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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 December 31, 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 - 8,245,952 shares as of January 20, 2005.
Page 1 of 13
PART 1 FINANCIAL INFORMATION Page
Number
Item 1. Financial Statements
Consolidated Balance Sheets as of:
December 31, 2004 (Unaudited) and September 30, 2004.......... 3
Consolidated Statements of Operations for the three months
ended: December 31, 2004 (Unaudited) and December 26, 2003
(Unaudited)................................................... 4
Consolidated Statements of Cash Flows for the three months
ended: December 31, 2004 (Unaudited) and December 26, 2003
(Unaudited)................................................... 5
Notes to Consolidated Financial Statements (Unaudited)........ 6
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of Operations.................... 9
Item 3. Quantitative and Qualitative Disclosures about Market Risk....... 11
Item 4. Controls and Procedures.......................................... 11
PART II OTHER INFORMATION
Item 1. Legal Proceedings.............................................. 12
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.... 12
Item 3. Defaults Upon Senior Securities................................ 12
Item 4. Submission of Matters to a Vote of Security Holders............ 12
Item 5. Other Information.............................................. 12
Item 6. Exhibits ...................................................... 13
Signatures............................................................. 13
Page 2 of 13
Part 1. Financial Information
Item 1 -- Financial Statements
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETSDECEMBER 31, 2004 AND SEPTEMBER 30, 2004
(in thousands)
DECEMBER 31, SEPTEMBER 30,
2004 2004
------------ -------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ 8 $ 0
Accounts receivable (net of allowance for 3,640 3,710
Doubtful accounts of $532 and $500 respectively)
Inventories 1,515 1,882
Deferred income taxes 250 250
Other current assets 275 338
-------- --------
Total current assets 5,688 6,180
-------- --------
FIXED ASSETS:
Land and land improvements 768 768
Building and improvements 3,995 3,995
Machinery and equipment 40,034 40,951
Furniture and fixtures 5,283 5,283
-------- --------
SUB-TOTAL GROSS PROPERTY 50,080 50,997
LESS ACCUMULATED DEPRECIATION (48,109) (48,761)
-------- --------
1,971 2,236
OTHER NON-CURRENT ASSETS 98 114
-------- --------
$ 7,757 $ 8,530
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term borrowings $ 1,359 $ 1,905
Accounts payable 2,221 2,253
Accrued payroll and related expenses 520 549
Other accrued expenses 747 747
-------- --------
Total current liabilities 4,847 5,454
-------- --------
LONG TERM VENDOR NOTES 144 227
LONG TERM BANK DEBT 58 233
-------- --------
TOTAL LIABILITIES 5,049 5,914
-------- --------
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 - 8,246,525 and
- 8,215,458 shares (net of 573 treasury shares) 71 71
Additional paid-in capital 38,517 38,507
Accumulated deficit (35,788) (35,870)
Accumulated translation adjustments (92) (92)
-------- --------
Total shareholders' equity 2,708 2,616
-------- --------
$ 7,757 $ 8,530
======== ========
The accompanying notes are an integral part of these financial statements.
Page 3 of 13
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND DECEMBER 26, 2003
(in thousands, except share and per share data)
3 MONTHS ENDED 3 MONTHS ENDED
DECEMBER 31, DECEMBER 26,
2004 2003
-------------- --------------
(Unaudited) (Unaudited)
Net sales $ 6,223 $ 6,519
Cost of sales 5,434 5,948
------- -------
Gross profit 789 570
------- -------
Selling and administrative expenses 628 579
Restructuring charge 53 --
------- -------
Operating profit 108 (9)
Interest and financing expense (98) (90)
Other income 72 231
------- -------
Net income before income taxes 82 132
Provision for income taxes -- --
--------- ----------
Net income $ 82 $ 132
========= ==========
Net income per common and common equivalent share:
Basic $ 0.01 $ 0.02
Diluted $ 0.01 $ 0.02
Weighted average number of common and common equivalent shares outstanding:
Basic 8,230,497 8,042,188
Diluted 8,512,307 8,764,870
The accompanying notes are an integral part of these financial statements.
