Back to GetFilings.com
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the Securities Exchange
Act of 1934
For the quarterly period ended March 26, 2004
Commission file Number 0-6508
IEC ELECTRONICS CORP.
-------------------------------------------------------
(Exact name of registrant as specified in its charter.)
Delaware 13-3458955
------------------------------ ------------------------------------
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
105 Norton Street, Newark, New York 14513
- --------------------------------------------------------------------------------
(Address of Principal Executive Offices (Zip Code)
(315) 331-7742
- --------------------------------------------------------------------------------
Registrant's telephone number, including area code:
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
YES [X] NO [ ]
Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Exchange Act).
YES [ ] NO [X]
Indicate the number of shares outstanding of each of the issuer's classes of
common stock, as of the latest practical date:
Common Stock, $0.01 Par Value - 8,086,070 shares as of April 22, 2004.
Page 1 of 15
PART 1 FINANCIAL INFORMATION
Page
Number
Item 1. Financial Statements
Consolidated Balance Sheets as of:
March 26, 2004 (Unaudited) and September 30, 2003............. 3
Consolidated Statements of Operations for the three months
ended: March 26, 2004 (Unaudited) and March 28, 2003
(Unaudited)................................................... 4
Consolidated Statements of Operations for the six months
ended: March 26, 2004 (Unaudited) and March 28, 2003
(Unaudited)................................................... 5
Consolidated Statements of Cash Flows for the six months
ended: March 26, 2004 (Unaudited) and March 28, 2003
(Unaudited)................................................... 6
Notes to Consolidated Financial Statements (Unaudited)........ 7
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 10
Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 13
Item 4. Controls and Procedures.......................................... 13
PART II OTHER INFORMATION
Item 1. Legal Proceedings............................................... 14
Item 2. Changes in Securities........................................... 14
Item 3. Defaults Upon Senior Securities................................. 14
Item 4. Submission of Matters to a Vote of Security Holders............. 14
Item 5. Other Information............................................... 15
Item 6. Exhibits and Reports on Form 8-K................................ 15
Signatures.............................................................. 15
Page 2 of 15
Part 1. Financial Information
Item 1 -- Financial Statements
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
MARCH 26, 2004 AND SEPTEMBER 30, 2003
(in thousands)
MARCH 26, SEPTEMBER 30,
2004 2003
------------ ------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 146 $ 793
Accounts receivable 4,759 4,004
Inventories 2,113 1,633
Deferred income taxes 250 250
Other current assets 231 329
Current assets-discontinued operations 57 121
------------ ------------
Total current assets 7,556 7,130
------------ ------------
FIXED ASSETS:
Land and land improvements 768 768
Building and improvements 3,994 3,995
Machinery and equipment 40,948 46,702
Furniture and fixtures 5,256 5,870
------------ ------------
SUB-TOTAL GROSS PROPERTY 50,966 57,335
LESS ACCUMULATED DEPRECIATION (48,313) (54,161)
------------ ------------
2,653 3,174
OTHER NON-CURRENT ASSETS 158 202
------------ ------------
$ 10,367 $ 10,506
============ ============
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term borrowings $ 1,042 $ 1,277
Accounts payable 3,343 2,740
Accrued payroll and related expenses 589 794
Other accrued expenses 626 675
Current liabilities-discontinued operations 204 216
------------ ------------
Total current liabilities 5,804 5,702
------------ ------------
LONG TERM VENDOR NOTES 302 456
LONG TERM BANK DEBT 584 934
------------ ------------
TOTAL LIABILITIES 6,690 7,092
------------ ------------
SHAREHOLDERS' EQUITY:
Preferred stock, $.01 par value, Authorized
- 500,000 shares; None issued or outstanding -- --
Common stock, $.01 par value, Authorized
- 50,000,000 shares; Issued - 8,134,497 and
- 8,021,387 shares (net of 573 treasury shares) 70 69
Additional paid-in capital 38,485 38,479
Accumulated deficit (34,786) (35,042)
Accumulated translation adjustments (92) (92)
------------ ------------
Total shareholders' equity 3,677 3,414
------------ ------------
$ 10,367 $ 10,506
============ ============
The accompanying notes are an integral part of these financial statements
Page 3 of 15
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED MARCH 26, 2004 AND MARCH 28, 2003
(in thousands, except share and per share data)
3 MONTHS ENDED 3 MONTHS ENDED
MARCH 26, 2004 MARCH 28, 2003
