordinary item
Net Income $.03 $1.34 $1.51 $.63 $.33
---- ----- ----- ---- ----
Common and equivalent shares 4,757 6,316 7,262 7,451 7,496
----- ----- ----- ----- -----
Balance Sheet Data:
Working Capital $1,637 $18,672 $20,796 $23,074 $25,959
------ ------- ------- ------- -------
Total Assets 41,289 64,137 84,954 $103,014 $109,521
------ ------ ------ -------- --------
Long-term debt, less current $16,350 $3,915 $3,733 $6,857 $7,409
------- ------ ------ ------ ------
maturities
Shareholders' equity $8,856 $47,145 $58,455 $64,899 $67,457
------ ------- ------- ------- -------
(1) The results of operations and financial position as of and for the
years ended September 30, 1992, 1993, 1994, 1995 and 1996, include the
operations of Calidad from acquisition on June 25, 1992.
(2) The results of operations and financial position as of and for the
years ended September 30, 1995 and 1996, include the operations of Accutek from
acquisition on November 21, 1994.
Page 12 OF 45
The following table sets forth for the years indicated the percentage
relationship between net sales and certain expenses and earnings items, and the
percentage increase or decrease of such items as compared to the prior year.
Period to Period
----------------
Percentage Increase
-------------------
Percentage Relationship to Net Sales (Decrease)
------------------------------------ -----------
Year Ended September 30, Year Ended September 30,
------------------------ -------------------------
1994 1995(1) 1996(1) 1994-1995 1995-1996
----- ------- ------- --------- ---------
Net Sales 100.0% 100.0% 100.0% (2.1%) 41%
----- ----- ----- ----- ---
Gross Profit 20.9% 14.4% 8.5% (32.8%) (17.0%)
---- ---- --- ----- -----
Operating
Income 13.5% 6.0% 1.3% (56.7%) (69.3%)
---- --- --- ----- -----
Net Income 8.4% 6.7% 1.4% (57.2%) (46.7)
--- --- --- ----- ------
(1) The results of operations for the years ended September 30, 1995 and
1996, include the operations of Accutek from acquisition on November 21, 1994.
Page 13 OF 45
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
- -----------------------------------------------------------
CONDITION AND RESULTS OF OPERATIONS
-----------------------------------
RESULTS OF OPERATIONS
Fiscal Year Ended September 30, 1996 Compared to Fiscal Year Ended September
- -----------------------------------------------------------------------------
30, 1995
- --------
Net sales for fiscal year 1996 were $179,707,316 as compared to
$127,609,883 for fiscal year 1995, an increase of 40.8%. The increase in sales
was due primarily to sales to new customers; of the 40.8% increase in sales,
37.8% were to new customers. Also, turnkey sales increased to 85% in fiscal 1996
versus 64% in fiscal 1995.
Gross profit as a percentage of net sales decreased from 14.4% in fiscal
year 1995 to 8.5% in fiscal year 1996. The cost of sales and resulting gross
profit as a percentage of sales can vary widely among different jobs within both
turnkey and consignment sales and are affected by a number of factors including
the mix of consignment and turnkey contracts, the percentage of material
content, the percentage of labor content, quantities ordered, complexity of the
assemblies, the degree of automation utulized in the assembly process and the
efficiencies achieved by the Company in managing material procurement costs,
inventory levels and manufacturing processes.
The decrease in gross profit as a percentage of sales is due primarily to
the higher material content in the cost of goods sold, inefficient direct labor,
and excess overhead expense caused by underutilized manufacturing capacity. This
inefficiency and underutilization is primarly the effect of customer
rescheduling which, in turn, causes small lot size manufacturing, production
interruption and restarts, set-up expense and production downtime. All of these
factors are continually changing and are interrelated. The effect of each factor
cannot be separately determined. While component shortages have eased, certain
component shortages also affected operating results, particularly in the first
six months of the fiscal year. Accordingly, these factors may result in
quarter-to-quarter fluctuations in both future revenues and earnings.
Selling and administrative expenses increased to $12,411,776 in fiscal
year 1996 from $10,270,026 in fiscal year 1995. This increase can be attributed
to an increase in salaries and related costs and an increase in commision
expenses related to the increased sales. As a percentage of sales, selling and
administrative expenses decreased from 8% in fiscal year 1995 to 7% in fiscal
year 1996.
Net income decreased from $4,688,348 or $.63 per share the prior year to
$2,497,888 or $.33 per share in fiscal year 1996.
Excluding the effect of life insurance proceeds of $2,002,550, net income
would have been $495,338 or $.07 per share in fiscal year 1996.
Page 14 OF 45
Fiscal Year Ended September 30, 1995 Compared to Fiscal Year Ended September
- ----------------------------------------------------------------------------
30, 1994
- --------
Net sales for fiscal year 1995 were $127,609,883 as compared to
$130,296,380 for fiscal year 1994, a decrease of 2.1%. The decrease in sales was
due primarily to a decline in turnkey sales, partially offset by an increase in
consignment sales. Turnkey sales were approximately 64% in fiscal year 1995
versus 73% in 1994. Component shortages continued to adversely affect shipments
and had a negative impact on sales.
Gross profit as a percentage of net sales decreased from 20.9% in fiscal
year 1994 to 14.4% in fiscal year 1995. In the contract electronics industry,
business is managed by job on a customer basis. The cost of sales and resulting
gross profit as a percentage of sales can vary widely among different jobs
within both turnkey and consignment sales and are affected by a number of
factors including the mix of consignment and turnkey contracts, the percentage
of material content, the percentage of labor content, quantities ordered,
complexity of the assemblies, the degree of automation utilized in the assembly
process and the efficiencies achieved by the Company in managing material
procurement costs, inventory levels and manufacturing processes.
