UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
|X| Quarterly Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934
For the quarterly period ended June 29, 2007
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
incorporation or organization) Identification No.)
105 Norton Street, Newark, New York 14513
(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: (315) 331-7742
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 a large accelerated
filer, an accelerated filer, or a non-accelerated filer. See definition of
"accelerated filer and large accelerated filer" in Rule 12b-2 of the Exchange
Act.
Large accelerated filer |_| Accelerated filer |_| Non-Accelerated filer |X|
Indicate by check mark whether the registrant is a shell company (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 - 8,637,209 shares as of July 25, 2007.
Page 1 of 14
Page
Number
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PART 1 FINANCIAL INFORMATION
Item 1. Financial Statements
Balance Sheets as of:
June 29, 2007 (Unaudited) and September 30, 2006........... 3
Statements of Operations for the three months
ended: June 29, 2007 (Unaudited) and June 30, 2006
(Unaudited)................................................ 4
Statements of Operations for the nine months
ended: June 29, 2007 (Unaudited) and June 30, 2006
(Unaudited)................................................ 5
Statements of Cash Flows for the nine months
ended: June 29, 2007 (Unaudited) and June 30, 2006
(Unaudited)................................................ 6
Notes to 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 1A. Risk Factors................................................. 14
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds.. 14
Item 3. Defaults Upon Senior Securities.............................. 14
Item 4. Submission of Matters to a Vote of Security Holders.......... 14
Item 5. Other Information............................................ 14
Item 6. Exhibits..................................................... 14
Signatures............................................................ 14
Page 2 of 14
Part 1. Financial Information
Item 1 -- Financial Statements
IEC ELECTRONICS CORP.
BALANCE SHEETS
JUNE 29, 2007 AND SEPTEMBER 30, 2006
(in thousands)
JUNE 29, SEPTEMBER 30,
2007 2006
-------- -------------
ASSETS (Unaudited)
CURRENT ASSETS:
Cash $ -- $ --
Accounts receivable (net of allowance for 6,538 4,941
Doubtful accounts of $90 and $59 respectively)
Inventories 3,373 5,114
Deferred income taxes 400 250
Other current assets 56 124
-------- --------
Total current assets 10,367 10,429
-------- --------
FIXED ASSETS:
Land and land improvements 707 707
Building and improvements 4,104 4,089
Machinery and equipment 22,730 22,164
Furniture and fixtures 4,186 4,170
-------- --------
SUB-TOTAL GROSS PROPERTY 31,727 31,130
LESS ACCUMULATED DEPRECIATION (30,177) (29,870)
-------- --------
1,550 1,260
OTHER NON-CURRENT ASSETS 19 29
-------- --------
$ 11,936 $ 11,718
======== ========
LIABILITIES AND SHAREHOLDERS' EQUITY
CURRENT LIABILITIES:
Short term borrowings $ 1,363 $ 3,765
Accounts payable 5,138 3,853
Accrued payroll and related expenses 693 265
Other accrued expenses 442 344
-------- --------
Total current liabilities 7,636 8,227
-------- --------
LONG TERM VENDOR NOTES 6 14
LONG TERM BANK DEBT 497 385
-------- --------
TOTAL LIABILITIES 8,139 8,626
-------- --------
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 - 8,604,922 and
8,397,209 shares 86 84
Treasury Shares at Cost 412,873 and 412,873
Shares, Respectively (223) (223)
Additional paid-in capital 38,725 38,601
Accumulated deficit (34,791) (35,370)
-------- --------
Total shareholders' equity 3,797 3,092
-------- --------
$ 11,936 $ 11,718
======== ========
The accompanying notes are an integral part of these financial statements.
Page 3 of 14
IEC ELECTRONICS CORP.