-------------- --------------
(Unaudited) (Unaudited)
Net sales $ 7,298 $ 15,469
Cost of sales 6,575 14,223
-------------- --------------
Gross profit 723 1,246
-------------- --------------
Selling and administrative expenses 593 900
-------------- --------------
Operating profit 130 346
Interest and financing expense (94) (191)
Forgiveness of accounts payable 9 378
Other income, net 79 9
-------------- --------------
Net income before income taxes 124 542
Income taxes -- --
-------------- --------------
Net income from continuing
operations 124 542
Discontinued Operations:
Income from operations of
IEC-Mexico disposed of (net of
Income taxes of $0 in 2004 and
(7) in 2003) -- 184
-------------- --------------
Net income $ 124 $ 726
============== ==============
Net income per common and common equivalent share:
Basic
Continuing operations $ 0.02 $ 0.07
Discontinued operations $ 0.00 $ 0.02
Total $ 0.02 $ 0.09
Diluted
Continuing operations $ 0.01 $ 0.07
Discontinued operations $ 0.00 $ 0.02
Total $ 0.01 $ 0.09
Weighted average number of common and common equivalent shares outstanding:
Basic 8,097,224 7,896,659
Diluted 8,756,077 8,178,102
The accompanying notes are an integral part of these financial statements.
Page 4 of 15
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE SIX MONTHS ENDED MARCH 26, 2004 AND MARCH 28, 2003
(in thousands, except share and per share data)
6 MONTHS ENDED 6 MONTHS ENDED
MARCH 26, 2004 MARCH 28, 2003
-------------- --------------
(Unaudited) (Unaudited)
Net sales $ 13,816 $ 25,070
Cost of sales 12,522 22,835
-------------- --------------
Gross profit 1,294 2,235
-------------- --------------
Selling and administrative expenses 1,172 1,653
Restructuring benefit -- (63)
-------------- --------------
Operating profit 122 645
Interest and financing expense (185) (388)
Forgiveness of accounts payable 9 623
Other income, net 310 105
-------------- --------------
Net income before income taxes 256 985
Income taxes -- --
-------------- --------------
Net income from continuing
operations 256 985
Discontinued Operations:
Income from operations of
IEC-Mexico disposed of (net of
Income taxes of $0 in 2004 and
(7) in 2003) -- 184
-------------- --------------
Net income $ 256 $ 1,169
============== ==============
Net income per common and common equivalent share:
Basic
Continuing operations $ 0.03 $ 0.13
Discontinued operations $ 0.00 $ 0.02
Total $ 0.03 $ 0.15
Diluted
Continuing operations $ 0.03 $ 0.13
Discontinued operations $ 0.00 $ 0.02
Total $ 0.03 $ 0.15
Weighted average number of common and common equivalent shares outstanding:
Basic 8,071,695 7,795,800
Diluted 8,764,067 8,022,291
The accompanying notes are an integral part of these financial statements.
Page 5 of 15
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED MARCH 26, 2004 AND MARCH 28, 2003
(in thousands)
6 MONTHS ENDED 6 MONTHS ENDED
MARCH 26, 2004 MARCH 28, 2003
-------------- --------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 256 $ 1,169
Income from discontinued operations -- (184)
Depreciation 566 845
Gain on sale of fixed assets (293) (50)
Common stock issued under directors' stock plan -- 8
Changes in operating assets and liabilities:
Accounts receivable (755) 705
Inventories (480) 21
Other current assets 98 (70)
Accounts payable 603 (28)
Accrued payroll and related expenses (205) (148)
Other accrued expenses (49) (675)
-------------- --------------
Net cash flows from operating activities (259) 1,593
-------------- --------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 293 547
Purchases of plant, property & equipment (2) --
Proceeds from sale of discontinued operations property -- 875
-------------- --------------
Net cash flows from investing activities 291 1,422
-------------- --------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under loan agreements (739) (5,426)
Proceeds from borrowings -- 3,500
Debt issuance costs -- (263)
Common stock issued under refinancing plan -- 50
Proceeds from exercise of stock options 7 --
-------------- --------------
Net cash flows from financing activities (732) (2,139)
-------------- --------------
Cash from (used in) discontinued operations 53 (867)
-------------- --------------
Change in cash and cash equivalents (647) 9
Effect of exchange rate changes -- (9)
Cash and cash equivalents at beginning of period 793 --
-------------- --------------
Cash and cash equivalents at end of period $ 146 $ --
============== ==============
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 185 $ 387
============== ==============
Income taxes $ -- $ --
============== ==============
Conversion of accounts payable to long-term payable $ -- $ 760
============== ==============
NON-CASH INVESTING AND FINANCING ACTIVITIES:
Conversion of accounts payable to debt $ -- $ 1,187
============== ==============
The accompanying notes are an integral part of these financial statements.