The decrease in gross profit as a percentage of sales was primarily due to
substantially increased direct labor and related overhead costs as a percentage
of both turnkey and consignment sales. This was partially offset by the
continuing increase in consignment sales. These higher costs as a percentage of
sales are primarily due to increased direct and indirect labor and to continuing
component shortages which cause frequent customer rescheduling which, in turn,
causes short manufacturing lot sizes, production interruptions and restarts,
set-up duplication and production line downtime. All of these factors are
continually changing and are interrelated. The effect of each factor cannot be
separately determined.
Component shortages are expected to continue in future months and will
continue to have an impact on the Company's results; however, the scope and
magnitude of their aggregate effects on sales and profits cannot be determined
until close to the end of a given quarter when it becomes known that the short
material in question will not arrive before quarter-end and will have a
determinable effect on the resultant mix of production and delivery schedules.
Accordingly, these factors may result in quarter-to-quarter fluctuations in both
revenues and earnings.
Selling and administrative expenses increased to $10,270,026 in fiscal
1995 from $9,362,443 in fiscal year 1994. As a percentage of sales, selling and
administrative expense increased from 7.2% in fiscal year 1994 to 8.0% in fiscal
year 1995. This increase can be attributed to the inclusion of the Accutek
subsidiary, which was acquired in November 1994 and the building of an
infrastructure at the Calidad subsidiary.
Net income decreased from $10,959,846 or $1.51 per share the prior year,
to $4,688,348 or $.63 per share in fiscal year 1995.
Page 15 OF 45
Fiscal Year Ended September 1994 Compared to Fiscal Year Ended September 30,
- ----------------------------------------------------------------------------
1993
- ----
Net sales for fiscal year 1994 were $130,296,380 as compared to
$102,959,074 for fiscal year 1993, an increase of 26.5%. The increase in sales
was due to increased sales to both new and existing customers. Turnkey sales
during the period were approximately 73% of net sales versus 71% for fiscal year
1993.
Gross profit as a percentage of net sales decreased from 24.7% for fiscal
year 1993 to 20.9% for fiscal year 1994. The decrease in gross profit as a
percentage of net sales resulted from the increase in percentage of turnkey
sales which generate lower gross margins than consignment sales, and overall
decreases in gross margins for both turnkey and consignment sales which is
primarily due to the factors discussed above.
Selling and administrative expenses were relatively flat at $9,362,443
versus $9,029,652 in fiscal year 1993. As a percentage of sales, selling and
administrative expenses decreased from 8.8% to 7.2% in fiscal year 1994.
During the fiscal year ended September 30, 1993, an extraordinary charge
against net income of $663,300 or $.11 per share was incurred as a result of the
early repayment of debt for which commitment fees and other debt related costs
were not fully amortized.
Net income increased from $8,442,898 or $1.34 per share in fiscal year
1993 to $10,959,846 or $1.51 per share in fiscal year 1994.
LIQUIDITY AND CAPITAL RESOURCES
Fiscal Year Ended September 1996 as Compared to Fiscal Year Ended September
- ---------------------------------------------------------------------------
1995
- ----
Net sales for the month of September 1996 were $22,222,722, representing
49.4% of the total net sales for the three-month period ending September 30,
1996. The Company operates on a calendar quarter consisting of four weeks in the
first and second months and five weeks in the third month.
Investment in plant and equipment was $9,096,689 as compared to
$11,187,378 in fiscal year 1995. These expenditures were primarily used to
expand the manufacturing capabilities of the Company's two subsidiaries.
Delivery schedules continue to be paced by component shortages and long
lead times which adversely affect operations and working capital utilization,
primarily during the first six months of the fiscal year.
The Company maintains a credit facility with its bank which provides
credit facilities totalling $33,000,000. These facilities include a credit line
of up to $13 million for operations, $12 million for equipment purchases and $8
million for financial material bearing contracts. At September 30, 1996,
approximately $15,689,000 was available for borrowing under these existing
lines.
The Company believes its cash balances, funds generated from operations
and its existing 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.
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.
Page 16 OF 45
Fiscal Year Ended September 1995 as Compared to Fiscal Year Ended September
- ---------------------------------------------------------------------------
1994
- ----
Net sales for the month of September 1995 were $14,749,682, representing
39% of the total net sales for the three-month period ending September 30, 1995.
The Company operates on a calendar quarter consisting of four weeks in the first
and second months and five weeks in the third month.
In June 1995, the Company amended its credit facility with its bank,
increasing its credit facilities to $33,000,000. These facilities include a
credit line of up to $13 million for operations, $12 million for equipment
purchases and $8 million for financial material bearing contracts. At September
30, 1995, approximately $21,500,000 was available for borrowing under these
existing lines.
Investment in plant and equipment was $11,187,378 as compared to
$15,716,632 in fiscal year 1994. These expenditures were primarily used to
expand the manufacturing capabilities of the Company's two subsidiaries.
The purchase of Accutek, Inc., net of cash acquired, was $1,751,832.
Delivery schedules continue to be paced by component shortages and long
lead times which adversely affect operations and working capital utilization.
Fiscal Year Ended September 30, 1994 Compared to Fiscal Year Ended September
- ----------------------------------------------------------------------------
1993
- ----
The Company maintains a credit facility with its bank which provides
credit facilities totaling $26,000,000. These facilities include a credit line
of up to $10 million for operations, $8 million for equipment purchases and $8
million for financing material bearing manufacturing contracts. At September 30,
1994, $16,858,351 was available for borrowing under these existing lines.
Investment in plant and equipment was $15,716,632 as compared to
$13,485,609 in fiscal year 1993. These expenditures were primarily due to need
generated by increased sales and anticipated future demand for company growth.
Effective October 1, 1993, the Company prospectively adopted Statement of
Financial Accounting Standard No. 109 "Accounting for Income Taxes." This change
did not have a material effect on the Company's financial position or results of
operations.