STATEMENTS OF OPERATIONS
FOR THE THREE MONTHS ENDED JUNE 29, 2007 AND JUNE 30, 2006
(in thousands, except share and per share data)
3 MONTHS ENDED 3 MONTHS ENDED
JUNE 29, 2007 JUNE 30, 2006
-------------- --------------
(Unaudited) (Unaudited)
Net sales $ 11,165 $ 5,379
Cost of sales 9,850 4,624
---------- ----------
Gross profit 1,315 755
---------- ----------
Selling and administrative expenses 821 557
---------- ----------
Operating profit 494 198
Interest and financing expense (91) (106)
Gain (loss) on disposal of fixed assets -- (13)
Other Income (Expense) -- --
---------- ----------
Net Income before income taxes 403 79
Provision for income taxes (150) --
---------- ----------
Net Income $ 553 $ 79
========== ==========
Net Income(loss) per common and
common equivalent share:
Basic $ 0.07 $ 0.01
Diluted $ 0.06 $ 0.01
Weighted average number of common and
common equivalent shares outstanding:
Basic 8,321,284 7,968,527
Diluted 9,103,314 8,334,810
The accompanying notes are an integral part of these financial statements.
Page 4 of 14
IEC ELECTRONICS CORP.
STATEMENTS OF OPERATIONS
FOR THE NINE MONTHS ENDED JUNE 29, 2007 AND JUNE 30, 2006
(in thousands, except share and per share data)
9 MONTHS ENDED 9 MONTHS ENDED
JUNE 29, 2007 JUNE 30, 2006
-------------- --------------
(Unaudited) (Unaudited)
Net sales $ 31,309 $ 14,566
Cost of sales 28,256 12,861
---------- ----------
Gross profit 3,053 1,705
---------- ----------
Selling and administrative expenses 2,213 1,555
---------- ----------
Operating profit 840 150
Interest and financing expense (350) (277)
Gain on disposal of fixed assets (33) (10)
Other Expense (25) --
---------- ----------
Net Income(loss) before income taxes 432 (137)
Provision for income taxes (147) --
---------- ----------
Net Income(loss) $ 579 $ (137)
========== ==========
Net Income(loss) per common and
common equivalent share:
Basic $ 0.07 $ (0.02)
Diluted $ 0.06 $ (0.02)
Weighted average number of common and
common equivalent shares outstanding:
Basic 8,123,943 7,968,527
Diluted 8,957,425 7,968,527
The accompanying notes are an integral part of these financial statements.
Page 5 of 14
IEC ELECTRONICS CORP.
STATEMENTS OF CASH FLOWS
FOR THE SIX MONTHS ENDED JUNE 29, 2007 AND JUNE 30, 2006
(in thousands)
9 MONTHS ENDED 9 MONTHS ENDED
JUNE 29, 2007 JUNE 30, 2006
-------------- --------------
(Unaudited) (Unaudited)
CASH FLOWS FROM OPERATING ACTIVITIES:
Net Income (loss) $ 579 $ (137)
Non-cash adjustments:
Compensation Expense - Stock Options 60 32
Depreciation 316 584
(Gain)loss on sale of fixed assets 33 10
Issuance of director's fees in stock 33 18
Changes in operating assets and
liabilities:
Accounts receivable (1,597) (769)
Inventories 1,741 (2,091)
Deferred Income Taxes (150) --
Other assets 78 156
Accounts payable 1,285 961
Accrued expenses 526 (106)
------- -------
Net cash flows from operating activities 2,904 (1,342)
------- -------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of property -- 5
Purchases of plant, property & equipment (639) (327)
------- -------
Net cash flows from investing activities (639) (322)
------- -------
CASH FLOWS FROM FINANCING ACTIVITIES:
Repayments under loan agreements (226) (287)
Borrowings (payments) on line of credit (2,520) 1,682
Proceeds from Equipment Loan 450 --
Proceeds from exercise of stock options 31 20
Purchase of Treasury Stock -- (212)
------- -------
Net cash flows from financing activities (2,265) 1,203
------- -------
Change in cash and cash equivalents -- (461)
Cash and cash equivalents at
beginning of period -- 461
------- -------
Cash and cash equivalents at end of period $ -- $ --
======= =======
Supplemental Disclosures of Cash Flow
Information:
Cash paid during the period for:
Interest $ 340 $ 232
Income taxes $ 3 $ --
The accompanying notes are an integral part of these financial statements.