Page 4 of 13
IEC ELECTRONICS CORP. AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
FOR THE THREE MONTHS ENDED DECEMBER 31, 2004 AND DECEMBER 26, 2003
(in thousands)
3 MONTHS ENDED 3 MONTHS ENDED
DECEMBER 31, DECEMBER 26,
2004 2003
-------------- --------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income $ 82 $ 132
Non-cash adjustments:
Depreciation 281 290
Gain on sale of fixed assets (72) (215)
Issuance of director's fees in stock 6 --
Changes in operating assets and liabilities:
Accounts receivable 71 864
Inventories 367 (243)
Other current assets 63 211
Accounts payable (32) (1,143)
Accrued expenses (27) (149)
--------- ---------
Net cash flows from operating activities 739 (253)
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from sale of property 72 215
Purchases of plant, property & equipment -- (7)
--------- ---------
Net cash flows from investing activities 72 208
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under loan agreements (286) (315)
Borrowings (payments) on line of credit (519) --
Proceeds from exercise of stock options 4 2
--------- ---------
Net cash flows from financing activities (801) (313)
--------- ---------
Cash (used in) from discontinued operations (2) 61
--------- ---------
Change in cash and cash equivalents 8 (297)
Cash and cash equivalents at beginning of period -- 793
--------- ---------
Cash and cash equivalents at end of period $ 8 $ 496
========= =========
Supplemental Disclosures of Cash Flow Information:
Cash paid during the period for:
Interest $ 102 $ 90
Income taxes $ -- $ --
The accompanying notes are an integral part of these financial statements.
Page 5 of 13
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 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 automated manufacturing and test
machinery and equipment, IEC 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 services, on either a turnkey or
consignment basis. These services include product development, prototype
assembly, material procurement, volume assembly, test engineering support,
statistical quality assurance, order fulfillment and repair services. 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.
Allowance for Doubtful Accounts
The Company establishes an allowance for uncollectable trade accounts
receivable based on the age of outstanding invoices and management's evaluation
of collectibility of outstanding balances.
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):
DECEMBER 31, 2004 September 30, 2004
----------------- ------------------
(Unaudited)
Raw materials $ 963 $1,162
Work-in-process 547 711
Finished goods 5 9
----------------- ----------------
$1,515 $1,882
================= ================
Unaudited Financial Statements
The accompanying unaudited financial statements as of December 31,
2004, and for the three months ended December 31, 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, 2004 Annual Report on Form 10-K.
Page 6 of 13
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
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 December 2002, the Financial Accounting Standards Board issued FASB
Statement No. 148, "Accounting for Stock Based Compensation - Transition and
Disclosure". SFAS 148 provides alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, the Statement amends the previous disclosure
requirements of SFAS 123 to require prominent disclosures about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported financial results and require these disclosures in interim
financial information. IEC continues to account for stock-based employee
compensation under APB Opinion 25, but has adopted the new disclosure
requirements of SFAS 148 beginning in the second quarter of fiscal 2003.
In November 2004, the FASB issued SFAS No. 151 "Inventory Costs" (SFAS
151). This statement amends the guidance in ARB No. 43, Chapter 4, "Inventory
Pricing," to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). SFAS 151
requires that those items be recognized as current-period charges. In addition,
this Statement requires that allocation of fixed production overheads to costs
of conversion be based upon the normal capacity of the production facilities.
The provisions of SFAS 151 are effective for inventory cost incurred in fiscal
years beginning after June 15, 2005. As such, the Company is required to adopt
these provisions at the beginning of fiscal 2006. The Company is currently
evaluating the impact of SFAS 151 on its consolidated financial statements.
In December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123R, "Share-Based Payment" (SFAS 123R), which requires companies to
measure and recognize compensation expense for all stock-based payments at fair
value. SFAS 123R is effective for all interim periods beginning after June 15,
2005 and, thus, will be effective for the Company beginning with the fourth
quarter of fiscal 2005. Retroactive application of the provisions of SFAS 123R
to the beginning of the fiscal year that includes the effective date is
permitted, but not required. The Company is currently evaluating the impact of
SFAS 123R on its financial statements.
On December 16, 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets, an amendment of APB Opinion No. 29". SFAS No. 153 replaces
the exception from fair value measurement in APB Opinion No. 29 for nonmonetary
exchanges of similar productive assets with a general exception from fair value
measurement for exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the
exchange. SFAS No. 153 is to be applied prospectively, and is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after the date
of issuance of SFAS No. 153.
(2) Financing Agreements
The Company's 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). The Company was
compliant with these covenants on December 31, 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.
Page 7 of 13
IEC ELECTRONICS CORP. AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
DECEMBER 31, 2004
3 MONTHS ENDED 3 MONTHS ENDED
DECEMBER 31, 2004 DECEMBER 26, 2003
(Unaudited) (Unaudited)
----------------- -----------------
Net earnings, as reported $ 82 $ 132
Pro forma net earnings $ 36 $ 116
Earnings per share:
Basic - as reported $ 0.01 $ 0.02
Basic - pro forma $ 0.00 $ 0.01
Diluted - as reported $ 0.01 $ 0.02
Diluted - pro forma $ 0.00 $ 0.01
(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 its 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. Three plaintiffs alleged 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
their 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
denied liability. The parties have arrived at a settlement, which will not
materially impact the Company. A hearing to obtain court approval for the
settlement was held on November 30, 2004. The court approved the settlement,
subject to the satisfaction of certain conditions, none of which is material and
all of which are expected to be consummated by January 31, 2005.