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 17 OF 45
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 26, 1997 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 26, 1997 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 26, 1997 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 26, 1997 and is incorporated in this report
by reference thereto.
Page 18 OF 45
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...................... 23
Consolidated Balance Sheets as of
September 30, 1996 and 1995.................................. 24
Consolidated Statements of Income for the years
ended September 30, 1996, 1995 and 1994 .................... 26
Consolidated Statements of Cash Flows for the years
ended September 30, 1996, 1995 and 1994...................... 27
Consolidated Statements of Changes in Shareholders'
Equity for the years ended September 30, 1996,
1995 and 1995................................................ 28
Notes to Consolidated Financial Statements.................... 29
Schedule of Selected Quarterly Financial Data (Unaudited)
for the years ended September 30, 1996, 1995 and 1994........ 43
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 3.1 to the Company's Quarterly
Report on Form 10-Q for the quarter ended July 2, 1993)
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 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)
3.8 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)
3.9 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)
Page 19 OF 45
3.10 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)
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)
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)
Page 20 OF 45
10.6* IEC Electronics Corp. Savings and Security Plan.
(Incorporated by reference to Exhibit 10.6 to the Company's
Registration Statement on Form S-1, Registration
No. 33-56498)
10.7* Loan Agreement between IEC Electronics Corp. and Marine
Midland Bank, N.A., dated June 30, 1993. (Incorporated by
reference to Exhibit 10.1 to the Company's Quarterly Report
on Form 10-Q for the quarter ended July 2, 1993
10.8 Amendment No. 1 to Loan Agreement between IEC Electronics
Corp. and Marine Midland Bank, N.A., dated as of June 9, 1995
(Incorporated by reference to Exhibit 10.1 to the Company's
Quarterly Report on Form 10-Q for the quarter ended June 30, 1995)
10.9* IEC Electronics Corp. 1993 Stock Option Plan (Incorporated
by reference to Exhibit 4.1 to the Company's Registration Statement
on Form S-8, Registration No. 33-79360)
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 Stock Purchase Agreement among IEC Electronics Corp.,
Accutek, Inc., J. Darrell Cottle and Laura B. Cottle
dated November 3, 1994 and Amendment thereto dated
November 21, 1994. (Incorporated by reference to Exhibit 10.1
to the Company's Quarterly Report on Form 10-Q for the quarter
ended December 30, 1994)
10.14* Employment and Non-Competition Agreement between Accutek, Inc.
and J. Darrell Cottle dated November 21, 1994. (Incorporated by
reference to Exhibit 10.2 to the Company's Quarterly Report on
Form 10-Q for the quarter ended December 30, 1994)
11.1 Statement relating to computation of per share earnings.
See Note 1 to the Notes to the Company's Consolidated
Financial Statements contained herein.
22.1 Subsidiaries of IEC Electronics Corp. 44
24.1 Consent of Arthur Andersen LLP 45
(b) Reports on Form 8-K:
None
Page 21 OF 45
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: December 19, 1996.
IEC Electronics Corp..
By:/s/Russel E. Stingel
-----------------------
Russell E. Stingel, President
and 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
Director, President
and Chief Executive Officer
/s/Russell E. Stingel (Principal Executive Officer) December 19, 1996
- ---------------------
(Russell E. Stingel)
Vice President, Secretary,
Treasurer and Controller
(Principal Financial
/s/Timothy J. Kennedy and Accounting Officer) December 19, 1996
- ---------------------
(Timothy J. Kennedy)
/s/David J. Beaubien Director December 19, 1996
- --------------------
(David J. Beaubien)
/s/Thomas W. Folger Director December 19, 1996
- --------------------
(Thomas W. Folger)
/s/W. Barry Gilbert Director December 19, 1996
- -------------------
(W.Barry Gilbert)
/s/Robert P.B. Kidd Director December 19, 1996
- -------------------
(Robert P. B. Kidd)
/s/Eben S. Moulton Director December 19, 1996
- ------------------
(Eben S. Moulton)
/s/Justin L. Vigdor Director December 19, 1996
- -------------------
(Justin L. Vigdor)
Page 22 OF 45
REPORT OF INDEPENDENT PUBLIC ACCOUNTANTS
To IEC Electronics Corp.:
We have audited the accompanying consolidated balance sheets of IEC Electronics
Corp. (a Delaware corporation) and subsidiaries as of September 30, 1996 and
1995, and the related consolidated statements of income, changes in
shareholders' equity and cash flows for the years ended September 30, 1996, 1995
and 1994. These consolidated financial statements and the schedule referred to
below are the responsibility of the Company's management. Our responsibility is
to express an opinion on these consolidated 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, 1996 and 1995, and the results of their
operations and their cash flows for the years ended September 30, 1996, 1995 and
1994, 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 purposes of complying with the Securities and Exchange
Commission's rules and is not part of the basic financial statements. This
information 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 respects in relation to the basic financial statements taken as a
whole.