Page 6 of 14
IEC ELECTRONICS CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 29, 2007
(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"). Our quarters
end on the last Friday of the final month in the quarter, except that our fiscal
year ends on September 30.
Revenue Recognition
The Company's net revenue is derived from the sale of electronic products
built to customer specifications. The Company also derives revenue from design
services and repair work. Revenue from sales is generally recognized, net of
estimated product return costs, when goods are shipped; title and risk of
ownership have passed; the price to the buyer is fixed or determinable; and
recovery is reasonably assured. Service related revenues are recognized upon
completion of the services. The Company assumes no significant obligations after
product shipment.
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):
June 29, 2007 September 30, 2006
------------- ------------------
(Unaudited)
Raw materials $1,850 $3,270
Work-in-process 1,508 1,836
Finished goods 15 8
------ ------
$3,373 $5,114
====== ======
Unaudited Financial Statements
The accompanying unaudited financial statements as of June 29, 2007, and
for the three and nine months ended June 29, 2007 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, 2006 Annual Report on Form 10-K.
Page 7 of 14
IEC ELECTRONICS CORP.
NOTES TO FINANCIAL STATEMENTS
JUNE 29, 2007
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 common 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 February 2007, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 159, "The Fair
Value Option for Financial Assets and Financial Liabilities, including an
amendment of FASB Statement No. 115". SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value at
specified election dates. This Statement applies to all entities, including
not-for-profit organizations. SFAS 159 is effective as of the beginning of an
entity's first fiscal year that begins after November 15, 2007. As such, the
Company is required to adopt these provisions at the beginning of the fiscal
year ended September 30, 2009. The Company is currently evaluating the impact of
SFAS 159 on its financial statements, but does not expect this to have a
material impact.
In September 2006, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 157, "Fair Value
Measurements". SFAS 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements.
SFAS 157 is effective as of the beginning of the first fiscal year that begins
after November 15, 2007. As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended September 30, 2009. The
Company is currently evaluating the impact of SFAS 157 on its financial
statements, but does not expect this to have a material impact.
(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,
and minimum earnings before interest, taxes, depreciation and amortization
(EBITDA). The Company was compliant with these covenants for the three month
period ended June 29, 2007.
(3) Stock Option Plans
In December 2004, the FASB issued SFAS No. 123R, "Share-Based Payment".
SFAS No. 123R requires all share-based payments to employees, including grants
of employee stock options, to be recognized as compensation expense in the
financial statements based on their fair values. That expense will be recognized
over the period during which an employee is required to provide services in
exchange for the award, known as the requisite service period (usually the
vesting period). We adopted SFAS No. 123R effective beginning October 1, 2005
using the Modified Prospective Application Method. Under this method, SFAS No.
123R applies to new awards and to awards modified, repurchased or cancelled
after the effective date. The impact of adopting SFAS No. 123R was an increase
of $20,000 and $60,000 to selling and administrative expenses for the three and
nine month periods ending June 29, 2007, respectively.
Page 8 of 14
IEC ELECTRONICS CORP.
NOTES TO FINANCIAL STATEMENTS
June 29, 2007
The Company issued 0 and 67,500 options during the three and nine months
ended June 29, 2007 respectively. The Company issued 2,500 and 27,500 options
during the three and nine months ended June 30, 2006. The fair value of each
option issued during these periods was estimated on the date of grant using the
Black-Scholes option pricing model with the following weighted average
assumptions:
3 MO. ENDED 3 MO. ENDED 9 MO. ENDED 9 MO. ENDED
JUN 29, 2007 JUN 30, 2006 JUN 29, 2007 JUN 30, 2006
------------ ------------ ------------ ------------
Risk free interest rate na 5.0% 4.7% 4.4%
Expected term na 4.9 years 4.2 years 3.6 years
Volatility na 58% 54% 55%
Expected annual dividends na none none none
The weighted average fair value of options granted during the nine months
ended June 29, 2007 was $.70 with an aggregate total value of $46,930. The
weighted average fair value of options granted during the three months ended
June 30, 2006 was $.32 with an aggregate total value of $1,000. The weighted
average fair value of options granted during the nine months ended June 30, 2006
was $.27 with an aggregate total value of $7,000.