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 basis for a cross claim against Vishay. GE, IEC and Vishay have
agreed to engage in non-binding mediation which has not yet occurred.
(5) Restructuring
During May 2004, the Company commenced a restructuring initiative in an
attempt to more closely align resources to customer requirements. During the
first quarter of 2005, the Company paid $53,000 in severance and hiring costs
related to this initiative.
(6) New Financing Agreement
On January 7, 2005, IEC amended its Loan Agreement with Keltic Financial
Partners LP. The agreement included a new $750,000 term loan, payment of the
existing SunTrust Term Loan, a moratorium on principal payments until October 1,
2005, adjustments to the existing loan covenants, and a termination date of
January 14, 2009.
Page 8 of 13
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Three Months Ended December 31, 2004,
Compared to the Three Months Ended December 26, 2003.
Net sales for the three month period ended December 31, 2004, were $6.2
million, compared to $6.5 million for the comparable period of the prior fiscal
year, a decrease of 5 percent. The decrease in sales is due to a decline in
orders from two of our major customers that was not completely offset by the
addition of orders from new customers.
Our five largest customers accounted for 73% of our sales for the quarter
ended December 31, 2004, and 85% of our sales for the quarter ended December 26,
2003.
Gross profit was $0.8 million or 13 percent of sales for the three month
period ended December 31, 2004, versus $0.6 million or 9 percent of sales in the
comparable period of the prior fiscal year. The increase in gross profit
percentage was largely due to our restructuring efforts.
Selling and administrative expenses were $0.6 million for the three month
period ended December 2004, and $0.6 million for the comparable period of the
prior fiscal year. Selling and administrative expenses were 10 percent of sales
during the current period, compared to 9 percent of sales during the same
quarter of the prior fiscal year.
Restructuring costs were $53,000 for the three month period ended December
31, 2004. The costs were primarily related to hiring and severance costs
associated with senior operations executives.
Interest expense was $98,000 for the three month period ended December 31,
2004, up from $90,000 in the comparable period of the prior fiscal year. The
increase was primarily due to an increase in borrowing from our line of credit.
Other income was $72,000 for the three month period ended December 31,
2004, and $231,000 for the three month period ended December 26, 2003. The other
income for both periods was primarily due to gains on the sale of excess
equipment.
Net income for the three months ended December 31, 2004 was $0.1 million
versus a net income of $0.2 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 $0.02 in the comparable quarter of the prior fiscal year.
Page 9 of 13
Liquidity and Capital Resources
Availability under our line of credit was $2.0 million on December 31,
2004. As reflected in the Consolidated Statements of Cash Flows for the three
months ending December 31, 2004, net cash from operating and investing
activities was $0.8 million. Cash was used to pay down debt.
On December 31, 2004 we had a $4,450,000 Senior Secured Facility (the
"Facility") with Keltic Financial Partners L.P. ("Keltic") and a $2,200,000
Secured Term Loan (the "Term Loan") with SunTrust Bank ("SunTrust"). The
Facility had an original maturity date of January 14, 2006, and had an interest
rate of prime plus 2%. It involved 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 was 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 was payable with
interest at prime plus 3.0% in monthly installments over a period of 3 years,
maturing on January 14, 2006. $506,000, $217,000, and $542,000 were outstanding
at December 31, 2004 under the revolving line of credit with Keltic, the term
loan with Keltic and the SunTrust loan, respectively.
On January 7, 2005, we amended our Loan Agreement with Keltic. The
agreement includes a new $750,000 term loan that is secured by a first mortgage
on the IEC plant in Newark, and has an interest rate of prime plus 2%. The
proceeds were used, in part, to pay off the balance of the Term Loan with
SunTrust. The amendment includes a moratorium on principal payments until
October 2005, adjustments to the existing loan covenants, and a new termination
date of January 14, 2009.
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 were compliant with these covenants
at December 31, 2004.
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.
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 impact our financial
position or our results of operations.
Page 10 0f 13
Impact of Inflation
The impact of inflation on our operations has been minimal due to the fact
that we have been able to adjust our bids to reflect any inflationary increases
in costs.