/s/Arthur Anderson LLP
Rochester, New York,
November 8, 1996
Page 23 OF 45
IEC ELECTRONICS CORP. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
SEPTEMBER 30, 1996 AND 1995
---------------------------
ASSETS
------
1996 1995
------------------------------------
CURRENT ASSETS:
Cash and cash equivalents 1,481,694 8,639,803
Accounts receivable 28,210,567 17,378,065
Inventories 26,006,235 24,096,765
Income taxes receivable 756,879 -
Deferred income taxes 702,192 566,000
Other current assets 165,446 451,444
------------------------------------
Total current assets 57,323,013 51,132,077
------------------------------------
PROPERTY, PLANT AND
EQUIPMENT, net 39,014,104 38,227,647
------------------------------------
OTHER ASSETS:
Costs in excess of net assets
acquired, net 12,818,645 13,289,205
Note receivable from officer 355,519 355,519
Other assets 9,309 9,309
------------------------------------
13,183,473 13,654,033
------------------------------------
109,520,590 103,013,757
====================================
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
Page 24 OF 45
IEC ELECTRONICS CORP. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED BALANCE SHEETS
---------------------------
SEPTEMBER 30, 1996 AND 1995
---------------------------
LIABILITIES AND SHAREHOLDERS' EQUITY
------------------------------------
1996 1995
---------------------------
CURRENT LIABILITIES:
Borrowings under lines of credit 8,530,000 3,540,000
Current portion of long-term debt 2,781,517 3,018,497
Accounts payable 16,974,916 16,971,184
Accrued payroll and related
expenses 2,772,330 3,047,203
Accrued income taxes - 1,246,680
Other accrued expenses 305,237 234,713
---------------------------
Total current liabilities 31,364,000 28,058,277
---------------------------
DEFERRED INCOME TAXES 3,290,749 3,199,557
---------------------------
LONG-TERM DEBT 7,409,076 6,857,403
---------------------------
SHAREHOLDERS' EQUITY:
Preferred stock, par value $.01 per
share, authorized - 500,000 shares;
issued and outstanding - 0 shares - -
Common stock, par value $.01 per
share, authorized - 15,000,000
shares; issued and outstanding -
7,415,070 and 7,387,366 shares,
respectively 74,151 73,874
Additional paid-in capital 36,973,633 36,913,553
Retained earnings 30,408,981 27,911,093
---------------------------
Total shareholders' equity 67,456,765 64,898,520
---------------------------
109,520,590 103,013,757
===========================
The accompanying notes to consolidated financial statements are an integral part
of these balance sheets.
Page 25 OF 45
IEC ELECTRONICS CORP. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
---------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
-----------------------------------------------------
1996 1995 1994
-----------------------------------------------
NET SALES 179,707,316 127,609,883 130,296,380
COST OF SALES 164,488,633 109,283,330 103,015,539
-----------------------------------------------
Gross profit 15,218,683 18,326,553 27,280,841
SELLING AND ADMINISTRATIVE
EXPENSES
(exclusive of amortization
expense shown below) 12,411,776 10,270,026 9,362,443
AMORTIZATION EXPENSE 473,958 453,829 353,196
-----------------------------------------------
Operating income 2,332,949 7,602,698 17,565,202
INTEREST EXPENSE 1,584,457 1,101,273 598,123
LIFE INSURANCE GAIN 2,002,550 - -
OTHER INCOME, net 395,846 653,923 340,767
-----------------------------------------------
Income before income taxes 3,146,888 7,155,348 17,307,846
INCOME TAXES:
Current 694,000 2,150,000 5,148,000
Deferred (45,000) 317,000 1,200,000
-----------------------------------------------
649,000 2,467,000 6,348,000
-----------------------------------------------
NET INCOME 2,497,888 4,688,348 10,959,846
===============================================
EARNINGS PER COMMON AND
COMMON EQUIVALENT SHARE:
Net income 0.33 0.63 1.51
===============================================
Common and common equivalent
shares (in thousands) 7,496 7,451 7,262
===============================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Page 26 OF 45
IEC ELECTRONICS CORP. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
-------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
-----------------------------------------------------
1996 1995 1994
-----------------------------------
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income 2,497,888 4,688,348 10,959,846
Adjustments to reconcile net income to
net cash provided by operating activities:
Depreciation and amortization 8,270,636 7,128,171 5,444,143
(Benefit from)provision for
deferred income taxes (45,000) 317,000 1,200,000
Gain on sale of fixed assets (15,154) (98,624) (27,600)
Amortization of costs in excess of net 473,958 453,829 353,196
assets acquired
Debt placement fee amortization - - 18,166
Changes in operating assets and
liabilities, net of effects of purchase of
Accutek, Inc. in 1995:
Increase in accounts receivable (10,832,502) (2,122,595) (7,164,216)
Increase in inventories (1,909,470) (5,728,099) (4,837,421)
(Increase)Decrease in income taxes
receivable (756,879) 1,366,056 (1,366,056)
Decrease(Increase) in other current
assets 285,998 (13,688) 108,108
Increase in note receivable from officer - - (355,519)
Decrease in other assets - 43,561 54,580
Increase in accounts payable 3,732 5,848,987 5,074,407
Decrease in accrued payroll and related
expenses (274,873) (678,492) (449,459)
(Decrease)increase in accrued income
taxes (1,246,680) 1,352,981 (96,229)
Increase in other accrued expenses 70,524 13,229 54,866
-------------------------------------
Net cash provided by operating activities (3,477,822) 12,570,664 8,970,812
-------------------------------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Purchases of property, plant and
equipment (9,096,689)(11,187,378) (15,716,632)
Merger related costs (3,398) (855) (1,731)
Purchase of Accutek, Inc., net of cash
acquired - (1,751,832) -
Proceeds from sale of equipment 54,750 203,299 27,600
-------------------------------------
Net cash used in investing activities (9,045,337)(12,736,766) (15,690,763)
-------------------------------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Exercise of stock options and warrants 60,357 - 349,926
Net borrowings (repayments) under line
of credit agreements 4,990,000 (1,015,000) 3,500,000
Proceeds from long-term borrowings 4,062,000 5,921,000 2,760,000
Principal payments on long-term debt (3,747,307) (2,959,168) (2,536,752)
-------------------------------------
Net cash provided by financing activities 5,365,050 1,946,832 4,073,174
-------------------------------------
NET (DECREASE)INCREASE IN CASH AND CASH
EQUIVALENTS (7,158,109) 1,780,730 (2,646,777)
CASH AND CASH EQUIVALENTS, beginning of
year 8,639,803 6,859,073 9,505,850
-------------------------------------
CASH AND CASH EQUIVALENTS, end of year 1,481,694 8,639,803 6,859,073
=====================================
SUPPLEMENTAL DISCLOSURES OF CASH FLOW
INFORMATION:
Cash paid during the year for:
Interest 1,584,457 1,101,273 598,123
===================================
Income taxes 2,697,559 99,967 6,610,285
===================================
Cash received during the year for:
Income taxes - 555,843 -
===================================
SUPPLEMENTAL DISCLOSURE OF NONCASH
INVESTING ACTIVITY:
In fiscal 1995, IEC Electronics Corp.