Page 6 of 15
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 26, 2004
(1) Business and Summary of Significant Accounting Policies
IEC Electronics Corp. ("IEC", "the Company") is an independent
electronics manufacturing services ("EMS") provider of complex printed circuit
board assemblies and electronic products and systems. The Company provides high
quality electronics manufacturing services with state-of-the-art manufacturing
capabilities and production capacity. 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. As an independent
full-service EMS provider, the Company offers its customers a wide range of
manufacturing and management services, on either a turnkey or consignment basis,
including design, prototype, 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").
Consolidation
- -------------
The consolidated financial statements include the accounts of IEC and its
Wholly-owned subsidiary, IEC Electronicos de Mexico ("Mexico"), (collectively,
"IEC"). Operations in Texas and Mexico were closed in July 2002. All significant
intercompany transactions and accounts have been eliminated.
Revenue Recognition
- -------------------
The Company recognizes revenue upon shipment of product for both turnkey
and consignment contracts.
Cash and Cash Equivalents
- -------------------------
Cash and cash equivalents include highly liquid investments with original
maturities of three months or less. The Company's cash and cash equivalents are
held and managed by institutions that follow the Company's investment policy.
The fair value of the Company's financial instruments approximates carrying
amounts due to the relatively short maturities and variable interest rates of
the instruments, which approximate current market interest rates.
Inventories
- -----------
Inventories are stated at the lower of cost (first-in, first-out) or
market. The major classifications of inventories are as follows at period end
(in thousands):
March 26, September 30,
2004 2003
------------- -------------
(Unaudited)
Raw materials $ 1,382 $ 1,128
Work-in-process 716 498
Finished goods 15 7
------------- -------------
$ 2,113 $ 1,633
============= =============
Page 7 of 15
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 26, 2004
Long-Lived Assets
- -----------------
In October 2002, the Company sold its Alabama facility for $547,000. A
gain of $50,000 was recorded in other income. In February 2003, the Company sold
its Texas facility for $875,000. A gain of $75,000 was recorded as part of
discontinued operations.
Unaudited Financial Statements
- ------------------------------
The accompanying unaudited financial statements as of March 26, 2004,
and for the three month and six months ended March 26, 2004 have been prepared
in accordance with generally accepted accounting principles for interim
financia1 information. In the opinion of management, all adjustments considered
necessary for a fair presentation, which consist solely of normal recurring
adjustments, have been included. The accompanying financial statements should be
read in conjunction with the financial statements and notes thereto included in
the Company's September 30, 2003 Annual Report on Form 10-K.
Earnings Per Share
- ------------------
Net income per share is computed in accordance with Statement of
Financial Accounting Standards No. 128, "Earnings Per Share". Basic earnings per
share is calculated by dividing income available to common shareholders by the
weighted-average number of shares outstanding for each period. Diluted earnings
per common share is calculated by adjusting the weighted-average shares
outstanding, assuming conversion of all potentially dilutive stock options.
New Pronouncements
- ------------------
In November 2002, the EITF reached a consensus on issue 00-21, "Revenue
Arrangements with Multiple Deliverables" (EITF 00-21). EITF 00-21 addresses
revenue recognition on arrangements encompassing multiple elements that are
delivered at different points in time, defining criteria that must be met for
elements to be considered to be a separate unit of accounting. If an element is
determined to be a separate unit of accounting, the revenue for the element is
recognized at the time of delivery. EITF 00-21 is effective for revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. The
Company adopted this standard as of October 1, 2003 with no material impact on
its financial position, results of operations or cash flows.