(4) Litigation
Except as set forth below, there are no material legal proceedings pending
to which IEC property is subject. To our knowledge, there are no material legal
proceedings to which any director, officer or affiliate of IEC, 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 IEC.
On August 13, 2003 General Electric Company ("GE") commenced an action in
the state of Connecticut against IEC and Vishay Intertechnology, Inc.
("Vishay"). The action alleges cause 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 IEC 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 attorney's fees. IEC made a motion to dismiss the action in
Connecticut for lack of jurisdiction. During the pendency of the motion, IEC
filed for a protective cross claim against Vishay, and GE filed a second action
against IEC and Vishay in New York State Supreme Court as a protective measure
in the event that its Connecticut action were dismissed. In March 2006, the New
York action was voluntarily discontinued by consent of all the parties. IEC and
Vishay are proceeding to defend GE's Connecticut action on the merits and IEC is
proceeding with its cross claim against Vishay. IEC filed a motion for summary
judgment directed to all counts. On January 11, 2007, the Court granted the
motion in part, dismissing the claim for violation of the Connecticut Unfair
Trade Practices Act, but determined that factual issues were disputed on the
contract and warranty claims. IEC intends to vigorously defend the claims and is
proceeding with the discovery process.
(5) Treasury Shares
On November 11, 2005, the Board of Directors authorized the Company to
purchase up to 10% of its outstanding common stock, at a price not to exceed
$1.00 per share and a maximum aggregate price not to exceed $425,000. This
repurchase program remained in effect until November 10, 2006. During the nine
months ended June 30, 2006, the Company purchased 412,300 shares at a cost of
$212,000. This was a privately negotiated transaction.
Page 9 of 14
Item 2 -- Management's Discussion and Analysis of Financial Condition and
Results of Operations
Results of Operations - Three Months Ended June 29, 2007,
Compared to the Three Months Ended June 30, 2006.
Net sales for the three month period ended June 29, 2007, were $11.2
million, compared to $5.4 million for the comparable period of the prior fiscal
year, an increase of 108 percent. The increase in sales is due to the addition
of several new customers, and an increase in orders from existing customers.
Our five largest customers accounted for 68% of our sales for the quarter
ended June 29, 2007, and 70% of our sales for the quarter ended June 30, 2006.
Gross profit was $1.3 million or 12 percent of sales for the three month
period ended June 29, 2007. This compares to $0.8 million or 14 percent of sales
in the comparable period of the prior fiscal year. The lower gross profit
percentage was primarily due to our transition from low volume prototype work to
larger production volumes.
Selling and administrative expenses were $0.8 million for the three month
period ended June 29, 2007, and $0.6 million for the comparable period of the
prior fiscal year. The increase in cost is due to higher commissions paid to our
manufacturer's representatives related to the higher sales revenue, and also due
to provisions made for officer and employee incentive payments. Selling and
administrative expenses were 7 percent of sales during the current period,
compared to 10 percent of sales during the same quarter of the prior fiscal
year. The percentage reduction is due to fixed costs being spread over more
sales.
Interest expense was $91,000 for the three month period ended June 29,
2007, down from $106,000 in the comparable period of the prior fiscal year.
Interest expense was $11,000 lower than prior year because we were able to
negotiate lower fees with our lender. We also saved $4,000 due to decreased
borrowing from our line of credit.
We had no other expenses during the three month period ended June 29,
2007. We had a $13,000 loss on the sale of assets in the comparable period of
the prior fiscal year.
Income before taxes was $403,000 for the three months ended June 29, 2007.
Income before taxes was $79,000 in the comparable quarter of the prior fiscal
year.
We recorded a $150,000 tax benefit during the three months ended June 29,
2007. This is due to an adjustment to a valuation allowance against our deferred
tax assets. We continue to maintain a $20 million valuation allowance against
our deferred tax assets. We will review the valuation allowance and continue to
make appropriate adjustments as we rebuild the business.
Net income was $553,000 for the three months ended June 29, 2007. Income
before taxes was $79,000 in the comparable quarter of the prior fiscal year.