purchased all of the common stock of
Accutek, Inc. as follows:
Fair value of assets acquired - 6,306,188 -
Less- Liabilities assumed - (2,356,162) -
Issuance of common stock - (1,755,000) -
-----------------------------------
Net cash paid for acquisition - 2,195,026 -
===================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Page 27 OF 45
IEC ELECTRONICS CORP. AND SUBSIDIARIES
--------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
----------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
-----------------------------------------------------
Additional Total
Common Stock Paid-In Retained Shareholders'
--------------
Shares Amount Capital Earnings Equity
----------------------------------------------------
BALANCE, September 30, 1993 7,140,000 71,400 34,811,101 12,262,899 47,145,400
Exercise of stock options
and related income tax
benefit 46,250 463 349,463 - 349,926
Net income - - - 10,959,846 10,959,846
----------------------------------------------------
BALANCE, September 30, 1994 7,186,250 71,863 35,160,564 23,222,745 58,455,172
Issuance of common stock
for acquisition of
Accutek, Inc. 201,116 2,011 1,752,989 - 1,755,000
Net income - - - 4,688,348 4,688,348
---------------------------------------------------
BALANCE, September 30, 1995 7,387,366 73,874 36,913,553 27,911,093 64,898,520
Exercise of stock options 27,704 277 60,080 - 60,357
Net income - - - 2,497,888 2,497,888
-------------------------------------------------
BALANCE, September 30, 1996 7,415,070 74,151 36,973,633 30,408,981 67,456,765
====================================================
The accompanying notes to consolidated financial statements are an integral part
of these statements.
Page 28 OF 45
IEC ELECTRONICS CORP. AND SUBSIDIARIES
--------------------------------------
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
------------------------------------------
SEPTEMBER 30, 1996, 1995 AND 1994
---------------------------------
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, Calidad Electronics, Inc. (Calidad) and Accutek, Inc.
(Accutek) (collectively, the Company). All significant intercompany transactions
and accounts have been eliminated.
Effective November 21, 1994, IEC acquired all of the outstanding common stock of
Accutek, a contract electronics manufacturer for approximately $4 million in
cash and common stock. The acquisition has been accounted for by the purchase
method of accounting, and accordingly, Accutek's net assets and results of
operations are included in the consolidated financial statements since the date
of acquisition. The purchase price has been allocated to the assets acquired and
the liabilities assumed based on estimated fair values at the date of
acquisition. Cost in excess of net assets acquired related to the acquisition is
being amortized on a straight-line basis over a period of 15 years.
Page 29 OF 45
The following unaudited pro forma summary presents the consolidated results of
operations as if the acquisition had occurred on October 1, 1993, after giving
effect to certain adjustments, including related income tax effects. These pro
forma results have been prepared for comparative purposes only and do not
purport to be indicative of what could have occurred had the acquisition been
made at the beginning of fiscal 1994 or of results which may occur in the
future. Furthermore, no effect was given in the pro forma information for
anticipated operating and synergistic benefits.
1995 1994
(Unaudited) (Unaudited)
----------- -----------
Net sales $ 129,440,499 $ 138,829,401
============= =============
Net income $ 4,860,000 $ 11,627,480
============= =============
Net income per common and
common equivalent share $ .65 $ 1.55
============= =============
Recognition Revenue
- -------------------
The Company recognizes revenue upon shipment of product for both turnkey and
consignment contracts.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include money market and bank account balances,
primarily all of which bear interest at approximately 5.4 percent. The Company's
cash and cash equivalents are held and managed by high quality institutions
which follow the Company's investment policy. The fair value of the Company's
financial instruments approximate their 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.
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.
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.
Page 30 OF 45
Costs in Excess of Net Assets Acquired
- --------------------------------------
Costs in excess of net assets acquired of $1,811,424 and $14,049,924 are being
amortized on a straight-line basis over a 15-year and a 40-year period,
respectively. The balance is presented net of accumulated amortization of
$3,042,703 and $2,572,143 at September 30, 1996 and 1995, respectively.
Officers' Life Insurance
- ------------------------
The Company carries life insurance policies covering its three and four
executive officers as of September 30, 1996 and 1995, respectively. The face
value of these policies at September 30, 1996 and 1995 is $2,250,000 and
$4,250,000, respectively.
Net Income per Common and Common Equivalent Share
- -------------------------------------------------
Net income per common and common equivalent share has been computed using all
common stock and common stock equivalents (stock options and warrants under the
"treasury stock" method). Based on this treatment, the number of weighted
average shares of common stock outstanding is as follows at September 30:
1996 1995 1994
--------------------------------
Average number outstanding:
Common shares 7,412,226 7,358,714 7,167,877
Common equivalent shares 84,194 92,024 94,150
------ ------ ------
7,496,420 7,450,738 7,262,027
========= ========= =========
Fully diluted earnings per common share data are not presented as they are not
materially different from primary earnings per common share for any period
presented.
Recent Accounting Standards
- ---------------------------
In March 1995, Statement of Financial Accounting Standards No. 121 (SFAS No.
121), "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets
to Be Disposed Of," was issued by the Financial Accounting Standards Board. This
statement requires companies to review long-lived assets, including certain
intangibles and goodwill, for impairment whenever events or changes in
circumstances indicate that the carrying amount of an asset may not be
recoverable. The Company will be required to adopt SFAS No. 121 in fiscal 1997.
The Company believes the effect of adoption will not be material.