New Pronouncements
In December 2002, the Financial Accounting Standards Board issued FASB
Statement No. 148, "Accounting for Stock Based Compensation - Transition and
Disclosure". SFAS 148 provides alternative methods of transition for a voluntary
change to the fair value method of accounting for stock-based employee
compensation. In addition, the Statement amends the previous disclosure
requirements of SFAS 123 to require prominent disclosures about the method of
accounting for stock-based employee compensation and the effect of the method
used on reported financial results and require these disclosures in interim
financial information. IEC continues to account for stock-based employee
compensation under APB Opinion 25, but has adopted the new disclosure
requirements of SFAS 148 beginning in the second quarter of fiscal 2003.
In November 2004, the FASB issued SFAS No. 151 "Inventory Costs" (SFAS
151). This statement amends the guidance in ARB No. 43, Chapter 4, "Inventory
Pricing," to clarify the accounting for abnormal amounts of idle facility
expense, freight, handling costs, and wasted material (spoilage). SFAS 151
requires that those items be recognized as current-period charges. In addition,
this Statement requires that allocation of fixed production overheads to costs
of conversion be based upon the normal capacity of the production facilities.
The provisions of SFAS 151 are effective for inventory cost incurred in fiscal
years beginning after June 15, 2005. As such, the Company is required to adopt
these provisions at the beginning of fiscal 2006. The Company is currently
evaluating the impact of SFAS 151 on its consolidated financial statements.
In December 2004, the Financial Accounting Standards Board (FASB) issued
SFAS No. 123R, "Share-Based Payment" (SFAS 123R), which requires companies to
measure and recognize compensation expense for all stock-based payments at fair
value. SFAS 123R is effective for all interim periods beginning after June 15,
2005 and, thus, will be effective for the Company beginning with the fourth
quarter of fiscal 2005. Retroactive application of the provisions of SFAS 123R
to the beginning of the fiscal year that includes the effective date is
permitted, but not required. The Company is currently evaluating the impact of
SFAS 123R on its financial statements.
On December 16, 2004, the FASB issued SFAS No. 153, "Exchanges of
Nonmonetary Assets, an amendment of APB Opinion No. 29". SFAS No. 153 replaces
the exception from fair value measurement in APB Opinion No. 29 for nonmonetary
exchanges of similar productive assets with a general exception from fair value
measurement for exchanges of nonmonetary assets that do not have commercial
substance. A nonmonetary exchange has commercial substance if the future cash
flows of the entity are expected to change significantly as a result of the
exchange. SFAS No. 153 is to be applied prospectively, and is effective for
nonmonetary asset exchanges occurring in fiscal periods beginning after the date
of issuance of SFAS No. 153. We have not yet determined what the effects of
adopting this standard will have on us.
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 our 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 December 31, 2004, that materially affected, or is
reasonably likely to materially affect, our internal controls over financial
reporting.
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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, 2004 and in other filings with the Securities and
Exchange Commission.
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
The description of the Company's legal proceedings set forth in Item 3 of
the Company's Annual Report on Form 10-K for the fiscal year ended Septmber 30,
2004 is incorporated herein by reference. During the quarter ended December 31,
2004, the following developments occurred in such proceedings:
(a) Proceeding in U.S. District Court for the Southern District of
Texas
A hearing to obtain court approval for the settlement was held
on November 30, 2004. The court approved the settlement, subject to the
satisfaction of certain conditions, none of which is material and all of which
are expected to be consummated by January 31, 2005.
(b) GE, IEC, Vishay legal proceeding
GE, IEC and Vishay have agreed to engage in non-binding
mediation, which has not yet occurred.
Item 2 - Unregistered Sales of Equity Securities and Use of Proceeds
None.
Item 3 -- Defaults Upon Senior Securities
None.
Item 4 -- Submission of Matters to a Vote of Security Holders
None
Item 5 -- Other Information
None.
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Item 6 -- Exhibits
The following documents are filed as exhibits to this Report:
10.1 Second Amendment, dated as of January 7, 2005, to the Loan
Agreement dated January 14, 2003, as amended by the First
Amendment to the Loan Agreement, dated March 23, 2004, by and
between Keltic Financial Partners, L.P. and IEC Electronics
Corp. (Incorporated by reference to Exhibit 10.1 of the
Company's Current Report on Form 8-K filed on January 13,
2005.
31.1 Certification of Chief Executive Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
31.2 Certification of Chief Financial Officer pursuant to Section
302 of the Sarbanes-Oxley Act of 2002
32.1 Certification of Chief Executive Officer and Chief Financial
Officer pursuant to Section 906 of the Sarbanes-Oxley Act of
2002, 18 U.S.C. Section 1350
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: January 24, 2005 /s/ W. Barry Gilbert
-----------------------------
W. Barry Gilbert
Chairman and
Chief Executive Officer
Dated: January 24, 2005 /s/ Brian H. Davis
------------------------------
Brian H. Davis
Chief Financial Officer and
Controller
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