(2) Discontinued Operations
- ---------------------------
On June 18, 2002, the Company signed an Asset Purchase Agreement to
sell substantially all of the assets of IEC-Mexico to Electronic Product
Integration Corporation for $730,000. The Company recorded an after-tax loss on
the sale of approximately $3.1 million in fiscal 2002. The reserve balance at
March 26, 2004 was $204,000.
On February 28, 2003, the Company sold its Edinburg, Texas facility for
$875,000 and completed its restructuring initiative. The Company recorded an
$184,000 restructuring benefit during Q2 2003 due to certain facility payments
accrued in a prior fiscal year that will no longer be paid out.
Assets and liabilities of discontinued operations consisted of the following:
March 26, September 30,
2004 2003
------------- -------------
(Unaudited)
Current assets $ 57 $ 121
Accrued expenses 204 216
------------- -------------
Net assets of discontinued operations $ (147) $ (95)
============= =============
Page 8 of 15
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
MARCH 26, 2004
(3) Stock Option Plans
- ----------------------
The Company applies Accounting Principles Board Opinion No. 25, "Accounting
for Stock Issued to Employees", and related interpretations in accounting for
its stock option plans. Accordingly, no compensation expense has been recognized
for its stock option plans. SFAS No. 123, "Accounting for Stock-Based
Compensation", as amended by SFAS No. 148, "Accounting for Stock-Based
Compensation - Transition and Disclosure", requires disclosure of pro forma net
income per share as if the fair valued-based method had been applied in
measuring compensation cost for the stock-based awards. The following table
illustrates the effect on net earnings and earnings per share had the Company
adopted the fair value based method of accounting for stock-based employee
compensation for all periods presented.
3 MONTHS ENDED 3 MONTHS ENDED 6 MONTHS ENDED 6 MONTH ENDED
MARCH 26, 2004 MARCH 28, 2003 MARCH 26, 2004 MARCH 28, 2003
(Unaudited) (Unaudited) (Unaudited) (Unaudited)
-------------- -------------- -------------- --------------
Net earnings, as reported $ 124 $ 726 $ 256 $ 1,169
Pro forma net earnings $ 107 $ 1,019 $ 223 $ 1,448
Earnings per share:
Basic - as reported $ 0.02 $ 0.09 $ 0.03 $ 0.15
Basic - pro forma $ 0.01 $ 0.13 $ 0.03 $ 0.19
Diluted - as reported $ 0.01 $ 0.09 $ 0.03 $ 0.15
Diluted - pro forma $ 0.01 $ 0.13 $ 0.03 $ 0.18
(4) Litigation
- --------------
Except as set forth below, there are no material legal proceedings pending
to which the Company or any of its subsidiaries is a party or to which any of
the Company or subsidiaries' property is subject. To our knowledge, there are no
material legal proceedings to which any director, officer or affiliate of the
Company, or any beneficial owner of more than 5 percent (5%) of Common Stock, or
any associate of any of the foregoing, is a party adverse to the Company or any
of its subsidiaries.
An action was commenced in United States District Court for the Southern
Division of Texas against the Company and several other corporate defendants, on
August 12,2002. The plaintiffs allege a "toxic tort" action against the
defendants, for exposure to lead, lead dust, chemicals and other substances used
in the manufacture of products by various defendants. The essence of the
complaint relates to alleged "in utero" exposure to the circulatory system of
the then unborn children, resulting in alleged tissue toxicity through the
mothers, causing damage to the central nervous system, brain and other organs of
the fetus. The complaint alleges theories of negligence, gross negligence,
strict liability, breach of warranty and fraud/negligent misrepresentation, and
claims unspecified damages for pain and suffering, a variety of special damages,
punitive damages and attorneys' fees. Royal & Sunalliance Insurance Company has
agreed to provide a defense of the claims with a reservation of rights, but has
expressly excluded any coverage for the claim for punitive damages. The Company
has denied liability and the case is still in the discovery phase. A March 2004
trial date was adjourned and no new trial date has been fixed.
On August 13, 2003 General Electric Company ("GE") commenced an action in
the state of Connecticut against the Company and Vishay Intertechnology, Inc.