In October 1995, Statement of Financial Accounting Standards No. 123 (SFAS No.
123), "Accounting for Stock-Based Compensation," was issued by the Financial
Accounting Standards Board. This statement encourages companies to use the fair
value based method to measure compensation cost, which is then recognized over
the service period (usually the vesting period). As provided under SFAS No. 123,
the Company has the option to continue to measure compensation cost using the
intrinsic value method as prescribed by Accounting Principles Board Opinion No.
25, "Accounting for Stock Issued to Employees," and provide pro forma disclosure
of net income and, if presented, earnings per share as if the fair value based
method had been applied. The Company will be required to adopt SFAS No. 123 on a
prospective basis beginning in fiscal 1997. The Company believes that adoption
of this statement could have a material impact but such impact is dependent upon
future stock option activity.
Page 31 OF 45
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. INVENTORIES:
---------------
The major classifications of inventories are as follows at September 30:
1996 1995
-----------------------
Raw materials 20,914,619 18,502,374
Work-in-process 5,091,616 5,594,391
-----------------------
26,006,235 24,096,765
=======================
3. PROPERTY, PLANT AND EQUIPMENT:
------------------------------
The major classifications of property, plant, and equipment are as follows at
September 30:
1996 1995
-----------------------
Land 458,840 458,840
Land improvements 612,030 225,214
Buildings 5,929,185 5,067,639
Building improvements 4,086,337 3,663,789
Manufacturing equipment 54,652,988 48,825,721
Furniture and fixtures 4,724,842 3,535,128
Transportation equipment 187,191 202,343
-----------------------
70,651,413 61,978,674
Less- Accumulated depreciation
and amortization (31,637,309)(23,751,027)
-----------------------
39,014,104 38,227,647
=======================
Depreciation and amortization of $8,270,636, $7,128,171 and $5,444,143 were
charged against income of the Company for the years ended September 30, 1996,
1995 and 1994, respectively.
Page 32 OF 45
The principal depreciation and amortization lives used are as follows:
Estimated
Description Useful Lives
- ---------------------------------------------------
Buildings 25 to 40 years
Building and land improvements 1 to 10 years
Manufacturing equipment 1 to 10 years
Furniture and fixtures 1 to 7 years
Transportation equipment 1 to 4 years
4. FINANCING ARRANGEMENTS
----------------------
In June 1995, the Company obtained new financing arrangements with a bank, which
replaced substantially similar arrangements. These arrangements are as follows:
a.A secured working capital line of credit up to $13 million available
through April 1, 1998 with interest at the prime rate, and secured by
accounts receivable and inventory. Amounts borrowed are limited to 75
percent and 25 percent of qualified accounts receivable and inventory,
respectively.
b.A secured revolving line of credit up to $12 million available through
April 1, 1998 with interest at the prime rate to be used for equipment
purchases. Amounts borrowed will be collateralized by the related
equipment and will be repayable monthly over a term of 60 months.
c.A secured revolving line of credit up to $8 million available through
April 1, 1998 with interest at the prime rate to be used to fund
material bearing contracts into which the Company may enter. Amounts
borrowed are limited based on the value of turnkey contracts entered
into by the Company.
A facility fee of 1/4 percent of the average unused lines of credit is due
annually.
Page 33 OF 45
Aggregate short-term borrowings by the Company under its working capital lines
of credit for the years ended September 30 are as follows:
1996 1995 1994
--------------------------------------
Balance outstanding at September 30 8,530,000 3,540,000 4,500,000
Weighted average interest rate at
September 30 8% 8.75% 7.75%
Maximum amount outstanding during
the period 8,530,000 4,555,000 4,500,000
Average amount outstanding during
the period (total of monthly
outstanding principal balances
divided by the number of months) 6,994,583 2,828,333 1,437,500
Weighted average interest rate
during the period (actual
interest expense on short-term
borrowings divided by average
short-term borrowings outstanding) 8.6% 8.9% 6.8%
These obligations and certain long-term debt contain 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
and additional debt. The more restrictive of the covenants provide that the
Company maintain a specified current ratio, debt to equity ratio and interest
coverage ratio. At September 30, 1996 and 1995, the Company was in compliance
with all covenants. The related debt has been classified in the accompanying
financial statements in accordance with its repayment terms.
Page 34 OF 45
5. LONG-TERM DEBT:
---------------
Long-term debt consists of the following at September 30:
1996 1995
---------------------
IEC-
Equipment notes payable obtained through revolving line of credit (Note 5),
due in monthly installments of $312,324, plus interest at prime, through
March 2001, secured by related equipment 8,811,001 8,065,543
Capitalized lease obligation, due in monthly
installments of $9,000, including interest at 12%,
through January 1999 212,518 289,894
Mortgage notes payable, due in monthly installments of
$5,961, including interest at 8.25%, through January
1999 147,042 203,726
Mortgage note payable, due in annual installments
of $10,000, plus interest at prime, through
May 2005, secured by real property 90,000 -
Calidad-
Mortgage note payable in monthly installments of
$2,425, including interest at 6.19%, through
May 2005, secured by real property 194,468 210,938
Accutek-
Capital leases payable, due in monthly installments of $10,672, including
interest ranging from 4.2% to 8.0%, through July 1997, secured by related
equipment 52,979 161,354
Capital leases payable, due in monthly installments of $12,029, including
interest ranging from 4.33% to 8.33%, through December 1997, secured by
related equipment 125,845 260,808
Capital lease payable in monthly installments of
$4,557, including interest at 7.02% through
November 1998 with a balloon payment of $51,475,
secured by related equipment 149,615 190,129
Mortgage note payable in monthly installments of
$3,490, including interest at 7.0%, through
August 1998, secured by real property 77,950 113,043
Mortgage note payable in monthly installments of
$6,829, including interest at 7.75%, through July
2001, secured by real property 329,175 380,465
----------------------
Total 10,190,593 9,875,900
Less- Current portion (2,781,517)(3,018,497)
----------------------
7,409,076 6,857,403
======================
Page 35 OF 45
Capitalized Lease Obligation and Mortgage Notes Payable
- -------------------------------------------------------
The capital lease agreement with the Wayne County Industrial Development Agency
(IDA) requires annual lease payments equal to the principal and interest on the
IDA issued bonds. These bonds and the lease agreement are secured by the land
and building (the Premises) which house the Company's offices and the major part
of its New York manufacturing facilities. Upon payment of the outstanding bonds,
title to the Premises will be conveyed to the Company in accordance with the
agreement.