Diluted income per share was $0.06 as compared to $.01 per share for the
comparable quarter of the prior fiscal year.
Accounts receivable increased by $1.3 million during the three month
period ended June 29, 2007. The increase was due to higher sales, and more of
the sales occurring late in the quarter. Inventory decreased by $0.3 million
during the quarter. The decrease was due to the shipment of backlog and improved
purchasing practices.
Page 10 of 14
Results of Operations - Nine Months Ended June 29, 2007,
Compared to the Nine Months Ended June 30, 2006.
Net sales for the nine month period ended June 29, 2007 were $31.3
million, compared to $14.6 million for the comparable period of the prior fiscal
year, an increase of 115 percent. The increase in sales is due to the addition
of several new customers, and an increase in orders from existing customers.
Our five largest customers accounted for 61% of our sales for the nine
months ended June 29, 2007, and 69% of our sales for the nine months ended June
30, 2006. The reduced concentration is due to the addition of several new
customers.
Gross profit was $3.1 million or 10 percent of sales for the nine month
period ended June 29, 2007. This compares to $1.7 million or 12 percent of sales
in the comparable period of the prior fiscal year. The lower gross profit
percentage was due to our transition from low volume prototype work to larger
production volumes, and also due to the learning curve related to new employees
and new products that we experienced during our first quarter. Productivity
improved during our second and third fiscal quarters, and we were able to spread
certain fixed overhead costs over an increased level of sales. We expect this
improvement to continue through the remainder of fiscal 2007.
Selling and administrative expenses were $2.2 million for the nine month
period ended June 29, 2007, and $1.6 million for the comparable period of the
prior fiscal year. The increase in cost is due to higher commissions paid to our
manufacturer's representatives related to the higher sales revenue, and also due
to provisions made for officer and employee incentive payments. Selling and
administrative expenses were 7 percent of sales during the current period,
compared to 11 percent of sales during the comparable period of the prior fiscal
year. The percentage reduction is due to fixed costs being spread over more
sales.
Interest expense was $350,000 for the nine month period ended June 29,
2007, up from $277,000 in the comparable period of the prior fiscal year.
Interest expense was $77,000 lower than prior year because we were able to
negotiate lower fees with our lender. This was offset by a $150,000 increase
associated with increased borrowing from our line of credit that has been
necessary to support our revenue growth, especially during the first six months
of this fiscal year.
Income before taxes was $432,000 for the nine months ended June 29, 2007.
This compares to a net loss before taxes of $137,000 for the comparable period
of the prior fiscal year.
We recorded a $150,000 tax benefit during the nine months ended June 29,
2007. This is due to an adjustment to a valuation allowance against our deferred
tax assets. We continue to maintain a $20 million valuation allowance against
our deferred tax assets. We will review the valuation allowance and continue to
make appropriate adjustments as we rebuild the business.
Net income for the nine months ended June 29, 2007 was $579,000 versus a
net (loss) of ($137,000) in the comparable period of the prior fiscal year.
Diluted income per share was $0.6 as compared to diluted (loss) per share
of ($0.02) in the comparable period of the prior fiscal year.
Accounts receivable increased by $1.6 million during the nine month period
ended June 29, 2007. The increase was due to higher sales, and more of the sales
occurring late in the quarter. Inventory decreased by $1.7 million during the
same period. The decrease was due to the shipment of backlog and improved
purchasing practices.
We spent $0.6 million on new equipment during the nine month period ended
June 29, 2007. This equipment provides new test capabilities necessary to
support our new business. We financed this purchase with a $450,000 term loan
through our primary lender.
Page 11 of 14
Liquidity and Capital Resources
Cash flow provided by (used in) operating activities was $2.9 million for
the nine months ended June 29, 2007 compared to ($1.3) million for the nine
months ended June 30, 2006. The primary source of cash was a $1.7 million
reduction in inventory that resulted from the shipment of inventory. Accounts
receivable increased by $1.6 million as a result of increased sales. We used
$0.6 million and $0.3 million to purchase new equipment (investing activities)
during the nine month periods ending on June 29, 2007 and June 30, 2006
respectively.