The action alleges causes of action for breach of a manufacturing services
contract, which had an initial value of $4.4 million, breach of express
warranty, breach of implied warranty and a violation of the Connecticut Unfair
Trade Practices Act. Vishay supplied a component that the Company used to
assemble printed circuit boards for GE that GE contends failed to function
properly requiring a product recall. GE claims damages "in excess of $15,000"
plus interest and attorneys' fees. The Company has made a motion to dismiss the
action in Connecticut for lack of jurisdiction and the motion is pending. GE has
filed a motion seeking leave to file an amended complaint, which the Company has
opposed. This motion is also pending. The position of the Company is that the
contract with GE was substantially completed and that it has meritorious
defenses and a cross claim against Vishay.
Page 9 of 15
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
-----------------------------------------------------------
Results of Operations - Three Months Ended March 26, 2004,
Compared to the Three Months Ended March 28, 2003.
-----------------------------------------------------------
Net sales for the three month period ended March 26, 2004, were $7.3
million, compared to $15.5 million for the comparable period of the prior fiscal
year, a decrease of 53 percent. The decrease in sales is due to a decline in
orders from one of our major customers. Turnkey sales were 91 percent of net
sales in the quarter as compared to 94 percent for the comparable period of the
prior year.
Five customers accounted for 80% of our sales for the quarter ended March
26, 2004.
Gross profit was $0.7 million or 9.9 percent of sales for the three month
period ended March 26, 2004, versus $1.2 million or 8.1 percent of sales in the
comparable period of the prior fiscal year. The prior year result was negatively
impacted by $557,000 due to the write off of a promissory note from Acterna
Corporation. The prior year gross profit percentage would have been 11.7%
without the Acterna adjustment. The decrease in the comparable gross profit
percentage is primarily due to fixed overhead costs being spread over fewer
sales dollars.
Selling and administrative expenses decreased to $0.6 million for the three
month period ended March 26, 2004, from $0.9 million in the comparable period of
the prior fiscal year, a decrease of 34 percent. This decrease is primarily due
to lower sales commissions. As a percentage of net sales, selling and
administrative expenses increased to 8.1 percent from 5.8 percent in comparison
to the same quarter of the prior fiscal year. The increase is due to fixed costs
being spread over fewer sales dollars.
Interest expense decreased to $0.1 million for the three month period ended
March 26, 2004, from $0.2 million in the comparable period of the prior fiscal
year, a decrease of 51 percent. This decrease is primarily due to a reduction in
debt.
During the three month period ended March 26, 2004, we were able to
negotiate $9,000 forgiveness of accounts payable. During the three month period
ended March 28, 2003, we were able to negotiate $378,000 forgiveness of accounts
payable.
We had other income of $79,000 for the three months ended March 26, 2004.
This income was related to a gain on the sale of excess equipment.
We have recorded no benefit from income tax as a result of our cumulative
net losses, and accordingly, we have a large valuation allowance against our net
deferred tax asset including the net operating loss carry-forward.
Net income for the three months ended March 26, 2004 was $0.1 million
versus a net income of $0.5 million in the comparable quarter of the prior
fiscal year.
Diluted income per share was $0.01 as compared to diluted income per share
of $0.09 in the comparable quarter of the prior fiscal year.
Discontinued Operations
- -----------------------
On February 28, 2003 IEC sold its Edinburg, Texas facility and completed its
restructuring initiative. As a result, IEC recorded a $184,000 restructuring
benefit due to certain facility payments accrued in a prior fiscal year that
will no longer be paid out.
Page 10 of 15
-----------------------------------------------------------
Results of Operations - Six Months Ended March 26, 2004,
Compared to the Six Months Ended March 28, 2003.
-----------------------------------------------------------
Net sales for the six month period ended March 26, 2004, were $13.8
million, compared to $25.1 million for the comparable period of the prior fiscal
year, a decrease of 45 percent. The decrease in sales is due to a decline in
orders from one of our major customers. Turnkey sales were 92 percent of net
sales in the six months as compared to 93 percent for the comparable period of
the prior year.
Five customers accounted for 81% of our sales for the six months ended
March 26, 2004. During the quarter, we received orders from three new customers,
new orders from existing customers, and a sizeable order from Motorola, one of
our former large customers. Another customer, Teradyne, has informed us that it
plans to move substantial amounts of its contract assembly work to China over
the balance of our fiscal year.