Maturities of Consolidated Long-Term Debt
- -----------------------------------------
The aggregate annual maturities of consolidated long-term debt at September 30,
1996 are as follows:
1997 2,781,517
1998 2,889,786
1999 2,540,371
2000 1,454,428
2001 484,491
Thereafter 40,000
------------
10,190,593
============
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.
6. INCOME TAXES:
-------------
Effective October 1, 1993, the Company prospectively adopted Statement of
Financial Accounting Standards No. 109 (SFAS No. 109), "Accounting for Income
Taxes", which requires an asset and liability approach to financial accounting
and reporting for income taxes. The cumulative effect of this change in
accounting principle did not have a material effect on the Company's financial
position or results of operations.
Page 36 OF 45
The provision for deferred income taxes in fiscal 1996, 1995 and 1994 relates
primarily to differences between income tax and financial statement accounting
for depreciation, investment tax credits, and certain other expenses, summarized
as follows (000's):
1996 1995 1994
------------------------------
Depreciation $649 $943 $1,030
Incentive compensation (34) 118 161
Inventory (80) (230) 51
Compensated absences (41) (80) (49)
Alternative minimum tax (558) - -
credit
New York State
investment tax credits - (300) -
Other 19 (134) 7
------------------------------
$(45) $317 $1,200
==============================
The components of the deferred tax asset (liability) at September 30 are as
follows (000's):
1996 1995
--------------------
Accelerated depreciation $(4,149) $(3,500)
--------------------
New York State
investment tax credits 2,970 2,270
Compensated absences 291 250
Incentive compensation 34 -
Inventories 380 300
Alternative minimum tax 558 -
credit
Other (3) 16
--------------------
4,230 2,836
Less- Valuation allowance (2,670) (1,970)
--------------------
Net deferred tax asset 1,560 866
--------------------
Total deferred taxes, net (2,589) (2,634)
====================
The Company has available approximately $4,500,000 in New York State investment
tax credits available through 2006. A valuation allowance has been recorded at
September 30, 1996 and 1995 to offset a majority of the deferred tax asset
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 43
The difference between the effective tax rates based on income before provision
for income taxes and the statutory federal income tax rate for fiscal years
1996, 1995 and 1994 is summarized as follows (000's):
1996 1995 1994
----------------- ------------------ ------------------
% of % of % of
Pretax Pretax Pretax
Amount Income Amount Income Amount Income
----------------------------------------------------------
Provision for
income taxes at
statutory rates $1,070 34.0% $2,433 34.0% $5,885 34.0%
Amortization of
cost in excess of
net assets acquired 120 3.8 120 1.7 120 .7
Life insurance
proceeds (681) (21.6) - - - -
Provision for state
taxes, net 153 4.8 (118) (1.7) 401 2.3
Other items, net (13) (.4) 32 .5 (58) (.3)
----------------------------------------------------------
649 20.6% 2,467 34.5% 6,348 36.7%
==========================================================
7. SHAREHOLDERS' EQUITY:
---------------------
Stock Option Plan
- -----------------
In November 1993, the Company adopted the 1993 Stock Option Plan (SOP) which was
approved by the shareholders in February 1994. The SOP replaces and supersedes
the 1989 Stock Option Plan. However, any outstanding options under the 1989 Plan
remain in effect in accordance with, and subject to, the terms of the 1989 Plan.
In November 1989, the Company awarded to four members of senior management
non-qualified stock options for 138,750 shares, exercisable at $1.62 per share
and vesting in increments of 50 percent in October 1991 and 50 percent in
October 1992. In May 1990, incentive stock options for 58,150 shares,
exercisable at $5.00 per share, were granted to other key employees, vesting one
year from the date of grant. In October 1990, non-qualified options for 5,000
shares, exercisable at $5.00 per share were granted to a director, vesting in
increments of 50 percent in October 1991 and 50 percent in October 1992. In June
1992, an incentive stock option and a non-qualified stock option for 25,000 and
5,000 shares, respectively, were granted to two former Calidad shareholders. The
shares are exercisable at $6.00 per share, and vest in 25 percent increments per
year. In February 1993, non-qualified options for 5,000 shares, exercisable at
$13.00 per share, were granted to a director, vesting 50 percent in February
1994 and 50 percent in February 1995. Also in February 1993, incentive stock
options for 38,000 shares, exercisable at $13.00 per share, were granted to key
employees, vesting in increments of 25 percent per year. In January 1994,
incentive stock options for 20,000 shares, exercisable at $12.25 per share,
where granted to key employees, vesting in increments of 25 percent per year.
Page 39 OF 45
In February 1994, pursuant to passage of the 1993 Stock Option Plan,
non-qualified stock options for 6,000 shares were granted to each non-employee
director (total of 42,000 shares), exercisable at $20.00 per share, vesting in
increments of 33 1/3 percent in October 1994, February 1995 and February 1996.