Working capital on June 29, 2007 totaled $2.7 million compared to $2.2
million at our prior fiscal year end. On June 29, 2007, we were borrowing $1.1
million under our revolving credit facility. The maximum borrowing limit under
our revolving credit facility is limited to the lesser of (i) $6.0 million or
(ii) an amount equal to the sum of 85% of the receivables borrowing base and 35%
of the inventory borrowing base. We believe that our liquidity is adequate to
cover operating requirements for the next 12 months.
We also have a term loan balance of $423,000 that is secured by a first
mortgage on the IEC plant in Newark, New York (the "Real Estate Loan"), and
another term loan balance of $375,000 that is secured by certain manufacturing
equipment (the "Equipment Loan"). The Real Estate Loan is payable in 39 monthly
installments of $12,500 that commenced on October 1, 2005, and a final payment
of the remaining balance on January 1, 2009. The Equipment Loan is payable in 39
monthly installments of $12,500 that commenced on January 2, 2007, and a final
payment of the remaining balance on September 12, 2009. Both term loans have an
interest rate of prime plus 1.0%.
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,
and minimum earnings before interest, taxes, depreciation and amortization
(EBITDA). The Company was compliant with these covenants on June 29, 2007.
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,
provisions for doubtful accounts, provisions for inventory obsolescence,
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 12 0f 14
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 February 2007, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 159, "The Fair
Value Option for Financial Assets and Financial Liabilities, including an
amendment of FASB Statement No. 115". SFAS 159 permits entities to choose to
measure many financial instruments and certain other items at fair value at
specified election dates. This Statement applies to all entities, including
not-for-profit organizations. SFAS 159 is effective as of the beginning of an
entity's first fiscal year that begins after November 15, 2007. As such, the
Company is required to adopt these provisions at the beginning of the fiscal
year ended September 30, 2009. The Company is currently evaluating the impact of
SFAS 159 on its financial statements, but does not expect this to have a
material impact
In September 2006, the Financial Accounting Standards Board ("FASB")
issued Statement of Financial Accounting Standard ("SFAS") No. 157, "Fair Value
Measurements". SFAS 157 defines fair value, establishes a framework for
measuring fair value, and expands disclosures about fair value measurements.
SFAS 157 is effective as of the beginning of the first fiscal year that begins
after November 15, 2007. As such, the Company is required to adopt these
provisions at the beginning of the fiscal year ended September 30, 2009. The
Company is currently evaluating the impact of SFAS 157 on its financial
statements, but does not expect this to have a material impact.
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
Based on their evaluation as of the end of the period covered by this
Report, IEC's Chief Executive Officer and Chief Financial Officer have concluded
that IEC's disclosure controls and procedures (as defined in Rules 13a-15(e) and
15d-15(e) under the Securities Exchange Act of 1934 (the "Exchange Act")) are
effective to ensure that information required to be disclosed by IEC in reports
that it files or submits under the Exchange Act is recorded, processed,
summarized and reported within the time periods specified in Securities and
Exchange Commission rules and forms. There were no changes in IEC's internal
control over financial reporting during the first nine months of fiscal 2007 or
in other factors that materially affected or are reasonably likely to materially
affect our internal control over financial reporting.
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, 2006 and in other filings with the Securities and
Exchange Commission.
Page 13 of 14
PART II. OTHER INFORMATION
Item 1 -- Legal Proceedings
The information set forth in Note 4 of the Notes to Financial Statements
included in Part I -Item 1 of this Form 10-Q is incorporated by reference.
Item 1A - Risk Factors
There are no material changes to the Risk Factors described in Item 1A in
our Annual Report on Form 10-K for the fiscal year ended September 30, 2006.
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
Item 6 -- Exhibits
The following documents are filed as exhibits to this Report:
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: July 26, 2007 /s/ W. Barry Gilbert
----------------------------------------
W. Barry Gilbert
Chairman and
Chief Executive Officer
Dated: July 26, 2007 /s/ Brian H. Davis
----------------------------------------
Brian H. Davis
Chief Financial Officer and Controller
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