Gross profit was $1.3 million or 9.4 percent of sales for the six month
period ended March 26, 2004, versus $2.2 million or 8.9 percent of sales in the
comparable period of the prior fiscal year. The prior year result was negatively
impacted by $557,000 due to the write off of a promissory note from Acterna
Corporation. The prior year gross profit percentage would have been 11.1%
without the Acterna adjustment. The decrease in the comparable gross profit
percentage is primarily due to fixed overhead costs being spread over fewer
sales dollars.
Selling and administrative expenses decreased to $1.2 million for the six
month period ended March 26, 2004, from $1.7 million in the comparable period of
the prior fiscal year, a decrease of 29 percent. This decrease is primarily due
to lower sales commissions. As a percentage of net sales, selling and
administrative expenses increased to 8.5 percent from 6.6 percent in comparison
to the same period of the prior fiscal year. The increase is due to fixed costs
being spread over fewer sales dollars.
Interest expense decreased to $0.2 million for the six month period ended
March 26, 2004, from $0.4 million in the comparable period of the prior fiscal
year, a decrease of 52 percent. This decrease is primarily due to a reduction in
debt.
During the six month period ended March 28, 2003, we were able to negotiate
$623,000 forgiveness of accounts payable.
We had other income of $310,000 for the six months ended March 26, 2004.
This income was primarily related to a gain on the sale of excess equipment. We
had other income of $105,000 for the six months ended March 28, 2003. This
income was primarily related to a gain on the sale of our Alabama operation.
We have recorded no benefit from income tax as a result of our cumulative
net losses, and accordingly, we have a large valuation allowance against our net
deferred tax asset including the net operating loss carry-forward.
Net income for the six months ended March 26, 2004 was $0.3 million versus
a net income of $1.0 million in the comparable period of the prior fiscal year.
Diluted income per share was $0.03 as compared to diluted income per
share of $0.15 in the comparable period of the prior fiscal year.
Discontinued Operations
- -----------------------
On February 28, 2003, IEC sold its Edinburg, Texas facility and
completed its restructuring initiative. As a result, IEC recorded a $184,000
restructuring benefit due to certain facility payments accrued in a prior fiscal
year that will no longer be paid out.
Page 11 of 15
Liquidity and Capital Resources
- -------------------------------
Cash decreased to $0.1 million at March 26, 2004, from $0.8 million at
September 30, 2003. Availability under our line of credit was $2.4 million on
March 26, 2004. As reflected in the Consolidated Statements of Cash Flows for
the six months ending March 26, 2004, net cash from operating activities was
($0.3 million) and cash from investing activities was $0.3 million. Cash was
used to pay down bank debt ($0.7 million). Depreciation for the six month
periods ending March 26, 2004 and March 28, 2003 was $0.6 million and $0.8
million, respectively. High sales in the last month of the current quarter
resulted in a $0.8 million increase in accounts receivable. Inventory levels
increased by $0.5 million, and accounts payable increased by $0.6 million. Both
changes are due to materials purchased in anticipation of April 2004 production
needs.
We currently have a $4,450,000 Senior Secured Facility (the "Facility") and
a $2,200,000 Secured Term Loan (the "Term Loan"). The Facility, which matures on
January 14, 2006, bears interest at the rate of prime plus 2%. It involves a
revolving line of credit for up to $3,850,000 based upon advances on eligible
accounts receivable and inventory and a term loan of $600,000, secured by
machinery and equipment, to be amortized over a 36 month period. The Term Loan
is secured by a general security agreement, and indirectly by the assignment of
a certain promissory note and a first mortgage on the IEC plant in Newark, New
York. It is payable with interest at prime plus 1.5% in monthly installments
over a period of 3 years, maturing on January 14, 2006.
$0, $367,000, and $917,000 were outstanding at March 26, 2004 under the
revolving line of credit with Keltic, the term loan with Keltic and the SunTrust
loan, respectively.
The financing agreements contain various affirmative and negative covenants
including, among others, limitations on the amount available under the revolving
line of credit relative to the borrowing base, capital expenditures, fixed
charge coverage ratios, and minimum earnings before interest, taxes,
depreciation and amortization (EBITDA). We are in compliance with these
covenants.