In May 1994, incentive stock options for 161,000 shares and non-qualified stock
options for 28,000 shares, exercisable at $12.75 per share, were granted to key
employees, vesting in increments of 25 percent per year. In September 1994,
incentive stock options for 40,000 shares, exercisable at $12.75 per share, were
granted to a key employee vesting in increments of 25 percent per year. In
conjunction with the Accutek acquisition in November 1994 incentive stock
options for 45,000 shares, exercisable at $12.31 per share, were granted to a
former shareholder, vesting in three equal annual increments. In July 1995,
incentive stock options for 60,000 shares, exercisable at $8.63 per share, were
granted to key employees, vesting in increments of 25 percent per year. In
September 1995, incentive stock options for 15,000 shares, exercisable at $8.75
per share, were granted to a key employee, vesting in increments of 25 percent
per year. In November 1995, incentive stock options for 15,000 shares,
exercisable at $9.19 per share, were granted to a key employee, vesting in
increments of 25 percent per share.
Under the SOP, a total of 900,000 shares, inclusive of the foregoing, were
reserved for key employees, officers, directors and consultants as of September
30, 1996. 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
non-qualified stock options issued subsequent to 1991 terminate seven and five
years from date of grant, respectively.
Changes in the status of options under the SOP at September 30, are summarized
as follows:
1996 1995 1994
----------------------------------------
Outstanding at beginning of period 525,720 474,351 229,601
Granted 15,000 140,000 291,000
Exercised (27,704) - (46,250)
Forfeited (8,474) (88,631) -
----------------------------------------
Outstanding at end of period 504,542 525,720 474,351
========================================
Options at end of period -
Exercisable 306,542 231,720 165,101
Available for grant 306,504 13,030 64,399
Average exercise price per share $ 10.53 $ 10.19 $ 10.45
Outstanding option price $1.62-$20.00 $1.62-$20.00 $1.62-$20.00
Page 40 OF 45
8. LIFE INSURANCE PROCEEDS:
------------------------
Due to the death of Roger E. Main, President and Chief Executive Officer in July
1996, the Company realized non-taxable income from life insurance proceeds in
the amount of $2,002,550, which is separately stated in the Consolidated
Statement of Income for the year ended September 30, 1996.
9. 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 computer industry and are concentrated among specific
companies. For the fiscal year ended September 30, 1996, two customers accounted
for 22 percent and 13 percent of the Company's net sales. For the fiscal years
ended September 30, 1995 and 1994, one customer accounted for 43 percent and 65
percent of the Company's net sales, respectively. At September 30, 1996, amounts
due from the two customers represented 10 percent and 11 percent of trade
accounts receivable. At September 30, 1995 and 1994, amounts due from the one
customer represented 29 percent and 42 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 17
percent, 18 percent and 11 percent of total net sales in fiscal years 1996, 1995
and 1994, respectively.
10. RETIREMENT AND EMPLOYEE COMPENSATION PLANS:
-------------------------------------------
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. The
Company contributes an amount equal to 33 percent of the amount contributed by
each participant. The matching Company contributions were $518,789, $401,452 and
$282,640 for the years ended September 30, 1996, 1995 and 1994, 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 1996, 1995 or 1994.
In fiscal 1996, 1995 and 1994, the Company's board of directors authorized
incentive bonuses based upon the Company's income before income taxes. The
amounts accrued for these bonuses were $100,000, $449,000 and $2,142,931 as of
September 30, 1996, 1995 and 1994, respectively.
Page 41 OF 45
11. LEGAL MATTERS:
--------------
In March 1994, the Company, and certain of its officers, were named as
defendants in three separate complaints filed by certain shareholders who claim
to represent a class of shareholders (the Class), alleging that the defendants
violated the federal securities laws. The three actions were consolidated in
March 1995. The consolidated action was voluntarily discontinued in September
1996 without any payment to the plaintiffs or to their counsel. No class had
ever been certified by the court.
The Company is also involved with other legal matters in the ordinary course of
business, including certain employment matters. The outcomes of these matters
are uncertain at this time and related loss contingencies, if any, are currently
not estimable. Management believes these matters to be without merit and
believes that resolution of these matters will likewise not have a material
adverse effect on the Company's financial position or results of operations.
Page 42 OF 45
IEC ELECTRONICS CORP. AND SUBSIDIARIES
--------------------------------------
SCHEDULE OF SELECTED QUARTERLY FINANCIAL DATA (UNAUDITED)
---------------------------------------------------------
FOR THE YEARS ENDED SEPTEMBER 30, 1996, 1995 AND 1994
--------------------------------------------------------
(All amounts in thousands, except per share data)
First Second Third Fourth
Quarter Quarter Quarter Quarter
----------------------------------------
Year Ended September 30,
1996
Net sales $46,982 $44,385 $43,352 $44,988
Gross profit 6,579 4,277 669 3,694
Net income 1,914 419 (1,880) 2,045
Net income per common and
common equivalent share .25 .06 (.25) .27
Year Ended September 30,
1995
Net sales 27,701 29,286 32,550 38,073
Gross profit 2,618 3,343 6,352 6,014
Net income 191 444 1,906 2,147
Net income per common and
common equivalent share .03 .06 .25 .28
Year Ended September 30,
1994
Net sales 27,118 31,955 37,628 33,596
Gross profit 6,741 6,514 8,691 5,335
Net income 2,671 2,463 3,569 2,257
Net income per common and
common equivalent share .37 .34 .49 .31
The accompanying notes to consolidated financial statements are an integral part
of this schedule.
Page 43 OF 45
EXHIBIT 22.1
Subsidiaries of IEC Electronics Corp.
Calidad Electronics, Inc., a Texas corporation, wholly-owned by IEC Electronics
Corp.
Accutek, Inc., an Alabama corporation, wholly-owned by IEC Electronics Corp.
Page 44 of 45
EXHIBIT 24.1
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
As indepentdent public accountants, we hereby consent to the incorporation of
our report included in this Form 10-K, into the Company's previous filed
Registration Statements on Form S-8 File Nos. 33-63816,33-79360 and 333-4634.
/s/Arthur Anderson LLP
Rochester, New York,
December 18, 1996
Page 45 of 45