Application of Critical Accounting Policies
- -------------------------------------------
Our financial statements and accompanying notes are prepared in accordance
with generally accepted accounting principles in the United States. Preparing
financial statements requires management to make estimates and assumptions that
affect the reported amounts of assets, liabilities, revenue, and expenses. These
estimates and assumptions are affected by management's application of accounting
policies. Critical accounting policies for us include revenue recognition,
impairment of long-lived assets, accounting for legal contingencies and
accounting for income taxes.
We recognize revenue in accordance with Staff Accounting Bulletin No.101,
"Revenue Recognition in Financial Statements." Sales are recorded when products
are shipped to customers. Provisions for discounts and rebates to customers,
estimated returns and allowances and other adjustments are provided for in the
same period the related sales are recorded.
We evaluate our long-lived assets for financial impairment on a regular
basis in accordance with Statement of Financial Accounting Standards No. 144,
"Accounting for the Impairment or Disposal of Long-Lived Assets." We evaluate
the recoverability of long-lived assets not held for sale by measuring the
carrying amount of the assets against the estimated discounted future cash flows
associated with them. At the time such evaluations indicate that the future
discounted cash flows of certain long-lived assets are not sufficient to recover
the carrying value of such assets, the assets are adjusted to their fair values.
We are subject to various legal proceedings and claims, the outcomes of
which are subject to significant uncertainty. Statement of Financial Accounting
Standards No. 5, "Accounting for Contingencies", requires that an estimated loss
from a loss contingency should be accrued by a charge to income if it is
probable that an asset has been impaired or a liability has been incurred and
the amount of the loss can be reasonably estimated.
Page 12 of 15
Disclosure of a contingency is required if there is at least a reasonable
possibility that a loss has been incurred. We evaluate, among other factors, the
degree of probability of an unfavorable outcome and the ability to make a
reasonable estimate of the amount of loss. Changes in these factors could
materially impact our financial position or our results of operations.
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," establishes financial accounting and reporting standards for the effect
of income taxes. The objectives of accounting for income taxes are to recognize
the amount of taxes payable or refundable for the current year and deferred tax
liabilities and assets for the future tax consequences of events that have been
recognized in an entity's financial statements or tax returns. Judgment is
required in assessing the future tax consequences of events that have been
recognized in our financial statements or tax returns. Fluctuations in the
actual outcome of these future tax consequences could materially impact our
financial position or our results of operations
Impact of Inflation
- -------------------
The impact of inflation on our operations has been minimal due to the fact
that we are able to adjust its bids to reflect any inflationary increases in
costs.
New Pronouncements
- ------------------
In November 2002, the EITF reached a consensus on issue 00-21, "Revenue
Arrangements with Multiple Deliverables" ("EITF 00-21"). EITF 00-21 addresses
revenue recognition on arrangements encompassing multiple elements that are
delivered at different points in time, defining criteria that must be met for
elements to be considered to be a separate unit of accounting. If an element is
determined to be a separate unit of accounting, the revenue for the element is
recognized at the time of delivery. EITF 00-21 is effective for revenue
arrangements entered into in fiscal periods beginning after June 15, 2003. We
adopted this standard on October 1, 2003 with no impact on our financial
position, results of operations or cash flow.
Item 3 -- Quantitative and Qualitative Disclosures About Market Risk
----------------------------------------------------------
Quantitative and Qualitative Disclosures about Market Risk represents the
risk of loss that may impact the consolidated financial position, results of
operations or cash flows of IEC due to adverse changes in financial rates. We
are exposed to market risk in the area of interest rates. One exposure is
directly related to its Term Loan and Revolving Credit borrowings under the
Credit Agreement, due to their variable interest rate pricing. Management
believes that interest rate fluctuations will not have a material impact on
IEC's results of operations.
Item 4 -- Controls and Procedures
-----------------------
An evaluation was performed under the supervision and with the
participation of our management, including our Chief Executive Officer and Chief
Financial Officer, of the effectiveness of the design and operation of our
disclosure controls and procedures as of the end of the period covered by this
Quarterly Report on Form 10-Q as required by Rule 13a-15 under the Securities
Exchange Act of 1934 (the "Exchange Act"). Based on that evaluation, our Chief
Executive Officer and Chief Financial Officer concluded that the Company's
disclosure controls and procedures were effective as of the end of the period
covered by the Quarterly Report on 10-Q to provide reasonable assurance that
information required to be disclosed by the Company in the reports that it files
or submits under the Exchange Act is recorded, processed, summarized and
reported within the time period specified in the SEC rules and forms.
In connection with the evaluation described above, our management,
including our Chief Executive Officer and Chief Financial Officer, identified no
change in our internal control over financial reporting that occurred during our
fiscal quarter ended March 26, 2004, and that has materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.
Page 13 of 15
Forward-looking Statements
- --------------------------
Forward-looking statements in this Form 10-Q include, without limitation,
statements relating to the Company's plans, future prospects, strategies,
objectives, expectations, intentions and adequacy of resources and are made
pursuant to the safe harbor provisions of the Private Securities Litigation
Reform Act of 1995. These statements may be identified by their use of words
like "plans", "expects", "aims", "believes", "projects", "anticipates",
"intends", "estimates", "will", "should", "could", and other expressions that
indicate future events and trends. These forward-looking statements involve
known and unknown risks, uncertainties and other factors that may cause the
actual results, performance or achievement of the Company to be materially
different from any future results, performance or achievements expressed or
implied by such forward-looking statements. These factors include, among others,
the following: general economic and business conditions, the timing of orders
and shipments, availability of material, product mix, changes in customer
requirements and in the volume of sales to principal customers, competition and
technological change, the ability of the Company to control manufacturing and
operating costs, and satisfactory relationships with vendors. The Company's
actual results of operations may differ significantly from those contemplated by
such forward-looking statements as a result of these and other factors,
including factors set forth in the Company's Annual Report on Form 10-K for the
year ended September 30, 2003 and in other filings with the Securities and
Exchange Commission.
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
The descriptions of our legal proceedings set forth in Item 3 of our Annual
Report on Form 10-K for the fiscal year ended September 30, 2003, and in note
(4) to the notes to the consolidated financial statements contained herein, are
incorporated herein by reference.
Item 2 -- Changes in Securities
None.
Item 3 -- Defaults Upon Senior Securities
None.
Item 4 -- Submission of Matters to a Vote of Security Holders
(a) The Annual Meeting of Stockholders was convened on January 21,
2004, adjourned until January 28, 2004 and further adjourned
until February 19, 2004.
(b) Proxies for the meeting were solicited pursuant to Regulation
14A under the Securities Exchange Act of 1934, there was no
solicitation in opposition to the management's nominees as
listed in the proxy statement and all of such nominees were
elected.
(c) At the adjourned Annual Meeting, the tabulation of the votes
with respect to each nominee was as follows:
Nominee Votes FOR Authority Withheld
------- --------- ------------------
David J. Beaubien 4,523,088 29,212
W. Barry Gilbert 4,533,129 19,171
Robert P.B. Kidd 4,474,729 77,571
Eben S. Moulton 4,424,042 128,258
Dermott O'Flanagan 4,511,088 41,212
James C. Rowe 4,533,129 19,171
Justin L. Vigdor 4,485,527 66,773
Page 14 of 15
Item 5 -- Other Information
None.
Item 6 -- Exhibits and Reports on Form 8-K
a. Exhibits
The following documents are filed as exhibits to this Report:
10.1 First Amendment, dated as of March 23, 2004, to the Loan
Agreement, dated January 14, 2003, by and between Keltic
Financial Partners, LP and IEC Electronics Corp.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Principal Financial Officer pursuant to
Section 302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer pursuant to Section
906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C. Section 1350
32.2 Certification of Principal Financial Officer pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002, 18 U.S.C.
Section 1350
b. Reports on Form 8-K
(i) A current report on Form 8-K was filed with the Securities and Exchange
Commission on April 22, 2004. The report announced earnings for the three and
six month periods ended March 26, 2004 and a press release relating to the
earnings was attached thereto.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
IEC ELECTRONICS CORP.
REGISTRANT
Dated: April 22, 2004 /s/ W. BARRY GILBERT
-----------------------------
W. Barry Gilbert
Chairman and
Chief Executive Officer
Dated: April 22, 2004 /s/ BRIAN H. DAVIS
-----------------------------
Brian H. Davis
Chief Financial Officer and
Controller
Page 15 of 15